<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MACROVISION CORPORATION
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7829 77-0156161
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification
No.)
</TABLE>
1341 ORLEANS DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 743-8600
(Address and Telephone Number of Principal Executive Offices and Principal Place
of Business)
--------------------------
VICTOR A. VIEGAS
CHIEF FINANCIAL OFFICER
MACROVISION CORPORATION
1341 ORLEANS DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 743-8600
(Name, Address and Telephone Number of Agent For Service)
COPIES TO:
<TABLE>
<S> <C> <C>
LAIRD H. SIMONS III, ESQ. DAVID W. HERBST, ESQ. JEFFREY D. SAPER, ESQ.
KATHERINE TALLMAN SCHUDA, ESQ. AMY L. GILSON, ESQ. PATRICK J. SCHULTHEIS, ESQ.
ERIC D. FROTHINGHAM, ESQ. SANJIV S. DHAWAN, ESQ. JAN-MARC VAN DER SCHEE, ESQ.
FENWICK & WEST LLP WISE & SHEPARD LLP WILSON SONSINI GOODRICH & ROSATI,
TWO PALO ALTO SQUARE 3030 HANSEN WAY PROFESSIONAL CORPORATION
PALO ALTO, CALIFORNIA 94306 PALO ALTO, CALIFORNIA 94304 650 PAGE MILL ROAD
(415) 494-0600 (415) 856-1200 PALO ALTO, CA 94304
(415) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
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, 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>
AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value per share........... 2,645,000 $12.00 $31,740,000 $9,618.18
</TABLE>
(1) Includes 345,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(a) solely for the purpose of calculating the
amount of 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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.
<PAGE>
SUBJECT TO COMPLETION DATED JANUARY 7, 1997
2,300,000 SHARES
[LOGO]
COMMON STOCK
OF THE 2,300,000 SHARES OF COMMON STOCK OFFERED HEREBY, 1,450,000 SHARES ARE
BEING SOLD BY MACROVISION CORPORATION ("MACROVISION" OR THE "COMPANY") AND
850,000 SHARES ARE BEING SOLD BY THE SELLING STOCKHOLDERS. THE COMPANY WILL NOT
RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE SELLING STOCKHOLDERS.
SEE "PRINCIPAL AND SELLING STOCKHOLDERS."
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK
OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE
OF THE COMMON STOCK WILL BE BETWEEN $ AND $ PER SHARE. SEE "UNDERWRITING"
FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL
PUBLIC OFFERING PRICE. THE COMPANY HAS APPLIED TO HAVE THE COMMON STOCK APPROVED
FOR QUOTATION ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "MVSN."
SEE "RISK FACTORS" COMMENCING ON PAGE 5 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
-----------------
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>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE................... $ $ $ $
TOTAL (3)................... $ $ $ $
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</TABLE>
(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.
(2) BEFORE DEDUCTING OFFERING EXPENSES PAYABLE BY THE COMPANY, ESTIMATED AT
$ .
(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP
TO 345,000 ADDITIONAL SHARES OF COMMON STOCK SOLELY TO COVER
OVER-ALLOTMENTS, IF ANY. IF THE UNDERWRITERS EXERCISE THIS OPTION IN FULL,
THE PRICE TO PUBLIC WILL TOTAL $ , THE UNDERWRITING DISCOUNT WILL
TOTAL $ AND THE PROCEEDS TO COMPANY WILL TOTAL $ . SEE
"UNDERWRITING."
THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED
HEREIN, SUBJECT TO RECEIPT AND ACCEPTANCE BY THEM AND SUBJECT TO THEIR RIGHT TO
REJECT ANY ORDERS IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE
CERTIFICATES REPRESENTING SUCH SHARES WILL BE MADE AGAINST PAYMENT THEREFOR AT
THE OFFICE OF MONTGOMERY SECURITIES ON OR ABOUT , 1997.
-------------------
MONTGOMERY SECURITIES
HAMBRECHT & QUIST
COWEN & COMPANY
, 1997
<PAGE>
HOLLYWOOD KNOWS A GREAT PICTURE WHEN THEY SEE ONE.
[PICTURE OF TELEVISION SCREEN WITH A VERY POOR QUALITY PICTURE]
[LOGO]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to distribute to its stockholders annual reports
containing consolidated financial statements audited by its independent auditors
and will make available copies of quarterly reports for the first three quarters
of each fiscal year containing unaudited consolidated financial information.
2
<PAGE>
AND MACROVISION, EXPERTS IN VIDEO SECURITY,
KNOWS HOW TO PROVIDE IT.
[SAME PICTURE AS PREVIOUS PAGE, OF A TELEVISION SCREEN
WITH A VERY POOR QUALITY PICTURE]
The above graphic represents the picture quality of an unauthorized recording of
a copy protected digital PPV program or Digital Versatile Disc
Macrovision Corporation develops and markets a range of technologies and
products, many of which are proprietary, that address the video security needs
of Hollywood studios and other video rights owners.
TYPES OF MACROVISION LICENSEES
<TABLE>
<S> <C>
- -Hollywood Studios -Direct Broadcast Satellite Operators
- -Independent Video Producers -Cable TV Multiple System Operators
- -Commercial Video Duplicators -Digital Set-Top Decoder Manufacturers
- -Telephone Companies
</TABLE>
The Company's two primary technologies are "Copy Protection" and "Video
Scrambling." In most applications, Macrovision licenses its technologies and
receives unit- or transaction-based royalties.
COPY PROTECTION
Designed to deter VCR owners from unauthorized COPYING of prerecorded or
electronically transmitted programming, Macrovision's copy protection
technologies provide security for a variety of media.
<TABLE>
<S> <C> <C> <C>
VIDEOCASSETTES DIGITALLY DELIVERED DIGITAL VERSATILE DISC [Bar graph showing
Over 1.5 billion cassettes PAY-PER- VIEW (PPV) (DVD) number of copy protected
worldwide have been copy Because PPV programs can be With the imminent video cassettes]
protected by Macrovision, easily copied, introduction of movies on 1992 189 million
the majority of which are Macrovision's copy DVDs, Macrovision's 1993 234 million
Hollywood releases. protection technology will technology will deter 1994 344 million
be essential to protect consumers from making high 1995 367 million
studios' home video, repeat quality videocassette 1996 401 million (est.)
PPV and pay TV revenues by copies. EVERY YEAR MORE AND MORE
deterring VCR owners from VIDEOCASSETTES ARE
making copies. PROTECTED BY MACROVISION'S
COPY PROTECTION TECHNOLOGY,
SIGNIFICANTLY REDUCING
UNAUTHORIZED CONSUMER
COPYING.
</TABLE>
VIDEO SCRAMBLING
Designed to prevent unauthorized VIEWING of an electronically transmitted movie
or program,
Macrovision's video scrambling technologies offer a variety of solutions in
different markets.
<TABLE>
<S> <C> <C> <C>
CABLE TV VIDEOCINEMAS SATELLITE TV NETWORKS LAW ENFORCEMENT/ GOVERNMENT
High security, low cost CineGuard-TM- scrambled StarShaker-TM- and VES-TM- VES-TM-TM- is a portable,
PhaseKrypt-Registered videocassettes can be products help secure video hand-held, point-to-point
Trademark- scrambling played only in programs transmitted via scrambling system for law
technology is licensed to CineGuard-licensed satellite or land-based enforcement and broadcast
emerging international pay theaters, thereby adding a networks for corporate, applications.
TV set-top decoder secure distribution channel educational or broadcast
manufacturers. as a complement to 35 mm television applications.
film in international
markets.
</TABLE>
[LOGO]
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. SEE "RISK FACTORS."
THE COMPANY
Macrovision designs, develops and markets video security technologies and
products that provide copy protection and video scrambling for motion pictures
and other proprietary video materials. The Company derives a substantial
majority of its net revenues from fees for the application of its copy
protection technology to deter unauthorized consumer copying of prerecorded
videocassettes of motion pictures and other copyrighted materials that are sold
or rented to consumers. The Company's technology has been used to copy protect
more than 1.5 billion videocassettes worldwide since 1985. The Company believes
that its video copy protection technologies are accepted as the DE FACTO
standard for consumer copy protection.
The Company has developed an enhanced version of its videocassette copy
protection technology for the digital Pay-Per-View ("PPV") networks that are
being developed and deployed by direct broadcast satellite and cable television
operators and the digital versatile disc ("DVD") format. The expected future
growth of digital PPV and DVD, coupled with the high picture quality of a copy
made from such formats and the relative ease of copying digital PPV and DVD
content, may increase the need for effective consumer copy protection in these
applications.
The Company has licensed its copy protection technology for digital PPV to
34 set-top decoder manufacturers and four digital PPV system operators (DIRECTV,
Galaxy Latin America, the Kirsch Group and Sky Latin America). The Company's
copy protection technology is embedded in substantially all of the approximately
three million digital set-top decoders currently in use in the United States,
Japan and a number of countries in Latin America. Currently one digital PPV
program provider in Japan has activated copy protection for digital PPV
programming.
In October 1996, a multi-industry technical working group comprised of
consumer electronics companies, personal computer hardware and software
companies and motion picture studios adopted a set of copy protection principles
that established prerequisites for commercial availability of DVD hardware and
media. The Company believes that its copy protection technology is currently the
only digital-to-analog copy protection solution that satisfies these principles.
To date, Matsushita Electric Industrial Co., Ltd., THOMSON Multimedia, S.A.,
Toshiba Corporation and four other consumer electronics companies have signed
agreements with the Company to incorporate the Company's DVD copy protection
technology in their DVD players.
The Company's video scrambling technologies prevent unauthorized viewing of
video programming. These technologies are licensed to manufacturers of analog
set-top decoders for sale to cable television system operators in developing
markets to enable cost-effective and secure transmission of video signals. The
Company has also developed products implementing video scrambling technologies
that serve growing niche markets, such as law enforcement and private networks.
Another application of the Company's video scrambling technology is the
Company's CineGuard program, a new theatrical exhibition alternative in which
motion pictures are recorded in a scrambled state on Super VHS videocassettes
and distributed primarily to small theaters in rural towns in international
markets.
The Company licenses its technologies primarily by means of a royalty-based
model. Copyright holders and videocassette duplicators typically license the
Company's videocassette copy protection technology for a per unit fee. Set-top
decoder manufacturers license the Company's copy protection technologies for an
up-front fee and a per unit hardware royalty. The Company's agreements with
digital PPV system operators entitle the Company to transaction-based royalty
payments at such time as copy protection for digital PPV programming is
activated. For the DVD market, the Company intends to implement a business model
using media-based royalties similar to that for its videocassette copy
protection business. Video scrambling technologies either are licensed or are
sold in hardware products and components.
The Company's objective is to maintain and enhance its position as a leading
provider of video security technologies and products by implementing a strategy
that includes the following key elements: (i) pursue a royalty-based licensing
model that results in a high margin, transaction-oriented business with
recurring revenues; (ii) leverage key customer relationships to broaden the use
of existing applications for the Company's technologies; (iii) increase market
penetration of the Company's copy protection business; (iv) develop new product
applications and technologies; and (v) aggressively pursue protection of the
Company's patents.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company......................... 1,450,000 shares
Common Stock offered by the Selling Stockholders............ 850,000 shares
Common Stock to be outstanding after this offering.......... 6,767,748 shares (1)
Use of proceeds............................................. For general corporate purposes,
including working capital. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol...................... MVSN
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ----------------------
1993 1994 1995 1996
--------- --------- --------- 1995 ---------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................................ $ 9,549 $ 13,330 $ 14,189 $ 9,991 $ 11,699
Operating income from continuing operations............. 1,571 2,804 2,183 1,239 1,649
Net income from continuing operations................... $ 665 $ 1,501 $ 1,056 $ 567 $ 823
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
Net income per share from continuing operations (2)..... $ 0.15 $ 0.10
--------- ---------
--------- ---------
Shares used in per share calculations (2)............... 4,162 4,388
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------
ACTUAL AS ADJUSTED (3)
--------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................ $ 2,064 $
Working capital...................................................................... 2,291
Total assets......................................................................... 11,658
Long-term obligations, less current portion.......................................... 322 322
Total stockholders' equity........................................................... 5,104
</TABLE>
- --------------------------
(1) Based on shares outstanding as of September 30, 1996. Does not include
709,756 shares of Common Stock issuable upon the exercise of options
outstanding as of such date at a weighted average exercise price of $2.71
per share. Also does not include 591,468 additional shares reserved for
future grants or issuances under the Company's stock option and stock
purchase plans. See "Capitalization," "Management--Employee Benefit Plans,"
"Management--Director Compensation" and Notes 5 and 10 of Notes to
Consolidated Financial Statements.
(2) For an explanation of the determination of the number of shares used in per
share calculations, see Note 1 of Notes to Consolidated Financial
Statements.
(3) Adjusted to reflect the sale of the 1,450,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price per share
of $ , after deducting the estimated underwriting discount and
offering expenses. See "Capitalization" and "Use of Proceeds."
--------------------------
EXCEPT AS SET FORTH IN THE CONSOLIDATED FINANCIAL STATEMENTS OR AS OTHERWISE
NOTED HEREIN, INFORMATION IN THIS PROSPECTUS: (I) ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION; (II) REFLECTS THE REINCORPORATION OF THE
COMPANY AS A DELAWARE CORPORATION AND A 1-FOR-1.8 REVERSE SPLIT OF THE COMPANY'S
COMMON STOCK, BOTH OF WHICH WILL OCCUR PRIOR TO THIS OFFERING; AND (III)
REFLECTS THE CONVERSION OF ALL OUTSTANDING SHARES OF PREFERRED STOCK INTO AN
AGGREGATE OF 1,376,432 SHARES OF COMMON STOCK, WHICH WILL OCCUR UPON THE CLOSING
OF THIS OFFERING.
4
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT").
THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS CONTEMPLATED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF FACTORS, INCLUDING, BUT
NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS
WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
FLUCTUATIONS IN FUTURE OPERATING RESULTS; SEASONALITY
The Company's operating results have fluctuated in the past, and are
expected to continue to fluctuate in the future, on an annual and quarterly
basis as a result of a number of factors. Such factors include, but are not
limited to, the timing of release of popular motion pictures on videocassettes
or digital versatile discs ("DVDs") or by digital pay-per-view ("PPV")
transmission, the degree of acceptance of the Company's copy protection
technologies by major motion picture studios, the mix of products sold and
technologies licensed, any change in product or license pricing, the seasonality
of revenues, changes in the Company's operating expenses, personnel changes, the
development of the Company's direct and indirect distribution channels, foreign
currency exchange rates and general economic conditions. The Company may choose
to reduce prices or increase spending in response to competition or new
technologies or elect to pursue new market opportunities. If new competitors,
technological advances in the industry or by existing or new competitors or
other competitive factors require the Company to invest significantly greater
resources in research and development or marketing efforts, the Company's future
operating results may be adversely affected. Because a high percentage of the
Company's operating expenses is fixed, a small variation in the timing of
recognition of revenues can cause significant variations in operating results
from period to period.
The Company has experienced significant seasonality in its business, and the
Company's financial condition and results of operations are likely to be
affected by seasonality in the future. The Company has typically experienced its
highest revenues in the fourth quarter of each calendar year followed by lower
revenues and operating income in the first quarter, and at times in subsequent
quarters, of the next year. The Company believes that this trend has been
principally due to the tendency of certain of the Company's customers to release
their more popular motion pictures on videocassettes during the Christmas
shopping season. In addition, revenues have tended to be lower in the summer
months, particularly in Europe.
Based upon the factors enumerated above, the Company believes that its
quarterly and annual revenues, expenses and operating results could vary
significantly in the future and that period-to-period comparisons should not be
relied upon as indications of future performance. There can be no assurance that
the Company will be able to grow in future periods or that it will be able to
sustain its level of net revenues or its rate of revenue growth on a quarterly
or annual basis. It is likely that, in some future quarter, the Company's
operating results will be below the expectations of stock market analysts and
investors. In such event, the price of the Company's Common Stock could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results of Operations."
DEPENDENCE ON VIDEOCASSETTE COPY PROTECTION TECHNOLOGY AND ADVOCACY BY MAJOR
MOTION PICTURE STUDIOS
The Company currently derives a substantial majority of its net revenues and
operating income from fees for the application of its patented video copy
protection technology to prerecorded videocassettes of motion pictures and other
copyrighted materials that are sold or rented to consumers. Such fees
represented 95.5%, 86.9%, 87.2% and 77.9% of the Company's net revenues during
1993, 1994, 1995 and
5
<PAGE>
the first nine months of 1996, respectively. The Company expects these fees to
account for a majority of the Company's net revenues and operating income at
least through 1997. This portion of the Company's business has not grown
significantly in recent years, and there can be no assurance that revenues from
such fees will grow significantly or at all. Any future growth in revenues from
such fees will depend on the use of the Company's copy protection technology on
a larger number of videocassettes. In order to increase or maintain its market
penetration, the Company must continue to persuade rights owners that the cost
of licensing the technology is outweighed by the increase in revenues that the
rights owners and retailers would achieve as a result of using copy protection,
such as revenues from additional sales of the copy protected material and/or
subsequent revenues from other venues. In this regard, the Company's copy
protection technologies are intended to deter consumer copying and are not
effective against professional duplication and video processing equipment.
In the event that the major motion picture studios or other customers of the
Company's copy protection technology were to determine that the benefits of
using the Company's technology did not justify the cost of licensing the
technology, demand for the Company's technology would decline. Any factor that
results in a decline in demand for the Company's copy protection technology,
including a change of copy protection policy by the major motion picture studios
or a decline in sales of prerecorded videocassettes that are encoded with the
Company's copy protection technology, would have a material adverse effect on
the Company's business, financial condition and results of operations. Moreover,
the ability of the Company to expand its markets to include additional home
entertainment venues such as digital PPV and DVDs will depend in large part on
the support of the major motion picture studios in advocating the incorporation
of copy protection into the hardware and network infrastructure required to
distribute such video programming. In the event that the motion picture industry
withdraws its support for the Company's copy protection technologies or
otherwise determines not to copy protect a significant portion of prerecorded
video on videocassettes or DVD or digital PPV programs, the Company's business,
financial condition and results of operations would be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business--Industry Background" and
"Business--Macrovision's Business, Licensed Technologies and Products."
DEPENDENCE ON KEY CUSTOMERS
The Company's customer base is highly concentrated among a limited number of
customers, primarily due to the fact that the Motion Picture Association of
America ("MPAA") studios dominate the motion picture industry. Historically, the
Company has derived a substantial majority of its net revenues from relatively
few customers. Revenues from the Company's three largest customers, Buena Vista
Home Video, Inc. ("Disney"), Twentieth Century Fox Home Entertainment, Inc.
("Fox") and Universal Studios Home Video ("Universal"), represented 44%, 45%,
44% and 36% of the Company's net revenues during 1993, 1994, 1995 and the first
nine months of 1996, respectively. Each of these customers is a home video
supplier that uses the Company's copy protection technology and accounted for
more than 10% of the Company's net revenues in 1994, 1995 and the first nine
months of 1996. Two of these customers individually accounted for more than 10%
of the Company's net revenues in 1993. The Company expects that revenues from a
limited number of customers will continue to account for a substantial portion
of the Company's net revenues for the foreseeable future. The Company's
contracts with Fox and Universal expired in December 1996 and have been extended
through January 1997. The Company's contract with Disney will expire in February
1997. There can be no assurance that any of these contracts will be renewed, or
new contracts will be entered into, on terms favorable to the Company, or at
all. The failure of any of these customers to renew their contracts or enter
into new contracts with the Company on terms that are favorable to the Company
would likely result in a substantial decline in the Company's net revenues and
operating income, and would have a material adverse effect on the Company's
business, financial condition and results of operations. Most of the Company's
other videocassette copy protection customers license the Company's technology
on a title-by-title basis. There can be no assurance that the Company's current
customers will continue to use the Company's technology at current or increased
levels, if at all, or that the Company will be able to obtain new customers. The
loss of, or any significant reduction in revenues from, a key customer would
have a material adverse effect on the Company's business, financial condition
and
6
<PAGE>
results of operations. See "Business--Macrovision's Business, Licensed
Technologies and Products," "Business--Customers" and Note 9 of Notes to
Consolidated Financial Statements.
EVOLVING MARKET FOR DVD AND DIGITAL PPV COPY PROTECTION
The Company's future growth and operating results will depend to a large
extent on the successful introduction, marketing and commercial viability of
DVDs and digital PPV programming that utilize the Company's copy protection
technologies. A number of factors will affect the Company's ability to derive
revenues from DVD and digital PPV copy protection. These factors include the
cost and effectiveness of the Company's copy protection technology in its
various applications, the development of alternative technologies or standards
for DVD copy protection, the ability of the Company to obtain commitments from
the motion picture studios to require copy protection on DVD media and digital
PPV transmissions and the relative ease of copying, as well as the quality of
the copies of, unprotected video materials distributed in new digital formats.
Because of their early stages of development, demand for and market acceptance
of DVD and digital PPV, as well as demand for associated copy protection, are
subject to a high level of uncertainty. Much of the DVD and digital PPV
technology and infrastructure is unproven, and it is difficult to predict with
any assurance whether, or to what extent, these evolving markets will grow. In
this regard, the Company's future growth would be adversely affected if DVD
players and digital PPV set-top decoders that do not include the Company's copy
protection components achieve market acceptance.
While the Company's copy protection capability is embedded in approximately
three million digital set-top decoders manufactured by certain of the leading
set-top decoder manufacturers, only one cable or satellite subscription
television ("Pay TV") operator, a program provider in Japan, has activated copy
protection for digital PPV programming. There can be no assurance that any of
the MPAA studios will require copy protection for any of their PPV motion
pictures. Moreover, consumers may react negatively to copy protected PPV
programming because, to date, they have routinely copied for later viewing
analog cable and satellite-delivered Pay TV and PPV programs, as well as free
broadcast programming. In addition, there can be no assurance that certain
television sets or combinations of VCRs and television sets will not exhibit
impaired pictures while displaying a copy protected DVD or digital PPV program.
If there is consumer dissatisfaction that cannot be managed, or if there are
technical compatibility problems, the Company's business, financial condition
and results of operations would be materially adversely affected. If the market
for DVD or digital PPV copy protection fails to develop or develops more slowly
than expected, or if the Company's solution does not achieve or sustain market
acceptance, the Company's business, financial condition and results of
operations would be materially adversely affected. See "Business--Macrovision's
Business, Licensed Technologies and Products."
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's success is heavily dependent upon its proprietary
technologies. The Company relies primarily on a combination of patent,
trademark, copyright and trade secret laws, nondisclosure and other contractual
provisions, and technical measures to protect its intellectual property rights.
The Company holds 29 United States patents and has 33 United States patent
applications pending, of which seven are allowed. In addition, the Company has
105 foreign patents and 124 foreign patent applications pending. There can be no
assurance that any patent, trademark or copyright owned by the Company will not
be challenged and invalidated or circumvented, that patents will issue from any
of the Company's pending or future patent applications or that any claims in
issued patents or pending patent applications will be of sufficient scope or
strength or be issued in all countries where the Company's products can be sold
or its technologies can be licensed to provide meaningful protection or any
commercial advantage to the Company. There can be no assurance that the
expiration of any of the Company's patents will not have a material adverse
effect on the Company's business, financial condition and results of operations.
Further, there can be no assurance that others will not develop technologies
that are similar or superior to the Company's technologies, duplicate the
Company's technologies or design around the patents owned by the Company.
Effective intellectual property protection may be unavailable or limited in
certain foreign countries. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may
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attempt to copy or otherwise use aspects of the Company's processes and devices
that the Company regards as proprietary. Policing unauthorized use of the
Company's proprietary information is difficult, and there can be no assurance
that the steps taken by the Company will prevent misappropriation of its
technologies. In the event that the Company's intellectual property protection
is insufficient to protect the Company's intellectual property rights, the
Company could face increased competition in the market for its products and
technologies, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
From time to time, the Company has received claims from third parties that
the Company's technologies and products infringe the intellectual property
rights of such third parties, and the Company may receive similar claims in the
future. Any such claims, with or without merit, could be time consuming to
defend, result in costly litigation, cause product shipment delays or require
the Company to cease utilizing the infringing technology unless it can enter
into royalty or licensing agreements. Such royalty or licensing agreements might
not be available on terms acceptable to the Company, or at all, which could have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company has five United States and 15 foreign patents
covering a number of processes and devices that unauthorized parties could use
to circumvent the Company's copy protection technologies. The Company uses these
patents to limit the proliferation of devices intended to circumvent the
Company's copy protection technologies. The Company has initiated a number of
patent infringement disputes against manufacturers and distributors of such
devices. No lawsuits of this type are pending currently, but litigation may be
necessary in the future to limit the sale of defeat technologies, to enforce the
Company's patents and other intellectual property rights, to protect the
Company's trade secrets, to determine the validity and scope of the proprietary
rights of others or to defend against claims of infringement or invalidity.
There can be no assurance that any such litigation will be successful. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, financial
condition and results of operations, whether or not such litigation is
determined adversely to the Company. In the event of an adverse ruling in any
such litigation, the Company may be required to pay substantial damages,
discontinue the use and sale of infringing products, expend significant
resources to develop non-infringing technology or obtain licenses to infringed
technology. The failure of the Company to develop or license a substitute
technology could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, such an adverse
ruling could result in the increased proliferation of devices that defeat the
Company's copy protection technology, which could result in a decline in demand
for the Company's technologies. See "--Risks of Defeat Technologies" and
"Business--Research and Development" and "Business--Intellectual Property
Rights."
RAPID TECHNOLOGICAL CHANGE
The video security industry in which the Company competes, and in which its
technologies and products are utilized, is characterized by rapid technological
change, frequent product introductions and enhancements, changes in customer
demands and evolving industry standards. The emergence of new industry standards
and the introduction of new technologies or products embodying new technologies
can render existing technologies or products obsolete and unmarketable. For
example, new industry standards for VCRs or television sets could adversely
affect the effectiveness or transparency of the Company's copy protection
technology. The Company's videocassette copy protection technology exploits the
automatic gain control ("AGC") circuit in VHS VCRs. While most VCR manufacturers
use a standard AGC circuit that responds to the Company's copy protection
process, there can be no assurance that VCR manufacturers will not use
alternative AGC circuits that do not respond to the Company's copy protection
technology, thereby lessening the effectiveness of the Company's consumer copy
protection solution over time as new VCRs are sold into the market. Moreover,
there can be no assurance that television manufacturers will continue to design
television sets that are transparent to the Company's copy protection
technologies when they display original, copy protected videocassettes, DVDs and
digital PPV programming. The success of the Company's PhaseKrypt video
scrambling technology will depend upon the growth of analog cable Pay TV
networks in the Pacific Rim and other developing countries and the ability of
the Company's licensees to sell into those markets. The development of lower
cost digital video scrambling systems could result in a
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transition from analog to digital scrambling systems in the developing cable Pay
TV markets and a reduction in demand for the Company's PhaseKrypt video
scrambling technology.
The Company's future success will depend in large part on its ability to
enhance its current technologies and products in a timely, cost-effective manner
and to develop new technologies and products that meet changing market
conditions, which include emerging industry standards, changing customer
demands, new competitive product offerings and changing technology. There can be
no assurance that the Company will be successful in developing and marketing, on
a timely and cost-effective basis or at all, fully functional and integrated
product enhancements or new technologies or products that respond to
technological change, updates or enhancements to other consumer electronics
products, changes in customer requirements or evolving industry standards; that
the Company will not experience difficulties that delay or prevent the
successful development, introduction and license or sale of such enhancements,
technologies or products; or that any such enhancements, technologies or
products will adequately meet the requirements of the marketplace and achieve
market acceptance. Any failure by the Company to anticipate or to respond
adequately to changing market conditions, or any significant delays in
technology or product development or introduction, could cause customers to
delay or decide against licenses or purchases of the Company's technologies or
products and would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Research and
Development" and "Business--Legislative and Technology Initiatives."
RISKS OF DEFEAT TECHNOLOGIES
Attempts by third parties to defeat the Company's copy protection
technologies have been and are expected to be a persistent problem. To
anticipate such attempts, the Company has developed and patented a number of
processes and devices that could be used by unauthorized parties to circumvent
its copy protection technologies. The Company has then attempted to use these
patents as barriers to the manufacture and sale of such devices by others.
Notwithstanding the Company's patent position, a number of devices have been
available, and currently are available, that defeat copy protection. Moreover,
the Company's copy protection technologies are not effective against
professional duplication and video processing equipment. There can be no
assurance that third parties will not be able to develop defeat technologies
that do not infringe the Company's patents or that the Company will be able to
obtain patents on defeat technologies developed in the future. A number of
factors could cause copyright holders to choose not to use the Company's copy
protection technology, including a perception that the inability of the
Company's technology to deter professional pirates renders the Company's
technology less useful, the commercial availability of products that defeat the
Company's copy protection technology, or any significant reduction in the
effectiveness of the Company's copy protection technology to deter consumer
copying. Any reduction in demand for the Company's products could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "--Dependence on Proprietary Technology,"
"Business--Technology," "Business--Research and Development" and
"Business--Intellectual Property Rights."
DEPENDENCE ON SUPPLIERS AND THIRD-PARTY MANUFACTURERS
The Company depends upon third-party manufacturers and suppliers for
components, subassemblies and printed circuit boards used in its VES products,
StarShaker products, PhaseKrypt encoders, PhaseKrypt decoder components and
videocassette copy protection processors. The Company's product designs are
proprietary but generally incorporate industry-standard hardware components that
are obtainable from multiple sources. The Company's ability to deliver its
products in a timely manner depends upon the availability of quality components
and subassemblies used in these products and, in part, on the ability of
subcontractors to manufacture, assemble and deliver certain items in a timely
and satisfactory manner. The Company obtains certain electronic components and
subassemblies from single, or a limited number of, sources. For example, Atmel
Corporation is currently the Company's sole source of integrated circuits for
the Company's PhaseKrypt decoders and BARCO N.V. is currently the sole source of
integrated decoders for CineGuard video projectors. The reliance on third-party
manufacturers and sole or limited
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suppliers involves a number of risks, including a potential inability to obtain
an adequate supply of required components, subassemblies and printed circuit
boards and reduced control over pricing, quality and timely delivery of
components, subassemblies and printed circuit boards. A significant interruption
in the delivery of any such items or any other circumstance that would require
the Company to seek alternative sources of supply could result in the inability
of the Company to deliver certain of its products on a timely basis, which in
turn could result in a deterioration of the Company's customer relationships and
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Manufacturing."
NEED TO ESTABLISH AND MAINTAIN LICENSING RELATIONSHIPS
The Company's future success will depend in part upon its ability to
establish and maintain licensing relationships with companies in related
business fields, including videocassette duplicators, international distributors
of videocassettes, DVD authoring houses and replicators, semiconductor and
equipment manufacturers, operators of digital PPV systems, consumer electronics
hardware manufacturers and video cinema exhibitors. The Company believes that
these current and future relationships can allow the Company greater access to
manufacturing, sales and distribution resources. However, the amount and timing
of resources to be devoted to these activities by such other companies are not
within the Company's control. There can be no assurance that the Company will be
able to maintain its existing relationships or enter into beneficial
relationships in the future, that other parties will perform their obligations
as expected or that the Company's reliance on others for the development,
manufacturing and distribution of its technologies and products will not result
in unforeseen problems. Substantially all of the Company's license agreements
are non-exclusive, and therefore such licensees are free to enter into similar
agreements with third parties, including the Company's current or potential
competitors. There can be no assurance that the Company's licensees will not
develop or pursue alternative technologies either on their own or in
collaboration with others, including the Company's competitors, as a means of
developing or marketing products targeted by the collaborative programs and by
the Company's products. The failure of any of the Company's current or future
collaboration efforts could have a material adverse effect on the Company's
ability to introduce new products or applications and therefore could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Macrovision's Business, Licensed
Technologies and Products" and "Business--Customers."
RISKS ASSOCIATED WITH CINEGUARD
The Company's CineGuard program has only recently been launched and is
subject to a high degree of risk and uncertainty. The success of CineGuard will
depend in part on the ability of the Company's licensees to launch and operate
video cinemas to supplement film theaters. The exhibition infrastructure
supporting CineGuard must be built and developed. The Company does not have
written contractual commitments from the motion picture studios to provide films
for exhibition in CineGuard theaters. There can be no assurance that the studios
will make major motion pictures available on scrambled videocassettes for
exhibition in CineGuard theaters at the same time that film prints are available
in other theaters, or at all. It is difficult to predict with any assurance
whether CineGuard will prove to be a viable business, or whether demand for
CineGuard licenses will increase in the future. In addition, the market is new
and evolving and it is difficult to predict the future growth of this market.
There can be no assurance that video cinema markets will be sustainable or
develop as the Company hopes. If markets fail to develop or develop more slowly
than expected, or if CineGuard does not achieve or sustain market acceptance,
the Company's business, financial condition and results of operations would be
materially adversely affected. See "Business--Macrovision's Business, Licensed
Technologies and Products."
COMPETITION
The Company believes that it has had no significant videocassette copy
protection competitor for the last five years other than companies that have
occasionally developed hardware based on the Company's technology in foreign
countries where the Company does not have patents issued. It is possible,
however,
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that a competitive copy protection technology could be developed in the future.
For example, the Company's customers could attempt to promote competition by
supporting the development of alternative copy protection technologies or
solutions, including solutions that deter professional duplication. Increased
competition would be likely to result in price reductions and loss of market
share, either of which could materially adversely affect the Company's business,
financial condition and results of operations.
The market for video scrambling products is highly competitive. The Company,
as a recent entrant into these markets, competes directly or through licensed
manufacturers with many companies, including Scientific-Atlanta, Inc., General
Instrument Corporation, Leitch Technology International, Inc., Zenith
Electronics Corporation and Toshiba Corporation. These companies have
substantially greater name recognition, larger installed customer bases and
market share and significantly greater financial, technical, marketing and other
resources than the Company and its licensees, many of which are manufacturing
and selling addressable set-top decoders for the first time. There can be no
assurance that the Company and its licensees will be able to compete
successfully in the video scrambling systems markets, that the Company will be
able to make technological advances necessary to improve or even maintain its
competitive position or that the Company's products will achieve market
acceptance. In addition, there can be no assurance that technological changes or
development efforts by the Company's competitors will not render the Company's
video scrambling products obsolete or uncompetitive.
The Company is not aware of any technology that competes directly with
CineGuard. Competition for CineGuard may come from film cinemas located near
CineGuard theaters. CineGuard theaters could be at a competitive disadvantage
compared to film, because film typically has better picture quality and a larger
projected image than video. Motion picture distributors might also give
programming priority to competing film cinemas or withdraw programming entirely
from CineGuard theaters in competition with film cinemas. Additionally,
competitors might attempt to develop or acquire competing technologies that
could provide the necessary security for video cinema applications. Potential
competitors include large multinational video projector manufacturers or other
consumer electronic products companies. In particular, several large
corporations have announced digital video projectors that could replace film in
cinemas. This development or any other development that presents a
cost-effective, secure and high quality alternative to film for cinema
projection would compete against CineGuard. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not
materially adversely affect the Company's business, financial condition and
results of operations. See "Business--Competition."
RISKS ASSOCIATED WITH INTERNATIONAL AND EXPORT SALES
In 1993, 1994, 1995 and the first nine months of 1996, international and
export sales together represented 28.9%, 38.9%, 33.2% and 36.8%, respectively,
of the Company's net revenues. The Company expects that such sales will continue
to represent a substantial portion of its net revenues for the foreseeable
future. The Company's future growth will depend to a large extent on worldwide
deployment of addressable analog cable television systems, as well as digital
PPV programming, DVDs and CineGuard. To the extent that foreign governments
impose restrictions on importation of programming, technology or components from
the United States, the requirement for copy protection and video scrambling in
these markets would diminish. Any limitation on the growth of these markets or
the Company's ability to sell its products or license its technologies into
these markets would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the laws of certain
foreign countries may not protect the Company's intellectual property rights to
the same extent as do the laws of the United States, which increases the risk of
unauthorized use of the Company's technologies and the ready availability or use
of defeat technologies. Such laws also may not be conducive to copyright
protection of video materials and digital media, which reduces the need for the
Company's copy protection and video scrambling technologies.
Due to its reliance on international and export sales, the Company is
subject to the risks of conducting business internationally, including foreign
government regulation and general geopolitical risks such as
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political and economic instability, potential hostilities and changes in
diplomatic and trade relationships. International and export sales are subject
to other risks, such as changes in, or imposition of, regulatory requirements,
tariffs or taxes and other trade barriers and restrictions, foreign government
regulations, fluctuations in currency exchange rates, interpretations or
enforceability of local patent or other intellectual property laws, longer
payment cycles, difficulty in collecting accounts receivable, potentially
adverse tax consequences, the burdens of complying with a variety of foreign
laws, difficulty in staffing and managing foreign operations and political and
economic instability. For example, under the United States Export Administration
Act of 1979, as amended, and regulations promulgated thereunder, encryption
algorithms such as those used in the Company's video scrambling technologies are
classified as munitions and subject to stringent export controls. Any changes to
the statute or the regulations with respect to export of encryption technologies
could require the Company to redesign its products or technologies or prevent
the Company from selling its products and licensing its technologies
internationally. While international and export sales are typically denominated
in United States dollars, fluctuations in currency exchange rates could cause
the Company's products to become relatively more expensive to customers in a
particular country, leading to a reduction in sales or profitability in that
country. There can be no assurance that the Company's future results of
operations will not be materially adversely affected by currency fluctuations.
There can be no assurance that foreign markets will continue to develop or that
the Company will receive additional orders to supply its products for use in
foreign transmission systems. The Company's business and operating results could
be materially adversely affected if foreign markets do not continue to develop,
or if the Company does not receive additional orders to supply its technologies
or products for use in foreign prerecorded video, PPV and Pay TV networks and
other applications requiring the Company's video security solutions. See
"Business--Sales, Marketing and Customer Support" and Note 9 of Notes to
Consolidated Financial Statements.
MANAGEMENT OF GROWTH
The growth of the Company's business has placed, and is expected to continue
to place, significant demands on the Company's personnel, management and other
resources. The Company's future results of operations will depend in part on the
ability of its officers and other key employees to continue to implement and
expand its operational, customer support and financial control systems and to
expand, train and manage its employee base. In order to manage its future
growth, if any, successfully, the Company will be required to hire additional
personnel and to augment its existing financial and management systems or to
implement new such systems. There can be no assurance that management will be
able to augment or to implement such systems efficiently or on a timely basis,
and the failure to do so could have a material adverse effect on the Company's
business, financial condition or results of operations. 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, financial condition or results of operations.
DEPENDENCE ON KEY PERSONNEL
Because of the specialized nature of the Company's business, the Company's
future performance is highly dependent upon the continued service of members of
the Company's senior management and other key research and development and sales
and marketing personnel. The loss of any of such persons could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company does not have employment contracts for a fixed term with
any of its employees in the United States. The Company believes that its future
success will depend upon its continuing ability to identify, attract, train and
retain other highly skilled managerial, technical, sales and marketing
personnel. Hiring for such personnel is competitive. There can be no assurance
that the Company will be able to continue to attract, assimilate and retain the
qualified personnel necessary for the development of its business. The failure
to recruit additional key personnel in a timely manner, or the failure to retain
new or current personnel, would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Employees" and "Management."
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CONTROL BY PRINCIPAL STOCKHOLDERS, OFFICERS AND DIRECTORS
Immediately following this offering, the Company's principal stockholders,
officers, directors and their affiliates will, in the aggregate, beneficially
own approximately 54.9% of the Company's outstanding Common Stock (52.3% if the
Underwriters' over-allotment option is exercised in full). As a result, such
persons, acting together, will have the ability to control the vote on all
matters submitted to the stockholders of the Company for approval (including
election of directors and any merger, consolidation or sale of all or
substantially all of the Company's assets) and to control the management and
affairs of the Company. Accordingly, such concentration of ownership may have
the effect of delaying, deferring or preventing a change in control of the
Company, impede a merger, consolidation, takeover or other business combination
involving the Company or discourage a potential acquirer from making a tender
offer or otherwise attempting to obtain control of the Company. See "Management"
and "Principal and Selling Stockholders."
MANAGEMENT'S DISCRETION OVER PROCEEDS OF THE OFFERING
The Company expects to use the net proceeds of this offering, over time, for
general corporate purposes, including working capital. However, the Company has
no current specific plans for the net proceeds of this offering. As a result,
the Company's management will have the discretion to allocate the net proceeds
to uses that stockholders may not deem desirable. There can be no assurance that
the net proceeds can or will be invested to yield a significant return. See "Use
of Proceeds."
LITIGATION RISK
In October 1995, Joseph Swyt, a former officer and director of the Company,
filed suit against the Company in the Superior Court of the State of California
alleging monetary damages suffered as a result of alleged fraud,
misrepresentation and other malfeasance in connection with the Company's grant
of stock options to him. As a result of motions filed by the Company, in
September 1996 the California Court of Appeal ordered this matter to binding
arbitration in accordance with a written agreement between the Company and Mr.
Swyt. The arbitration agreement contains limitations on the remedies available
to Mr. Swyt and expressly precludes punitive damages. The Company believes that
the case is without merit and intends to contest it vigorously. However, a
decision against the Company could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business-- Legal Proceedings" and Note 8 of Notes to Consolidated Financial
Statements.
EFFECT OF ANTI-TAKEOVER PROVISIONS
Immediately after the closing of this offering, the Company's Board of
Directors will have the authority to issue up to 5,000,000 shares of Preferred
Stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock may delay, defer or prevent a change in control of the Company. The
Company has no present plans to issue shares of Preferred Stock; however, in the
future the Company plans to consider the adoption of a stockholder rights plan
in order to protect the Company's stockholders from coercive or abusive takeover
tactics and to afford the Company's Board more negotiating leverage in dealing
with potential acquirors. Additionally, the Company's charter documents contain
a provision eliminating the ability of the Company's stockholders to take action
by written consent effective upon the closing of this offering. This provision
is designed to reduce the vulnerability of the Company to an unsolicited
acquisition proposal, to maintain independent ownership and control of the
Company's copy protection technologies and to render the use of stockholder
written consent unavailable as a tactic in a proxy fight. However, such
provision could have the effect of discouraging others from making tender offers
for the Company's shares, thereby inhibiting increases in the market price of
the Company's shares that could result from actual or rumored takeover attempts.
Such provision also may have the effect of preventing
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changes in the management of the Company. Further, the Company's Bylaws limit
the ability of stockholders of the Company to raise matters at a meeting of
stockholders without giving advance notice thereof. In addition, Section 203 of
the Delaware General Corporation Law, to which the Company is subject, restricts
certain business combinations with any "interested stockholder" as defined by
such statute. The statute may delay, defer or prevent a change in control of the
Company. See "Description of Capital Stock-- Change of Control Provisions" and
"Description of Capital Stock--Stockholder Rights Plan."
Pursuant to the terms of a Copy Protection Technology Agreement (the
"Technology Agreement") between the Company and Victor Company of Japan, Limited
("JVC"), the Company has agreed to continue to license its copy protection
technologies to third parties in the event of the acquisition of the Company by
a party other than JVC. Further, the Company has granted to JVC the right to
sublicense the Company's copy protection technologies in the event that the
Company fails to make its copy protection technologies generally available for
licensing to third parties following an acquisition of the Company. The
Technology Agreement could have the effect of making the Company less attractive
to third parties as an acquisition candidate. See "Certain
Transactions--Transactions with Pacific Media Development, Inc. and Victor
Company of Japan, Limited."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Company's Common Stock (including shares
issued upon the exercise of outstanding options) in the public market or the
prospect of such sales could adversely affect the market price of the Company's
Common Stock. Such sales also might make it more difficult for the Company to
sell equity or equity-related securities in the future at a time and price that
the Company deems appropriate. In addition to the 2,300,000 shares of Common
Stock offered hereby (assuming no exercise of the Underwriters' over-allotment
option), as of the effective date of the Registration Statement for this
offering (the "Effective Date"), there will be approximately 4,467,748 shares of
Common Stock outstanding, all of which are restricted shares ("Restricted
Shares") under the Securities Act. As of the Effective Date, 161,239 Restricted
Shares will be eligible for immediate sale in the public market in addition to
the shares offered hereby. Approximately 177 additional Restricted Shares will
be eligible for sale in the public market pursuant to Rule 701 beginning 90 days
after the Effective Date. A further 4,225,364 Restricted Shares will be
available for sale in the public market following the expiration of 180-day
lock-up agreements with the Representatives of the Underwriters. Montgomery
Securities may, in its sole discretion and at any time without notice, release
all or any portion of the securities subject to lock-up agreements. The
remaining 194,444 shares held by existing stockholders will become eligible for
sale from time to time in the future under Rule 144. In addition, beginning six
months after the Effective Date, the holders of 2,275,932 Restricted Shares will
be entitled to certain rights with respect to registration of such shares for
sale in the public market.
Upon the effectiveness of this offering or shortly thereafter, the Company
intends to register approximately 1,301,224 shares of Common Stock reserved for
issuance under its Stock Option Plan, its 1996 Equity Incentive Plan, its 1996
Directors Stock Option Plan and its 1996 Employee Stock Purchase Plan. As of
September 30, 1996, options to purchase a total of 709,756 shares of the
Company's Common Stock were outstanding (although 695,442 of the shares issuable
upon exercise of such options will be subject to lock-up restrictions on sale
for 180 days after the Effective Date) and 591,468 shares of Common Stock were
reserved for future issuance under the Company's 1996 Equity Incentive Plan,
1996 Directors Stock Option Plan and 1996 Employee Stock Purchase Plan. See
"Management--Employee Benefit Plans," "Description of Capital
Stock--Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting."
NO PRIOR MARKET FOR COMMON STOCK
Prior to this offering, there has been no public market for the Company's
Common Stock. The initial public offering price will be determined through
negotiations among the Company, the Selling Stockholders and the Representatives
of the Underwriters. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. There can be no
assurance that an active public
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market will develop or be sustained after this offering or that the market price
of the Common Stock will not decline below the public offering price. The
Company intends to add two independent directors to the Board of Directors
within 60 days after this offering. In the event that the Company fails to
appoint such directors, the Nasdaq National Market could terminate the listing
of the Company's Common Stock on the Nasdaq National Market, which would have a
material adverse effect on the liquidity and trading price of the Common Stock.
See "Management."
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock is likely to be highly
volatile and could be significantly affected by factors such as actual or
anticipated fluctuations in the Company's operating results, announcements of
technical innovations, new products or new contracts by the Company, its
competitors or their customers, governmental regulatory action, developments
with respect to patents or proprietary rights, changes in financial estimates by
securities analysts, general market conditions and other factors, certain of
which could be unrelated to, or outside the control of, the Company. In
addition, announcements by the MPAA or its members, satellite television
operators, cable television operators, government agencies or others regarding
motion picture distribution, business combinations or other developments could
cause the market price of the Company's Common Stock to fluctuate substantially.
The stock market has from time to time experienced significant price and volume
fluctuations that have particularly affected the market prices for the common
stocks of technology companies and that often have been unrelated or
disproportionate to the operating performance of such companies. Further, the
trading prices of many technology companies' stocks are at or near historical
highs and reflect price/earnings ratios substantially above historical levels.
There can be no assurance that these trading prices and price/earnings ratios
will be sustained. In the past, following periods of volatility in the market
price of a company's securities, securities class action litigation often has
been initiated against such company. There can be no assurance that such
litigation will not occur in the future with respect to the Company. Such
litigation, if instituted, could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse effect
on the Company's business, financial condition and results of operations. Any
settlement or adverse determination in such litigation could also subject the
Company to significant liability, which could have a material adverse effect on
the Company's business, financial condition and results of operations. These
market price fluctuations, as well as general economic, political and market
conditions such as recessions or international currency fluctuations, may
adversely affect the market price of the Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Common Stock in this offering will suffer immediate and
substantial dilution of $ per share in the net tangible book value per
share of the Common Stock from the initial public offering price, at an assumed
initial public offering price of $ per share and after deducting the
estimated underwriting discount and offering expenses. To the extent that
outstanding options to purchase the Company's Common Stock are exercised, there
will be further dilution. See "Dilution."
15
<PAGE>
THE COMPANY
The Company was incorporated in California in January 1983. It operated as a
corporation until 1985 and as a limited partnership from 1985 until its
incorporation as Macrovision Corporation in 1987. The Company will reincorporate
in Delaware prior to this offering. As used in this Prospectus, references to
the "Company" and "Macrovision" refer to Macrovision Corporation, its
predecessors and its consolidated subsidiaries. The Company's principal
executive offices are located at 1341 Orleans Drive, Sunnyvale, California
94089. The Company's telephone number is (408) 743-8600.
Macrovision-Registered Trademark-, PhaseKrypt-Registered Trademark- and
Protecting Your Image-Registered Trademark- are registered trademarks of the
Company. CineGuard-TM-, Colorstripe-TM-, StarShaker-TM-, VES-TM- and VES-TM-TM-
are trademarks of the Company. All other trademarks or trade names referred to
in this Prospectus are the property of their respective owners.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,450,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$ ($ if the Underwriters' over-allotment option is exercised in
full), after deducting the estimated underwriting discount and offering
expenses. The Company expects to use the net proceeds for general corporate
purposes, including working capital. However, the Company has not allocated any
specific portion of the net proceeds to such purposes and management will have
the ability to allocate such proceeds at its discretion. From time to time in
the ordinary course of business, the Company evaluates the acquisition of
products, businesses and technologies that complement the Company's business,
for which a portion of the net proceeds may be used. Currently, however, the
Company does not have any understandings, commitments or agreements with respect
to any such acquisitions. Pending use of the net proceeds for the above
purposes, the Company intends to invest such funds in short-term,
interest-bearing, investment-grade securities. The Company will not receive any
proceeds from the sale of shares by the Selling Stockholders. See "Risk
Factors-- Management's Discretion Over Proceeds of the Offering."
DIVIDEND POLICY
The Company currently anticipates that it will retain all future earnings
for use in its business and does not anticipate that it will pay any cash
dividends in the foreseeable future. The payment of any future dividends will be
at the discretion of the Company's Board of Directors and will depend upon,
among other things, future earnings, operations, capital requirements, the
general financial condition of the Company, general business conditions and
contractual restrictions on payment of dividends, if any.
Pursuant to a contractual arrangement, the Company distributed to its common
stockholders other than Pacific Media Development, Inc. a cash dividend of
approximately $0.22 per share in each of 1992, 1993 and 1994. In addition, the
Company has paid or declared a cash dividend of $0.135 per share of Series A
Preferred Stock in every quarter since the third quarter of 1991. The accrued
Series A Preferred Stock dividend for the quarter ending March 31, 1997 will be
paid pro rata for the portion of the quarter prior to conversion of the Series A
Preferred Stock into Common Stock.
16
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1996: (i) the actual
capitalization of the Company; (ii) the capitalization of the Company on a pro
forma basis to give effect to the conversion into Common Stock of all
outstanding shares of Preferred Stock upon the closing of this offering; and
(iii) the pro forma capitalization of the Company as adjusted to give effect to
the sale and issuance of the 1,450,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $ per
share, after deducting the estimated underwriting discount and offering
expenses.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital lease liability, net of current portion (1)........................... $ 322 $ 322 $ 322
--------- ----------- -----------
--------- ----------- -----------
Common Stock subject to repurchase (4)........................................ -- -- 500
Stockholders' equity (2):
Preferred stock, par value $0.001 per share:
Authorized, 5,000,000 shares; issued and outstanding, 1,376,432 shares (no
shares pro forma or as adjusted)........................................ 1 -- --
Common stock, par value $0.001 per share:
Authorized, 100,000,000 shares (50,000,000 shares pro forma and as
adjusted), issued and outstanding, 3,941,316 shares (5,317,748 shares
pro forma and 6,712,193 shares as adjusted) (3)(4)...................... 4 5
Additional paid-in capital.................................................. 9,501 9,501
Stockholder notes receivable................................................ (174) (174) (174)
Deferred stock compensation................................................. (333) (333) (333)
Accumulated deficit......................................................... (3,757) (3,757) (3,757)
--------- ----------- -----------
Accumulated translation adjustment.......................................... (138) (138) (138)
Total stockholders' equity.............................................. 5,104 5,104
--------- ----------- -----------
Total capitalization.................................................. $ 5,426 $ 5,426 $
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- ------------------------
(1) See Note 7 of Notes to Consolidated Financial Statements.
(2) See Note 5 of Notes to Consolidated Financial Statements.
(3) The numbers of shares of Common Stock issued and outstanding do not include
709,756 shares of Common Stock issuable at a weighted average exercise price
of $2.71 per share upon exercise of stock options outstanding as of
September 30, 1996 under the Company's Stock Option Plan, 91,468 additional
shares reserved for future grants under the Stock Option Plan, 300,000
shares reserved for future grants under the 1996 Equity Incentive Plan,
60,000 shares reserved for future grants under the 1996 Directors Stock
Option Plan or 140,000 shares reserved for future issuance under the 1996
Employee Stock Purchase Plan. See "Management--Director Compensation" and
"Management-- Employee Benefit Plans" and Notes 5 and 10 of Notes to
Consolidated Financial Statements.
(4) The numbers of shares of Common Stock issued and outstanding do not include
55,555 shares of Common Stock subject to repurchase. On December 6, 1996,
the Company offered to repurchase 55,555 shares of its Common Stock from CAC
for $9.00 per share. The shares subject to repurchase and the related
repurchase amount of $499,995 has been reclassified to reflect this offer.
See Note 10 of Notes to Consolidated Financial Statements.
17
<PAGE>
DILUTION
The net tangible book value of the Company as of September 30, 1996,
assuming the conversion of all outstanding shares of Preferred Stock, was
$3,845,000 or $0.72 per share of Common Stock. Net tangible book value per share
represents the amount of the Company's total tangible assets less total
liabilities divided by the number of shares of Common Stock outstanding at that
date. After giving effect to the sale of the 1,450,000 shares of Common Stock
offered by the Company hereby (at an assumed initial public offering price of
$ per share and after deducting the estimated underwriting discount and
offering expenses), the pro forma net tangible book value of the Company as of
September 30, 1996 would have been approximately $ or $ per share.
This represents an immediate increase in net tangible book value of $ per
share to existing stockholders and an immediate dilution of $ per share
to new investors in this offering. The following table illustrates the per share
dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $
Pro forma net tangible book value per share as of September 30,
1996........................................................... $ 0.72
Increase in pro forma net tangible book value per share
attributable to new investors..................................
---------
Pro forma net tangible book value per share after the offering.....
---------
Net tangible book value dilution per share to new investors........ $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1996, the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by the
existing stockholders and by the new investors purchasing shares in this
offering (before deducting the estimated underwriting discount and offering
expenses), based upon an assumed initial public offering price of $ per
share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ ------------------------- PRICE
NUMBER (1) PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)................... 5,317,748 78.6% $ 8,996,000 % $ 1.69
New investors............................... 1,450,000 21.4
----------- ----- ------------ -----
Totals................................ 6,767,748 100.0% $ 100.0%
----------- ----- ------------ -----
----------- ----- ------------ -----
</TABLE>
- ------------------------
(1) Sales by the Selling Stockholders of 850,000 shares in this offering will
reduce the number of shares of Common Stock held by existing stockholders to
4,467,748 or 66.0% of the total number shares of Common Stock outstanding
immediately after this offering, and will increase the number of shares of
Common Stock held by new investors to 2,300,000, or 34.0% of the total
number of shares of Common Stock outstanding immediately after this
offering. See "Principal and Selling Stockholders."
The foregoing table assumes: (i) the conversion of all outstanding shares of
Preferred Stock into Common Stock; (ii) no exercise of the Underwriters'
over-allotment option; and (iii) no exercise of stock options outstanding as of
September 30, 1996. As of September 30, 1996, there were options outstanding to
purchase a total of 709,756 shares of Common Stock at a weighted average
exercise price of $2.71 per share. To the extent that any of these options are
exercised, there will be further dilution to new investors. See
"Capitalization," "Management--Employee Benefit Plans," "Description of Capital
Stock" and Notes 5 and 10 of Notes to Consolidated Financial Statements.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of and for the
year ended December 31, 1995 and as of and for the nine months ended September
30, 1996 are derived from consolidated financial statements of the Company that
have been audited by KPMG Peat Marwick LLP, independent auditors. The selected
consolidated financial data presented below as of and for the years ended
December 31, 1991, 1992, 1993 and 1994 are derived from consolidated financial
statements of the Company that have been audited by Ernst & Young LLP,
independent auditors. The consolidated financial statements as of December 31,
1994 and 1995 and September 30, 1996, for each of the years in the three-year
period ended December 31, 1995 and for the nine months ended September 30, 1996,
and the reports thereon are included elsewhere in this Prospectus. The selected
consolidated financial data presented below for the nine months ended September
30, 1995 are derived from unaudited consolidated financial statements of the
Company. Such data have been prepared on substantially the same basis as the
audited consolidated financial statements, and in the opinion of management
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial information included therein.
The data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto included elsewhere in
this Prospectus. The consolidated statement of operations data for the nine
months ended September 30, 1996 are not necessarily indicative of the results to
be expected for any future period.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
YEAR ENDED DECEMBER 31, -------------
----------------------------------------------------- 1995
1991 1992 1993 1994 1995 (UNAUDITED)
--------- --------- --------- --------- --------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................................ $ 7,994 $ 8,807 $ 9,549 $ 13,330 $ 14,189 $ 9,991
Costs and expenses:
Cost of revenues.................................. 1,783 1,761 1,578 2,067 2,457 1,871
Research and development.......................... 988 1,135 1,639 2,355 2,161 1,537
Selling, general and administrative............... 3,488 4,411 4,761 6,104 7,388 5,344
--------- --------- --------- --------- --------- ------
Total costs and expenses........................ 6,259 7,307 7,978 10,526 12,006 8,752
--------- --------- --------- --------- --------- ------
Operating income from continuing operations..... 1,735 1,500 1,571 2,804 2,183 1,239
Interest and other expense, net..................... (419) 103 (462) (417) (433) (299)
--------- --------- --------- --------- --------- ------
Income from continuing operations before income
taxes......................................... 1,316 1,603 1,109 2,387 1,750 940
Provision for income taxes.......................... 535 425 444 886 694 373
--------- --------- --------- --------- --------- ------
Net income from continuing operations........... 781 1,178 665 1,501 1,056 567
Loss from discontinued operations, net of tax
benefit (1)....................................... -- -- -- -- (125) --
--------- --------- --------- --------- --------- ------
Net income (loss)............................... $ 781 $ 1,178 $ 665 $ 1,501 $ 931 $ 567
--------- --------- --------- --------- --------- ------
--------- --------- --------- --------- --------- ------
Earnings (loss) per share:
Continuing operations............................. $ 0.15
---------
Discontinued operations (1)....................... (0.03)
---------
---------
Net income (loss)............................... $ 0.12
---------
---------
Shares used in per share calculations (2)........... 4,162
---------
---------
<CAPTION>
1996
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................................ $ 11,699
Costs and expenses:
Cost of revenues.................................. 1,826
Research and development.......................... 1,916
Selling, general and administrative............... 6,308
---------
Total costs and expenses........................ 10,050
---------
Operating income from continuing operations..... 1,649
Interest and other expense, net..................... (241)
---------
Income from continuing operations before income
taxes......................................... 1,408
Provision for income taxes.......................... 585
---------
Net income from continuing operations........... 823
Loss from discontinued operations, net of tax
benefit (1)....................................... (827)
---------
Net income (loss)............................... $ (4)
---------
---------
Earnings (loss) per share:
Continuing operations............................. $ 0.10
---------
Discontinued operations (1)....................... (0.19)
---------
---------
Net income (loss)............................... $ 0.09
---------
---------
Shares used in per share calculations (2)........... 4,388
---------
---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments....... $ 3,941 $ 3,429 $ 3,397 $ 3,851 $ 3,486 $ 2,064
Working capital......................................... 4,010 3,783 3,599 3,860 3,876 2,291
Total assets............................................ 6,377 6,597 7,076 9,240 10,971 11,658
Convertible note........................................ 3,038 3,038 3,038 3,038 3,038 --
Long-term obligations, less current portion (3)......... 37 4 -- -- 554 322
Total stockholders' equity.............................. 1,999 2,163 1,867 2,388 2,846 5,104
</TABLE>
- ------------------------------
(1) See Note 4 of Notes to Consolidated Financial Statements.
(2) For an explanation of the determination of the number of shares used in per
share calculations, see Note 1 of Notes to Consolidated Financial
Statements.
(3) See Note 7 of Notes to Consolidated Financial Statements.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. THESE
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS CONTEMPLATED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF FACTORS, INCLUDING, BUT
NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS
WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Macrovision was founded in 1983 to develop video security solutions for
major motion picture studios and independent video producers. Since that time,
the Company has derived most of its revenues and operating income from licensing
its video copy protection technologies. The Company expects such license fees to
account for a majority of the Company's net revenues and operating income at
least through 1997. The Company's videocassette copy protection customers have
included the home video divisions of the eight members of the Motion Picture
Association of America ("MPAA") and HBO Home Video. The Company also has a
variety of special interest videocassette copy protection customers, including
more than 125 videocassette duplication companies and a number of rights
holders, such as independent producers of exercise, sports and educational
videocassettes. The Company typically receives license fees for videocassette
copy protection based upon the number of copy protected videocassettes that are
produced by MPAA studios or other rights holders. License fees from MPAA studios
represented a majority of such fees in 1993, 1994, 1995 and the first nine
months of 1996.
In 1993, the Company began licensing its digital PPV video copy protection
technologies to satellite and cable television operators and to the equipment
manufacturers that supply the satellite and cable television industries. These
manufacturers include in their digital set-top decoders integrated circuits
incorporating the Company's copy protection technologies that can be activated
to apply video copy protection to digital PPV transmissions. Through September
30, 1996, all of the Company's digital PPV copy protection revenues had been
derived from up-front license fees and hardware royalties. Digital PPV up-front
license fees and hardware royalties increased to 9.9% of the Company's net
revenues in the first nine months of 1996 from 5.6% in the comparable period in
1995. The Company's agreements with digital PPV system operators entitle the
Company to transaction-based royalty payments at such time as copy protection
for digital PPV programming is activated.
In 1994, the Company began licensing and selling its PhaseKrypt video
scrambling technology to manufacturers of analog set-top decoders for sale to
cable television system operators in developing cable television markets. The
Company also sells encoder and decoder hardware that incorporates PhaseKrypt to
private analog satellite networks for business communications, education and
special interest entertainment. In addition, the Company sells other analog
scrambling systems to television broadcasters for securing incoming contribution
circuits to network control centers and outbound rebroadcast circuits to
affiliate and regional stations. Finally, the Company sells specialized analog
video scrambling systems in the government, military and law enforcement
markets, primarily for covert surveillance applications. Video scrambling
revenues increased to 11.2% of the Company's net revenues in the first nine
months of 1996 from 9.0% in the comparable period of 1995. Gross margins on
sales of the Company's video scrambling products have been significantly lower
than on its licenses of copy protection or video scrambling technologies because
of the hardware product costs associated with a more traditional manufacturing
environment, and the Company expects this to continue for the foreseeable
future.
In 1995, the Company introduced PhaseKrypt video scrambling technology for
use in motion picture theaters using large-screen video projectors and scrambled
Super VHS videocassettes as a complement to film projectors and 35 mm film
prints. CineGuard, the Company's new theatrical exhibition alternative, is
intended for small theaters in rural towns in international markets where the
population is not large enough to support traditional film theaters or where
exhibitors must wait long periods of time to receive
20
<PAGE>
film prints of first-run motion pictures. To date, the Company has licensed
CineGuard theaters in Poland and Ireland and has master licensees in the
Philippines and South Africa. Revenues from CineGuard theaters have been
insignificant to date.
In late 1995, the Company founded Command Audio Corporation ("CAC") to
develop an audio-on-demand system. During 1996, the Company recognized that its
technological, sales and marketing core competencies would not be sufficient to
develop the CAC technology fully or to exploit the market opportunities for it.
In August 1996, the Company divested itself of all but 19.8% of its ownership in
CAC. As a result, the financial results of CAC have been treated as discontinued
operations.
The Company's cost of revenues consists primarily of manufacturing costs
associated with the Company's video scrambling product revenues and service fees
paid to licensed duplicators that apply the Company's videocassette copy
protection whenever rights owners license the technology directly from the
Company. Also included in cost of revenues are patent amortization costs and
legal costs associated with the Company's efforts to prevent the sale of devices
that attempt to circumvent the Company's video copy protection technologies. See
"Risk Factors--Risks of Defeat Technologies." The Company's research and
development expenses are comprised primarily of employee compensation and
benefits, consulting fees, tooling and supplies and an allocation of facilities
costs. The Company's selling, general and administrative expenses are comprised
primarily of employee compensation and benefits, consulting and recruiting fees,
travel, advertising, professional fees and an allocation of facilities costs.
The Company has experienced significant seasonality in its business, and the
Company's financial condition and results of operations are likely to be
affected by seasonality in the future. The Company has typically experienced its
highest revenues in the fourth quarter of each calendar year followed by lower
revenues and operating income in the first quarter, and at times in subsequent
quarters, of the next year. The Company believes that this trend has been
principally due to the tendency of certain of the Company's customers to release
their more popular motion pictures on videocassettes during the Christmas
shopping season. In addition, revenues have tended to be lower in the summer
months, particularly in Europe. See "--Quarterly Results of Operations" and
"Risk Factors--Fluctuations in Future Operating Results; Seasonality."
RESULTS OF OPERATIONS
The following table sets forth selected consolidated statement of operations
data expressed as a percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues....................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenues................................................. 16.5 15.5 17.3 18.7 15.6
Research and development......................................... 17.2 17.7 15.2 15.4 16.4
Selling, general and administrative.............................. 49.9 45.8 52.1 53.5 53.9
--------- --------- --------- --------- ---------
Total costs and expenses....................................... 83.6 79.0 84.6 87.6 85.9
--------- --------- --------- --------- ---------
Operating income from continuing operations.................... 16.4 21.0 15.4 12.4 14.1
Interest and other expense, net.................................... (4.8) (3.1) (3.1) (3.0) (2.1)
--------- --------- --------- --------- ---------
Income from continuing operations before income taxes.......... 11.6 17.9 12.3 9.4 12.0
Provision for income taxes......................................... 4.6 6.6 4.9 3.7 5.0
--------- --------- --------- --------- ---------
Net income from continuing operations.......................... 7.0 11.3 7.4 5.7 7.0
Loss from discontinued operations.................................. -- -- (0.9) -- (7.0)
--------- --------- --------- --------- ---------
Net income..................................................... 7.0% 11.3% 6.5% 5.7% (0.0)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
21
<PAGE>
NET REVENUES. The Company's net revenues increased 39.6% from $9.5 million
in 1993 to $13.3 million in 1994 and an additional 6.4% to $14.2 million in
1995. The Company's net revenues increased 17.1% from $10.0 million in the first
nine months of 1995 to $11.7 million in the first nine months of 1996. The
increase from 1993 to 1994 was attributable primarily to the use of the
Company's video copy protection technology in an unusually large number of high
volume videocassettes for sale to consumers in 1994. In addition, license fees
from the newly-introduced digital PPV copy protection technology and PhaseKrypt
video scrambling technology increased more than $819,000 from 1993 to 1994. The
increase from 1994 to 1995 was principally the result of a $590,000 increase in
videocassette copy protection revenues, primarily internationally, and a
$449,000 increase in digital PPV copy protection license fees, relating
primarily to up-front license fees from new licenses to digital PPV system
operators and up-front license fees and royalties from digital PPV set-top
decoder manufacturers. The increase from the first nine months of 1995 to the
first nine months of 1996 was primarily the result of: (i) an increase in
digital PPV copy protection license fees and royalties of $607,000, primarily
up-front license fees from new licenses to digital PPV system operators and
up-front license fees and royalties from digital PPV set-top decoder
manufacturers; (ii) an increase of $582,000 in videocassette copy protection
revenues; and (iii) an increase of $412,000 in video scrambling license fees and
product sales. Due primarily to the growth in the Company's digital PPV copy
protection and video scrambling businesses, in the United States, videocassette
copy protection revenues from the MPAA studios declined as a percentage of net
revenues, representing 44.6%, 42.7%, 41.3% and 34.1% of the Company's net
revenues for 1993, 1994, 1995 and the first nine months of 1996, respectively.
See "Risk Factors--Dependence on Key Customers" and "Business--Customers."
In 1993, 1994, 1995 and the first nine months of 1996, the Company's
international and export revenues totaled $2.8 million, $5.2 million, $4.7
million and $4.3 million, respectively, representing 28.9%, 38.9%, 33.2% and
36.8%, respectively, of the Company's net revenues during those periods.
International and export revenues grew primarily as a result of increased usage
of videocassette copy protection technology by the MPAA studios in international
markets and increased growth in PhaseKrypt component sales and licensing fees
from new geographic areas. The Company expects that international and export
revenues will continue to represent a significant portion of its net revenues
and that its future growth will depend to a large extent on continued increases
in international and export revenues. See "Risk Factors-- Risks Associated with
International and Export Sales," "Business--Sales, Marketing and Customer
Support" and Note 9 of Notes to Consolidated Financial Statements.
COST OF REVENUES. Cost of revenues as a percentage of net revenues was
16.5% in 1993, 15.5% in 1994, 17.3% in 1995, 18.7% in the first nine months of
1995 and 15.6% in the first nine months of 1996. The variations in cost of
revenues as a percentage of net revenues were primarily due to changes in
revenue mix between product sales and licensing revenues, which have relatively
low costs of revenues. The decrease from 1993 to 1994 was also a result of
reduced expenditures needed to defend the Company's patents. In the event that
revenues from video scrambling products increase as a percentage of net
revenues, cost of revenues as a percentage of net revenues will continue to
increase. See Note 1 of Notes to Consolidated Financial Statements.
RESEARCH AND DEVELOPMENT. Research and development expenses were $1.6
million, $2.4 million, $2.2 million, $1.5 million and $1.9 million, which
represented 17.2%, 17.7%, 15.2%, 15.4% and 16.4% of net revenues, in 1993, 1994,
1995, the first nine months of 1995 and the first nine months of 1996,
respectively. The increase from 1993 to 1994 was primarily a result of increases
in the number of employees and consultants, and the increased development costs
associated with improvements to the PhaseKrypt video scrambling technology and
new encoder and decoder chips sets. The decrease from 1994 to 1995 was
principally due to a decrease in consulting fees not fully offset by the
Company's hiring of additional employees. The increase from the first nine
months of 1995 to the first nine months of 1996 was primarily due to activity in
support of the introduction of the Company's Colorstripe technology for use in
DVD and digital PPV applications. The Company believes that research and
development expenses will increase in dollar amount in the future, but may
decline as a percentage of net revenues. There can be no assurance, however,
that net revenues will grow more rapidly than research and development expenses.
See "Business--Research and Development."
22
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were $4.8 million, $6.1 million, $7.4 million, $5.3 million and $6.3
million, which represented 49.9%, 45.8%, 52.1%, 53.5% and 53.9% of net revenues,
in 1993, 1994, 1995, the first nine months of 1995 and the first nine months of
1996, respectively. The dollar increase from 1993 to 1994 was primarily a result
of increased compensation and benefits and allocated facilities costs as the
Company increased the size of its overall staffing. The increase from 1994 to
1995 was primarily a result of the hiring of additional employees, increased
compensation and benefits, and legal fees associated with the Company's
arbitration proceeding with a prior employee. The increase from the first nine
months of 1995 to the first nine months of 1996 was primarily a result of
increased compensation and benefits, as well as facilities costs associated with
the Company's move to a larger facility. The Company believes that the dollar
amount of selling, general and administrative expenses will increase in the
future as the Company incurs the significant additional costs related to being a
public company, but may decline as a percentage of net revenues. There can be no
assurance, however, that net revenues will grow more rapidly than selling,
general and administrative expenses.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net, consists
primarily of interest expense on a convertible note, bank debt and capitalized
equipment leases, net of interest income. Interest expense and other was
$551,000, $503,000, $568,000, $399,000 and $294,000 in 1993, 1994, 1995, the
first nine months of 1995 and the first nine months of 1996, respectively. The
decrease in interest expense from the first nine months of 1995 to the first
nine months of 1996 was principally attributable to the conversion of $3.0
million in a convertible note to Preferred Stock in July 1996. Interest income
was $89,000, $86,000, $135,000, $100,000 and $53,000 in 1993, 1994, 1995, the
first nine months of 1995 and the first nine months of 1996, respectively, due
to interest earned on cash and cash equivalents. See Notes 2 and 3 of Notes to
Consolidated Financial Statements.
PROVISION FOR INCOME TAXES. The Company's effective rate of taxation was
40.0%, 37.1%, 39.6% and 41.5% in 1993, 1994, 1995 and the first nine months of
1996, respectively. The provision for income taxes consists primarily of federal
income taxes, state taxes and international taxes withheld on foreign revenue.
The decrease in the Company's effective rate of taxation from 1993 to 1994 was
primarily due to an increase in tax credits and tax exempt interest. The
increase in such rate from 1994 to 1995 was primarily due to an increase in
foreign taxes, partially offset by an increase in exempt interest. The increase
in such rate from 1995 to the first nine months of 1996 was principally the
result of a reduction in tax credits, as well as a reduction in exempt interest.
See Note 6 of Notes to Consolidated Financial Statements.
LOSS FROM DISCONTINUED OPERATIONS. The loss from discontinued operations
was $125,000 in 1995 and $827,000 in the first nine months of 1996, net of
income tax benefit. There was no loss from discontinued operations in the other
periods presented. The loss represents the administration and development costs
of CAC, previously a subsidiary of the Company, which began operations in late
1995. In the third quarter of 1996, the Company divested itself of all but 19.8%
of its ownership in CAC. See "Business--Interest in Command Audio Corporation,"
"Certain Transactions" and Note 4 of Notes to Consolidated Financial Statements.
23
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain quarterly unaudited consolidated
financial data for the periods indicated, as well as the percentage of the
Company's net revenues represented by such data. These data have been derived
from the Company's unaudited consolidated financial statements that, in the
opinion of management, have been prepared on the same basis as the audited
consolidated financial statements, and include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of such data.
Such data should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto appearing elsewhere in this Prospectus.
The results of operations for any quarter are not necessarily indicative of the
results to be expected for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
1995 1996
-------------------------------------------- ---------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30
--------- --------- ----------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues................................. $ 2,984 $ 3,242 $ 3,765 $ 4,198 $ 3,583 $ 3,737 $ 4,380
Costs and expenses:
Cost of revenues........................... 621 710 540 586 594 707 525
Research and development................... 569 516 452 624 642 679 594
Selling, general and administrative........ 1,667 1,946 1,731 2,044 1,842 2,171 2,296
--------- --------- ----------- --------- --------- --------- -----------
Total costs and expenses................. 2,857 3,172 2,723 3,254 3,078 3,557 3,415
--------- --------- ----------- --------- --------- --------- -----------
Operating income from continuing
operations............................. 127 70 1,042 944 505 180 965
Interest and other expense, net.............. (97) (80) (122) (134) (120) (109) (13)
--------- --------- ----------- --------- --------- --------- -----------
Income (loss) from continuing operations
before income taxes.................... 30 (10) 920 810 385 71 952
Provision (benefit) for income taxes......... 12 (4) 365 321 192 62 331
--------- --------- ----------- --------- --------- --------- -----------
Net income (loss) from continuing
operations............................. 18 (6) 555 489 193 9 621
Loss from discontinued operations............ -- -- -- (125) (195) (633) --
--------- --------- ----------- --------- --------- --------- -----------
Net income (loss)........................ $ 18 $ (6) $ 555 $ 364 $ (2) $ (624) $ 621
--------- --------- ----------- --------- --------- --------- -----------
--------- --------- ----------- --------- --------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------
1995 1996
-------------------------------------------------- ------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues.................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenues............................ 20.8 21.9 14.3 14.0 16.6 18.9
Research and development.................... 19.1 15.9 12.0 14.8 17.9 18.2
Selling, general and administrative......... 55.9 60.0 46.0 48.7 51.4 58.1
----- ----- ----- ----- ----- -----
Total costs and expenses.................. 95.7 97.8 72.3 77.5 85.9 95.2
----- ----- ----- ----- ----- -----
Operating income from continuing
operations.............................. 4.3 2.2 27.7 22.5 14.1 4.8
Interest and other expense, net............... (3.3) (2.5) (3.3) (3.2) (3.3) (2.9)
----- ----- ----- ----- ----- -----
Income (loss) from continuing operations
before income taxes..................... 1.0 (0.3) 24.4 19.3 10.8 1.9
Provision (benefit) for income taxes.......... 0.4 (0.1) 9.7 7.6 5.4 1.7
----- ----- ----- ----- ----- -----
Net income (loss) from continuing
operations.............................. 0.6 (0.2) 14.7 11.6 5.4 0.2
Loss from discontinued operations............. -- -- -- (3.0) (5.4) (16.9)
----- ----- ----- ----- ----- -----
Net income (loss)......................... 0.6% (0.2)% 14.7% 8.6% (0.0)% (16.7)%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
<CAPTION>
SEPT. 30
-----------
<S> <C>
Net revenues.................................. 100.0%
Costs and expenses:
Cost of revenues............................ 12.0
Research and development.................... 13.6
Selling, general and administrative......... 52.4
-----
Total costs and expenses.................. 78.0
-----
Operating income from continuing
operations.............................. 22.0
Interest and other expense, net............... (0.3)
-----
Income (loss) from continuing operations
before income taxes..................... 21.7
Provision (benefit) for income taxes.......... 7.5
-----
Net income (loss) from continuing
operations.............................. 14.2
Loss from discontinued operations............. --
-----
Net income (loss)......................... 14.2%
-----
-----
</TABLE>
24
<PAGE>
The Company has experienced significant seasonality in its business, and the
Company's financial condition and results of operations are likely to be
affected by seasonality in the future. The Company has typically experienced its
highest revenues in the fourth quarter of each calendar year followed by lower
revenues and operating income in the first quarter, and at times in subsequent
quarters, of the next year. As a result of seasonality, the Company's net
revenues increased 16.1% from the second quarter of 1995 to the third quarter of
1995 and 11.5% from the third quarter of 1995 to the fourth quarter of 1995, but
decreased 14.7% from the fourth quarter of 1995 to the first quarter of 1996.
The Company's cost of revenues is subject not only to seasonal and quarterly
fluctuations due to changes in net revenues but also to fluctuations resulting
from shifts in revenue mix between the Company's product sales and licensing
revenues. Sales of video scrambling products were significantly higher as a
percentage of net revenues in the first and second quarters of 1995 than they
were in the third and fourth quarters of 1995. As a result, the Company's total
cost of revenues in the first two quarters of 1995 was higher as a percentage of
net revenues. In the second quarter of 1996, the Company experienced higher cost
of revenues due to a writedown of certain obsolete inventory.
The Company's research and development expenses fluctuate quarterly
depending on the stages of various projects, the use of consultants and
temporary employees, and the utilization of prototype materials. As an example,
the increase in the fourth quarter of 1995 compared to the third quarter of 1995
is attributable to the increased use of consultants and the increased purchasing
of prototype materials for one project.
Selling, general and administrative expenses increased from the first
quarter of 1995 to the second quarter of 1995 primarily due to increased
consulting and advertising expenses. The increase from the third quarter of 1995
to the fourth quarter of 1995 was attributed primarily to consulting costs and
legal costs connected to the arbitration proceeding with a former employee. The
increase from the first quarter of 1996 to the second quarter of 1996 was
primarily due to increased compensation, advertising and legal expenses. The
increase from the second quarter of 1996 to the third quarter of 1996 was
primarily due to a provision for uncollectable receivables.
Interest expense decreased in the third quarter of 1996 primarily due to the
conversion of a convertible note into Series A Preferred Stock in July 1996.
The Company's operating results have fluctuated in the past, and are
expected to continue to fluctuate in the future, on an annual and quarterly
basis as a result of a number of factors. Such factors include, but are not
limited to, the timing of release of popular motion pictures on videocassettes
or DVDs or by digital PPV transmission, the degree of acceptance of the
Company's copy protection technologies by major motion picture studios, the mix
of products sold and technologies licensed, any change in product or license
pricing, the seasonality of revenues, changes in the Company's operating
expenses, personnel changes, the development of the Company's direct and
indirect distribution channels, foreign currency exchange rates and general
economic conditions. The Company may choose to reduce prices or increase
spending in response to competition or new technologies or elect to pursue new
market opportunities. If new competitors, technological advances in the industry
or by existing or new competitors or other competitive factors require the
Company to invest significantly greater resources in research and development or
marketing efforts, the Company's future operating results may be adversely
affected. Because a high percentage of the Company's operating expenses is
fixed, a small variation in the timing of recognition of revenues can cause
significant variations in operating results from period to period.
Based upon the factors enumerated above, the Company believes that its
quarterly and annual revenues, expenses and operating results could vary
significantly in the future and that period-to-period comparisons should not be
relied upon as indications of future performance. There can be no assurance that
the Company will be able to grow in future periods or that it will be able to
sustain its level of net revenues or its rate of revenue growth on a quarterly
or annual basis. It is likely that, in some future quarter, the Company's
operating results will be below the expectations of stock market analysts and
investors. In such event, the price of the Company's Common Stock could be
materially adversely affected.
25
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily from cash generated by
operations, principally by its videocassette copy protection business, and, to a
lesser extent, bank borrowings. The Company's operating activities provided net
cash of $1.5 million, $2.3 million, $1.0 million and $464,000 in 1993, 1994 and
1995 and the first nine months of 1996, respectively. In each of these periods,
net cash was provided primarily by net income, increases in accounts payable,
accrued liabilities and deferred revenue and depreciation and amortization,
partially offset by increases in accounts receivable and inventories. See Note 2
of Notes to Consolidated Financial Statements.
The Company made capital expenditures of $458,000, $634,000, $1.4 million
and $346,000, in 1993, 1994, 1995 and the first nine months of 1996,
respectively. The Company also paid $170,000, $207,000, $185,000 and $296,000,
respectively, for patents and other intangibles during those periods. In
addition, the Company paid cash dividends of $960,000, $969,000, $450,000 and
$225,000 in 1993, 1994, 1995 and the first nine months of 1996, respectively,
although in 1995 the Company had net cash provided by financing activities as a
result of borrowing $708,000 under a long-term borrowing arrangement. Upon the
closing of this offering, all shares of Series A Preferred Stock will
automatically convert into Common Stock, and the Company will no longer be
required to pay cash dividends with respect to such stock. See "Dividend
Policy."
The Company believes that the net proceeds from the sale of the Common Stock
offered hereby, together with its existing cash and cash equivalents and the
cash provided by operating activities, will be sufficient to meet its working
capital and capital expenditure requirements for at least the next 12 months. At
September 30, 1996, the Company had $2.1 million in cash and cash equivalents.
The Company anticipates that capital expenditures for 1997 will aggregate
approximately $1.0 million. In the future, the Company may elect to purchase
additional stock in CAC to maintain its 19.8% equity ownership in CAC. The
Company has a right of first refusal to purchase up to 111,111 shares of the
Company's Common Stock held by CAC at a price per share equal to the lesser of
$21.60 or the proposed purchase price. The Company will have a right of first
refusal to purchase an additional 83,333 shares of the Company's Common Stock
held by CAC upon the same terms if and when such shares become vested. Together,
these rights of first refusal represent a maximum aggregate purchase price of
$4.2 million. The Company has offered to purchase 55,555 of the 111,111 vested
shares of Common Stock from CAC at a price of $9.00 per share. This offer will
expire on March 4, 1997. See "Certain Transactions--Capitalization and Spinoff
of Command Audio Corporation."
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. There can be no assurance that any necessary
additional financing will be available to the Company on commercially reasonable
terms, if at all. Management intends to invest the Company's excess cash in
short-term, interest bearing, investment grade securities. Although there are no
present understandings, commitments or agreements with respect to any
acquisition of other businesses, products or technologies, from time to time in
the ordinary course of business, the Company evaluates potential acquisitions of
businesses, products or technologies that are complementary to those of the
Company and may in the future use a portion of the Company's cash to acquire or
invest in complementary businesses or products or obtain the right to use
complementary technologies. See "Use of Proceeds."
26
<PAGE>
BUSINESS
The Company designs, develops and markets video security technologies and
products that provide copy protection and video scrambling for motion pictures
and other proprietary video materials that are stored on videocassettes, DVDs or
other media or are transmitted by means of cable, satellite or microwave
transmission. The Company's two primary technologies, copy protection and video
scrambling, are distinct in their application, but can be complementary in their
ability to protect copyright holders' video programming.
The Company's copy protection technologies enable consumers to view
programming stored on prerecorded videocassettes and DVDs or transmitted as
digital PPV programs via cable and satellite, but deter unauthorized consumer
copying of such programming. The Company believes that approximately one-third
of all commercial videocassettes produced worldwide during 1995 were copy
protected, and that substantially all of those copy protected videocassettes
incorporated the Company's technology. All of the MPAA studios, including
Disney, Fox and Universal, have used the Company's copy protection technology to
protect some or all of their videocassettes in one or more countries around the
world. The Company believes that its video copy protection technologies are
accepted as the DE FACTO standard for consumer copy protection. The Company has
developed an enhanced version of its videocassette copy protection technology
for the DVD format and for digital PPV networks.
The Company's video scrambling technologies are used by cable and satellite
television system operators in connection with analog PPV and Pay TV
programming, as well as by businesses, governments and other organizations to
provide for the secure transmission of video signals. Another application of the
Company's video scrambling technology is the Company's CineGuard program, a new
theatrical exhibition alternative in which motion pictures are recorded in a
scrambled state on Super VHS on videocassettes and distributed primarily to
small theaters in rural towns in international markets.
INDUSTRY BACKGROUND
Motion picture studios generally release major motion pictures to various
venues (E.G., theaters, hotels/airlines or home video) in a series of "release
windows" in order to maximize revenues from each venue. The chart below shows
the typical major motion picture release windows in the United States and
indicates the studios' aggregate United States revenues from each venue in 1995,
as estimated by entertainment media analyst Paul Kagan Associates, Inc. ("Paul
Kagan").
[CHART]
In the past few years, home video has surpassed the theatrical box office as
the largest source of revenues for the motion picture industry. With production
costs continually growing, studio profitability has become increasingly
dependent on the development of new venues, such as home video and digital PPV.
Theatrical box office release in foreign countries generally follows theatrical
box office release in the United States by at least four months. There has
generally been no distinction between PPV and Pay TV
27
<PAGE>
release windows in foreign countries, where both PPV and Pay TV releases
generally follow home video release in a particular foreign country by
approximately 12 months.
COPY PROTECTION
Copyright holders wish to maximize the economic value from each feature film
or other video program over its copyright life, currently 75 years. When
consumers make copies of motion pictures, whether from hotel, airline, home
video or PPV releases, independent studies show that studios and video retailers
lose video sales and rental revenues. Paul Kagan estimates that 29.6 million
households in the United States (approximately 39% of all households with VCRs)
owned two or more VCRs in 1995, and thus were capable of making unauthorized
copies of prerecorded videocassettes. Based on a 1996 Macrovision-sponsored
national survey, the Company estimates that consumer video piracy costs the
industry approximately $370 million in annual lost revenues. To protect their
revenues in the home video and subsequent release venues, many studios are
attempting to prevent unauthorized copies of motion pictures from entering the
marketplace. Other copyright holders, such as independent video producers,
governments, businesses and institutions, also benefit from preventing
unauthorized copying of special interest, educational and other prerecorded
video programming.
Emerging trends in the PPV market increase the need for effective copy
protection technologies. PPV television, which enables consumers to view motion
pictures and other programming in their homes via their existing cable or
satellite television systems for an additional fee for each viewing, has
generated to date only a small fraction of the revenues generated by home video.
However, motion picture studios typically receive revenue each time a consumer
views a motion picture on PPV, which results in higher profit margins than home
video, for example, in which the studios generate revenues only from the one-
time sale of videocassettes. Analog cable television systems provide few PPV
channels, which limits the number of available motion pictures and the frequency
of viewing times. In addition, the studios, in an effort to protect their home
video revenues, typically release a motion picture on PPV one to three months
after it is released on videocassette. Digital PPV, however, provides consumers
with the benefits of more channels, a greater variety of motion pictures and
more frequent motion picture viewing times. However, viewers can copy PPV motion
pictures in their homes with a single VCR. When the transmission is digital,
copy quality is better than that of copies made from videocassettes or analog
cable television. It is not economically feasible to retrofit the analog cable
television systems currently in place in the United States with copy protection
technology. As a result, the opportunity to introduce effective copy protection
for PPV is expected to grow only to the extent that digital PPV replaces
existing analog systems.
DVD hardware and media are expected to become commercially available in the
United States in 1997. The introduction of DVDs presents serious concerns to the
studios. Without effective copy protection, any one of the approximately 400
million VCRs in use today, when combined with a DVD player, will be able to make
unlimited videocassette copies of a non-copy protected DVD that are nearly equal
in quality to a professionally prerecorded videocassette. Because of their
superior picture quality, lower manufacturing cost, relative ease of use and
smaller size, DVDs are expected to supplant videocassettes over time as the
preferred home video distribution medium. As a result, the need for reliable
copy protection is expected to become more important as DVDs become more
available.
VIDEO SCRAMBLING
Cable and satellite television system operators require secure video
scrambling technology to prevent unauthorized viewing of PPV and Pay TV
programming. Unauthorized or "pirate" descramblers for existing analog PPV and
Pay TV scrambling systems are readily available to consumers at low cost,
allowing them to view programming without paying the system operator. Based on a
1992 survey of cable television operators, the National Cable Television
Association's Office of Cable Signal Theft reported that unauthorized viewing of
cable television premium channels and PPV translated into an estimated $4.7
billion per year in potentially lost revenues to system operators and motion
picture studios. However, the substantial installed base of analog set-top
decoders makes the cost of providing a new, more secure analog scrambling system
in the United States prohibitive.
28
<PAGE>
Although system operators in the United States and Western Europe are
upgrading their networks with digital compression, analog cable and microwave
systems continue to be built, particularly in developing countries, because
analog systems are less expensive to build than digital systems and these
emerging markets do not require the range of programming and channel capacity
that digital compression provides. Industry publications have projected that the
market for addressable analog Pay TV decoders will be approximately $2 billion
by the year 2000. MPAA studios are increasingly requiring international cable
operators to install effective and secure scrambling systems as a precondition
to receiving their motion pictures. International system operators now offer
premium and PPV channels that require new addressable analog systems that
provide security against signal theft, are cost effective, can support a variety
of program tiers and can be authorized remotely by the system operator.
THE MACROVISION SOLUTION
Macrovision offers copy protection and video scrambling technologies and
products that address the video security needs of motion picture studios and
other copyright holders, program distributors, cable and satellite Pay TV and
PPV system operators, governments, businesses and equipment manufacturers.
COPY PROTECTION
The Company's copy protection technologies allow consumers to view
programming stored on prerecorded videocassettes or DVDs and transmitted as
digital PPV programs via cable or satellite, but deter unauthorized consumer
copying of such programming. Videocassettes are encoded with the Company's copy
protection process as they are manufactured. In digital PPV and DVD
applications, the Company's copy protection is implemented by a copy protection
signal generator circuit embedded within the cable or satellite digital set-top
decoder or the DVD player. The diagram below illustrates the various means of
implementing the Company's copy protection technologies.
[GRAPHIC]
VIDEO SCRAMBLING
The Company's video scrambling technologies prevent unauthorized viewing of
video programming unless the viewer has paid for, or otherwise has received, the
right to view such programming. The video
29
<PAGE>
signals are scrambled using a combination of analog video scrambling and digital
encryption. This provides a high level of security against signal theft and low
decoder cost. For cable, satellite and microwave television applications of the
Company's PhaseKrypt technology, the scrambled picture is decoded using a secure
analog technology that partially relies on the electronics of the television set
to make the image viewable. For CineGuard, PhaseKrypt-scrambled motion pictures
are recorded in a scrambled state on Super VHS videocassettes and distributed
primarily to small theaters in rural towns in international markets. The
recorded copy is later descrambled by an authorized decoder integrated into a
video projector. The Company has also developed products implementing other
video scrambling technologies that serve growing niche markets, such as law
enforcement and private networks. The diagram below illustrates implementation
of the Company's video scrambling technologies in a transmission environment.
[GRAPHIC]
THE MACROVISION STRATEGY
The Company is dedicated to providing advanced video security technologies
and products to its customers. The Company intends to maintain and enhance its
position as a leading provider of these technologies and products by focusing on
the following key strategies:
PURSUE ROYALTY-BASED LICENSING MODEL. The Company is pursuing a
royalty-based licensing model that results in a high margin,
transaction-oriented business with recurring revenues. As the sole provider of
copy protection for prerecorded videocassettes to the MPAA studios, the Company
typically licenses its technology pursuant to volume-based pricing schedules.
Royalties and other fees are currently paid by copyright holders, commercial
duplicators, hardware manufacturers and program distributors. The Company
intends whenever feasible to continue to license its technologies to third
parties for volume or transaction-based royalties and fees.
LEVERAGE KEY CUSTOMER RELATIONSHIPS. Over the past ten years, the Company
has developed strong relationships with its customers, including the major
Hollywood studios and key members of the video duplication industry, as well as
the cable and satellite television system operators and the equipment
manufacturers that serve these customers. The Company attempts to develop
strategic relationships with its customers to broaden the use of existing
applications for its technologies and to enhance the security of its customers'
video properties.
INCREASE MARKET PENETRATION OF COPY PROTECTION BUSINESS. The Company
estimates that it has penetrated approximately one-third of the worldwide
videocassette copy protection market, which leaves a large potential
opportunity, even as digital PPV and DVDs begin to displace analog
videocassettes. To maximize its market penetration over time, the Company
licenses its technology royalty-free to DVD hardware manufacturers that build
VCRs that respond to copy protected video signals. The Company intends to
30
<PAGE>
make its copy protection technology available and affordable to all video
copyright holders in all prerecorded packaged media and digital PPV venues and
seeks to have its technology specified by all PPV system operators, digital
set-top decoder manufacturers and DVD hardware manufacturers.
DEVELOP NEW PRODUCT APPLICATIONS AND TECHNOLOGIES. The Company intends to
continue to expand the applications for its copy protection and video scrambling
technologies as they apply to current as well as new markets. For example, the
Company has used its PhaseKrypt video scrambling technology to develop
CineGuard. The Company also has developed video scrambling products to meet the
video security needs of law enforcement organizations and private networks. The
Company intends to expand its technological base, either through internal
development or potential acquisitions.
PROTECT PATENT POSITION. The Company believes that its future success will
depend, in part, on the continued protection of its proprietary technologies.
The Company has obtained patents to protect its copy protection and video
scrambling technologies and intends to continue to pursue patent protection
aggressively. The Company has invested substantial resources in developing and
obtaining patents covering a number of processes and devices that unauthorized
parties could use to circumvent the Company's consumer copy protection
technologies. The Company uses these patents to limit the proliferation of such
devices and has initiated a number of disputes relating to infringement of these
patents. The Company intends to continue to protect and defend its patented
technologies aggressively through both further technological innovation and
legal action.
MACROVISION'S BUSINESS, LICENSED TECHNOLOGIES AND PRODUCTS
The Company's technologies are either licensed or sold, depending upon the
particular application or product. For videocassette copy protection, copyright
holders and licensed duplicators typically pay the Company a per unit licensing
fee for the right to use the Company's technology. For digital PPV, cable and
satellite television system operators pay the Company a one-time license fee for
the right to incorporate the Company's copy protection technology into their
networks and have entered into agreements with the Company pursuant to which the
Company is entitled to transaction-based royalty payments at such time as copy
protection for digital PPV programming is activated. Set-top decoder
manufacturers also license the Company's copy protection and video scrambling
technologies for an up-front fee and a per unit hardware royalty. In addition,
semiconductor manufacturers pay the Company a small one-time service fee for the
right to embed the Company's copy protection technologies in integrated circuits
for set-top decoders. For the DVD market, the Company offers royalty-free
licenses to consumer electronics and personal computer manufacturers and intends
to implement a business model using media-based royalties similar to that for
its videocassette copy protection business. The Company also sells a line of
products based on its various video scrambling technologies for applications in
television broadcasting and niche markets such as law enforcement and private
networks. See "Risk Factors--Need to Establish and Maintain Licensing
Relationships."
COPY PROTECTION
The Company's copy protection technologies are designed to allow motion
picture studios and other copyright holders to protect their copyrighted and
proprietary video material from unauthorized consumer copying. The Company's
copy protection technologies for videocassettes and DVDs generally are priced as
low as a few pennies per unit, depending upon the annual volume commitment made
by the copyright holder. The Company believes that copyright holders justify the
decision to pay for the Company's technology through a combination of increased
videocassette sales, increased revenues from downstream venues, stronger
relationships with retailers and a favorable return on investment compared to
equivalent advertising expenditures.
The Company's copy protection technology is "applied" electronically to
videocassettes at the time of duplication at over 225 commercial duplication
facilities in 37 countries. Company-owned copy protection equipment is installed
and maintained by the Company in each duplication facility. The Company licenses
commercial duplicators to act as distributors and sales agents in return for a
share of the copy protection
31
<PAGE>
fees duplicators receive from their customers. In cases in which the rights
owner licenses the technology directly from the Company, the Company pays
service fees to the commercial duplicators. The Company's copy protection
technology has been applied to more than 1.5 billion videocassettes worldwide
since 1985, and was applied to more than 350 million videocassettes in 1995. All
MPAA studios have used the Company's copy protection technologies to protect
some or all of their videocassettes in one or more countries around the world.
In 1996, three of these studios applied the Company's technology to virtually
every videocassette they produced. In addition, the Company believes that more
than 1,500 corporate, educational and special interest copyright holders have
contracted with the Company's licensed duplicators to apply the Company's copy
protection process to their videocassettes. See "Risk Factors--Dependence on Key
Customers."
The Company has developed an enhanced version of its videocassette copy
protection technology for the digital PPV networks that are being developed and
deployed by direct broadcast satellite and cable television operators and the
DVD format. This enhanced copy protection technology is "applied" by an
integrated circuit that is embedded within the DVD player or digital set-top
decoder and that can later be activated by copy protection control codes in the
video program or PPV network access control system. Upon activation, the
embedded integrated circuit generates the Company's copy protection signal and
applies it to the program material at the analog output port of the DVD player
or digital set-top decoder. See "Risk Factors--Evolving Market for DVD and
Digital PPV Copy Protection."
The Company has licensed its copy protection technology for digital PPV to
34 set-top decoder manufacturers and four digital PPV system operators (DIRECTV,
Galaxy Latin America, the Kirsch Group and Sky Latin America). Currently one
digital PPV program provider in Japan has activated copy protection for digital
PPV programming. The Company's copy protection technology is embedded in
substantially all of the approximately three million digital set-top decoders
currently in use in the United States, Japan and a number of countries in Latin
America, for which the Company has received license fees and royalties from the
digital set-top decoder manufacturers.
In October 1996, a multi-industry technical working group comprised of
consumer electronics companies, personal computer hardware and software
companies and motion picture studios adopted a set of copy protection principles
that established prerequisites for commercial availability of DVD hardware and
media. The Company believes that its copy protection technology is currently the
only digital-to-analog copy protection solution that satisfies these principles.
To date, Matsushita Electric Industrial Co., Ltd., THOMSON Multimedia, S.A.,
Toshiba Corporation and four other consumer electronics companies have signed
agreements with the Company to incorporate the Company's DVD copy protection
technology in their DVD players.
Consumers routinely make videocassette copies of premium cable television
and free television broadcasts. The Company does not license its technology for
use in deterring consumer copying of such programming.
Copy protection represented 96.0%, 91.0%, 92.8% and 87.9% of the Company's
net revenues in 1993, 1994, 1995 and the first nine months of 1996,
respectively. The chart below summarizes the types and sources of the Company's
current and expected future copy protection revenues. See "Risk Factors--
Dependence on Videocassette Copy Protection Technology and Advocacy by Major
Motion Picture Studios."
32
<PAGE>
<TABLE>
<CAPTION>
PROGRAMMING ROYALTIES PER UNIT/PER TRANSACTION
UP-FRONT PER UNIT -----------------------------------------------
LICENSING HARDWARE VIDEOCASSETTE DIGITAL PPV
CUSTOMER GROUP FEES ROYALTIES (1) DVD (2)(3) PROGRAMMING (3)(4)
- -------------------------------------- ----------- ----------- --------------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
Major Motion Picture Studios.......... -- -- Current Future Future
Other Video Copyright Holders......... -- -- Current Future Future
Commercial Duplicators................ Current -- Current Future --
Digital Set-Top Decoder
Manufacturers....................... Current Current -- -- --
Digital PPV System Operators.......... Current -- -- -- Future
</TABLE>
- --------------------------
(1) Individual license agreements vary with regard to the term, minimum annual
revenue commitment, minimum volume guarantees, percentage of total
production that includes copy protection and other factors.
(2) The Company intends to implement a DVD business model using media-based
royalties similar to that of its videocassette business.
(3) There can be no assurance that any revenues will be realized from any
customer group.
(4) The Company's license agreements provide for payment of transaction-based
royalties by either the copyright holder or the system operator.
VIDEO SCRAMBLING
The Company's video scrambling technologies scramble a picture generated by
an original video signal to prevent unauthorized viewing of video content. These
technologies are used in PPV, Pay TV, business television and other private
networks, broadcast television and government, military and law enforcement
markets.
The Company's PhaseKrypt video scrambling technology is a relatively secure,
easy to use, low cost alternative to other widely used analog scrambling
systems. PhaseKrypt is intended for use in Pay TV and PPV applications in
developing cable television markets such as South Korea, Taiwan, the People's
Republic of China and the Philippines. Analog set-top decoder manufacturers
either license PhaseKrypt for an up-front fee and a per unit hardware royalty or
purchase encoder hardware and decoder components from the Company. Cable
television operators purchase PhaseKrypt-enabled set-top decoders and encoder
hardware from Macrovision licensees for installation in their systems.
The Company sells StarShaker, a PhaseKrypt-based, low-cost, industrial
quality analog satellite scrambling system that is available in NTSC (the
principal video display format in North America, Japan and portions of South
America) and PAL (the principal video display format in Europe, China,
Australia/ New Zealand and portions of South America) versions and that utilizes
PC-based network control for individual and group decoder addressability. The
Company sells StarShaker encoders and set-top decoders to system integrators,
primarily for private and direct-to-home or direct-to-office analog satellite
networks for business television, special interest entertainment and education
or training programs.
The Company's video encryption system ("VES") technology is incorporated
into a variety of professional and near-professional broadcast quality
scrambling products that the Company sells rather than licenses. The Company's
VES products are professional, broadcast-quality video scrambling systems that
are available in NTSC and PAL versions. Primary applications include broadcast
television distribution to network affiliate stations and retransmission
facilities, programming delivery to cable television headends, programming
contribution circuits and backhauls. One of the VES products is a miniaturized
portable scrambling system primarily for covert law enforcement, military
surveillance and broadcast television news gathering applications.
Video scrambling represented 4.0%, 9.0%, 7.1% and 11.2% of the Company's net
revenues in 1993, 1994, 1995 and the first nine months of 1996, respectively.
33
<PAGE>
CINEGUARD
CineGuard utilizes the Company's PhaseKrypt video scrambling technology to
distribute motion pictures on Super VHS videocassettes primarily to small
theaters in rural towns in international markets. Although there are
approximately 100,000 movie theaters worldwide, motion picture studios typically
make only 800 to 3,000 film prints for each major film release due, in part, to
the high cost of producing each print. As a result, theaters in developing
international markets typically do not receive a motion picture until after the
studio's marketing efforts are exhausted or at or after home video release. The
Company's PhaseKrypt technology allows motion pictures to be recorded on
videocassettes in a scrambled state and descrambled by the Company's decoder
integrated into the video projector licensed to the CineGuard theater. This
deters unauthorized parties from copying the motion picture from the
videocassette. As a result, studios would be able to distribute motion pictures
to small theaters concurrently with their release to major film exhibitors at a
cost of approximately $40 per videocassette compared to approximately $1,500 for
a film print.
CineGuard exhibitors currently show motion pictures on scrambled
videocassettes from Columbia TriStar Pictures, Disney, New Line Cinema,
Paramount, Polygram Filmed Entertainment, United International Pictures,
Universal and numerous independent and national producers. The Company licenses
CineGuard decoders directly to international exhibitors for an initial fee and a
royalty based on box office receipts or anticipated annual ticket sales. In most
geographical markets, the Company intends to license CineGuard to master
licensees that, in turn, will license the local exhibitors. Exhibitors contract
directly with the local motion picture distributor for titles. The Company has
licensed cinemas in Poland and Ireland and has master licensees in the
Philippines and South Africa. The Company intends to expand CineGuard in these
markets and to enter new markets, including Brazil and Mexico. Revenues from
CineGuard have been insignificant to date. See "Risk Factors--Risks Associated
with CineGuard."
CUSTOMERS
The Company's videocassette copy protection technologies are used by the
following major motion picture studios and home video suppliers and by
commercial videocassette duplicators, each of which accounted for at least
$75,000 of the Company's net revenues during the nine months ended September 30,
1996:
<TABLE>
<CAPTION>
COMMERCIAL VIDEOCASSETTE
HOME VIDEO SUPPLIERS DUPLICATORS
- -------------------------------------------------------- ----------------------------------
<S> <C>
BMG Entertainment Allied Digital Technologies
Buena Vista Home Video, Inc. (Disney) Vaughn Communications, Inc.
Columbia House
Columbia TriStar Home Video (Sony Pictures
Entertainment)
HBO Home Video
MGM/UA Home Entertainment, Inc.
New Line Home Video
Turner Home Entertainment, Inc.
Twentieth Century Fox Home Entertainment, Inc.
Universal Studios Home Video
Warner Home Video
Westcott Communications
</TABLE>
The Company also licenses its videocassette copy protection technology to
special interest customers that include independent video producers and
corporations. Licensed commercial duplicators act as distributors of the
Company's videocassette copy protection technology to special interest
customers. Revenues from special interest customers accounted for approximately
25.5%, 15.6%, 15.6% and 17.7% of the Company's copy protection revenues in 1993,
1994, 1995 and the first nine months of 1996, respectively.
34
<PAGE>
The Company has licensed its digital PPV copy protection technology for
incorporation into the networks of the following system operators: DIRECTV,
Galaxy Latin America, the Kirsch Group and Sky Latin America. These system
operators have paid a one-time license fee to the Company and have entered into
agreements with the Company pursuant to which the Company is entitled to
transaction-based royalty payments at such time as copy protection for digital
PPV programming is activated. Other system operators require Macrovision-capable
set-top decoders in their networks or have signed agreements with the Company to
test its digital PPV copy protection technology on a limited basis. These system
operators include Americast, Bell Atlantic Network Services, Inc., British
Telecom, Echostar Communication Corporation, Perfectv!, PRIMESTAR Partners,
L.P., Singapore Telecom, Sprint-United Management Company, Tee-Comm Electronics
Incorporated, Tele-TV and Time Warner Cable.
The Company has licensed its copy protection technology to 34 digital
set-top decoder manufacturers, including Echostar Communications Corporation,
General Instrument Corporation, Hughes Network Systems, Inc., Pace Micro
Technology, Ltd., Philips Consumer Electronics, Scientific-Atlanta, Inc., Sony
Corporation, Thomson Consumer Electronics and Zenith Electronics Corporation.
The Company generally receives an up-front fee and a per unit royalty from each
digital set-top decoder manufacturer that licenses its technology. The Company
has also authorized 23 companies to incorporate the Company's technology in
their semi-conductor designs. These companies include Analog Devices
Corporation, Brooktree Division of Rockwell Corporation, Crystal Semiconductor,
Inc., GEC Plessey Semiconductors, Inc., Mitsubishi Electric Corporation,
Motorola, Inc., NEC Corporation, OKI Electric Industry, Co., Ltd., Philips
Semiconductors International, B.V., Raytheon Company, Samsung Electronics Co.,
Ltd., SGS-Thomson Microelectronics, Sony Electronics Inc., Texas Instruments and
VLSI Technology, Inc. These companies generally pay a small one-time service fee
for limited rights to include the Company's copy protection technology in
digital-to-analog application specific integrated circuits ("ASICs") that are
embedded in digital set-top decoders and DVD players. They are authorized to
sell the Macrovision-capable ASICs to Macrovision-licensed DVD hardware
manufacturers (to date, Matsushita Electric Industrial Co., Ltd., THOMSON
Multimedia, S.A., Toshiba Corporation and four other consumer electronics
companies) and to Macrovision-licensed digital set-top decoder manufacturers.
The Company's customers for video scrambling Pay TV components and licenses
are cable television system hardware manufacturers that sell their products into
developing markets. These customers purchase encoder hardware and decoder
components from the Company or pay the Company a volume-based royalty for
encoder and decoder components when they manufacture such components under
license from the Company. The following is a representative list of the
Company's video scrambling customers, each of which accounted for at least
$25,000 of the Company's net revenues during the nine months ended September 30,
1996:
<TABLE>
<CAPTION>
VES CUSTOMERS PAY TV COMPONENTS AND LICENSES
- ------------------------------------------ ------------------------------------------------
<S> <C>
Drug Enforcement Agency Eastern Electronics Co., Ltd. (Taiwan)
Federal Bureau of Investigation Efforts Development International, Ltd. (Hong
Kong)
Government of Israel Microelectronics Technology, Inc. (Taiwan)
Integrated Telecommunications Systems Pacific Satellite International, Ltd. (Hong
Kong)
(Canada) Taihan Electric Wire Co., Ltd. (South Korea)
News Sports Microwave, Inc.
Satellite Information Systems (United
Kingdom)
SIM Security and Electronic (Germany)
</TABLE>
Revenues from the Company's three largest customers, Disney, Fox and
Universal, represented 44%, 45%, 44% and 36% of the Company's net revenues
during 1993, 1994, 1995 and the first nine months of 1996, respectively. Each of
these customers is a home video supplier that uses the Company's copy protection
technology and accounted for more than 10% of the Company's net revenues in
1994, 1995 and the first nine months of 1996. Two of these customers
individually accounted for more than 10% of the Company's net revenues in 1993.
The Company expects that revenues from a limited number of customers
35
<PAGE>
will continue to account for a substantial portion of the Company's net revenues
for the foreseeable future. The Company's contracts with Fox and Universal
expired in December 1996 and have been extended through January 1997. The
Company's contract with Disney will expire in February 1997. There can be no
assurance that any of these contracts will be renewed, or new contracts will be
entered into, on terms favorable to the Company, or at all. The failure of any
of these customers to renew their contracts or enter into new contracts with the
Company on terms that are favorable to the Company would likely result in a
substantial decline in the Company's net revenues and operating income, and
would have a material adverse effect on the Company's business, financial
condition and results of operations. Most of the Company's other videocassette
copy protection customers license the Company's technology on a title-by-title
basis. There can be no assurance that the Company's current customers will
continue to use the Company's technology at current or increased levels, if at
all, or that the Company will be able to obtain new customers. The loss of, or
any significant reduction in revenues from, a key customer would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors--Dependence on Key Customers" and Note 9 of Notes
to Consolidated Financial Statements.
SALES, MARKETING AND CUSTOMER SUPPORT
The Company markets its videocassette copy protection and digital PPV and
DVD copy protection technologies directly to the MPAA studios and certain major
independent rights owners and video producers. The Company also provides ongoing
technical support to the three major duplicators that manufacture most of the
videocassettes for the MPAA studios. The Company supplements its direct sales
efforts with a variety of marketing initiatives, including trade show
participation, trade advertisements, industry education and newsletters. The
Company provides technical support to its licensed duplicators, including
hardware installation assistance and quality control. In addition, the Company
supports licensed duplicator sales personnel by providing sales training and
sales incentive programs and literature and by participating in trade shows.
The Company markets its video scrambling technologies through a combination
of direct sales, distributors, sales representatives and licensing in the United
States and internationally. The Company has a total of 20 distributors, sales
representatives and licensees serving 26 countries that sell products based on
the Company's video scrambling technologies. The Company is working with three
systems integrators in the United States to sell and service its StarShaker
product line. The Company licenses its PhaseKrypt technology and sells encoder
hardware and decoder components directly to manufacturers of analog set-top
decoders. Technical support is provided from the Company's Sunnyvale
headquarters.
The Company markets its copy protection technologies internationally from
its Sunnyvale headquarters, through its subsidiaries in Japan and the United
Kingdom and through exclusive licensing arrangements with third parties in
Egypt, Hungary and South Korea. International and export sales together
represented 28.9%, 38.9%, 33.2% and 36.8% of net revenues in 1993, 1994, 1995
and the first nine months of 1996, respectively. The Company expects that
international and export sales will continue to represent a substantial portion
of its net revenues for the foreseeable future. Due to its reliance on
international and export sales, the Company is subject to the risks of
conducting business internationally. See "Risk Factors--Risks Associated with
International and Export Sales" and Note 9 of Notes to Consolidated Financial
Statements.
As of September 30, 1996, the Company employed 22 sales and marketing
personnel and nine additional employees assisted in customer technical support.
The Company believes that its ability to attract, train and retain qualified
sales and marketing personnel is essential to the success of its business. The
market for such personnel is highly competitive, and the Company's sales and
marketing activities could be adversely affected if the Company were
unsuccessful in attracting, training and retaining skilled personnel. See "Risk
Factors--Dependence on Key Personnel."
36
<PAGE>
TECHNOLOGY
COPY PROTECTION
Effective copy protection systems are difficult to develop because of the
need to address the dual requirements of playability and effectiveness.
Consumers must be able to view the copy protected content using a consumer VCR
and a television set without the need for any intervening devices, while, at the
same time, the quality of an unauthorized copy must be reduced to such an extent
that it loses its entertainment value. The extent to which the entertainment
value is reduced varies, depending on the VCR model that made, and the VCR and
television combination that plays, the unauthorized copy. To prevent VCRs from
making good copies, the copy protected video must differ in some manner from the
standard video signal because, by design, all VCRs will make good copies from
standard video signals. Television sets are designed to play standard or
near-standard video signals. As a result, there is a risk that making a video
signal non-standard in order to prevent copying will decrease playability by
causing some television sets to generate impaired or distorted pictures. In the
tradeoff between effectiveness and playability, designers of copy protection
systems must favor playability while maintaining effectiveness.
The Company's videocassette copy protection technology involves the patented
technique of inserting a series of electronic pulses in the vertical blanking
interval ("VBI") of a standard video signal. The VBI is the blank space between
the video fields on television sets that are refreshed at a rate of 60 fields
per second. The copy protection pulses are embedded electronically in the
prerecorded content of the videocassettes in the process of videocassette
manufacturing. The electronic pulses are not visible in the television picture.
The pulses are intended to affect the automatic gain control ("AGC") circuit in
the recording system of most VHS videocassette recorders, but not to affect a
similar circuit in the television set. Therefore, when the consumer plays a copy
protected prerecorded videocassette, the picture is clean and crisp, but when
the consumer plays an unauthorized consumer-made copy of that same
videocassette, the picture typically has substantially reduced entertainment
value. The Company's copy protection technology is effective against most
consumer copying, but generally does not deter professional pirates who use
professional duplication and video processing equipment. In the event that the
major motion picture studios or other rights holders determine that the
inability of the Company's technology to deter professional piracy renders the
Company's technology less useful, demand for the Company's copy protection
products could decline, which would have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Risks of Defeat Technologies."
The DVD and digital PPV versions of the Company's copy protection
technologies employ both the electronic pulses used in videocassettes and a
second patented copy protection process called Colorstripe. Colorstripe affects
the color playback circuit of a VCR causing colored horizontal stripes to appear
in the picture of an unauthorized copy. The combination of the two processes
provides a higher level of effectiveness than that provided by either process
alone. In addition, Colorstripe is more effective against circumvention by
currently available professional duplication equipment. Copy protection is
implemented in DVD and digital PPV applications by embedding a copy protection
signal generator integrated circuit within the DVD player or digital set-top
decoder. The integrated circuit is activated by copy protection control codes,
which are integrated into the DVD media or the PPV transmission. Once the
integrated circuit is activated, it adds the copy protection signal to the
analog output of the DVD player or digital set-top decoder. As with
videocassette copy protection, consumers are able to see a clear picture on
their television sets, but generally cannot make a usable copy.
VIDEO SCRAMBLING
The Company's PhaseKrypt technology utilizes a combination of digital
encryption techniques and analog video scrambling to scramble video signals. The
resulting scrambled picture oscillates at random rates, which makes it almost
impossible to watch. Because the encoding or scrambling technique is digitally
controlled, the level of security against signal theft can be increased by
increasing the number of bits that are used in the encryption algorithm. The
Company's technology uses the largest number of bits currently allowable by law
for export products. The scrambled picture is decoded using the secure
PhaseKrypt analog technology that partially relies on the electronics of the
television set to make the image viewable.
37
<PAGE>
The combination of the digital encoding process, which provides security, and
the analog decoding technology, which is inexpensive, makes PhaseKrypt a
cost-effective solution for analog-based cable and satellite television set-top
decoders in developing countries. PhaseKrypt video scrambling is often
accompanied by one of Macrovision's patented audio scrambling technologies.
CINEGUARD
CineGuard utilizes the Company's PhaseKrypt video scrambling technology. The
Company licenses duplicators to record the scrambled video picture on high
resolution Super VHS videocassettes for distribution to CineGuard-licensed
cinemas. The authorization codes for a particular video program and a specific
decoder unit are encrypted and carried in the video program. Scrambled
videocassettes are descrambled by an authorized decoder integrated into the
video projector licensed to the CineGuard theater. The scrambled video program
can be descrambled only during a limited playdate window that is electronically
controlled, so that the program cannot be descrambled, even by an authorized
decoder, if the current date is outside the authorized window. The decoder is
protected by an intrusion detection system and the descrambled video stream is
marked with a fingerprint unique to each decoder.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are focused on developing
enhancements to existing products, new applications for the Company's current
technologies and new patentable technologies related to the video security
market. The Company's core technological competencies are in video engineering,
which involves the generation and modification of electronic signals in both
digital and analog form and the transformation of such signals between digital
and analog forms, and in ASIC design. Such technologies are primarily hardware
based. The Company also has expertise in developing software security codes,
which are used to restrict access to encoding and decoding devices.
For its copy protection technologies, the Company supports the efforts of
television, VCR and DVD hardware manufacturers to design hardware that is
compatible with the Company's technologies. The Company also assists
semiconductor manufacturers in incorporating the Company's copy protection
technologies into digital video-based ASICs for digital to analog converters.
The Company regularly tests the effectiveness and transparency of its copy
protection technologies on representative samples of consumer televisions and
VCRs to determine whether modifications or enhancements may be necessary.
For its video scrambling technologies, the Company's primary focus is the
development of enhancements to its PhaseKrypt-based Pay TV encoder and decoder
products. For example, the Company recently reengineered its decoder chip set to
a single integrated circuit in order to comply with current United States
regulations for the export of these components to the Peoples' Republic of
China. Engineering development for CineGuard has focused on support for the
integration of the CineGuard decoder electronics into BARCO N.V. video
projectors, development of an electronic "web" to prevent unauthorized access to
the clear video signal, improved manufacturing techniques for the encoder and
investigation into future digital implementation of the CineGuard technology.
The Company works closely with its customers to identify problems in the
video security market and to develop products and technologies that address
those problems. Projects currently under development include: a video
multiplexor to complement one of the VES products to enable customers to monitor
multiple video channels simultaneously; enhancements to the PhaseKrypt Pay TV
encoder, which, for a given cable television operator, will increase the number
of addressable set-top decoders as well as the number of individually
addressable scrambled channels; and modifications to the DVD and digital PPV
copy protection specifications for the PAL video format.
As of September 30, 1996, the Company's research and development staff
consisted of 10 engineers and four technical support personnel. The Company
believes that its ability to attract, train and retain qualified development
personnel is essential to the success of its development programs. The market
for such personnel is highly competitive, and the Company's development
activities could be adversely affected if the Company were unsuccessful in
attracting, training and retaining skilled engineering
38
<PAGE>
personnel. In 1993, 1994, 1995 and the first nine months of 1996, the Company's
expenses for research and development were $1.6 million, $2.4 million, $2.2
million and $1.9 million, respectively. See "Risk Factors--Dependence on Key
Personnel."
The video security industry in which the Company competes, and in which its
technologies and products are utilized, is characterized by rapid technological
change, frequent product introductions and enhancements, changes in customer
demands and evolving industry standards. The emergence of new industry standards
and the introduction of new technologies or products embodying new technologies
can render existing technologies or products obsolete and unmarketable. The
Company's future success will depend in large part on its ability to enhance its
current technologies and products in a timely, cost-effective manner and to
develop new technologies and products that meet changing market conditions,
which include emerging industry standards, changing customer demands, new
competitive product offerings and changing technology. Any failure by the
Company to anticipate or to respond adequately to changing market conditions, or
any significant delays in technology or product development or introduction,
could cause customers to delay or decide against licenses or purchases of the
Company's technologies or products and would have a material adverse effect on
the Company's business, financial condition and results of operations. See "Risk
Factors--Rapid Technological Change."
INTELLECTUAL PROPERTY RIGHTS
The Company holds 29 United States patents and has 33 United States patent
applications pending, of which seven are allowed. Of the issued United States
patents, 16 relate to the Company's copy protection technologies, eight relate
to video scrambling and five relate to audio scrambling. The Company's issued
United States patents expire between June 2000 and March 2015. The Company also
has 105 foreign patents and 124 foreign patent applications pending, covering
its copy protection technologies in 38 countries, its video scrambling
technologies in 33 countries and its audio scrambling technologies (pending
applications only) in 13 countries. In addition, the Company has five United
States and 15 foreign patents covering a number of processes and devices that
unauthorized parties could use to circumvent the Company's copy protection
technologies. The Company uses these patents to limit the proliferation of
devices intended to circumvent the Company's copy protection technologies. The
Company also has five United States and 21 foreign patent applications pending
that include defeat technologies.
The Company's success is heavily dependent upon its proprietary
technologies. The Company relies primarily on a combination of patent,
trademark, copyright and trade secret laws, nondisclosure and other contractual
provisions, and technical measures to protect its intellectual property rights.
There can be no assurance that any patent, trademark or copyright owned by the
Company will not be challenged and invalidated or circumvented, that patents
will issue from any of the Company's pending or future patent applications or
that any claims in issued patents or pending patent applications will be of
sufficient scope or strength or be issued in all countries where the Company's
products can be sold or its technologies can be licensed to provide meaningful
protection or any commercial advantage to the Company. There can be no assurance
that the expiration of any of the Company's patents will not have a material
adverse effect on the Company's business, financial condition and results of
operations. Further, there can be no assurance that others will not develop
technologies that are similar or superior to the Company's technologies,
duplicate the Company's technologies or design around the patents owned by the
Company. Effective intellectual property protection may be unavailable or
limited in certain foreign countries. Despite the Company's efforts to protect
its proprietary rights, unauthorized parties may attempt to copy or otherwise
use aspects of the Company's processes and devices that the Company regards as
proprietary. Policing unauthorized use of the Company's proprietary information
is difficult, and there can be no assurance that the steps taken by the Company
will prevent misappropriation of its technologies. In the event that the
Company's intellectual property protection is insufficient to protect the
Company's intellectual property rights, the Company could face increased
competition in the market for its products and technologies, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
39
<PAGE>
From time to time, the Company has received claims from third parties that
the Company's technologies and products infringe the intellectual property
rights of such third parties, and the Company may receive similar claims in the
future. Any such claims, with or without merit, could be time consuming to
defend, result in costly litigation, cause product shipment delays or require
the Company to cease utilizing the infringing technology unless it can enter
into royalty or licensing agreements. Such royalty or licensing agreements might
not be available on terms acceptable to the Company, or at all, which could have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company has initiated a number of patent infringement
disputes against manufacturers and distributors of devices intended to defeat
the Company's copy protection technologies. No lawsuits of this type are pending
currently, but litigation may be necessary in the future to limit the sale of
defeat technologies, to enforce the Company's patents and other intellectual
property rights, to protect the Company's trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement or invalidity. There can be no assurance that any such
litigation will be successful. Such litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on the
Company's business, financial condition and results of operations, whether or
not such litigation is determined adversely to the Company. In the event of an
adverse ruling in any such litigation, the Company might be required to pay
substantial damages, discontinue the use and sale of infringing products, expend
significant resources to develop non-infringing technology or obtain licenses to
infringed technology. The failure of the Company to develop or license a
substitute technology could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, such an
adverse ruling could result in the increased proliferation of devices that
defeat the Company's copy protection technology, which could result in a decline
in demand for the Company's technologies. See "Risk Factors--Dependence on
Proprietary Technology" and "Risk Factors--Risks of Defeat Technologies."
COMPETITION
COPY PROTECTION
The Company believes that it has had no significant videocassette copy
protection competitor for the last five years other than companies that have
occasionally developed hardware based on the Company's technology in foreign
countries where the Company does not have patents issued. The Company's copy
protection technologies are proprietary and have broad international patent
coverage. As a result, none of the Company's competitors has been successful in
the past. It is possible, however, that a competitive copy protection technology
could be developed in the future. For example, the Company's customers could
attempt to promote competition by supporting the development of alternative copy
protection technologies or solutions, including solutions that deter
professional duplication. Increased competition would be likely to result in
price reductions and loss of market share, either of which could materially
adversely affect the Company's business, financial condition and results of
operations.
VIDEO SCRAMBLING
The market for video scrambling products is highly competitive. The Company,
as a recent entrant into these markets, competes directly or through licensed
manufacturers with many companies, including Scientific-Atlanta, Inc., General
Instrument Corporation, Leitch Technology International, Inc., Zenith
Electronics Corporation and Toshiba Corporation. These companies have
substantially greater name recognition, larger installed customer bases and
market share and significantly greater financial, technical, marketing and other
resources than the Company and its licensees, many of which are manufacturing
and selling addressable set-top decoders for the first time. There can be no
assurance that the Company and its licensees will be able to compete
successfully in the video scrambling systems markets, that the Company will be
able to make technological advances necessary to improve or even maintain its
competitive position or that the Company's products will achieve market
acceptance. In addition, there can be no assurance that technological changes or
development efforts by the Company's competitors will not render the Company's
video scrambling products obsolete or uncompetitive. The Company believes that
the principal
40
<PAGE>
competitive factors affecting these markets include the level of security
provided, price, quality, product reputation, customer service and support, the
effectiveness of sales and marketing efforts and company reputation. There can
be no assurance that the Company can compete successfully against current and
potential competitors, especially against those with significantly greater
financial, marketing, service, support, technical and other resources.
CINEGUARD
The Company is not aware of any technology that competes directly with
CineGuard. Competition for CineGuard may come from film cinemas located near
CineGuard theaters. CineGuard theaters could be at a competitive disadvantage
compared to film, because film typically has better picture quality and a larger
projected image than video. Motion picture distributors might also give
programming priority to competing film cinemas or withdraw programming entirely
from CineGuard theaters in competition with film cinemas. Additionally,
competitors might attempt to develop or acquire competing technologies that
could provide the necessary security for video cinema applications. Potential
competitors include large multinational video projector manufacturers or other
consumer electronic products companies. In particular, several large
corporations have announced digital video projectors that could replace film in
cinemas. This development or any other development that presents a
cost-effective, secure and high quality alternative to film for cinema
projection would compete against CineGuard. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not
materially adversely affect the Company's business, financial condition and
results of operations. See "Risk Factors--Competition."
MANUFACTURING
The Company's manufacturing strategy is to license its technologies to third
parties that manufacture products incorporating those technologies. The Company
generates royalty revenues from these licenses, generally in the form of an
up-front fee and a per unit royalty. For example, licensees of the Company's
PhaseKrypt technology can either manufacture PhaseKrypt decoder components or
purchase such components from the Company. In addition, BARCO N.V., a video
projector manufacturer, incorporates the CineGuard video decoder technology into
the projectors that are sold to CineGuard licensed exhibitors. Authorized BARCO
N.V. distributors worldwide import, market, sell, install and maintain BARCO
N.V. projectors including the integrated CineGuard decoder.
The Company's manufacturing operations are limited to low volume products
that require significant quality control efforts by the Company, such as the VES
and StarShaker products, PhaseKrypt encoders and videocassette copy protection
processors used by commercial videocassette duplicators. These manufacturing
operations consist primarily of component procurement, final assembly and test,
and quality control of subassemblies and systems. The Company generally uses
domestic independent contractors to manufacture and assemble printed circuit
boards, which enables the Company to configure the hardware and software in
combinations to meet a wide variety of customer requirements. The Company has an
OEM agreement with one of its Pay TV licensees for the manufacture of StarShaker
decoders in Taiwan. The Company installs its software into electronically
programmable read-only memory to maintain quality control and security. The
Company utilizes "burn-in" procedures, functional and system integration testing
and comprehensive inspections to assure quality and reliability of its products.
The Company depends upon third-party manufacturers and suppliers for
components, subassemblies and printed circuit boards used in its VES products,
StarShaker products, PhaseKrypt encoders, PhaseKrypt decoder components and
videocassette copy protection processors. The Company's product designs are
proprietary but generally incorporate industry-standard hardware components that
are obtainable from multiple sources. The Company's ability to deliver its
products in a timely manner depends upon the availability of quality components
and subassemblies used in these products and, in part, on the ability of
subcontractors to manufacture, assemble and deliver certain items in a timely
and satisfactory manner.
41
<PAGE>
The Company obtains certain electronic components and subassemblies from single,
or a limited number of, sources. For example, Atmel Corporation is currently the
Company's sole source of integrated circuits for the Company's PhaseKrypt
decoders and BARCO N.V. is currently the sole source of integrated decoders for
CineGuard video projectors. The reliance on third-party manufacturers and sole
or limited suppliers involves a number of risks, including a potential inability
to obtain an adequate supply of required components, subassemblies and printed
circuit boards and reduced control over pricing, quality and timely delivery of
components, subassemblies and printed circuit boards. A significant interruption
in the delivery of any such items or any other circumstance that would require
the Company to seek alternative sources of supply could result in the inability
of the Company to deliver certain of its products on a timely basis, which in
turn could result in a deterioration of the Company's customer relationships and
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Risk Factors--Dependence on Suppliers and
Third-Party Manufacturers."
LEGISLATIVE AND TECHNOLOGY INITIATIVES
For the past two years, the Company has worked with major motion picture
studios, consumer electronics manufacturers and personal computer hardware and
software companies to develop comprehensive copy protection solutions for DVD
and other digital formats. The Company presented its proprietary
digital-to-analog copy protection solutions to the National Information
Infrastructure task force, a government-sponsored group, which recommended that
changes be made to the federal copyright laws to include new copyright
protection requirements for digital media and digital hardware and to outlaw
copy protection circumvention devices.
In a related initiative, the Company has also been an active participant in
a DVD Copy Protection Technical Working Group that recently adopted a set of
copy protection principles that established prerequisites for commercial
availability of DVD hardware and media. The Company believes that adoption of
these principles will result in worldwide copy protection standards for DVD
players and media. The Technical Working Group is comprised of representatives
from the following associations and their respective member companies: MPAA,
Consumer Electronics Manufacturers Association, Information Technology
Industries Council, Business Software Alliance, Recording Industry Association
of America, Home Recording Rights Coalition, Interactive Multimedia Association
and DVD Manufacturers Consortium. The Company believes that its copy protection
technology is currently the only digital-to-analog copy protection solution that
satisfies these principles. The Technical Working Group has recommended that
legislation be drafted and enacted in 1997 that would support the technical
design principles by outlawing copy protection circumvention devices. Such
legislation, if introduced and enacted into law, would assist the Company in
controlling proliferation of circumvention devices. However, there can be no
assurance that such legislation will be introduced in the United States Congress
or the legislature of any other country, or if it is introduced that it will
ever be enacted or that all DVD and PC manufacturers will follow industry design
principles and applicable technology-based copy protection schemes.
INTEREST IN COMMAND AUDIO CORPORATION
The Company owns 19.8% of the outstanding stock of CAC, a company founded by
Macrovision in late 1995. CAC is developing an audio-on-demand system consisting
of a program center that provides continuously updated news and information on a
subscription basis and a hand-held portable receiver that stores the
information. The system allows consumers to control the timing and content of
the program playback. The Company has no plans to increase its ownership above
the 19.8% minority position, but does have a right of first refusal to acquire
additional stock to maintain its 19.8% ownership if and when CAC offers
additional stock, subject to certain exceptions. Additionally, the Company
assigned to CAC all rights in certain technology and released its reversion
rights in technology that the Company had previously assigned to CAC. In
consideration of such assignment and release, CAC agreed to pay to the Company
royalties equal to 2.0% of CAC's gross revenues for 12 years, beginning when CAC
has operating revenues from certain sources or, at the election of the Company,
at any time prior thereto. See "Certain Transactions" and Note 4 of Notes to
Consolidated Financial Statements.
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<PAGE>
EMPLOYEES
As of September 30, 1996, the Company had 77 employees, including 11 in
manufacturing, 14 in research, engineering and development, nine in technical
support, 22 in sales and marketing and 21 in general and administrative
capacities. Ten of these employees are based outside of the United States. None
of the Company's employees is covered by a collective bargaining agreement or is
represented by a labor union with respect to employment by the Company. The
Company has not experienced any organized work stoppages and considers its
relations with its employees to be good.
The Company's future performance is highly dependent upon the continued
service of members of the Company's senior management and other key research and
development and sales and marketing personnel. The Company believes that its
future success will also depend upon its continuing ability to identify,
attract, train and retain other highly skilled managerial, technical, sales and
marketing personnel. Hiring for such personnel is competitive, and there can be
no assurance that the Company will be able to retain its key employees or
attract, assimilate or retain the qualified personnel necessary for the
development of its business. See "Risk Factors--Dependence on Key Personnel."
FACILITIES
The Company's principal operations are located in a 43,960 square foot
building in Sunnyvale, California. The Company's lease for this building expires
on June 30, 2002. The Company also leases space for sales, marketing and
technical support operations near London, England and in Tokyo, Japan. The
Company believes that its existing facilities are adequate to meet its current
needs. See Note 7 of Notes to Consolidated Financial Statements.
LEGAL PROCEEDINGS
In October 1995, Joseph Swyt, a former officer and director of the Company,
filed suit against the Company in the Superior Court of the State of California
alleging monetary damages suffered as a result of alleged fraud,
misrepresentation and other malfeasance in connection with the Company's grant
of stock options to him. As a result of motions filed by the Company, in
September 1996 the California Court of Appeal ordered this matter to binding
arbitration in accordance with a written agreement between the Company and Mr.
Swyt. The arbitration agreement contains limitations on the remedies available
to Mr. Swyt and expressly precludes punitive damages. The Company believes that
the case is without merit and intends to contest it vigorously. While the
outcome of this case cannot be determined with certainty, the Company does not
believe that the resolution of this case will have a material adverse effect on
the Company's financial condition or results of operations. However, a decision
against the Company could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company is not a
party to any other litigation that would have a material adverse effect on the
Company or its business and results of operations. See "Risk Factors--Litigation
Risk" and Note 8 of Notes to Consolidated Financial Statements.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, and their ages and
positions, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --- --------------------------------------------------------
<S> <C> <C>
John O. Ryan............................. 51 Chairman of the Board of Directors, Chief Executive
Officer and Secretary
William A. Krepick....................... 51 President, Chief Operating Officer and Director
Victor A. Viegas......................... 39 Vice President, Finance and Administration and Chief
Financial Officer
Mark S. Belinsky......................... 39 Vice President, Worldwide Theatrical and Pay-Per-View
Copy Protection
Patrice J. Capitant...................... 48 Vice President, Engineering
Brian R. Dunn............................ 40 Vice President, CineGuard Business Development
Whit T. Jackson.......................... 36 Vice President, Video Encryption Technologies
Richard S. Matuszak...................... 53 Vice President, Special Interest Copy Protection and
Director
</TABLE>
MR. RYAN is a co-founder of the Company and an inventor of its core copy
protection and video scrambling technologies. He has served as Chairman of the
Board of Directors and Secretary of the Company since June 1991 and Chief
Executive Officer of the Company since June 1995. He has been a director of the
Company since June 1987 and served as Vice-Chairman of the Board of Directors
from 1987 until June 1991. He also served as General Partner of the partnership
predecessor of the Company from 1985 to 1987 and as President and Secretary of
the corporate predecessor of the Company from 1983 to 1985. Prior to founding
Macrovision, Mr. Ryan was Director of Research and Development of Ampex
Corporation's broadcast camera group. Mr. Ryan holds more than 30 patents and
has 17 patent applications pending in the fields of video copy protection, video
scrambling and television camera technology. Mr. Ryan took undergraduate courses
in Physics and Math at the University of Galway in Ireland and received a Full
Technological Certificate in Telecommunications from the City and Guilds
Institute of London.
MR. KREPICK has served as a director of the Company since November 1995 and
as President and Chief Operating Officer of the Company since July 1995. He has
been with the Company since November 1988, and served as Vice President, Sales
and Marketing of the Company until June 1992 and Senior Vice President,
Theatrical Copy Protection from July 1992 to June 1995. Prior to joining
Macrovision, Mr. Krepick held several executive marketing management positions
over a ten-year period with ROLM Corporation, a telecommunications equipment
manufacturing company. He holds a B.S. degree in Mechanical Engineering from
Rensselaer Polytechnic Institute and an M.B.A. from Stanford University.
MR. VIEGAS has served as Vice President, Finance and Administration and
Chief Financial Officer of the Company since June 1996. From October 1986 to
June 1996, he served as Vice President of Finance and Chief Financial Officer at
Balco Incorporated, a manufacturer of advanced automotive service equipment and,
since May 1991, a subsidiary or division of Snap-On Tools. He holds a B.S.
degree in Accounting and an M.B.A. from the University of Santa Clara.
MR. BELINSKY has served as Vice President, Worldwide Theatrical and
Pay-Per-View Copy Protection of the Company since he joined the Company in
October 1995. Between June and September 1995, he was a consultant to various
companies in the Internet services and electronic commerce fields, and, between
June 1995 and August 1995, he was Chief Operating Officer of the McKinley Group,
Inc., an Internet directory services company. From May 1993 to June 1995, Mr.
Belinsky was Vice President and General Manager of the Electronic Marketplace
Systems Division of International Data Group, a developer of online shopping
malls for personal computer and software products. He was an independent
consultant
44
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between February and May 1993 and, from October 1988 to January 1993, he was
Vice President and General Manager of the Interop Company, a division of
Ziff-Davis Publishing Company. He holds a B.A. degree in Business Administration
from Wayne State University and an M.B.A. from Harvard Business School.
DR. CAPITANT has served as Vice President, Engineering of the Company since
October 1996. He joined the Company in October 1995 as Director of Engineering.
He served as Manager of Video Engineering at Radius, Inc., a computer equipment
manufacturer, from December 1994 to September 1995. Dr. Capitant held
engineering positions at Compression Labs, Inc., a telecommunications equipment
manufacturer, from September 1993 to December 1994 and Sony Corporation of
America, Advanced Video Technology Center, from September 1989 to September
1993. He completed his undergraduate and post graduate work in engineering and
automatic control at Institut Industrial du Nord, Lille, France and University
of Lille. He holds a Ph.D. degree in Electrical Engineering from Stanford
University.
MR. DUNN has served as Vice President, CineGuard Business Development of the
Company since January 1995. From January 1989 to December 1994, he served as
Vice President, Operations, Corporate Counsel and Chief Financial Officer of
Phase 2 Automation, a factory automation company. Mr. Dunn holds a B.A. degree
in Accounting from the University of Notre Dame and a J.D. degree from Santa
Clara University School of Law.
MR. JACKSON has served as Vice President, Video Encryption Technologies of
the Company since September 1992. He joined the Company in August 1990 as Sales
Manager for the Company's line of encryption products. From January 1989 to
August 1990, Mr. Jackson managed the satellite service business for the
Galaxy/Westar satellite fleet of Hughes Communications, Inc., a satellite
communications company. He holds a B.A. degree in International Relations from
Northwestern University and an M.B.A. from the J.L. Kellogg Graduate School of
Management at Northwestern University.
MR. MATUSZAK has served as Vice President, Special Interest Copy Protection
of the Company since June 1992, and as a director of the Company since May 1992.
He joined the Company in August 1985 and held various sales and marketing
positions from August 1985 to June 1992. From June 1984 to August 1985, Mr.
Matuszak was a Sales Manager for the Broadcast Products Division of Hitachi
Corporation. He holds an Associate degree in Applied Technologies and
Electronics from DeVry Institute of Technology.
Each director holds office until the next annual meeting of stockholders of
the Company or until his successor is duly elected and qualified. Officers are
chosen by, and serve at the discretion of, the Board of Directors (the "Board").
There are no family relationships among the directors and officers of the
Company.
The Company intends to add two independent directors to the Board of
Directors within 60 days of this offering, and to name such independent
directors as members of the Compensation Committee. In addition, the Company
intends to establish an Audit Committee comprised of at least two independent
directors. In the event that the Company fails to appoint such directors, the
Nasdaq National Market could terminate the listing of the Company's Common Stock
on the Nasdaq National Market, which would have a material adverse effect on the
liquidity and trading price of the Common Stock. See "Risk Factors--No Prior
Public Market for Common Stock."
DIRECTOR COMPENSATION
Mr. Matuszak receives a fee of $1,000 for each Board meeting he attends. No
other member of the Company's Board currently receives a fee for attending Board
meetings.
The Company's 1996 Directors Stock Option Plan (the "Directors Plan") was
adopted by the Board in December 1996 and is expected to be approved by the
Company's stockholders in January 1997. A total of 60,000 shares of the
Company's Common Stock is reserved for issuance under the Directors Plan.
Members of the Board who are not employees of the Company are eligible to
participate in the Directors Plan. Each eligible director who first becomes a
member of the Board after the Effective Date of the
45
<PAGE>
Registration Statement for this offering will be granted a nonqualified option
to purchase 5,000 shares (the "Initial Grant") of the Company's Common Stock,
effective as of the date such director joins the Board. Also, at each
anniversary of the Initial Grant, each director who has served continuously as a
member of the Board since the date of the director's Initial Grant will be
granted a subsequent nonqualified option to purchase 3,000 shares. Each eligible
director who is serving as a member of the Board on the Effective Date of the
Registration Statement will be granted a nonqualified option to purchase 3,000
shares of the Company's Common Stock annually on each successive anniversary of
the Effective Date of the Registration Statement, commencing on the first
anniversary of the Effective Date, provided that such director continues to
serve on the Board on such dates. Options granted to directors under the
Directors Plan will vest as to 2.08% of the shares on the last day of each month
following the grant date of such options, so long as the eligible director
continues to serve on the Board on such dates. In the event of a merger,
consolidation or similar corporate transaction, the vesting of all outstanding
options under the Directors Plan will be accelerated so that all outstanding
options are vested and exercisable in full prior to the consummation of such
transaction. If such options are not exercised prior to the consummation of such
event, and are not assumed or replaced by the successor entity, such options
will terminate. The exercise price of all options granted under the Directors
Plan will be the fair market value of the Common Stock on the date of the grant.
The Directors Plan will terminate in December 2006, unless terminated earlier in
accordance with the provisions of the Directors Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee reviews and approves compensation and
benefits for the Company's key executive officers, administers the Company's
stock purchase and stock option plans and makes recommendations to the Board
regarding such matters. The Compensation Committee is currently comprised of
John O. Ryan and William A. Krepick, each of whom is an executive officer of the
Company. David W. Herbst, the Company's outside legal counsel, also served on
the Compensation Committee until December 1996. No member of the Compensation
Committee serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of the
Board or Compensation Committee. The Board expects to appoint independent
directors to the Compensation Committee within 60 days following the date of
this Prospectus.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION. The following table sets forth all compensation
awarded to, earned by, or paid for services rendered to the Company in all
capacities during 1996 by the Company's chief executive officer and the
Company's four other most highly compensated executive officers who were serving
as executive officers at the end of 1996 (together, the "Named Officers").
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------
ANNUAL COMPENSATION AWARDS
---------------------------------------------- -------------------
OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL POSITION SALARY (1) BONUS (2) COMPENSATION (3) UNDERLYING OPTIONS
- ------------------------------------------- ------------- ------------- ---------------- -------------------
<S> <C> <C> <C> <C>
John O. Ryan............................... $ 200,000 $ -- 4,886 --
Chief Executive Officer
William A. Krepick......................... 200,000 -- 6,002 --
President and Chief Operating Officer
Brian A. Dunn.............................. 131,204 -- 5,321 --
Vice President, CineGuard Business
Development
Mark S. Belinsky........................... 127,026 -- 2,189 8,333
Vice President, Worldwide Theatrical and
Pay-Per-View Copy Protection
Patrice J. Capitant........................ 112,337 -- 2,558 27,776
Vice President, Engineering
</TABLE>
- ------------------------
(1) Victor A. Viegas, who joined the Company in June 1996 as Vice President,
Finance and Administration and Chief Financial Officer, is compensated at an
annual salary rate of $135,000. Mr. Viegas also purchased an aggregate of
58,333 shares of Common Stock at a price of $2.70 per share. See "--
Employment Agreement."
(2) Amounts do not include bonuses paid in 1996 for services rendered in 1995 or
bonuses to be paid in 1997 for services rendered in 1996. Bonuses are paid
pursuant to the Executive Incentive Plan. Pursuant to the Executive
Incentive Plan, the total amount available for bonuses for services rendered
in 1996 is $ . The amount of the bonus payable to each Named Officer
will be determined in February 1997. See "--Employee Benefit Plans."
(3) Includes Company contributions to the 401(k) Plan in the amount of $1,900
for each Named Officer. Also includes life insurance premiums in the
following amount for each Named Officer: Mr. Ryan-- $2,108; Mr.
Krepick--$2,102; Mr. Dunn--$463; Mr. Belinsky--$289; and Mr. Capitant--$658.
The remainder represents reimbursement for one-third of the difference
between business class and coach class air travel up to a maximum of $1,000
for each business trip. The amount of such reimbursement is as follows: Mr.
Ryan--$878; Mr. Krepick--$2,000; and Mr. Dunn--$2,958.
In August 1996, the Company distributed to its employees as bonuses an
aggregate of 208,782 shares of Command Audio Corporation ("CAC") common stock,
which represented approximately 10.4% of the then outstanding voting stock of
CAC. Of these shares, 50% became vested on December 31, 1996 and the remaining
50% will vest on December 31, 1997, subject to the employee's continuing in the
Company's employment through such date. Upon termination of employment, the
Company has the right to repurchase the former employee's unvested shares at a
price of $0.01 per share. The number of shares of CAC common stock distributed
as a bonus to each Named Officer was as follows: John O. Ryan--36,000 shares;
William A. Krepick--36,000 shares; Brian A. Dunn--7,200 shares; Mark S.
Belinsky--12,000 shares; and Patrice J. Capitant--3,600 shares. In addition,
10,102 shares were distributed to Victor A. Viegas.
OPTION GRANTS IN LAST FISCAL YEAR. The following table sets forth further
information regarding option grants pursuant to the Company's Stock Option Plan
during 1996 to each of the Named Officers. In accordance with the rules of the
Securities and Exchange Commission, the table sets forth the hypothetical gains
or "option spreads" that would exist for the options at the end of their
respective ten-year terms. These gains are based on assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted to the end of the option term.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZEABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
------------------------------------------------------- RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SHARES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM (2)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION --------------------
NAME GRANTED (1) 1996 PER SHARE DATE 5% 10%
- ------------------------------------ ----------- ------------- --------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
John O. Ryan........................ -- -- -- -- -- --
William A. Krepick.................. -- -- -- -- -- --
Brian A. Dunn....................... -- -- -- -- -- --
Mark S. Belinsky.................... 8,333 6.0% $ 2.70 6/7/06 $ 14,149 $ 35,857
13,888 10.1 2.70 3/12/06 23,582
Patrice J. Capitant................. 5,555 4.0 2.70 6/7/06 9,432 23,904
8,333 6.0 7.20 10/29/06 37,732 95,621
</TABLE>
- ------------------------
(1) Options granted under the Stock Option Plan in 1996 have been incentive
stock options or non-qualified stock options that were granted at fair
market value and that vest over a three-year vesting period. Options expire
ten years from the date of grant.
(2) The 5% and 10% assumed annual rates of stock price appreciation are mandated
by the rules of the Securities and Exchange Commission and do not represent
the Company's estimate or projection of future Common Stock prices.
On the day following this offering, the Company will grant to Mr. Viegas an
option to purchase 22,222 shares of Common Stock at an exercise price equal to
the fair market value of such shares on the date of the grant.
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES. The following table sets forth the number of shares acquired
upon the exercise of stock options during 1996 and the number of shares covered
by both exercisable and unexercisable stock options held by each of the Named
Officers at December 31, 1996. Also reported are values of "in-the-money"
options, which represent the positive spread between the respective exercise
prices of outstanding stock options and the fair market value of the Company's
Common Stock as of December 31, 1996 ($9.00) as determined by the Board.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES VALUE AT FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED ON REALIZED -------------------------- --------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John O. Ryan................... -- -- -- -- -- --
William A. Krepick............. 11,111 $ 69,999 62,962 55,555 $ 396,661 $ 349,997
Brian A. Dunn.................. -- -- 5,092 25,463 32,080 160,417
Mark S. Belinsky............... -- -- 4,629 31,481 29,163 198,330
Patrice J. Capitant............ -- -- -- 27,776 -- 137,490
</TABLE>
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with Mr. Viegas in June
1996, in connection with Mr. Viegas' employment as Vice President, Finance and
Administration and Chief Financial Officer of the Company. Under the employment
agreement, Mr. Viegas receives an annual salary of $135,000 and is eligible to
participate in the Company's Executive Incentive Plan. The employment agreement
may be terminated by the Company or by Mr. Viegas at any time for any reason.
Pursuant to the employment
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<PAGE>
agreement, the Company sold to Mr. Viegas 58,333 shares of the Company's Common
Stock at a price of $2.70 per share. Mr. Viegas purchased the shares with a full
recourse promissory note secured by the shares. The largest aggregate amount of
indebtedness outstanding under the note during the first nine months of 1996 was
$157,500. Interest at the rate of 6.58% per year is paid monthly. The loan is
due in five years or earlier on any termination of Mr. Viegas' employment with
the Company. The shares vest over a three-year period, with one-sixth vesting in
June 1997, an additional one-third vesting in June 1998 and the balance vesting
in June 1999. The Company has the right to repurchase unvested shares at the
original sale price in the event that Mr. Viegas ceases to be an employee of the
Company. Under the employment agreement, on the day following this offering, the
Company will grant Mr. Viegas an option to acquire an additional 22,222 shares
of the Company's Common Stock, at the fair market value of such shares on the
grant date, and such options will vest and become exercisable over a three-year
period. If the Company terminates Mr. Viegas' employment without cause, all of
his unvested shares and stock options will have the benefit of one additional
year of vesting and Mr. Viegas will be entitled to severance benefits under the
Company's severance pay plan. If the Company terminates Mr. Viegas' employment
without cause or if Mr. Viegas terminates his employment for good reason within
either three months before or twelve months after a change in control of the
Company, all of his unvested shares and stock options will immediately vest.
EMPLOYEE BENEFIT PLANS
STOCK OPTION PLAN. The Company's Stock Option Plan (the "Option Plan"),
covering 972,222 shares of Common Stock, was adopted by the Board in September
1988 and approved by the Company's stockholders in November 1988. As of
September 30, 1996, options to purchase 170,998 shares had been exercised under
the Option Plan, 709,756 shares were subject to outstanding options under the
Option Plan and 91,468 shares were available for future grants under the Option
Plan. Options granted under the Option Plan before its termination will remain
outstanding in accordance with their terms, but no further options will be
granted under the Option Plan after the Company's Delaware reincorporation. See
Note 5 of Notes to Consolidated Financial Statements.
1996 EQUITY INCENTIVE PLAN. The Company's 1996 Equity Incentive Plan (the
"Equity Incentive Plan") was adopted by the Board in December 1996 and is
expected to be approved by the stockholders in January 1997. The Equity
Incentive Plan will serve as the successor incentive program to the Company's
Option Plan after the effective date of the Registration Statement. The Company
has reserved 300,000 shares of the Company's Common Stock for issuance under the
Equity Incentive Plan. In addition, any shares of Common Stock authorized for
issuance under the Option Plan that are not subject to options outstanding on
the Effective Date of the Registration Statement or are issuable upon exercise
of options granted pursuant to the Option Plan that expire or become
unexercisable for any reason without having been exercised in full will be
available for grant and issuance pursuant to the Equity Incentive Plan. The
Equity Incentive Plan provides for the grant of stock options, stock
appreciation rights and restricted stock awards by the Company to its employees,
directors, consultants and other individuals providing services to the Company.
No person will be eligible to receive stock options or stock appreciation rights
with respect to more than 150,000 shares of Common Stock under the Equity
Incentive Plan in any calendar year. Shares that are subject to an award granted
under the Equity Incentive Plan but are forfeited, canceled, reacquired by the
Company, satisfied without the issuance of shares of Common Stock or otherwise
terminated other than by exercise, will again be available for grant or issuance
under the Equity Incentive Plan. The Equity Incentive Plan will be administered
by the Compensation Committee of the Board (the "Committee"), which will consist
of two persons who are "outside directors" as that term is defined under the
Exchange Act and Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"). The Equity Incentive Plan permits the Committee to grant options
that are either incentive stock options (as defined in Section 422 of the Code)
or nonqualified stock options, on terms (including vesting schedule) determined
by the Committee, subject to certain statutory and other limitations in the
Equity Incentive Plan. The exercise price of options granted under the Equity
Incentive Plan will be determined by the Committee, subject to the requirements
that the exercise price of incentive stock options must not be less than the
fair market value of the Common Stock on the date the option is granted and the
exercise
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<PAGE>
price of nonqualified options granted under the Equity Incentive Plan must not
be less than 85% of such fair market value. Options granted under the Equity
Incentive Plan must be exercised within three months after termination of the
optionee's status as an employee or consultant of the Company (or such later
date as specified by the Committee) or within 12 months after the optionee's
termination by death, disability or retirement, except that options held by any
optionee whose employment or other business relationship with the Company is
terminated for cause will terminate immediately upon termination of the
optionee's status (unless otherwise provided by the Committee).
In addition to, or in tandem with, awards of stock options, the Committee
may grant participants stock appreciation rights with an exercise price of no
less than the fair market value of the Company's Common Stock on the date the
stock appreciation right is granted or, in the case of stock appreciation rights
granted in tandem with stock options, with an exercise price no less than the
option exercise price per share. The Committee may grant participants restricted
stock awards to purchase an aggregate of up to 125,000 shares of the Company's
Common Stock at such purchase price as determined by the Committee (but no less
than 85% of the fair market value of the Company's Common Stock on the date of
the award) and upon such terms, including vesting schedule, as the Committee may
determine. Under the Equity Incentive Plan, restricted stock awards may be
awarded for the satisfaction of performance goals established in advance.
In the event of a merger, consolidation or similar corporate transaction,
any or all outstanding awards under the Equity Incentive Plan may be assumed,
converted, replaced or substituted by the successor corporation (if any), which
assumption, conversion, replacement or substitution will be binding on all
participants in the Equity Incentive Plan. In the event such successor
corporation (if any) does not assume or substitute awards, such awards will
expire in connection with such transaction at such time and on such conditions
as determined by the Board. The Equity Incentive Plan has no termination date,
except that no incentive stock options will be granted under the Equity
Incentive Plan after December 2006. The Equity Incentive Plan may be terminated
at any time by the Board or otherwise in accordance with the provisions of the
Equity Incentive Plan.
1996 EMPLOYEE STOCK PURCHASE PLAN. The Company's Employee Stock Purchase
Plan (the "Purchase Plan") was adopted by the Board in December 1996 and is
expected to be approved by the stockholders in January 1997. A total of 140,000
shares of the Company's Common Stock is reserved for issuance under the Purchase
Plan. The Purchase Plan will become effective on the date on which price
quotations for the Company's Common Stock are first available on the Nasdaq
National Market. The Purchase Plan permits eligible employees to acquire shares
of the Company's Common Stock through payroll deductions. The Purchase Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Code. Eligible employees may select a rate of payroll deduction between 1%
and 20% of their compensation, up to an aggregate payroll deduction not to
exceed $21,250 in any calendar year. Each offering under the Purchase Plan will
be for a period of 24 months (the "Offering Period") commencing, except for the
first Offering Period, on the first day of February and August of each year.
Each Offering Period will consist of four six-month purchase periods (each a
"Purchase Period"). The Board has the power to change the duration of Offering
Periods or Purchase Periods without stockholder approval, provided that the
change is announced at least fifteen days prior to the scheduled beginning of
the first Offering Period or Purchase Period to be affected. The first Offering
Period will begin on the date on which price quotations for the Company's Common
Stock are first available on the Nasdaq National Market and will end on January
31, 1999, unless otherwise determined by the Board. The purchase price for the
Company's Common Stock purchased under the Purchase Plan is 85% of the lesser of
the fair market value of the Company's Common Stock on the first day of the
applicable Offering Period or the last day of the respective Purchase Period.
The Purchase Plan will terminate on the earlier of termination by the Board,
issuance of all the shares reserved under the Purchase Plan or ten years from
the date the Purchase Plan was adopted by the Board.
401(K) PLAN. The Company's 401(k) Plan (the "401(k) Plan") is a defined
contribution 401(k) profit sharing plan intended to qualify under Section 401 of
the Code. Employees of the Company are eligible to participate in the 401(k)
Plan on the first day of the month coinciding with or immediately following
completion of three months of employment. A participating employee, by electing
to defer a portion of his
50
<PAGE>
or her compensation, may make pre-tax contributions to the 401(k) Plan, subject
to limitations under the Code, of a percentage (not to exceed 25%) of his or her
total compensation. Employee contributions and the investment earnings thereon
are fully vested at all times. The Company is not required to contribute to the
401(k) Plan and had made no voluntary contributions through 1995. In 1996, the
Company made matching contributions to the 401(k) Plan equal to 20% of each
participating employee's contribution, up to a maximum annual matching
contribution of $1,900. Matching contributions aggregated $41,000 for the nine
months ended September 30, 1996 and will be fully vested after three years.
EXECUTIVE INCENTIVE PLAN. The Company's Executive Incentive Plan ("EIP")
provides for payment of annual bonuses to key employees of the Company based on
the Company's overall financial performance and the participant's achievement of
individual financial, strategic and tactical goals. For 1996, the EIP covers 12
officers and key employees, who will receive their bonuses, if any, in March
1997. At year end, each participant's individual performance will be rated
between 0% and 200% based upon the achievement of or the failure to achieve
individual performance goals established at the beginning of the year. The
Company's financial performance is measured by its operating income from
continuing operations. The Company will pay bonuses pursuant to the EIP for 1996
only if the Company's 1996 operating income from continuing operations equals or
exceeds a predetermined target amount. If the Company meets its predetermined
operating income goal in 1996, a participant with an individual performance
rating of 100% (satisfactory completion of all individual goals) for 1996 would
receive a bonus of 20% of annual base salary.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, the
Bylaws of the Company provide that: (i) the Company is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law; (ii) the Company may, in its discretion, indemnify other
persons as set forth in the Delaware General Corporation Law; (iii) the Company
is required to advance expenses, as incurred, to its directors and officers in
connection with a legal proceeding (subject to certain exceptions); (iv) the
rights conferred in the Bylaws are not exclusive; and (v) the Company is
authorized to enter into indemnification agreements with its directors,
officers, employees and agents.
The Company intends to enter into Indemnity Agreements with each of its
current directors and executive officers to give such directors and officers
additional contractual assurances regarding the scope of the indemnification set
forth in the Company's Bylaws and to provide additional procedural protections.
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director except for liability: (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders; (ii) for acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv)
for any transaction from which the director derived an improper personal
benefit. The Company, with approval of the Board, has applied for, and expects
to obtain, directors and officers liability insurance.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
There is no pending litigation or proceeding involving any director,
officer, employee or agent of the Company where indemnification will be required
or permitted. The Company is not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
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CERTAIN TRANSACTIONS
Since January 1, 1994, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or is
to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of the Common Stock of the
Company had or will have a direct or indirect material interest other than (i)
compensation agreements, which are described in "Management," and (ii) the
transactions described below.
TRANSACTIONS WITH PACIFIC MEDIA DEVELOPMENT, INC. AND VICTOR COMPANY OF JAPAN,
LIMITED
The following transactions involve Victor Company of Japan, Limited ("JVC")
and entities that are owned by JVC. Through a wholly-owned subsidiary, JVC owns
100% of Pacific Media Development, Inc. ("Pacific Media"). JVC is a beneficial
owner of the shares of the Company's Common Stock that are held of record by
Pacific Media and represent more than 5% of the Company's Common Stock.
In May 1991, the Company and one of its stockholders entered into a Stock
and Convertible Note Purchase Agreement (the "Purchase Agreement") with a
trustee for Pacific Media pursuant to which Pacific Media acquired beneficial
ownership of shares of the Company's Common Stock and Series A Preferred Stock
and a promissory note in the principal amount of approximately $3.0 million (the
"Convertible Note"), which was convertible into Series A Preferred Stock. In
July 1996, Pacific Media, acting through the trustee, acquired 543,099 shares of
the Company's Series A Preferred Stock upon the conversion of the Convertible
Note. Pursuant to the Purchase Agreement, Pacific Media has a right to purchase
a pro rata portion (proportionate to its ownership interest in the Company) of
any equity securities offered by the Company, excluding: (i) shares issued in
this offering; (ii) shares issued pursuant to certain equity compensation
arrangements; and (iii) provided that Pacific Media's interest in the Company
would not thereby be reduced below 25%, shares issued by Macrovision in
connection with any acquisition by it of another company. In addition, pursuant
to the Purchase Agreement, Pacific Media acquired rights to purchase from
persons who were stockholders or option holders of the Company in June 1991 all
of their Common Stock at a formula-determined price upon the Company's filing of
a registration statement for an initial public offering. In January 1997, the
Company and Pacific Media entered into a Waiver Agreement, pursuant to which
Pacific Media waived its rights to purchase shares of the Company's Common Stock
from stockholders and option holders triggered by the filing of the registration
statement for this offering and any pre-effective amendments thereto filed prior
to April 1, 1997. Upon the completion of this offering, all rights of Pacific
Media to purchase Common Stock of the Company from such persons will expire.
Pursuant to the Purchase Agreement, the Company may not divide or assign any
rights to its patents that were existing or pending in June 1991, without the
prior written consent of Pacific Media, which consent may not be unreasonably
withheld.
In January 1997, the Company and JVC entered into a Copy Protection
Technology Agreement (the "Technology Agreement"), pursuant to which the Company
agreed to license its copy protection technologies to JVC for use in territories
in which the Company has issued patents, on terms and conditions comparable to
those provided under agreements between the Company and parties situated
similarly to JVC. Additionally, the Company agreed to continue to make its copy
protection technologies generally available for license to third parties on
terms commercially reasonable to the Company in the venues and for the purposes
that the Company currently licenses such technologies. The Technology Agreement
gives JVC the right to sublicense the Company's copy protection technologies to
certain third parties on terms and conditions comparable to those provided in
similar agreements previously entered into by the Company, with 95% of the
royalties from such sublicenses payable to the Company or its successor, in the
event that a party other than JVC acquires a majority interest in the Company or
acquires the Company's copy protection business or patents, and following such
acquisition the Company or its successor refuses to continue to license the
Company's copy protection technologies on a nondiscriminatory basis to its
current customers and similarly situated parties. See "Risk Factors--Effect of
Anti-Takeover Provisions."
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The Company and JVC are parties to a Technology Application Agreement dated
November 29, 1988 (the "Application Agreement"), a Duplicator Agreement dated
June 1, 1988 (the "Duplicator Agreement") and an Agreement dated July 15, 1994
(the "Video Agreement"). Pursuant to the Application Agreement, JVC has applied
the Company's copy protection process to prerecorded videocassettes manufactured
and distributed in Japan by JVC. Pursuant to the Duplicator Agreement, JVC has
applied the Company's copy protection process to prerecorded videocassettes
manufactured and distributed in Japan by certain of the Company's licensees.
Pursuant to the Video Agreement, JVC developed a prototype of equipment to apply
a copy protection process to prerecorded videocassettes, and granted the Company
exclusive rights to purchase such equipment from JVC for resale and to
sublicense the copy protection technology for use with the equipment. Between
January 1, 1994 and September 30, 1996, JVC paid the Company approximately
$12,230 under the Application Agreement. During the same period, JVC paid the
Company $159,098 in license fees and the Company paid JVC $40,208 in service
fees, both under the Duplicator Agreement, and the Company paid JVC $23,914
under the Video Agreement.
The Company, Victor Technobrain Co., Ltd. ("Techno"), a wholly-owned
subsidiary of JVC, and Video Culture Institute, Inc. ("VCI") are parties to a
License Agreement dated September 26, 1995, as amended June 30 and September 30,
1996, pursuant to which Techno and VCI license the Company's copy protection and
PhaseKrypt technologies for development of equipment for electronic motion
picture distribution and exhibition. The license granted to Techno is
nonexclusive for the development and manufacture of the products to be sold to
VCI in Japan. The Company has paid to Techno a development fee of $50,000 under
this agreement and owes an additional $50,000 to Techno after the Company
receives certain fees from VCI.
AGREEMENTS WITH MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
The following transactions involve Matsushita Electric Industrial Co., Ltd.
("Matsushita"), which owns approximately 51% of JVC, and, in one instance also a
subsidiary of Matsushita.
In November 1996, the Company entered into a Digital Versatile Disc
Player/Digital Video Cassette Recorder License Agreement for Anticopy Technology
with Matsushita, pursuant to which Matsushita is authorized to include
integrated circuits incorporating the Company's copy protection technology in
DVD players and digital VCRs that it manufactures. The terms and conditions of
this agreement, pursuant to which Matsushita must choose between (i) a
royalty-free license for which it must make the VCRs or television sets that it
manufactures compatible with the Company's copy protection technology or
(ii) payment of an up-front fee of $100,000 and an additional $5.00 (or, if
greater, 2% of the wholesale price) per unit, are not more favorable to
Matsushita than the terms and conditions of the Company's license agreements
with other manufacturers of DVD players and VCRs.
In July 1996, the Company entered into a Copy Protection Technology License
Agreement with Matsushita, pursuant to which Matsushita and its subsidiaries are
authorized to include integrated circuits incorporating the Company's copy
protection technology in digital set-top decoders they manufacture. The terms
and conditions of this agreement, pursuant to which Matsushita has paid the
Company an initial fee of $50,000 and is obligated to pay an additional $0.60
per unit, are not more favorable to Matsushita than the terms and conditions of
the Company's license agreements with 33 other digital set-top decoder
manufacturers.
In August 1992, the Company entered into a License, Development and
Marketing Agreement with Matsushita and its wholly-owned subsidiary, Matsushita
Avionics Development Corporation ("MADC"). Under this agreement, MADC has the
right to include the descrambling component of the Company's PhaseKrypt video
scrambling technology in MADC's commercial airline passenger entertainment and
cabin management systems. MADC is obligated to pay the Company $500 for each
videocassette player containing such descrambling component that is installed in
an airplane. To date, MADC has not installed any such equipment and the Company
has not been paid any amounts pursuant to this agreement.
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CAPITALIZATION AND SPINOFF OF COMMAND AUDIO CORPORATION
CAC was incorporated in October 1995 as a wholly-owned subsidiary of the
Company. The Company initially acquired 1,000,000 shares of CAC common stock for
technology and other assets with a historical cost of $200,000 and 250,000
shares of CAC Series A preferred stock for $500,000 in cash in November 1995.
The Company acquired an additional 250,000 shares of CAC Series A preferred
stock for $500,000 in cash in April 1996.
On July 31, 1996, the Company and CAC entered into a Recapitalization and
Stock Purchase Agreement pursuant to which the Company purchased from CAC
604,000 shares of CAC common stock and 396,000 shares of CAC Series B preferred
stock for the aggregate consideration of $1.0 million paid in August 1996 in
cash and in September 1996 pursuant to a secured promissory note, 194,444 shares
of the Company's Common Stock, subject to the terms and conditions of a
Restricted Stock Acquisition Agreement and the surrender and delivery to CAC of
500,000 shares of CAC Series A preferred stock. The Restricted Stock Acquisition
Agreement, as amended as of November 29, 1996, provides that the 194,444 shares
of the Company's Common Stock owned by CAC are subject to vesting based on
performance goals. In December 1996, 111,111 of these shares vested. The Company
has offered to purchase 55,555 of the 111,111 vested shares of Common Stock from
CAC at a price of $9.00 per share. This offer will expire on March 4, 1997. CAC
has granted to the Company a right of first refusal to purchase any vested
shares that CAC proposes to sell or otherwise transfer. The purchase price is
either $21.60 per share or the price at which CAC proposes to sell or otherwise
transfer the shares, at the election of the Company. CAC has also assigned to
the Company any dividends paid upon unvested shares (except for stock dividends)
and has provided an irrevocable proxy to the Company to vote all unvested
shares. Any shares that remain unvested at the end of 1998 or the time certain
events occur will be forfeited to the Company. As a result of the
recapitalization and after the dividend described below, the Company is a 19.8%
shareholder of CAC. CAC also granted to the Company a right of first refusal to
purchase additional CAC stock to maintain its 19.8% ownership if and when CAC
offers additional stock, subject to certain exceptions. John O. Ryan, Chairman
of the Board and Chief Executive Officer of the Company, is a director of CAC.
See Note 4 of Notes to Consolidated Financial Statements.
The Company and CAC also entered into a Technology Transfer and Royalty
Agreement dated as of July 31, 1996 and amended as of November 29, 1996,
pursuant to which the Company assigned to CAC all rights in certain technology
and released its reversion rights in technology that the Company had previously
assigned to CAC. In consideration of such assignment and release, CAC agreed to
pay to the Company royalties equal to 2.0% of CAC's gross revenues (as defined
in the agreement) for 12 years, beginning when CAC has operating revenues from
certain sources or, at the election of the Company, at any time prior thereto.
In August 1996, the Company distributed to its stockholders as a dividend an
aggregate of 1,395,218 shares of common stock of CAC, which represented
approximately 69.8% of the then outstanding voting stock of CAC. All
stockholders on July 12, 1996 participated in such dividend distribution in
proportion to the number of shares of the Company's Common and Series A
Preferred Stock then held. At the same time, the Company also distributed to its
employees as bonuses an aggregate of 208,782 shares of common stock of CAC. See
"Management--Executive Compensation" and Note 4 of Notes to Consolidated
Financial Statements.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock as of September 30,
1996, and as adjusted to reflect the sale of the shares of Common Stock offered
hereby, by: (i) each person known by the Company to be the beneficial owner of
more than 5% of the Company's Common Stock; (ii) each of the Company's
directors; (iii) each Named Officer (see "Management--Executive Compensation");
(iv) all executive officers and directors as a group; and (v) each Selling
Stockholder.
<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP PRIOR TO THE OWNERSHIP AFTER THE
OFFERING(1) NUMBER OF OFFERING(1)(2)
------------------------- SHARES BEING -------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ------------------------------------------------ ---------- ------------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Victor Company of Japan, Limited (3)............ 2,637,043 49.6% 555,555 2,081,488 30.1%
Richard S. Matuszak (4)......................... 886,121 16.6 74,686 811,435 11.9
John O. Ryan (5)................................ 699,672 13.2 -- 699,672 10.3
Carol Ann Draxton (6)........................... 372,722 7.0 -- 372,722 5.5
William A. Krepick (7).......................... 92,168 1.7 -- 92,162 1.3
Brian T. and Linda J. Prinn, Trustees (8)....... 92,082 1.7 28,192 63,890 *
Angelique Elise Farrow (9)...................... 66,066 1.2 32,222 33,844 *
Robert J. Lowe.................................. 54,166 1.0 22,222 31,944 *
Whit T. Jackson (10)............................ 41,388 * 2,500 38,888 *
Brian A. Dunn (11).............................. 5,092 * -- 5,092 *
Mark S. Belinsky (12)........................... 4,629 * -- 4,629 *
Patrice J. Capitant (13)........................ -- -- -- -- --
Twenty-three other selling stockholders as a
group (each individually owning less than 1%
of the Company's Common Stock) (14)........... 286,163 5.4 97,500 188,663 2.8
All executive officers and directors as a group
(8 persons) (15).............................. 1,787,403 32.8 77,186 1,710,217 24.8
</TABLE>
- ------------------------
* Less than 1%.
(1) Assumes conversion of all of the Company's outstanding shares of Preferred
Stock into Common Stock. Unless otherwise indicated below, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Shares of Common Stock subject to options that are
currently exercisable or exercisable within 60 days of September 30, 1996
are deemed to be outstanding and to be beneficially owned by the person
holding such options for the purpose of computing the percentage ownership
of such person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
(2) Assumes that the Underwriters' over-allotment option to purchase up to
345,000 shares from the Company is not exercised.
(3) These shares are held by record by Pacific Media, an indirect, wholly owned
subsidiary of JVC. From June 12, 1991 until conversion of the Convertible
Note in July 1996, Pacific Media elected two directors of the Company. The
address of JVC is 12, 3-chome, Moriya-cho, Kanagawa-ku, Yokohama 221, Japan.
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(4) Includes 372,722 shares beneficially owned by Carol Ann Draxton, 66,066
shares held of record by Angelique Elise Farrow and an aggregate of 379,871
additional shares held of record by various other stockholders. The 74,686
shares being offered are offered by 13 of these stockholders, including
Angelique Elise Farrow, who together hold an aggregate of 229,216 shares of
Common Stock. Mr. Matuszak holds proxies to vote these shares and may be
deemed to be a beneficial owner of these shares by virtue of his shared
voting control. Also includes 28,085 shares held of record by Mr. Matuszak,
15,766 shares as to which Mr. Matuszak shares beneficial ownership and
23,611 shares subject to options exercisable within 60 days of September 30,
1996. Mr. Matuszak is Vice President, Special Interest Copy Protection and a
director of the Company. His address is 1341 Orleans Drive, Sunnyvale,
California 94089.
(5) Represents 555,555 shares held of record by a trust of which Mr. Ryan and
his wife are the trustees, 103,289 shares held of record by Mr. Ryan, 29,162
shares held by Mr. Ryan as custodian for various family members and 11,666
shares held of record by one of his daughters. Mr. Ryan is the Chairman of
the Board of Directors, Chief Executive Officer and Secretary of the
Company. His address is 1341 Orleans Drive, Sunnyvale, California 94089.
(6) Includes 322,722 shares held by Ms. Draxton as Trustee of the Farrow Trust
U/T/D December 18, 1990. The address of Ms. Farrow is P.O. Box 789,
Geyserville, California 95441. These shares are included in the number of
shares beneficially owned by Richard S. Matuszak. See footnote (4).
(7) Includes 2,777 shares held of record by Mr. Krepick's son. Also includes
62,962 shares subject to options exercisable within 60 days of September 30,
1996. Mr. Krepick is President, Chief Operating Officer and a director of
the Company.
(8) Includes 80,972 shares held by Brian T. and Linda J. Prinn as Trustees of
the Prinn Family Trust, of which 25,416 shares are being offered. Also
includes 5,555 shares held by each of the Erin M. Prinn Trust and the Ian T.
Prinn Trust, of which each such trust is offering 1,388 shares.
(9) These shares are included in the number of shares beneficially owned by
Richard S. Matuszak. See footnote (4).
(10) Total shares beneficially owned prior to the offering includes 40,555
shares subject to options exercisable within 60 days of September 30, 1996.
Total shares beneficially owned after the offering represents shares subject
to options exercisable within 60 days of September 30, 1996. Mr. Jackson is
Vice President, Video Encryption Technologies of the Company.
(11) Represents shares subject to options exercisable within 60 days of
September 30, 1996. Mr. Dunn is Vice President, CineGuard Business
Development of the Company.
(12) Represents shares subject to options exercisable within 60 days of
September 30, 1996. Mr. Belinsky is Vice President, Worldwide Theatrical and
Pay-Per-View Copy Protection of the Company.
(13) Mr. Capitant is Vice President, Engineering of the Company.
(14) Includes 23,704 shares subject to options exercisable within 60 days of
September 30, 1996.
(15) Represents the shares referenced in footnotes (4), (5), (7) and (10)
through (12) and 58,333 additional outstanding shares.
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DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, $0.001 par value,
6,767,748 of which will be outstanding, and 5,000,000 shares of Preferred Stock,
$0.001 par value, none of which will be outstanding. As of September 30, 1996,
and assuming the conversion of each outstanding share of Preferred Stock into
Common Stock, there were outstanding 5,317,748 shares of Common Stock held of
record by approximately 130 stockholders, and options to purchase 709,756 shares
of Common Stock. See Note 5 of Notes to Consolidated Financial Statements.
COMMON STOCK
Subject to preferences that may apply to any Preferred Stock outstanding at
the time, the holders of outstanding shares of Common Stock are entitled to
receive dividends out of assets legally available therefor at such times and in
such amounts as the Board may from time to time determine. Each stockholder is
entitled to one vote for each share of Common Stock held on all matters
submitted to a vote of stockholders. Cumulative voting for the election of
directors is not authorized by the Company's Certificate of Incorporation, which
means that the holders of a majority of the shares voted can elect all of the
directors then standing for election. The Common Stock is not entitled to
preemptive rights and is not subject to conversion or redemption. Upon
liquidation, dissolution or winding-up of the Company, the assets legally
available for distribution to stockholders are distributable ratably among the
holders of the Common Stock and any participating Preferred Stock outstanding at
that time after payment of liquidation preferences, if any, on any outstanding
Preferred Stock and payment of other claims of creditors. Each outstanding share
of Common Stock is, and all shares of Common Stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Preferred Stock
(the "Convertible Preferred"), will be converted into shares of Common Stock.
See Note 5 of Notes to Consolidated Financial Statements for a description of
the Convertible Preferred. The Board is authorized, subject to any limitations
prescribed by Delaware law, to provide for the issuance of additional shares of
Preferred Stock in one or more series, to establish from time to time the number
of shares to be included in each such series, to fix the rights, preferences and
privileges of the shares of each wholly unissued series and any qualifications,
limitations or restrictions thereon, and to increase or decrease the number of
shares of any such series (but not below the number of shares of such series
then outstanding), without any further vote or action by the stockholders. The
Board may authorize the issuance of Preferred Stock with voting or conversion
rights that could adversely affect the voting power or other rights of the
holders of Common Stock. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company has no current plan to issue any shares of Preferred Stock; however, in
the future the Company plans to consider the adoption of a stockholder rights
plan in order to protect the Company's stockholders from coercive or abusive
takeover tactics and to afford the Company's Board more negotiating leverage in
dealing with potential acquirors.
CHANGE OF CONTROL PROVISIONS
Effective upon the closing of this offering, the Company's Certificate of
Incorporation contains a provision eliminating the ability of the Company's
stockholders to take action by written consent. This provision is designed to
reduce the vulnerability of the Company to an unsolicited acquisition proposal,
to maintain independent ownership and control of the Company's copy protection
technologies and to render the use of stockholder written consent unavailable as
a tactic in a proxy fight. However, such provision could have the effect of
discouraging others from making tender offers for the Company's shares, thereby
inhibiting increases in the market price of the Company's shares that could
result from actual or rumored takeover attempts. Such provision also may have
the effect of preventing changes in the management of
57
<PAGE>
the Company. Furthermore, the Company's Bylaws limit the ability of stockholders
of the Company to raise matters at a meeting of stockholders without giving
advance notice thereof.
DELAWARE ANTI-TAKEOVER LAW
Upon the closing of this offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law (the
"Anti-Takeover Law") regulating corporate takeovers. The Anti-Takeover Law
prevents certain Delaware corporations, including those whose securities are
listed on the Nasdaq National Market, from engaging, under certain
circumstances, in a "business combination" (which includes a merger or sale of
more than 10% of the corporation's assets) with any "interested stockholder" (a
stockholder who owns 15% or more of the corporation's outstanding voting stock)
for three years following the date that such stockholder became an "interested
stockholder." A Delaware corporation may "opt out" of the Anti-Takeover Law with
an express provision in its original certificate of incorporation or an express
provision in its certificate of incorporation or bylaws resulting from a
stockholders' amendment approved by at least a majority of the outstanding
voting shares. The Company has not "opted out" of the provisions of the
Anti-Takeover Law.
REGISTRATION RIGHTS
Beginning six months after this offering, the holders of approximately
2,275,932 shares of Common Stock (the "Registrable Securities") will have
certain rights to register those shares under the Securities Act. If requested
by the holders of more than 40% of such Registrable Securities with an aggregate
proposed offering price of at least $10,000,000, the Company must file a
registration statement under the Securities Act covering all Registrable
Securities requested to be included by all holders of such Registrable
Securities. This right expires in June 2001. With respect to 194,444 of the
Registrable Securities, the Company must file a registration statement under the
Securities Act covering such Registrable Securities, but not covering any other
Registrable Securities. This right expires in August 1998. The Company may not
be required to effect more than one such registration pursuant to these demand
registration rights. The expenses incurred in connection with such registrations
(other than underwriters' or brokers' discounts and commissions) will be borne
by the Company and the holders of Registrable Securities pro rata.
In addition, if the Company proposes to register any of its securities under
the Securities Act, other than in connection with a Company employee benefit
plan or a corporate reorganization, the holders of Registrable Securities may
require the Company to include all or a portion of their shares in such
registration, although the managing underwriter of any such offering has certain
rights to limit the number of shares in such registration. All expenses incurred
in connection with such registrations (other than underwriters' discounts and
commissions) will be borne by the Company. These registration rights expire five
years after the Effective Date.
Further, holders of Registrable Securities may require the Company to
register all or any portion of their Registrable Securities on Form S-3 when
such form becomes available to the Company, subject to certain conditions and
limitations. The Company may be required to effect up to one such registration
per year. All expenses incurred in connection with such registrations (other
than underwriters' or brokers' discounts and commissions) will be borne by the
Company. These registration rights expire five years after the Effective Date.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is Boston
EquiServe Limited Partnership.
LISTING
The Company has applied to list its Common Stock on the Nasdaq National
Market under the trading symbol "MVSN."
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. No prediction can be made as to the effect, if any, that market sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock in the public market could adversely affect market prices
prevailing from time to time.
Upon completion of this offering, the Company will have outstanding
approximately 6,767,748 shares of Common Stock. Of these shares, the 2,300,000
shares sold in this offering will be freely tradable without restriction under
the Securities Act, unless purchased by "affiliates" of the Company as that term
is defined in Rule 144 under the Securities Act. The remaining 4,467,748 shares
of Common Stock held by existing stockholders were issued and sold by the
Company in reliance on exemptions from the registration requirements of the
Securities Act. These shares may be sold in the public market only if registered
or pursuant to an exemption from registration such as Rule 144, 144(k) or 701
under the Securities Act. The Company's executive officers, directors and
principal stockholders and certain other of the Company's stockholders, who
following the offering together will hold an aggregate of approximately
4,225,364 shares of the Company's Common Stock, have entered into lock-up
agreements providing that they will not, without the prior written consent of
Montgomery Securities, offer, sell, contract to sell or grant any option to
purchase or otherwise dispose of the shares of Common Stock owned by them or
that could be purchased by them through the exercise of options to purchase
Common Stock of the Company until 180 days after the date of this Prospectus, or
such earlier date as may be agreed to by Montgomery Securities in its sole
discretion.
As a result of the foregoing lock-up agreements and securities law
restrictions, 161,239 shares of the Company's Common Stock will be eligible for
resale without restriction on the Effective Date pursuant to Rule 144(k),
approximately 177 shares of the Company's Common Stock will be eligible for
resale pursuant to Rule 701 beginning 90 days after the Effective Date and
approximately 4,225,364 shares of the Company's Common Stock will be eligible
for resale, pursuant to either Rule 701 or Rule 144, beginning 180 days after
the Effective Date. The remaining 194,444 shares will become eligible for resale
starting in 1998 when the holding period required by Rule 144 is met.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned restricted shares for at least two years (including
the holding period of any prior owner except an affiliate) is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of: (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately 67,700 shares immediately after this
offering); or (ii) the average weekly trading volume of the Common Stock during
the four calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about the Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares to be sold for at least three years
(including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with the holding period requirements of Rule 144. Any employee,
officer or director of 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 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. Each holder of Rule 701 shares is required to wait until
90 days after the date of this Prospectus before selling such shares.
59
<PAGE>
Shortly after this offering, the Company intends to file a registration
statement under the Securities Act covering shares of Common Stock subject to
outstanding options under the Company's Option Plan or reserved for issuance
under the Equity Incentive Plan, Directors Plan or Purchase Plan. Based upon the
number of shares subject to outstanding options or reserved for issuance at
September 30, 1996 under all such plans, such registration statement would cover
approximately 1,301,224 shares. This registration statement will automatically
become effective upon filing. Accordingly, shares registered under such
registration statement will, subject to Rule 144 volume limitations applicable
to affiliates of the Company, be available for sale in the open market
immediately.
60
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Montgomery
Securities, Hambrecht & Quist LLC and Cowen & Company (the "Representatives"),
have severally agreed, subject to the terms and conditions in the Underwriting
Agreement (the "Underwriting Agreement") by and among the Company, the Selling
Stockholders and the Underwriters, to purchase from the Company and the Selling
Stockholders the number of shares of Common Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions precedent, and that the Underwriters are committed to
purchase all the shares of Common Stock, if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Montgomery Securities............................................................
Hambrecht & Quist LLC............................................................
Cowen & Company..................................................................
----------
Total.......................................................................... 2,300,000
----------
----------
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters initially propose to offer the shares of Common Stock to
the public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow to selected dealers a concession of not more than
$ per share; and the Underwriters may allow, and such dealers may
reallow, a concession of not more than $ per share to certain other
dealers. After the offering, the offering price and other selling terms may be
changed by the Representatives. The Common Stock is offered subject to receipt
and acceptance by the Underwriters, and to certain other conditions, including
the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 345,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial 2,300,000 shares to be purchased by
the Underwriters. To the extent that the Underwriters exercise this option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with this offering.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters and their controlling persons
against certain liabilities, including civil liabilities under the Securities
Act, or will contribute to payments the Underwriters may be required to make in
respect thereof.
The holders of an aggregate of 4,225,364 of the outstanding shares of Common
Stock of the Company have agreed, subject to certain limited exceptions, that
they will not, without the prior written consent of Montgomery Securities (which
consent may be withheld in its sole discretion), directly or indirectly, sell,
offer, contract or grant any option to sell, make any short sale (including
without limitation any "short vs. the box"), pledge, transfer, establish an open
"put equivalent position" within the meaning of Rule 16a-1(h) under the Exchange
Act, or otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock, or securities exchangeable or exercisable for or
convertible
61
<PAGE>
into shares of Common Stock, currently owned or hereafter acquired (excluding
any shares of Common Stock purchased on the open market), either of record or
beneficially (as defined in Rule 13d-3 under the Exchange Act) by such party, or
publicly announce such party's intention to do any of the foregoing, for a
period of 180 days after the date of this Prospectus. The Company has agreed in
the Underwriting Agreement that, during the period of 180 days after the date of
this Prospectus, without the prior written consent of either Montgomery
Securities or each of the Representatives (which consent may be withheld at the
sole discretion of Montgomery Securities or the Representatives, as the case may
be), it will not issue, offer, sell, grant options to purchase or otherwise
dispose of any of the Company's equity securities or any other securities
convertible into or exchangeable with the Company's Common Stock or other equity
security, subject to certain limited exceptions. See "Shares Eligible for Future
Sale."
The Representatives have advised the Company that the Underwriters will not
confirm sales to accounts over which they exercise discretionary authority in
excess of 5% of the number of shares of Common Stock offered hereby.
Prior to the offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined through negotiations among the Company, the Selling
Stockholders and the Representatives. Among the factors expected to be
considered in such negotiations are the history of, and prospects for, the
Company and the industry in which it competes, an assessment of the Company's
management, its past and present operations and financial performance, the
prospects for future earnings of the Company, the present state of the Company's
development, the general condition of the securities markets at the time of the
offering and the market prices of and demand for publicly traded common stocks
of comparable companies in recent periods and other factors deemed relevant.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company and the Selling Stockholders by Fenwick &
West LLP, Palo Alto, California. Certain legal matters in connection with this
offering will be passed upon for the Underwriters by Wilson Sonsini Goodrich &
Rosati, P.C., Palo Alto, California.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1995
and September 30, 1996 and for the year ended December 31, 1995 and for the nine
months ended September 30, 1996, have been included herein in reliance upon the
report of KPMG Peat Marwick LLP, independent auditors, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of the Company as of December 31, 1994
and for each of the two years in the period ended December 31, 1994, have been
included herein in reliance upon the report of Ernst & Young LLP, independent
auditors, appearing elsewhere herein, given upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act with respect to
the shares of Common Stock offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and exhibits. Statements
contained in this Prospectus regarding the contents of any contract or any other
document to which reference is made are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Registration Statement,
including the exhibits thereto, may be inspected without charge at the
Commission's principal
62
<PAGE>
office in Washington, D.C., and copies of all or any part thereof may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of certain prescribed rates.
The Commission maintains a World Wide Web site that contains reports, proxy and
information statements and other information filed electronically with the
Commission. The address of the site is http://www.sec.gov.
CHANGE IN INDEPENDENT AUDITORS
At a meeting on November 3, 1995, the Board approved the retention of KPMG
Peat Marwick LLP as the independent auditors for the Company after the Company's
former auditors, Ernst & Young LLP, chose not to stand for reappointment. The
former auditors' report with respect to the Company's consolidated financial
statements at December 31, 1994 and for each of the two years then ended, which
report is included in this Prospectus, does not contain an adverse opinion or a
disclaimer of an opinion or qualification or modification as to uncertainty,
audit scope or accounting principles. During such period and extending to the
date the former auditors chose not to stand for reappointment, there were no
disagreements with the former auditors on any matters of accounting principle or
practice, financial statement disclosure, or auditing scope or procedure which,
if not resolved to the satisfaction of the former auditors, would have been
referred to in the auditors' report. Prior to retaining KPMG Peat Marwick LLP,
the Company had not consulted with KPMG Peat Marwick LLP regarding the
application of accounting principles or the form of audit opinion to be issued
on the Company's financial statements.
63
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994, AND 1995, AND SEPTEMBER 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Reports............................................. F-2
Audited Consolidated Financial Statements:
Consolidated Balance Sheets............................................. F-4
Consolidated Statements of Operations................................... F-5
Consolidated Statements of Stockholders' Equity......................... F-6
Consolidated Statements of Cash Flows................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
</TABLE>
F-1
<PAGE>
The following report is in the form that will be signed upon the completion
of the reincorporation of the Company in Delaware and the related exchange of
common and preferred shares as described in Note 10 of Notes to Consolidated
Financial Statements.
KPMG Peat Marwick LLP
January 7, 1997
REPORT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Macrovision Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Macrovision
Corporation and subsidiaries (the Company) as of December 31, 1995 and September
30, 1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year ended December 31, 1995, and for the nine
months ended September 30, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1995 and 1996 consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Macrovision Corporation and subsidiaries as of December 31, 1995 and September
30, 1996, and the results of their operations and their cash flows for the year
ended December 31, 1995, and for the nine months ended September 30, 1996, in
conformity with generally accepted accounting principles.
San Jose, California
November 1, 1996, except as to Note 10,
which is as of December 3, 1996
F-2
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Macrovision Corporation
We have audited the accompanying consolidated balance sheet of Macrovision
Corporation as of December 31, 1994 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the two years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Macrovision
Corporation at December 31, 1994 and the consolidated results of its operations
and its cash flows for each of the two years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Palo Alto, California
March 7, 1995
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the reincorporation of the Company in Delaware and the related exchange of
common and preferred shares as described in Note 10 of Notes to Consolidated
Financial Statements.
/s/ Ernst & Young LLP
January 7, 1997
F-3
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
DECEMBER 31, ------------------------------
-------------------- PRO FORMA
1994 1995 ACTUAL STOCKHOLDERS'
--------- --------- --------- EQUITY
-------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents...................................... $ 2,051 $ 2,286 $ 2,064
Short-term investments......................................... 1,800 1,200 --
Accounts receivable, net of allowance for doubtful accounts of
$269, $280, and $304 as of December 31, 1994 and 1995, and
September 30, 1996, respectively............................. 2,059 2,568 2,866
Receivable from related party.................................. -- -- 295
Inventories.................................................... 660 826 654
Deferred tax assets............................................ 624 491 1,474
Prepaid expenses and other current assets...................... 168 141 442
Net assets of discontinued operations.......................... -- 524 --
--------- --------- ---------
Total current assets....................................... 7,362 8,036 7,795
Property and equipment, net...................................... 925 1,833 2,094
Patents and other intangibles, net of accumulated amortization of
$141, $209, and $256 as of December 31, 1994 and 1995, and
September 30, 1996, respectively............................... 893 1,010 1,259
Other assets..................................................... 60 92 510
--------- --------- ---------
$ 9,240 $ 10,971 $ 11,658
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 510 $ 638 $ 910
Accrued expenses............................................... 2,169 2,346 2,224
Deferred revenue............................................... 459 428 1,365
Income taxes payable........................................... 364 606 901
Current portion of capital lease liability..................... -- -- 104
Current portion of long-term debt.............................. -- 142 --
--------- --------- ---------
Total current liabilities.................................. 3,502 4,160 5,504
Capital lease liability, net of current portion.................. -- -- 322
Long-term debt................................................... -- 554 --
Convertible note................................................. 3,038 3,038 --
Deferred tax liabilities......................................... 312 373 728
--------- --------- ---------
6,852 8,125 6,554
Commitments and contingencies
Stockholders' equity:
Preferred stock, actual--$.001 par value, 5,000,000 shares
authorized; issuable in series; 1,376,432 shares designated
Series A convertible preferred stock; 833,333 shares issued
and outstanding as of December 31, 1994 and 1995; 1,376,432
issued and outstanding as of September 30, 1996; pro
forma--no shares issued and outstanding...................... 1 1 1 $ --
Common stock, actual--$.001 par value; 50,000,000 shares
authorized; 3,620,179, 3,632,719, and 3,941,316 shares issued
and outstanding as of December 31, 1994 and 1995, and
September 30, 1996, respectively; pro forma--5,317,748 shares
issued and outstanding....................................... 4 4 4 5
Additional paid-in capital..................................... 5,035 5,058 9,501 9,501
Stockholder notes receivable................................... -- -- (174) (174)
Deferred stock compensation.................................... -- -- (333) (333)
Accumulated deficit............................................ (2,580) (2,099) (3,757) (3,757)
Accumulated translation adjustment............................. (72) (118) (138) (138)
--------- --------- --------- -------
Total stockholders' equity................................. 2,388 2,846 5,104 $ 5,104
--------- --------- ---------
-------
-------
$ 9,240 $ 10,971 $ 11,658
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------------- ------------------------
1993 1994 1995 1996
--------- --------- ----------- 1995 -----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues.......................................... $ 9,549 $ 13,330 $ 14,189 $ 9,991 $ 11,699
Costs and expenses:
Cost of revenues.................................... 1,578 2,067 2,457 1,871 1,826
Research and development............................ 1,639 2,355 2,161 1,537 1,916
Selling, general, and administrative................ 4,761 6,104 7,388 5,344 6,308
--------- --------- ----------- ----------- -----------
Total costs and expenses........................ 7,978 10,526 12,006 8,752 10,050
--------- --------- ----------- ----------- -----------
Operating income from continuing
operations.......................................... 1,571 2,804 2,183 1,239 1,649
Interest and other expense, net....................... (462) (417) (433) (299) (241)
--------- --------- ----------- ----------- -----------
Income from continuing operations before income
taxes......................................... 1,109 2,387 1,750 940 1,408
Provision for income taxes............................ 444 886 694 373 585
--------- --------- ----------- ----------- -----------
Net income from continuing
operations.................................... 665 1,501 1,056 567 823
Discontinued operations:
Loss from operations of CAC business, net of income
tax benefit of $80 and $204 as of December 31,
1995, and September 30, 1996, respectively........ -- -- (125) -- (663)
Provision for operating losses during holding
period, net of income tax benefit of $45 as of
September 30, 1996................................ -- -- -- -- (164)
--------- --------- ----------- ----------- -----------
Net income (loss)............................... $ 665 $ 1,501 $ 931 $ 567 $ (4)
--------- --------- ----------- ----------- -----------
--------- --------- ----------- ----------- -----------
Computation of earnings (loss) per share:
Net income from continuing operations............... $ 1,056 $ 823
Preferred stock dividends........................... (450) (401)
----------- -----------
Adjusted net income from continuing operations...... 606 422
Discontinued operations............................. (125) (827)
----------- -----------
Earnings (loss) applicable to common stock.......... $ 481 $ (405)
----------- -----------
----------- -----------
Earnings (loss) per share:
Continuing operations............................... $ .15 $ .10
Discontinued operations............................. (.03) (.19)
----------- -----------
Net income (loss)............................... $ .12 $ (.09)
----------- -----------
----------- -----------
Shares used in computing earnings (loss) per share.... 4,162,000 4,388,000
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCKHOLDER
---------------------- ---------------------- PAID-IN NOTES
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE
--------- ----------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances as of December 31, 1992................... 833,333 $ 1 3,616,669 $ 4 $ 5,028 $ --
Issuance of common stock upon exercise of
options........................................ -- -- 3,444 -- 7 --
Cash dividends of $.22 per share paid on
2,359,502 shares of common stock............... -- -- -- -- -- --
Cash dividends of $.54 per share paid on
preferred stock................................ -- -- -- -- -- --
Translation adjustment........................... -- -- -- -- -- --
Net income....................................... -- -- -- -- -- --
--------- ----- --------- ----- ----------- -----
Balances as of December 31, 1993................... 833,333 1 3,620,113 4 5,035 --
Issuance of common stock upon exercise of
options........................................ -- -- 66 -- -- --
Cash dividends of $.22 per share paid on
2,359,568 shares of common stock............... -- -- -- -- -- --
Cash dividends of $.54 per share paid on
preferred stock................................ -- -- -- -- -- --
Translation adjustment........................... -- -- -- -- -- --
Net income....................................... -- -- -- -- -- --
--------- ----- --------- ----- ----------- -----
Balances as of December 31, 1994................... 833,333 1 3,620,179 4 5,035 --
Issuance of common stock upon exercise of
options........................................ -- -- 12,540 -- 23 --
Cash dividends of $.54 per share paid on
preferred stock................................ -- -- -- -- -- --
Translation adjustment........................... -- -- -- -- -- --
Net income....................................... -- -- -- -- -- --
--------- ----- --------- ----- ----------- -----
Balances as of December 31, 1995................... 833,333 1 3,632,719 4 5,058 --
Issuance of common stock upon exercise of
options........................................ -- -- 55,820 -- 142 (17)
Issuance of common stock in exchange for
stockholder note receivable.................... -- -- 58,333 -- 157 (157)
Issuance of common stock in connection with
recapitalization of Command Audio
Corporation.................................... -- -- 194,444 -- 875 --
Conversion of note into 543,099 shares of Series
A preferred stock.............................. 543,099 -- -- -- 3,038 --
Cash dividends of $.405 per share paid or
declared on 833,333 shares of preferred stock
and $.117 per share declared on 543,099 shares
of preferred stock............................. -- -- -- -- -- --
Deferred stock compensation related to stock
option grants.................................. -- -- -- -- 231 --
Amortization of deferred stock compensation...... -- -- -- -- -- --
Spin-off of Command Audio Corporation, including
deferred stock compensation.................... -- -- -- -- -- --
Translation adjustment........................... -- -- -- -- -- --
Net loss......................................... -- -- -- -- -- --
--------- ----- --------- ----- ----------- -----
Balances as of September 30, 1996.................. 1,376,432 $ 1 3,941,316 $ 4 $ 9,501 $ (174)
--------- ----- --------- ----- ----------- -----
--------- ----- --------- ----- ----------- -----
<CAPTION>
ACCUMULATED TOTAL
DEFERRED STOCK ACCUMULATED TRANSLATION STOCKHOLDERS'
COMPENSATION DEFICIT ADJUSTMENT EQUITY
--------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Balances as of December 31, 1992................... $ -- $ (2,817) $ (53) $ 2,163
Issuance of common stock upon exercise of
options........................................ -- -- -- 7
Cash dividends of $.22 per share paid on
2,359,502 shares of common stock............... -- (510) -- (510)
Cash dividends of $.54 per share paid on
preferred stock................................ -- (450) -- (450)
Translation adjustment........................... -- -- (9) (9)
Net income....................................... -- 665 -- 665
----- ------------- ----- -------------
Balances as of December 31, 1993................... -- (3,112) (62) 1,866
Issuance of common stock upon exercise of
options........................................ -- -- -- --
Cash dividends of $.22 per share paid on
2,359,568 shares of common stock............... -- (519) -- (519)
Cash dividends of $.54 per share paid on
preferred stock................................ -- (450) -- (450)
Translation adjustment........................... -- -- (10) (10)
Net income....................................... -- 1,501 -- 1,501
----- ------------- ----- -------------
Balances as of December 31, 1994................... -- (2,580) (72) 2,388
Issuance of common stock upon exercise of
options........................................ -- -- -- 23
Cash dividends of $.54 per share paid on
preferred stock................................ -- (450) -- (450)
Translation adjustment........................... -- -- (46) (46)
Net income....................................... -- 931 -- 931
----- ------------- ----- -------------
Balances as of December 31, 1995................... -- (2,099) (118) 2,846
Issuance of common stock upon exercise of
options........................................ -- -- -- 125
Issuance of common stock in exchange for
stockholder note receivable.................... -- -- -- --
Issuance of common stock in connection with
recapitalization of Command Audio
Corporation.................................... -- -- -- 875
Conversion of note into 543,099 shares of Series
A preferred stock.............................. -- -- -- 3,038
Cash dividends of $.405 per share paid or
declared on 833,333 shares of preferred stock
and $.117 per share declared on 543,099 shares
of preferred stock............................. -- (401) -- (401)
Deferred stock compensation related to stock
option grants.................................. (231) -- -- --
Amortization of deferred stock compensation...... 87 -- -- 87
Spin-off of Command Audio Corporation, including
deferred stock compensation.................... (189) (1,253) -- (1,442)
Translation adjustment........................... -- -- (20) (20)
Net loss......................................... -- (4) -- (4)
----- ------------- ----- -------------
Balances as of September 30, 1996.................. $ (333) $ (3,757) $ (138) $ 5,104
----- ------------- ----- -------------
----- ------------- ----- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------- -----------------------
1993 1994 1995 1996
--------- --------- --------- 1995 ---------
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................... $ 665 $ 1,501 $ 931 $ 567 $ (4)
Adjustments to reconcile net income (loss) to net cash provided by
continuing operations:
Depreciation and amortization..................................... 430 549 572 400 650
Deferred income taxes............................................. 6 (300) 194 -- (628)
Amortization of deferred stock compensation....................... -- -- -- -- 87
Discontinued operations........................................... -- -- 125 -- 827
Changes in operating assets and liabilities:
Accounts receivable, inventories, and other current assets...... (62) (1,077) (648) (544) (427)
Accounts payable, accrued liabilities, deferred revenue, and
income taxes payable.......................................... 533 1,610 516 413 1,206
Other........................................................... (27) 16 (46) (30) (20)
--------- --------- --------- ------------ ---------
Net cash provided by continuing operations.................... 1,545 2,299 1,644 806 1,691
Net cash used in discontinued operations...................... -- -- (649) -- (1,227)
--------- --------- --------- ------------ ---------
Net cash provided by operating activities..................... 1,545 2,299 995 806 464
--------- --------- --------- ------------ ---------
Cash flows from investing activities:
Purchases of short-term investments................................. -- (1,800) -- -- --
Sales of short-term investments..................................... -- 300 600 600 1,200
Acquisition of property and equipment............................... (458) (634) (1,412) (1,195) (346)
Payments for patents and other intangibles.......................... (170) (207) (185) (145) (296)
Receivable from related party....................................... -- -- -- -- (295)
Other, net.......................................................... 38 (31) (32) (61) (61)
--------- --------- --------- ------------ ---------
Net cash (used in) provided by investing activities........... (590) (2,372) (1,029) (801) 202
--------- --------- --------- ------------ ---------
Cash flows from financing activities:
Payments on capital lease obligations............................... (33) (4) -- -- (92)
Proceeds from long-term debt........................................ -- -- 708 708 --
Payments on long-term debt.......................................... -- -- (12) -- (696)
Proceeds from issuance of common stock.............................. 7 -- 23 -- 125
Cash dividends...................................................... (960) (969) (450) (337) (225)
--------- --------- --------- ------------ ---------
Net cash (used in) provided by financing activities........... (986) (973) 269 371 (888)
--------- --------- --------- ------------ ---------
Net (decrease) increase in cash and cash equivalents.................. (31) (1,046) 235 376 (222)
Cash and cash equivalents at beginning of year/period................. 3,128 3,097 2,051 2,051 2,286
--------- --------- --------- ------------ ---------
Cash and cash equivalents at end of year/period....................... $ 3,097 $ 2,051 $ 2,286 $ 2,427 $ 2,064
--------- --------- --------- ------------ ---------
--------- --------- --------- ------------ ---------
Supplemental disclosures of cash flow information:
Cash paid during the year/period:
Interest.......................................................... $ 510 $ 508 $ 536 $ 377 $ 291
--------- --------- --------- ------------ ---------
--------- --------- --------- ------------ ---------
Income taxes...................................................... $ 285 $ 1,074 $ 155 $ 55 $ 378
--------- --------- --------- ------------ ---------
--------- --------- --------- ------------ ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, IS UNAUDITED.)
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Macrovision Corporation (the Company), which was formed in 1983, designs,
develops, and markets video security technologies and products that provide copy
protection and video scrambling for motion pictures and other proprietary video
materials. The Company is headquartered in Sunnyvale, California and has
subsidiaries in the United Kingdom and Japan.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation.
CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a maturity from
date of purchase of three months or less to be cash equivalents. Cash and cash
equivalents consist of cash on deposit with banks, money market funds and mutual
funds. All other liquid investments are classified as short-term investments.
Short-term investments consisted of auction rate preferred stock and municipal
debt.
Management determines the appropriate classification of investment
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. As of December 31, 1994 and 1995 and as of September 30,
1996, all investment securities were designated as "available-for-sale."
Available-for-sale securities are carried at fair value based on quoted market
prices, with unrealized gains and losses, if material, reported in stockholders'
equity.
Realized gains and losses and declines in value judged to be
other-than-temporary for available-for-sale securities are included in the
consolidated statements of operations. There have been no such inclusions
through September 30, 1996. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in interest income.
The following is a summary of available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Cash equivalents:
Money market funds....................................... $ 1,385 $ 1,595 $ 1,132
Mutual funds............................................. 306 -- --
--------- --------- ------
1,691 1,595 1,132
--------- --------- ------
Short-term investments:
Auction rate preferred stock............................. 1,500 900 --
Municipal debt........................................... 300 300 --
--------- --------- ------
1,800 1,200 --
--------- --------- ------
$ 3,491 $ 2,795 $ 1,132
--------- --------- ------
--------- --------- ------
</TABLE>
F-8
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, IS UNAUDITED.)
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Through September 30, 1996, the difference between the fair value and the
amortized cost of available-for-sale securities was insignificant; therefore, no
unrealized gains or losses have been recorded in stockholders' equity. As of
September 30, 1996, the average portfolio duration and contractual maturity was
less than three months.
INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment, including significant improvements, are carried on
the balance sheet at cost. The Company computes depreciation for all property
and equipment using the straight-line method. The estimated useful lives of
assets range from three to five years. Amortization of equipment recorded under
capital leases is computed over the shorter of the lease term or the estimated
useful life of the equipment.
PATENTS
Patent application costs of $989,000, $1,287,000, and $1,462,000 as of
December 31, 1994 and 1995, and September 30, 1996, respectively, are included
in patents and other intangibles and, upon the granting of the related patent,
are amortized using the straight-line method over the shorter of the estimated
useful life of the patent or 17 years.
IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121 requires the
Company to review the recoverability of the carrying amount of its long-lived
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset might not be recoverable.
In the event that facts and circumstances indicate that the carrying amount
of patents or other assets may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared to the
asset's carrying amount to determine if a write-down to fair value is required.
Fair value may be determined by reference to discounted future cash flows over
the remaining useful life of the related asset. Such an adoption did not have a
material effect on the Company's consolidated financial position or results of
operations.
REVENUE RECOGNITION
Advanced license fees attributable to minimum copy quantities are deferred
until earned. Revenue from the duplication of videocassettes is earned based
upon reported volume of duplication or, in the case of agreements with minimum
guaranteed payments with no specified volume, on a straight-line basis over the
life of the agreement. Nonrefundable license fees received from licensed
duplicators are recognized upon the delivery of processors allowing duplicators
the ability to apply the Company's video copy protection process. Technology
licensing revenue, which applies principally to digital pay-per-view (PPV),
F-9
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, IS UNAUDITED.)
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
cable and satellite system operators, and set-top decoder manufacturers, is
recognized upon release of the rights to the technology and performance of all
significant obligations. Royalty revenue associated with technology licenses,
which has been insignificant to date, is recognized when earned based upon
reported unit sales, transaction based fees, or box office receipts.
Revenues from the sales of encoders, decoders, and systems incorporating the
Company's video copy protection and scrambling technologies are recognized upon
shipment provided that the Company has no additional performance obligations.
COST OF REVENUES
The Company has agreements with certain licensed duplicators utilized by
customers of the Company's video copy protection technology. The Company has
agreed to pay these duplicators a specified fee per unit duplicated utilizing
the Company's video copy protection technology. Such amounts are charged to cost
of revenues when incurred and were $582,000, $618,000, $583,000, $399,000, and
$428,000 as of December 31, 1993, 1994, and 1995, and September 30, 1995 and
1996, respectively.
Video copy protection technology has stimulated the development of "black
boxes" to defeat the video copy protection process. The Company owns patents
that it believes are infringed by these "black box" manufacturers. The Company
has successfully settled legal actions against a number of companies that
produced and distributed "black boxes." These companies have agreed to cease and
desist from manufacturing, distributing, and/or selling the infringing products.
The legal costs associated with protecting these patents amounted to $191,000,
$83,000, $78,000, $69,000, and $20,000 as of December 31, 1993, 1994, and 1995,
and September 30, 1995 and 1996, respectively, and are included in cost of
revenues as incurred. Cost of revenues also includes amortization of patents.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The functional currency for the Company's foreign subsidiaries is the
applicable local currency. The translation of foreign currencies into U.S.
dollars is performed for balance sheet accounts using current exchange rates in
effect at the balance sheet date and for revenues and expense accounts using a
weighted average exchange rate for the respective periods. The gains or losses
resulting from such translation are included in stockholders' equity.
Gains or losses resulting from foreign currency transactions included in the
consolidated statements of operations were not material in any of the periods
presented.
F-10
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, IS UNAUDITED.)
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
BUSINESS AND CONCENTRATION OF CREDIT RISK
The Company sells its video scrambling products and licenses its video copy
protection and video scrambling technologies to customers in the home
videocassette, pay-per-view, cable, satellite, and corporate communication
markets primarily in United States, Europe, Japan, and the Far East. Most of the
Company's business is attributed to the licensing of its video copy protection
technology through Motion Picture Association of America movie studios. The
Company also licenses its digital PPV video copy protection technologies to
satellite and cable television operators and to the equipment manufacturers that
supply the satellite and cable television industries. The Company's video
scrambling technology is licensed to manufacturers of analog cable Pay TV
set-top decoders in developing cable television markets. The Company sells
encoders and decoders that incorporate the scrambling technology to private
analog satellite networks for business communications, education, and special
interest entertainment. The Company also sells specialized video scrambling
systems in the government, military, and law enforcement markets.
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents, and
trade accounts receivable. The Company places its cash and cash equivalents
primarily in money market funds.
The Company performs ongoing credit evaluations of its customers and to date
has not experienced any material losses. Revenues to two significant customers,
those representing approximately 10% or more of total revenues for the
respective periods, aggregated 35% for the year ended December 31, 1993.
Revenues to three significant customers aggregated 45%, 44%, 40%, and 36% for
the years ended December 31, 1994 and 1995, and for the nine months ended
September 30, 1995 and 1996, respectively. At September 30, 1996, receivables
from these customers aggregated 16% of net accounts receivable.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using net income and is based on the
weighted average number of outstanding shares of common stock and, when
dilutive, convertible preferred stock and convertible debt on an "as if
converted" basis, and common equivalent shares from stock options and warrants
outstanding using the treasury stock method. Pursuant to the rules of the
Securities and Exchange Commission (SEC), all common and common equivalent
shares issued within 12 months of the initial filing of the registration
statement have been included in the computation as if they were outstanding for
all periods presented using the treasury stock method and the anticipated
initial public offering (IPO) price of $11.
F-11
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, IS UNAUDITED.)
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements for the nine months ended
September 30, 1995, have been prepared on substantially the same basis as the
audited financial statements, and in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information set forth therein.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 123 is effective for
fiscal years beginning after December 15, 1995, and requires that the Company
either recognize in its consolidated financial statements costs related to its
employee stock-based compensation plans, such as stock option and stock purchase
plans, or make pro forma disclosures of such costs in a footnote to the
consolidated financial statements. The Company has elected to continue to use
the intrinsic value-based method of Accounting Principles Board (APB) Opinion
No. 25, as allowed under SFAS No. 123, to account for all of its employee
stock-based compensation plans. The adoption of SFAS No. 123 did not have a
material effect on the Company's consolidated financial position or results of
operations.
(2) FINANCIAL STATEMENT DETAILS
INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- ---------------
<S> <C> <C> <C>
Raw materials.................................................. $ 199 $ 238 $ 310
Work in progress............................................... 179 344 166
Finished goods................................................. 282 244 178
--------- --------- -----
$ 660 $ 826 $ 654
--------- --------- -----
--------- --------- -----
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Machinery and equipment.................................... $ 1,546 $ 2,106 $ 2,925
Leasehold improvements..................................... 57 892 913
Furniture and fixtures..................................... 310 327 351
--------- --------- ------
1,913 3,325 4,189
Less accumulated depreciation and amortization............. 988 1,492 2,095
--------- --------- ------
--------- --------- ------
$ 925 $ 1,833 $ 2,094
--------- --------- ------
--------- --------- ------
</TABLE>
F-12
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, IS UNAUDITED.)
(2) FINANCIAL STATEMENT DETAILS (CONTINUED)
Equipment recorded under capital leases aggregated $518,000 with related
accumulated amortization of $154,000 as of September 30, 1996.
ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Accrued compensation....................................... $ 613 $ 590 $ 755
Accrued lease commitments.................................. 283 74 55
Interest payable........................................... 128 128 --
Accrued property and sales taxes........................... 92 113 152
Accrued professional fees.................................. 74 265 211
Accrued rebates............................................ 476 524 298
Dividend payable........................................... -- -- 176
Other accrued liabilities.................................. 503 652 577
--------- --------- ------
$ 2,169 $ 2,346 $ 2,224
--------- --------- ------
--------- --------- ------
</TABLE>
INTEREST AND OTHER EXPENSE, NET
Interest and other expense, net, consisted of the following (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Interest income................................. $ 89 $ 86 $ 135 $ 100 $ 53
Interest expense................................ (551) (503) (536) (377) (281)
Other........................................... -- -- (32) (22) (13)
--------- --------- --------- --------- ---------
$ (462) $ (417) $ (433) $ (299) $ (241)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-13
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, IS UNAUDITED.)
(2) FINANCIAL STATEMENT DETAILS (CONTINUED)
SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information related to noncash investing and
financing activities is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Acquisition of equipment under capital
lease..................................... $ -- $ -- $ -- $ -- $ 518
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Issuance of common stock in exchange for
stockholder notes receivable.............. $ -- $ -- $ -- $ -- $ 174
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Conversion of convertible note into
preferred stock........................... $ -- $ -- $ -- $ -- $ 3,038
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Deferred stock compensation related to stock
option grants............................. $ -- $ -- $ -- $ -- $ 231
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Issuance of common stock in connection with
recapitalization.......................... $ -- $ -- $ -- $ -- $ 875
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro rata stock dividend distribution in
connection with spin-off.................. $ -- $ -- $ -- $ -- $ 1,253
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Deferred stock compensation related to
spin-off.................................. $ -- $ -- $ -- $ -- $ 189
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
(3) DEBT
CONVERTIBLE NOTE
The Company issued to the holder of the Series A convertible preferred stock
(see Note 5) a convertible note with a principal value of $3,038,000, which bore
interest at a rate of 16.38% per annum payable quarterly. The note was due in
June 2001 and could have been extended for an additional 10 years upon the
mutual agreement of the holder and the Company. At the option of the holder, the
note was convertible into 543,099 shares of Series A convertible preferred
stock, subject to adjustment based upon certain provisions of the note
agreement. The note entitled the holder to voting rights equal to one vote for
each share of common stock into which the note could be converted, and the note
entitled the holder to representation on the Company's Board of Directors. In
July 1996, the note was converted into 543,099 shares of Series A convertible
preferred stock.
TERM LOAN AND LINE OF CREDIT
In June 1995, the Company entered into a Loan and Security Agreement that
included a $1,500,000 line of credit to support the issuance of commercial and
standby letters of credit and a $1,500,000 term facility, both bearing interest
at the prime rate (8.5% as of December 31, 1995). The agreement contained
certain financial covenants and certain restrictions on other indebtedness and
payment of dividends. The Company terminated this line of credit and term
facility in June 1996.
F-14
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, IS UNAUDITED.)
(4) DISCONTINUED OPERATIONS AND TRANSACTIONS WITH RELATED PARTIES
DISCONTINUED OPERATIONS
On June 28, 1996, the Company discontinued its involvement in Command Audio
Corporation (CAC), a business unit formed by the Company in 1995. CAC's
operations, technology, and employee base were discrete and separate from those
of the Company. From its inception until separation, CAC generated no revenues
and concentrated exclusively on research and development activities. In
conjunction with this decision, the Company entered into a Recapitalization and
Stock Purchase Agreement whereby the Company invested an additional $1,000,000
into CAC, provided 194,444 shares of the Company's common stock to CAC pursuant
to a Restricted Stock Acquisition Agreement, and surrendered the Company's
500,000 shares of CAC's Series A preferred stock in exchange for 604,000 shares
of CAC common stock and 396,000 shares of CAC Series B preferred stock.
Additionally, the Company assigned to CAC all rights in certain technology and
released its reversion rights in technology that the Company had previously
assigned CAC. In consideration of such assignment and release, CAC agreed to pay
to the Company royalties equal to 2% of CAC's gross revenues for 12 years,
beginning when CAC has operating revenues from certain sources or, at the
election of the Company, at any time prior thereto. No amounts have been paid to
the Company under this arrangement.
On July 31, 1996, the Company distributed a portion of the 1,604,000 shares
of CAC common stock to the Company's stockholders on a pro rata basis as a
dividend and a portion to the Company's employees as a stock bonus while
retaining the 396,000 shares of CAC Series B preferred stock, representing a
19.8% interest in CAC. The CAC Common Stock that was distributed to the
Company's employees resulted in the recognition of $189,000 of deferred
compensation expense. This amount is being amortized over the vesting period.
The net assets of CAC included in the accompanying consolidated balance sheet as
of December 31, 1995, are summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets:
Current assets..................................................... $ 461
Long-term assets................................................... 173
---------
634
Liabilities:
Current liabilities................................................ 110
---------
Net assets....................................................... $ 524
---------
---------
</TABLE>
Information relating to discontinued operations is as follows (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
Costs and expenses.............................................. $ (205) $ (1,081)
----- -------------
Operating loss.............................................. (205) (1,081)
Other income, net............................................... -- 5
----- -------------
Loss before income taxes.................................... (205) (1,076)
Income tax benefit, net......................................... 80 249
----- -------------
$ (125) $ (827)
----- -------------
----- -------------
</TABLE>
F-15
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, IS UNAUDITED.)
(4) DISCONTINUED OPERATIONS AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
Included in income tax benefit, net for the nine months ended September 30,
1996, is a write-off of the deferred tax asset attributable to CAC of $203,000.
CAC maintained its own set of accounts and identified expenses directly
attributable to CAC's operations. Where the Company provided services to CAC and
the specific identification of the related expenses was not practicable, the
expenses were recorded based upon an allocation of such items. This allocation
was based upon the proportional benefit received by CAC and, in management's
opinion, represents a fair and reasonable estimate of expenses incurred by CAC.
Amounts receivable from CAC related to such services are included in the
accompanying consolidated balance sheet as of September 30, 1996, as receivable
from related party.
The Company has recorded its investment in CAC based upon its historical
cost adjusted for losses incurred by CAC. The Company intends to hold this
investment for the long-term and monitors the recoverability of this investment
based on management's estimates of the fair value of CAC based on the
achievements of milestones specified in CAC's business plan. In the future, the
Company expects to evaluate the recoverability of this investment based on
successive rounds of third-party financing obtained by CAC. The investment is
classified in other assets in the accompanying consolidated balance sheet as of
September 30, 1996. The Company is not obligated by contract to provide future
funding to CAC and does not have the ability to exert significant influence over
the financial and operating policies of CAC. The Company accounts for this
investment by the cost method.
TRANSACTIONS WITH RELATED PARTIES
The Company and JVC are parties to a Technology Application Agreement dated
November 29, 1988 (the Application Agreement), a Duplicator Agreement dated June
1, 1988 (the Duplicator Agreement) and an Agreement dated July 15, 1994 (the
Video Agreement). Pursuant to the Application Agreement, JVC has applied the
Company's copy protection process to prerecorded videocassettes manufactured and
distributed in Japan by JVC. Pursuant to the Duplicator Agreement, JVC has
applied the Company's copy protection process to prerecorded videocassettes
manufactured and distributed in Japan by certain of the Company's licensees.
Pursuant to the Video Agreement, JVC developed a prototype of equipment to apply
a copy protection process to prerecorded videocassettes, and granted the Company
exclusive rights to purchase such equipment from JVC for resale and to
sublicense the copy protection technology for use with the equipment. Between
January 1, 1994 and September 30, 1996, JVC paid the Company approximately
$171,000 and the Company paid JVC approximately $64,000 under these agreements.
In connection with a license agreement dated September 26, 1995 between the
Company, Victor Technobrain Co., Ltd. (Techno), a wholly owned subsidiary of
JVC, and an unrelated party, the Company has paid Techno a development fee of
$50,000 and owes an additional $50,000 to Techno.
In July 1996, the Company entered into a Copy Protection Technology License
Agreement with Matsushita, pursuant to which Matsushita and its subsidiaries are
authorized to include integrated circuits incorporating the Company's copy
protection technology in digital set-top decoders they manufacture. The terms
and conditions of this agreement, pursuant to which Matsushita has paid the
Company an initial fee of $50,000 and is obligated to pay an additional $0.60
per unit, are not more favorable to Matsushita than the terms and conditions of
the Company's license agreements with 33 other digital set-top decoder
manufacturers.
F-16
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, IS UNAUDITED.)
(4) DISCONTINUED OPERATIONS AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
See Note 10.
(5) STOCKHOLDERS' EQUITY
SERIES A CONVERTIBLE PREFERRED STOCK
The Company's Articles of Incorporation provide for the issuance of up to
5,000,000 shares of preferred stock, of which 1,376,432 shares have been
designated as Series A. In June 1991, the Company issued to the holder of the
convertible note (Note 3) 833,333 shares of Series A convertible preferred stock
for gross proceeds of $4,500,000. The shares are convertible into the Company's
common stock on a one-for-one basis at the option of the holder or automatically
upon a qualifying IPO. Each share of Series A convertible preferred stock
entitles its holder to one vote for each share of common stock into which such
shares could be converted, not to exceed voting rights equivalent to 49% of the
outstanding voting stock. Cumulative dividends at the rate of $.54 per share per
year are payable quarterly to the holder of the Series A convertible preferred
stock. The holder of the Series A convertible preferred stock is entitled to
$5.40 per share in the event of any liquidation, dissolution, or winding up of
the Company, plus an amount equal to all declared but unpaid dividends, prior
and in preference to any distribution to the holders of common stock.
In conjunction with the issuance of the Series A convertible preferred stock
and the convertible note, the Company agreed to grant certain rights to the
purchaser of such securities, which included a first right to purchase a pro
rata share of any equity offering of the Company excluding shares issued for (a)
an IPO and (b) an acquisition of another corporation, if such exclusions will
not reduce the purchaser's pro rata ownership share of the Company below 25%,
(c) stock dividend or splits, and (d) stock compensation plans. Further, the
purchaser has entered into an agreement with the holders of common stock and
optionees of the Company as of June 12, 1991, giving the purchaser the right to
acquire all of their shares of common stock and options at a predetermined price
upon notice from the Company that it has filed a registration statement in
connection with an IPO (See Note 10).
STOCK OPTIONS
The Company's stock option plan (the Option Plan) gives selected employees,
directors, and consultants of the Company an opportunity to acquire the
Company's common stock. Nonstatutory stock options and incentive stock options
are exercisable at prices not less than 85% and 100%, respectively, of the fair
value of the Company's common stock on the date of grant, as determined by the
Company's Board of Directors. The options are generally exercisable over a
3-year vesting period and expire 5 to 10 years from
F-17
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, IS UNAUDITED.)
(5) STOCKHOLDERS' EQUITY (CONTINUED)
date of grant. The Board of Directors has reserved 972,222 shares of common
stock for issuance pursuant to the Option Plan. A summary of stock option
activity follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES --------------------------
AVAILABLE NUMBER OF PRICE
FOR GRANT SHARES PER SHARE
---------- ---------- --------------
<S> <C> <C> <C>
Balances as of December 31, 1992...................... 340,141 532,952 $1.80 - 4.95
Granted............................................... (353,666) 353,666 2.70
Canceled.............................................. 201,760 (201,760) 1.80 - 4.95
Exercised............................................. -- (3,443) 1.80 - 2.25
---------- ---------- --------------
Balances as of December 31, 1993...................... 188,235 681,415 1.80 - 2.70
Granted............................................... (44,444) 44,444 2.70
Canceled.............................................. 50,832 (50,832) 2.70
Exercised............................................. -- (66) 2.25
---------- ---------- --------------
Balances as of December 31, 1994...................... 194,623 674,961 1.80 - 2.70
Granted............................................... (356,743) 356,743 2.70
Canceled.............................................. 311,275 (311,275) 2.70
Exercised............................................. -- (12,540) 1.80
---------- ---------- --------------
Balances as of December 31, 1995...................... 149,155 707,889 1.80 - 2.70
Granted............................................... (98,171) 98,171 2.70 - 7.20
Canceled.............................................. 40,484 (40,484) 1.80 - 2.70
Exercised............................................. -- (55,820) 2.25 - 2.70
---------- ---------- --------------
Balances as of September 30, 1996..................... 91,468 709,756 $2.25 - 7.20
---------- ----------
---------- ----------
</TABLE>
RESTRICTED STOCK
On June 7, 1996, the Company issued 58,333 shares of common stock at a price
of $2.70 per share pursuant to a restricted stock purchase agreement to an
officer of the Company in exchange for a full recourse promissory note secured
by the shares in the principal amount of $157,000. Interest accrues at the rate
of 6.58% per annum. Principal and accrued interest, if any, are due and payable
on June 7, 2001. The Company has the right to repurchase the stock at the
original sales price upon the termination of the purchaser's employment with the
Company. The repurchase right lapses at a rate of 1/6 after June 7, 1997, 1/3
after June 7, 1998, and 1/2 after June 7, 1999. As of September 30, 1996, all of
the shares were subject to the repurchase right.
ACCOUNTING FOR STOCK-BASED COMPENSATION PLANS
The Company has elected to use the intrinsic value-based method of APB
Opinion No. 25 to account for all of its employee stock-based compensation
plans. Accordingly, no compensation cost has been recognized in the accompanying
consolidated financial statements for the Option Plan because the exercise price
of each option equals or exceeds the fair value of the underlying common stock
as of the grant date for each stock option, except for options and restricted
stock granted in May and June 1996. With respect to the options and restricted
stock granted in May and June 1996, the Company has recorded deferred stock
compensation of $231,000 for the difference at the grant date between the
exercise price and the fair
F-18
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, IS UNAUDITED.)
(5) STOCKHOLDERS' EQUITY (CONTINUED)
value, as determined by an independent valuation, of the restricted stock and
the common stock underlying the options. This amount is being amortized on a
straight-line basis over the vesting period of the individual options and
restricted stock, generally three years.
The Company has adopted the pro forma disclosure provisions of SFAS No. 123.
Had compensation cost for the Company's stock-based compensation plans been
determined in a manner consistent with the fair value approach described in SFAS
No. 123, the Company's net income (loss) and net income (loss) per share as
reported would have been reduced to the pro forma amounts indicated below (in
thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------- ---------------------
<S> <C> <C> <C>
Net income (loss) As reported $ 931 $ (4)
Adjusted pro forma 874 (61)
As reported .12 (.09)
Net income (loss) per share Adjusted pro forma .10 (.11)
</TABLE>
The fair value of each option is estimated on the date of grant using the
minimum value method with the following weighted average assumptions: no
dividends, an expected life of four years, and risk-free interest rates of 5.75%
for the year ended December 31, 1995, and 5.81% for the nine months ended
September 30, 1996.
A summary of the status of the Company's options for the nine months ended
September 30, 1996, is as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
FIXED OPTIONS NUMBER EXERCISE PRICE
- ----------------------------------------------------------------- --------- -----------------
<S> <C> <C>
Outstanding at beginning of year/period.......................... 707,889 $ 2.66
Granted.......................................................... 98,171 2.89
Canceled......................................................... (40,484) 2.61
Exercised........................................................ (55,820) 2.56
---------
Outstanding at end of year/period................................ 709,756 2.71
---------
---------
Options exercisable at period-end................................ 301,084
---------
---------
Weighted average fair value of options granted during the
period......................................................... $ .59
---------
---------
</TABLE>
F-19
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, IS UNAUDITED.)
(5) STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about fixed stock options
outstanding as of September 30, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- ------------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE EXERCISABLE
AS OF REMAINNG WEIGHTED AS OF WEIGHTED
RANGE OF SEPTEMBER 30, CONTRACTUAL AVERAGE SEPTEMBER 30, AVERAGE
EXERCISE PRICES 1996 LIFE EXERCISE PRICE 1996 EXERCISE PRICE
- ------------------ ------------- -------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$1.80 - 2.70 705,589 7.94 years $ 2.68 301,084 $ 2.66
$7.20 4,167 9.97 7.20 -- --
------------- -------------- ----- ------------- -----
709,756 7.95 2.71 301,084 2.66
------------- -------------- ----- ------------- -----
------------- -------------- ----- ------------- -----
</TABLE>
(6) INCOME TAXES
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS
ENDED
------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Current:
Federal............................................ $ 256 $ 740 $ 83 $ 749
Foreign............................................ 96 207 269 47
State.............................................. 86 239 68 168
--------- --------- --------- -----
Total current.................................... 438 1,186 420 964
--------- --------- --------- -----
Deferred:
Federal............................................ 4 (242) 168 (510)
State.............................................. 2 (58) 26 (118)
--------- --------- --------- -----
Total deferred................................... 6 (300) 194 (628)
--------- --------- --------- -----
$ 444 $ 886 $ 614 $ 336
--------- --------- --------- -----
--------- --------- --------- -----
</TABLE>
Total tax expense has been allocated as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS
ENDED
------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Continuing operations.................................. $ 444 $ 886 $ 694 $ 585
Discontinued operations................................ -- -- (80) (249)
--------- --------- --------- -----
$ 444 $ 886 $ 614 $ 336
--------- --------- --------- -----
--------- --------- --------- -----
</TABLE>
F-20
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, IS UNAUDITED.)
(6) INCOME TAXES (CONTINUED)
The Company's effective tax rate differs from the statutory federal tax rate
as shown in the following table (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS
ENDED
------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Computed "expected" tax expense........................ $ 377 $ 812 $ 525 $ 113
State tax expenses, net of federal benefit............. 58 120 93 21
Tax credits............................................ (43) (80) (57) (25)
Foreign taxes.......................................... -- 10 72 15
Exempt interest........................................ (10) (21) (33) (11)
Write-off of discontinued operations deferred tax
asset................................................ -- -- -- 203
Other.................................................. 62 45 14 20
--------- --------- --------- -----
$ 444 $ 886 $ 614 $ 336
--------- --------- --------- -----
--------- --------- --------- -----
</TABLE>
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of 1994, 1995, and 1996,
are presented below (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets:
Accrued liabilities and reserves................................. $ 205 $ 131 $ 598
Allowance for doubtful accounts.................................. 92 94 117
Depreciation and amortization.................................... 37 102 288
Deferred revenue................................................. 142 129 442
Other............................................................ 148 35 29
--------- --------- ---------
Total gross deferred tax assets................................ 624 491 1,474
--------- --------- ---------
Deferred tax liabilities:
Patents.......................................................... 290 366 728
Other............................................................ 22 7 --
--------- --------- ---------
Total gross deferred tax liabilities........................... 312 373 728
--------- --------- ---------
Net deferred tax assets........................................ $ 312 $ 118 $ 746
--------- --------- ---------
--------- --------- ---------
</TABLE>
(7) COMMITMENTS
LEASES
The Company leases its facilities and certain equipment pursuant to
noncancelable operating lease agreements. Additionally, the Company leases
certain equipment pursuant to a capital lease agreement.
F-21
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, IS UNAUDITED.)
(7) COMMITMENTS (CONTINUED)
Future minimum lease payments pursuant to these leases as of September 30,
1996, were as follows (in thousands):
<TABLE>
<CAPTION>
PERIOD ENDING CAPITAL OPERATING
DECEMBER 31, LEASE LEASES
- ------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1996 (three months).................................................... $ 29 $ 136
1997................................................................... 116 506
1998................................................................... 116 434
1999................................................................... 116 427
2000 and thereafter.................................................... 78 1,094
----- -----------
Total.................................................................. 455 $ 2,597
-----------
-----------
Less amounts representing interest..................................... 29
-----
Present value of minimum capital lease payments........................ 426
Less current portion of capital lease liability........................ 104
-----
Capital lease liability, net of current portion........................ $ 322
-----
-----
</TABLE>
Rent expense was $431,000, $443,000, $491,000, $371,000, and $328,000 as of
December 31, 1993, 1994, and 1995, and September 30, 1995 and 1996,
respectively.
EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan that allows eligible employees to contribute
up to 20% of their compensation, which contribution was limited to $9,240 in
1995. Employee contributions and earnings thereon vest immediately. The Company
may make discretionary contributions to the 401(k) plan. No discretionary
contributions were made through December 31, 1995. For the nine months ended
September 30, 1996, employer contributions totaled $41,000. Employer
contributions vest ratably over three years.
(8) CONTINGENCIES
In October 1995, a former officer and director of the Company filed suit
against the Company in the Superior Court of the State of California alleging
monetary damages suffered as a result of alleged fraud, misrepresentation, and
other malfeasance in connection with the Company's grant of stock options to
him. As a result of motions filed by the Company, in September 1996 the
California Court of Appeal ordered this matter to binding arbitration in
accordance with a written agreement between him and the Company. The arbitration
agreement contains limitations on the remedies available to him and expressly
precludes punitive damages. The Company believes that the case is without merit
and intends to contest it vigorously. While the outcome of this case cannot be
determined with certainty, the Company does not believe that the resolution of
this case will have a material adverse effect on the Company's financial
condition or results of operations. However, a decision against the Company of a
significant amount could have a material adverse effect on the Company's
business, financial condition, and results of operations. No provision has been
made in the accompanying consolidated financial statements related to this
matter.
F-22
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, IS UNAUDITED.)
(9) SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment and is engaged in developing
and licensing or selling its video copy protection and video scrambling
technologies to customers in the home videocassette, pay-per-view, cable,
satellite, and corporate communications markets primarily in the United States,
Europe, Japan and the Far East. The distribution of revenues, operating income
(loss), and assets by geographic area is as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Revenues:
United States................................ $ 8,925 $ 12,172 $ 12,790 $ 10,787
Foreign operations........................... 624 1,158 1,399 912
--------- --------- --------- -------------
Total revenues............................. $ 9,549 $ 13,330 $ 14,189 $ 11,699
--------- --------- --------- -------------
--------- --------- --------- -------------
Operating income (loss) from
continuing operations:
United States................................ $ 1,609 $ 2,727 $ 1,910 $ 1,474
Foreign operations........................... (38) 77 273 175
--------- --------- --------- -------------
Total operating income..................... $ 1,571 $ 2,804 $ 2,183 $ 1,649
--------- --------- --------- -------------
--------- --------- --------- -------------
Identifiable assets:
United States................................ $ 8,671 $ 9,810 $ 12,805
Foreign operations........................... 675 1,267 1,370
--------- --------- -------------
Subtotal identifiable assets............... 9,346 11,077 14,175
Eliminations................................. (106) (106) (2,517)
--------- --------- -------------
Total identifiable assets.................. $ 9,240 $ 10,971 $ 11,658
--------- --------- -------------
--------- --------- -------------
</TABLE>
United Stated revenue includes export sales of approximately $2,131,000,
$4,025,000, $3,305,000, and $3,394,000 in the years ended December 31, 1993,
1994, and 1995 and for the nine months ended September 30, 1996, respectively.
(10) SUBSEQUENT EVENTS
REGISTRATION STATEMENT
In December 1996, the Board of Directors authorized the filing of a
registration statement with the SEC permitting the Company and certain
stockholders of the Company to sell shares of the Company's common stock in
connection with a proposed IPO. If the offering is consummated under the terms
presently anticipated, all the currently outstanding shares of preferred stock
will automatically convert into 1,376,432 shares of common stock upon the
closing of the proposed IPO. The conversion of the preferred stock has been
reflected in the accompanying pro forma stockholders' equity as of September 30,
1996.
F-23
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, IS UNAUDITED.)
(10) SUBSEQUENT EVENTS (CONTINUED)
REINCORPORATION
In December 1996, the Board of Directors approved the Company's
reincorporation in the state of Delaware which will become effective prior to
the effectiveness of the proposed IPO. The Certificate of Incorporation of the
Delaware successor corporation authorizes 50,000,000 shares of common stock,
$.001 par value per share and 5,000,000 shares of preferred stock, $.001 par
value per share. The Board of Directors also approved a 1 for 1.8 reverse stock
split of common and preferred stock. The accompanying consolidated financial
statements have been retroactively restated to give effect to the
reincorporation and reverse stock split.
1996 EQUITY INCENTIVE PLAN
In December 1996, the Company adopted the 1996 Equity Incentive Plan (the
Equity Incentive Plan) and reserved 300,000 shares of common stock for issuance
thereunder. The Equity Incentive Plan will become effective upon the Company's
proposed IPO and will serve as the successor equity incentive program to the
Company's Option Plan. The Equity Incentive Plan provides for the grant of stock
options, stock appreciation rights, and restricted stock awards by the Company
to employees, officers, directors, consultants, independent contractors, and
advisers of the Company. The Company expects the approval of the Equity
Incentive Plan by stockholders in January 1997.
1996 EMPLOYEE STOCK PURCHASE PLAN
In December 1996, the Company adopted the 1996 Employee Stock Purchase Plan
(the Purchase Plan) and reserved 140,000 shares of common stock for issuance
thereunder. The Purchase Plan will become effective upon the Company's proposed
IPO. The Purchase Plan permits eligible employees to purchase common stock,
through payroll deductions between 1% and 20% of the employee's compensation, at
a price equal to 85% of the fair market value of the common stock at either the
beginning or the end of each offering period, whichever is lower. The Company
expects the approval of the Purchase Plan by stockholders in January 1997.
1996 DIRECTORS STOCK OPTION PLAN
In December 1996, the Company adopted the 1996 Directors Stock Option Plan
(the Directors Plan) and reserved 60,000 shares of common stock for issuance
thereunder. The Directors Plan provides for the initial grant of a nonqualified
option to purchase 5,000 shares of common stock on the date the eligible
director first becomes a director and the additional grant of a nonqualified
option to purchase 3,000 shares of Common Stock annually thereafter. Each
eligible director on the effective date of the Company's proposed IPO will be
granted a nonqualified option to purchase 3,000 shares of Common Stock each year
beginning on the first anniversary of the effective date of the Company's
proposed IPO, provided that such director continues to serve on the Board on
such dates. Options will vest at the rate of 2.08% per month so long as the
director continues to serve on the Board on such dates. The Company expects the
approval of the Directors Plan by stockholders in January 1997.
F-24
<PAGE>
MACROVISION CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994, AND 1995 AND SEPTEMBER 30, 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, IS UNAUDITED.)
(10) SUBSEQUENT EVENTS (CONTINUED)
COMMON STOCK REPURCHASE AGREEMENT (UNAUDITED)
On December 6, 1996, the Company has offered to repurchase 55,555 shares of
its common stock issued to CAC pursuant to a Restricted Stock Acquisition
Agreement for $9.00 per share. The offer will expire on March 4, 1997.
STOCKHOLDERS' EQUITY--SERIES A PREFERRED STOCK (UNAUDITED)
In January 1997, the Company entered into an agreement with the holder of
the Series A convertible preferred stock whereby the holder relinquished its
right to acquire all of the shares of common stock and options from the
Company's stockholders and optionholders at a predetermined price upon notice
from the Company that it has filed a registration statement in connection with
an IPO (See Note 5).
TRANSACTIONS WITH RELATED PARTIES (UNAUDITED)
In January 1997, the Company and JVC entered into a Copy Protection
Technology Agreement (the Technology Agreement), pursuant to which the Company
agreed to license its copy protection technologies to JVC for use in territories
in which the Company has issued patents, on terms and conditions comparable to
those provided under agreements between the Company and parties situated
similarly to JVC. Additionally, the Company agreed to continue to make its copy
protection technologies generally available for license to third parties on
terms commercially reasonable to the Company in the venues and for the purposes
that the Company currently licenses such technologies. The Technology Agreement
gives JVC the right to sublicense the Company's copy protection technologies to
certain third parties on terms and conditions comparable to those provided in
similar agreements previously entered into by the Company, with 95% of the
royalties from such sublicenses payable to the Company or its successor, in the
event that a party other than JVC acquires a majority interest in the Company or
acquires the Company's copy protection business or patents, and following such
acquisition the Company or its successor refuses to continue to license the
Company's copy protection technologies on a nondiscriminatory basis to its
current customers and similarly situated parties.
F-25
<PAGE>
WE COULDN'T HAVE SAID IT
BETTER OURSELVES.
[Picture shows a copy of two New Line Home Video advertisements.
One reads as follows: "Gluttony Envy Greed Lust Wrath Sloth Pride. The 8th
Deadly Sin: Video Copying. New Line Home Video Protects Your Profits With The
Exclusive Macrovision-Registered Trademark-Copy Protection Process." The other
has a picture of a dragon and reads as follows: "New Line Home Video Declares
Mortal Kombat on Video Copying! We're Protecting Your Bottom Line with Copy-
Protection! To assure maximum profitability, every Mortal Kombat-Registered
Trademark- videocassette will be encoded with the Macrovision anticopy process.
Make sure your videos-- and your business-- carry the shield of Copy Protection.
Because your profits are something worth fighting for."]
One Macrovision customer, New Line Home Video, initiated a marketing program
promoting the use of Macrovision copy protection technology in order to protect
the profits of New Line's video retailer customers. New Line ads featured
Macrovision copy protection of the videos MORTAL KOMBAT and SEVEN. Retailer
response to this campaign was positive as retailers reported that they would
increase their purchases of videos by an average of 18% IF THE VIDEOS WERE COPY
PROTECTED.
[LOGO]
Macrovision, PhaseKrypt and Protecting Your Image are registered trademarks, and
CineGuard, Colorstripe, StarShaker, VES and VES-TM are trademarks of Macrovision
Corporation.
------------------------------------------------
Video frame and graphics courtesy of New Line Home Video and WMS Industries,
Inc.
<PAGE>
- ----------------------------------------------
----------------------------------------------
- ----------------------------------------------
----------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERING 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 BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION
WOULD BE 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, OR THAT INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME, SUBSEQUENT TO THE DATE HEREOF.
----------------------
TABLE OF CONTENTS
----------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY........................................................ 3
RISK FACTORS.............................................................. 5
THE COMPANY............................................................... 16
USE OF PROCEEDS........................................................... 16
DIVIDEND POLICY........................................................... 16
CAPITALIZATION............................................................ 17
DILUTION.................................................................. 18
SELECTED CONSOLIDATED FINANCIAL DATA...................................... 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 20
BUSINESS.................................................................. 27
MANAGEMENT................................................................ 44
CERTAIN TRANSACTIONS...................................................... 52
PRINCIPAL AND SELLING STOCKHOLDERS........................................ 55
DESCRIPTION OF CAPITAL STOCK.............................................. 57
SHARES ELIGIBLE FOR FUTURE SALE........................................... 59
UNDERWRITING.............................................................. 61
LEGAL MATTERS............................................................. 62
EXPERTS................................................................... 62
ADDITIONAL INFORMATION.................................................... 62
CHANGE IN INDEPENDENT AUDITORS............................................ 63
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-1
</TABLE>
----------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
2,300,000 SHARES
[LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
MONTGOMERY SECURITIES
HAMBRECHT & QUIST
COWEN & COMPANY
, 1997
- ----------------------------------------------
----------------------------------------------
- ----------------------------------------------
----------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Certificate of Incorporation includes a provision that eliminates
the personal liability of its directors to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) under
section 174 of the Delaware General Corporation Law or (iv) for any transaction
from which the director derived an improper personal benefit. In addition, as
permitted by Section 145 of the Delaware General Corporation Law, the Bylaws of
the Registrant provide that: (i) the Registrant is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law; (ii) the Registrant may, in its discretion, indemnify other
officers, employees and agents as set forth in the Delaware General Corporation
Law; (iii) upon receipt of an undertaking to repay such advances if
indemnification is determined to be unavailable, the Registrant is required to
advance expenses, as incurred, to its directors and executive officers in
connection with a proceeding; (iv) the rights conferred in the Bylaws are not
exclusive and the Registrant is authorized to enter into indemnification
agreements with its directors, officers, employees and agents; (v) the
Registrant may not retroactively apply any amendment of the Bylaw provisions
relating to indemnity; and (vi) to the fullest extent permitted by the Delaware
General Corporation Law, a director or executive officer will be deemed to have
acted in good faith if his or her action is based on the records or books of
account of the Registrant or on information supplied to him or her by officers
of the Registrant in the course of their duties or on the advice of legal
counsel for the Registrant or on information or records given or reports made to
the Registrant by independent certified public accountants or appraisers or
other experts.
The Registrant intends to enter into indemnification agreements with each of
its directors and executive officers. The indemnification agreements provide
that directors and executive officers will be indemnified and held harmless to
the fullest possible extent permitted by law including against all expenses
(including attorneys' fees), judgments, fines and settlement amounts actually
and reasonably incurred by them in any action, suit or proceeding, including any
derivative action by or in the right of the Registrant, on account of their
services as directors, officers, employees or agents of the Registrant or as
directors, officers, employees or agents of any other company or enterprise when
they are serving in such capacities at the request of the Registrant.
The indemnification agreement requires a director or executive officer to
reimburse the Registrant for expenses advanced only to the extent that it is
ultimately determined that the director or executive officer is not entitled,
under Delaware law, the Bylaws, his or her indemnification agreement or
otherwise to be indemnified for such expenses. The indemnification agreement
provides that it is not exclusive of any rights a director or executive officer
may have under the Certificate of Incorporation, Bylaws, other agreements, any
vote of the stockholders or vote of directors or otherwise.
The indemnification provision in the Bylaws, and the indemnification
agreements entered into between the Registrant and its directors and executive
officers, may be sufficiently broad to permit indemnification of the
Registrant's directors and executive officers for liabilities arising under the
Securities Act.
As authorized by the Registrant's Bylaws, the Registrant, with approval by
the Registrants Board of Directors, has applied for, and expects to obtain,
directors and officers liability insurance with a per claim and annual aggregate
coverage limit of up to $5,000,000.
II-1
<PAGE>
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
- ----------------------------------------------------------------------------- -----------------
<S> <C>
Underwriting Agreement....................................................... 1.01
Registrant's Certificate of Incorporation.................................... 3.01
Registrant's Bylaws.......................................................... 3.03
Form of Indemnification Agreement............................................ 10.08
</TABLE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid in
connection with the sale of the shares of Common Stock being registered hereby.
All amounts are estimates except for the Securities and Exchange Commission
registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $ 9,618
NASD filing fee............................................... 3,674
Nasdaq National Market filing fee.............................
Accounting fees and expenses..................................
Legal fees and expenses.......................................
Printing and engraving expenses...............................
Road show expenses............................................
Blue sky fees and expenses....................................
Transfer agent, registrar and custodian fees and expenses.....
Miscellaneous.................................................
------
Total................................................. $
------
------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The Common Stock, Preferred Stock and options of the Registrant issued to
stockholders of Macrovision Corporation, a California corporation, in connection
with the reincorporation into Delaware were not deemed "sold" as a result of
Rule 145(a)(2) promulgated under the Securities Act. The following table sets
forth information regarding all securities sold by the Registrant's California
predecessor since December 1, 1993.
<TABLE>
<CAPTION>
TITLE OF NUMBER OF AGGREGATE FORM OF
CLASS OF PURCHASERS DATE OF SALE SECURITIES SHARES PURCHASE PRICE CONSIDERATION
- ----------------------------------- --------------- ---------------- ----------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
Victor A Viegas.................... June 7, 1996 Common Stock 58,333 $ 157,500 Promissory Note
Pacific Media Development, Inc., Series A
acting through a trustee......... July 12, 1996 Preferred Stock 543,099 $3,037,994 Conversion of Note
Recapitalization
Command Audio Corporation.......... July 30, 1996 Common Stock 194,444 $ 874,998 (1)
Exercise of options by 30
optionees, including two officers
and one former officer........... July 6, 1994 - Common Stock 78,843 $ 118,265 Cash
October 29,
1996
</TABLE>
- ------------------------------
(1) On July 31, 1996, the Company and Command Audio Corporation ("CAC") entered
into a Recapitalization and Stock Purchase Agreement pursuant to which the
Company purchased from CAC 604,000 shares of CAC common stock and 396,000
shares of CAC Series B preferred stock for the aggregate consideration of
$1.0 million paid in August 1996 in cash and in September 1996 pursuant to a
secured promissory note, 194,444 shares of the Company's Common Stock,
subject to the terms and conditions of a Restricted Stock Acquisition
Agreement, and the surrender and delivery to CAC of 500,000 shares of CAC
Series A preferred stock.
II-2
<PAGE>
The sale of Common Stock to Victor A. Viegas and all sales of Common Stock
made pursuant to the exercise of stock options granted under the stock option
plans of the Registrant (or its predecessor) were made pursuant to an exemption
from the registration requirements of the Securities Act afforded by either
Section 4(2) or Rule 701 promulgated under the Securities Act. All other sales
were made in reliance on Section 4(2) of the Securities Act and/or Regulation D
promulgated under the Securities Act. These latter sales were made without
general solicitation or advertising. The purchasers were sophisticated investors
with access to all relevant information necessary to evaluate the investment who
represented to the Registrant that the shares were being acquired for
investment.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------
<S> <C> <C>
1.01 -- Form of Underwriting Agreement.
2.01 -- Form of Merger Agreement by and between the Registrant and Macrovision Corporation, a California
corporation.
3.01 -- Registrant's Certificate of Incorporation.
3.02 -- Form of Registrant's Amended and Restated Certificate of Incorporation.
3.03 -- Registrant's Bylaws.
3.04 -- Form of Registrant's Amended and Restated Bylaws
4.01 -- Registration Rights Agreement dated June 12, 1991.
4.02 -- Addendum to Registration Rights Agreement.*
5.01 -- Opinion of Fenwick & West regarding legality of the securities being issued.*
10.01 -- Registrant's Stock Option Plan and related documents.
10.02 -- Registrant's 1996 Equity Incentive Plan and related documents.*
10.03 -- Registrant's 1996 Directors Stock Option Plan and related documents.*
10.04 -- Registrant's 1996 Employee Stock Purchase Plan and related documents.
10.05 -- Registrant's Executive Incentive Plan.*
10.06 -- Employment Agreement dated as of June 5, 1996, between Registrant and Victor A. Viegas.
10.07 -- Restricted Stock Purchase Agreement dated as of June 7, 1996, between Registrant and Victor A.
Viegas and related documents, including Promissory Note and Stock Pledge Agreement.
10.08 -- Form of Indemnification Agreement to be entered into by Registrant with each of its directors and
executive officers.
10.09 -- Recapitalization and Stock Purchase Agreement dated as of July 31, 1996, between Registrant and
Command Audio Corporation.
10.10 -- Restricted Stock Acquisition Agreement dated as of July 31, 1996, between Registrant and Command
Audio Corporation, and First Amendment dated as of November 29, 1996.
10.11 -- Technology Transfer and Royalty Agreement dated as of July 31, 1996, between Registrant and
Command Audio Corporation, and First Amendment dated as of November 29, 1996.
10.12 -- Letter dated December 6, 1996 from Registrant to Command Audio Corporation.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------
10.13 -- License Agreement dated September 26, 1995, among Registrant, Victor Technobrain Co., Ltd. and
Video Culture Institute, Inc., Amendment Number One dated June 30, 1996 and Amendment Number Two
dated September 30, 1996.
<S> <C> <C>
10.14 -- Duplicator Agreement dated as of June 1, 1988, by and between Registrant and Victor Company of
Japan, Limited.
10.15 -- Technology Application Agreement dated November 29, 1988, by and between Registrant and Victor
Company of Japan, Limited.
10.16 -- Agreement dated July 15, 1994, by and between Registrant and Victor Company of Japan, Limited.*
10.17 -- Copy Protection Technology Agreement dated as of January 7, 1997, between Registrant and Victor
Company of Japan, Limited.
10.18 -- Waiver Agreement dated as of January 6, 1997, between Registrant and Pacific Media Development,
Inc.
10.19 -- Stock and Convertible Note Purchase Agreement dated as of May 24, 1991, among Registrant, a
trustee for Pacific Media Development, Inc. and A. Victor Farrow and Carol Ann Farrow as Trustees
of the Farrow Family Trust U/T/D December 18, 1990.*
10.20 -- Lease Agreement dated April 21, 1995, by and between Registrant and Caribbean Geneva Investors.
10.21 -- Standard Sublease dated September 21, 1995, by and between Registrant and Deutsch Technology
Research, together with Lease Agreement dated May 26, 1992, by and between Registrant and
Crossroads Investment Group.
11.01 -- Statement regarding computation of earnings (loss) per share.
16.01 -- Letter regarding change in certifying accountant.
21.01 -- List of Registrant's subsidiaries.
23.01 -- Consent of Fenwick & West (included in Exhibit 5.01).*
23.02 -- Consent of KPMG Peat Marwick LLP.
23.03 -- Consent of Ernst & Young LLP.
24.01 -- Power of Attorney (see Page II-6 of this Registration Statement).
27.01 -- Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
II-4
<PAGE>
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes the following:
(1) 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.
(2) For determining liability under the Securities Act, to treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the
time the Commission declared it effective.
(3) For determining any liability under the Securities Act, to treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 24 above, 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 Securities 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 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 Securities Act and will be governed by the
final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, in the City of Sunnyvale, State
of California, on January 7, 1997.
MACROVISION CORPORATION
By:
-----------------------------------------
John O. Ryan
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints John O. Ryan, William A. Krepick, Richard
S. Matuszak and Victor A. Viegas, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to sign any registration statement for the same offering covered by the
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act, and all post-effective amendments
thereto, and to file the same, with all exhibits thereto and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act, this Registration
Statement was signed by the following persons in the capacities and on the dates
stated.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
PRINCIPAL EXECUTIVE OFFICER:
Chairman of the Board of
Directors, Chief
- ------------------------------ Executive Officer and a January 7, 1997
John O. Ryan Director
PRINCIPAL FINANCIAL OFFICER
AND PRINCIPAL ACCOUNTING
OFFICER:
Vice President, Finance
- ------------------------------ and Administration and January 7, 1997
Victor A. Viegas Chief Financial Officer
ADDITIONAL DIRECTORS:
- ------------------------------ President, Chief Operating January 7, 1997
William A. Krepick Officer and Director
- ------------------------------ Director January 7, 1997
Richard S. Matuszak
II-6
<PAGE>
Exhibit 1.01
2,300,000 Shares
MACROVISION CORPORATION
Common Stock
UNDERWRITING AGREEMENT
January __, 1997
MONTGOMERY SECURITIES
HAMBRECHT & QUIST LLC
COWEN & COMPANY
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
SECTION 1
INTRODUCTORY
Macrovision Corporation, a Delaware corporation (the "Company"), proposes
to issue and sell 1,450,000 shares of its authorized but unissued Common Stock,
par value $0.001 per share (the "Common Stock"), and certain stockholders of the
Company named in Schedule B annexed hereto (the "Selling Stockholders") propose
to sell an aggregate of 850,000 shares of the Company's issued and outstanding
Common Stock to the several underwriters named in Schedule A annexed hereto (the
"Underwriters"), for whom you are acting as Representatives. These 2,300,000
shares together are herein called the "Firm Common Shares." In addition, the
Company proposes to grant to the Underwriters an option to purchase up to
345,000 additional shares of Common Stock (the "Optional Common Shares"), as
provided in Section 5 hereof. The Firm Common Shares and, to the extent such
option is exercised, the Optional Common Shares are hereinafter collectively
referred to as the "Common Shares."
You have advised the Company and the Selling Stockholders that the
Underwriters propose to make a public offering of their respective portions of
the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is advisable.
The Company and each of the Selling Stockholders hereby confirm their
respective agreements with respect to the purchase of the Common Shares by the
Underwriters as follows:
<PAGE>
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the several Underwriters that:
(a) A registration statement on Form SB-2 (File No. 333-___________) with
respect to the Common Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. The Company has prepared and has filed or proposes to file prior to
the effective date of such registration statement an amendment or amendments to
such registration statement, which amendment or amendments have been or will be
similarly prepared. There have been delivered to you two signed copies of such
registration statement and amendments, together with two copies of each exhibit
filed therewith. Conformed copies of such registration statement and amendments
(but without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested for each of
the Underwriters. The Company will next file with the Commission one of the
following: (i) prior to effectiveness of such registration statement, a further
amendment thereto, including the form of final prospectus, or (ii) a final
prospectus in accordance with Rules 430A and 424(b) of the Rules and
Regulations. As filed, such amendment and form of final prospectus, or such
final prospectus, shall include all Rule 430A Information and, except to the
extent that you shall agree to a modification, shall be in all substantive
respects in the form furnished to you prior to the date and time that this
Agreement was executed and delivered by the parties hereto, or, to the extent
not completed at such date and time, shall contain only such specific additional
information and other changes (beyond that contained in the latest Preliminary
prospectus) as the Company shall have previously advised you would be included
or made therein.
The term "Registration Statement" as used in this Agreement shall mean such
registration statement at the time such registration statement becomes effective
and, in the event that any post-effective amendment thereto becomes effective
prior to the First Closing Date (as hereinafter defined), shall also mean such
registration statement as so amended; provided, however, that such term shall
also include (i) all Rule 430A Information deemed to be included in such
registration statement at the time such registration statement becomes effective
as provided by Rule 430A of the Rules and Regulations and (ii) a registration
statement, if any, filed pursuant to Rule 462(b) of the Rules and Regulations
relating to the Common Shares. The term "Preliminary Prospectus" shall mean any
preliminary prospectus referred to in the preceding paragraph and any
preliminary prospectus included in the Registration Statement at the time it
becomes effective that omits Rule 430A Information. The term "Prospectus" as
used in this Agreement shall mean the prospectus relating to the Common Shares
in the form in which it is first filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations or, if no filing pursuant to
Rule 424(b) of the Rules and Regulations is required, shall mean the form of
final prospectus included in the Registration Statement at the time such
registration statement becomes effective. The term "Rule 430A Information"
means information with respect to the Common Shares and the offering thereof
permitted to be omitted from the
-2-
<PAGE>
Registration Statement when it becomes effective pursuant to Rule 430A of the
Rules and Regulations.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus has
conformed in all material respects to the requirements of the Act and the
Rules and Regulations and, as of its date, has not included any untrue
statement of a material fact or omitted 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 at the time the Registration Statement
becomes effective, and at all times subsequent thereto up to and including
each Closing Date hereinafter mentioned, the Registration Statement and the
Prospectus, and any amendments or supplements thereto, will contain all
material statements and information required to be included therein by the
Act and the Rules and Regulations and will in all material respects conform
to the requirements of the Act and the Rules and Regulations, and neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will include any 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, no representation or
warranty contained in this subsection 2(b) shall be applicable to information
contained in or omitted from any Preliminary Prospectus, the Registration
Statement, the Prospectus or any such amendment or supplement in reliance
upon and in conformity with written information furnished to the Company by
or on behalf of any Underwriter, directly or through the Representative,
specifically for use in the preparation thereof.
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries listed in
Exhibit 21.01 to the Registration Statement. The Company and each of its
subsidiaries have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective jurisdictions
of incorporation, with full power and authority (corporate and other) to own and
lease their properties and conduct their respective businesses as described in
the Prospectus; the Company owns all of the outstanding capital stock of its
subsidiaries free and clear of all claims, liens, charges and encumbrances; the
Company and each of its subsidiaries are in possession of and operating in
compliance with all authorizations, licenses, permits, consents, certificates
and orders material to the conduct of their respective businesses, all of which
are valid and in full force and effect; the Company and each of its subsidiaries
are duly qualified to do business and in good standing as foreign corporations
in each jurisdiction in which the ownership or leasing of properties or the
conduct of their respective businesses requires such qualification, except for
jurisdictions in which the failure to so qualify would not have a material
adverse effect upon the Company and its subsidiaries, taken as a whole; and no
proceeding has been instituted in any such jurisdiction, revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and authority or
qualification.
(d) As of September 30, 1996, the Company had an authorized and
outstanding capital stock as set forth under the heading "Capitalization" in the
Prospectus, subject to the assumptions set forth therein; the issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of or subject to
any preemptive rights or other rights
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to subscribe for or purchase securities, and conform in all material respects
to the description thereof contained in the Prospectus. All issued and
outstanding shares of capital stock of each subsidiary of the Company have
been duly authorized and validly issued and are fully paid and nonassessable.
Except as disclosed in or contemplated by the Prospectus and the financial
statements of the Company, and the related notes thereto, included in the
Prospectus, neither the Company nor any subsidiary has outstanding any
options to purchase, or any preemptive rights or other rights to subscribe
for or to purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock or any
such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus accurately and fairly presents the
information required to be shown with respect to such plans, arrangements,
options and rights.
(e) The Common Shares to be sold by the Company have been duly authorized
and, when issued, delivered and paid for in the manner set forth in this
Agreement, will be validly issued, fully paid and nonassessable, and will
conform in all material respects to the description thereof contained in the
Prospectus. No preemptive rights or other rights to subscribe for or purchase
exist with respect to the issuance and sale of the Common Shares by the Company
pursuant to this Agreement. No stockholder of the Company has any right which
has not been waived to require the Company to register the sale of any shares
owned by such stockholder under the Act in the public offering contemplated by
this Agreement. No further approval or authority of the stockholders or the
Board of Directors of the Company will be required for the transfer and sale of
the Common Shares to be sold by the Selling Stockholders or the issuance and
sale of the Common Shares to be sold by the Company as contemplated herein.
(f) The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and constitutes
a valid and binding obligation of the Company in accordance with its terms. The
making and performance of this Agreement by the Company and the consummation of
the transactions herein contemplated will not violate any provisions of the
certificate of incorporation or bylaws, or other organizational documents, of
the Company or any of its subsidiaries, and will not conflict with, result in
the breach or violation of, or constitute, either by itself or upon notice or
the passage of time or both, a default under any agreement, mortgage, deed of
trust, lease, franchise, license, indenture, permit or other instrument to which
the Company or any of its subsidiaries is a party or by which the Company or any
of its subsidiaries or any of its respective properties may be bound or
affected, any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its subsidiaries or any of
their respective properties, which breach, violation or default could have a
material adverse effect on the business, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole. No consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required for the execution
and delivery of this Agreement or the consummation of the transactions
contemplated by this Agreement, except for compliance with the Act, the
Securities Exchange Act of 1934, as
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amended (the "Exchange Act"), the Blue Sky laws applicable to the public
offering of the Common Shares by the several Underwriters and the clearance
of such offering with the National Association of Securities Dealers, Inc.
(the "NASD").
(g) KPMG Peat Marwick LLP and Ernst & Young LLP, who have expressed
their opinions with respect to the consolidated financial statements filed
with the Commission as a part of the Registration Statement and included in
the Prospectus and in the Registration Statement, are independent accountants
as required by the Act and the Rules and Regulations. 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 preparations of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorizations; 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.
(h) The consolidated financial statements of the Company and its
subsidiaries, and the related notes thereto, included in the Registration
Statement and the Prospectus present fairly in all material respects the
financial position of the Company and its subsidiaries as of the respective
dates of such financial statements, and the results of operations and changes in
financial position of the Company and its subsidiaries for the respective
periods covered thereby. Such statements and related notes have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis as certified by the independent accountants named in
subsection 2(g). No other financial statements or schedules are required to be
included in the Registration Statement. The consolidated financial data set
forth in the Prospectus under the captions "Summary Financial Data,"
"Capitalization" and "Selected Consolidated Financial Data" fairly present in
all material respects the information set forth therein on the basis stated in
the Registration Statement.
(i) Except as disclosed in the Prospectus, and except as to violations,
defaults or breaches which individually or in the aggregate would not be
material to the Company and its subsidiaries, taken as a whole, neither the
Company nor any of its subsidiaries is in violation or default of any provision
of its certificate of incorporation or bylaws, or other organizational
documents, or is in breach of or default with respect to any provision of any
agreement, judgment, decree, order, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument to which it is a party or by
which it or any of its properties are bound; and there does not exist any state
of facts which constitutes an event of default on the part of the Company or any
such subsidiary as defined in such documents or which, with notice or lapse of
time or both, would constitute such an event of default.
(j) There are no contracts or other documents required to be described in
the Registration Statement or to be filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations which have not been
described or filed as required. The contracts so described in the Prospectus
are in full force and effect on the date hereof; and neither the Company nor any
of its
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subsidiaries, nor to the best of the Company's knowledge, any other party is
in breach of or default under any of such contracts.
(k) Except as described in the Registration Statement and the
Prospectus, there are no legal or governmental actions, suits or proceedings
pending or, to the best of the Company's knowledge, threatened to which the
Company or any of its subsidiaries is or may be a party or of which property
owned or leased by the Company or any of its subsidiaries is or may be the
subject, or related to environmental or discrimination matters, which
actions, suits or proceedings might, individually or in the aggregate,
prevent or adversely affect the transactions contemplated by this Agreement
or result in a material adverse change in the condition (financial or
otherwise), properties, business or results of operations of the Company and
its subsidiaries, taken as a whole; and no labor disturbance by the employees
of the Company or any of its subsidiaries exists or is imminent which might
be expected to affect materially and adversely such condition, properties,
business or results of operations. Neither the Company nor any of its
subsidiaries is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.
(l) The Company or the applicable subsidiary has good and marketable title
to all the properties and assets reflected as owned in the financial statements
hereinabove described (or elsewhere in the Prospectus), subject to no lien,
mortgage, pledge, charge or encumbrance of any kind except (i) those, if any,
reflected in such financial statements (or elsewhere in the Prospectus), or
(ii) those which are not material in amount and do not adversely affect the use
made and proposed to be made of such property by the Company and its
subsidiaries. The Company or the applicable subsidiary holds its leased
properties under valid and binding leases, with such exceptions as are not
materially significant in relation to the business of the Company and its
subsidiaries, taken as a whole. Except as disclosed in the Prospectus, the
Company owns or leases all such properties as are necessary to its operations as
now conducted or as proposed to be conducted.
(m) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company and its
subsidiaries have not incurred any material liabilities or obligations,
indirect, direct or contingent, or entered into any material verbal or
written agreement or other transaction which is not in the ordinary course of
business or which could result in a material reduction in the future net
income of the Company and its subsidiaries, taken as a whole; (ii) the
Company and its subsidiaries have not sustained any material loss or
interference with their respective businesses or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) the Company has not paid or declared any dividends or other
distributions with respect to its capital stock and the Company and its
subsidiaries are not in default in the payment of principal or interest on
any outstanding material debt obligations; (iv) there has not been any change
in the capital stock (other than upon the sale of the Common Shares
hereunder) or indebtedness material to the Company and its subsidiaries,
taken as a whole (other than in the ordinary course of business); and (v)
there has not been any material adverse change in the condition (financial or
otherwise), business, properties or results of operations of the Company and
its subsidiaries, taken as a whole.
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(n) The Company and its subsidiaries own all patents, trademarks,
trademark registrations, service marks, service mark registrations, trade
names, mask works, copyrights, licenses, inventions, trade secrets and rights
described in the Prospectus as being owned by it or necessary to conduct
their businesses as now conducted. As of the date the Registration
Statement became effective, the descriptions of the patents and patent
applications set forth in the Registration Statement and the Prospectus under
the captions "Risk Factors --Dependence on Proprietary Technology and
"Business -- Intellectual Property Rights" do not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made therein, in light of the circumstances under which
they were made, not misleading. Except as otherwise set forth in the
Registration Statement and the Prospectus, the expiration of any patent
rights, trademarks, trade names, mask works, copyrights, licenses would not
have a material adverse effect on the condition (financial or otherwise),
business, results of operations of the Company or its subsidiaries, taken as
a whole. The Company has no knowledge of any infringement or other violation
by it or its subsidiaries of any patent rights, trademark, trade name rights,
mask works, copyrights, licenses, trade secret or other similar rights of
others, and there is no claim being made against the Company or its
subsidiaries regarding any patent, trademark, trade name, mask work,
copyright, license, trade secret or other infringement which could have a
material adverse effect on the condition (financial or otherwise), business,
results of operations of the Company and its subsidiaries, taken as a whole.
(o) The Company has not been advised, and has no reason to believe, that
either it or any of its subsidiaries is not conducting business in compliance
with all applicable laws, rules and regulations of the jurisdictions in which it
is conducting business, including, without limitation, all applicable local,
state and federal environmental laws and regulations; except where failure to be
so in compliance would not materially adversely affect the condition (financial
or otherwise), business or results of operations of the Company and its
subsidiaries, taken as a whole.
(p) The Company and its subsidiaries have filed all necessary federal,
state and foreign income and franchise tax returns and have paid all taxes shown
as due thereon; and the Company has no knowledge of any tax deficiency which has
been or might be asserted or threatened against the Company or its subsidiaries
which could materially and adversely affect the business, operations or
properties of the Company and its subsidiaries, taken as a whole.
(q) The Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(r) The Company has not distributed and will not distribute prior to the
First Closing Date any offering material in connection with the offering and
sale of the Common Shares other than the Prospectus, the Registration Statement
and the other materials permitted by the Act.
(s) Each of the Company and its subsidiaries maintains insurance of the
types and in the amounts generally deemed adequate for its business, including,
but not limited to, insurance covering real and personal property owned or
leased by the Company and its subsidiaries against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.
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(t) Neither the Company nor any of its subsidiaries has at any time
during the last five years (i) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state
governmental officer or official, or other person charged with similar public
or quasi-public duties, other than payments required or permitted by the laws
of the United States or any jurisdiction thereof.
(u) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Common Shares.
SECTION 3
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE SELLING STOCKHOLDERS
(a) Each of the Selling Stockholders severally represents and warrants
to, and agrees with, the several Underwriters that:
(i) Such Selling Stockholder has, and on the First Closing
Date hereinafter mentioned will have, good and marketable title to the Common
Shares proposed to be sold by such Selling Stockholder hereunder on such
Closing Date and full right, power and authority to enter into this Agreement
and to sell, assign, transfer and deliver such Common Shares hereunder, free
and clear of all voting trust arrangements, liens, encumbrances, equities,
security interests, restrictions and claims whatsoever; and upon delivery of
and payment for such Common Shares hereunder, the Underwriters will acquire
good and valid title thereto, free and clear of all liens, encumbrances,
equities, claims, restrictions, security interests, voting trusts or other
defects of title whatsoever, provided that the Underwriters are purchasing
such Common Shares in good faith and without notice of any adverse claim.
(ii) Such Selling Stockholder has executed and delivered a
Power of Attorney and a Custody Agreement (hereinafter collectively referred
to as the "Stockholders Agreement") and in connection herewith such Selling
Stockholder further represents, warrants and agrees that such Selling
Stockholder has deposited in custody, under the Stockholders Agreement, with
the agent named therein (the "Agent") as custodian, certificates in
negotiable form for the Common Shares to be sold hereunder by such Selling
Stockholder, for the purpose of further delivery pursuant to this Agreement.
Such Selling Stockholder agrees that the Common Shares to be sold by such
Selling Stockholder on deposit with the Agent are subject to the interests of
the Company and the Underwriters, that the arrangements made for such custody
are to that extent irrevocable, and that the obligations of such Selling
Stockholder hereunder shall not be terminated, except as provided in this
Agreement or in the Stockholders Agreement, by any act of such Selling
Stockholder, by operation of law, by the death or incapacity of such Selling
Stockholder or by the occurrence of any other event. If the Selling
Stockholder should die or become incapacitated, or if any other event should
occur, before the delivery of the Common Shares hereunder, the documents
evidencing Common Shares
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<PAGE>
then on deposit with the Agent shall be delivered by the Agent in accordance
with the terms and conditions of this Agreement as if such death, incapacity
or other event had not occurred, regardless of whether or not the Agent shall
have received notice thereof. This Agreement and the Stockholders Agreement
have been duly executed and delivered by or on behalf of such Selling
Stockholder and the form of such Stockholders Agreement has been delivered to
you.
(iii) The performance of this Agreement and the
Stockholders Agreement and the consummation of the transactions contemplated
hereby and by the Stockholders Agreement will not result in a breach or
violation by such Selling Stockholder of any of the terms or provisions of,
or constitute a default by such Selling Stockholder under, any indenture,
mortgage, deed of trust, trust (constructive or other), loan agreement,
lease, franchise, license or other agreement or instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder or any of
its properties is bound, any statute, or any judgment, decree, order, rule or
regulation of any court or governmental agency or body applicable to such
Selling Stockholder or any of its properties, in which such breach, violation
or default would adversely affect the ability to such Selling Stockholder to
perform its obligations pursuant to this Agreement or the Stockholders
Agreement or could otherwise have a material adverse effect on such Selling
Stockholder.
(iv) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action 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 Common Shares.
(v) Such Selling Stockholder has reviewed the Registration
Statement and Prospectus, and, although such Selling Stockholder has not
independently verified the accuracy or completeness of the information
contained therein (other than the information regarding such Selling
Stockholder and its affiliates, if any, set forth under the captions
"Management,""Certain Transactions" and "Principal and Selling
Stockholders"), nothing has come to the attention of such Selling Stockholder
that would lead such Selling Stockholder to believe that (A) on the effective
date thereof the Registration Statement contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading
or (B) on the date of the Prospectus, the Prospectus contained and, on the
Closing Date, contains any untrue statement of a material fact or omitted or
omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(vi) Such Selling Stockholder's decision to sell the Common
Shares that may be sold by it pursuant to this Agreement is not prompted by
any adverse information regarding the Company which is not disclosed in the
Registration Statement and the Prospectus.
(b) Each of the Selling Stockholders agrees with the Company and the
Underwriters not to directly or indirectly, sell, offer, contract or grant
any option to sell, make any short sale (including without limitation any
"short vs. the box"), pledge, transfer, establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Securities Exchange
Act of 1934, as
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amended, or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock, or securities exchangeable or
exercisable for or convertible into shares of Common Stock currently or
hereafter owned either of record or beneficially (as defined in Rule 13d-3
under Securities Exchange Act of 1934, as amended) by the such Selling
Stockholder, or publicly announce such Selling Stockholder's intention to do
any of the foregoing, for a period commencing on the date hereof and
continuing to a date 180 days after the first date any of the Common Shares
are released by you for sale to the public, except that, each of the Selling
Stockholders may sell or otherwise transfer shares of Common Stock (i)
pursuant to this Agreement or (ii) as a BONA FIDE gift or gifts, provided
that undersigned provides prior written notice of such gift or gifts to you,
and the donee or donees thereof agree to be bound by the restrictions set
forth herein. Each of the Selling Stockholders also agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent and
registrar against the transfer of any of the Common Stock or securities
convertible into or exchangeable or exercisable for Common Stock held by the
undersigned except in compliance with the foregoing restrictions.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITERS
The Representatives, on behalf of the several Underwriters, represent
and warrant to the Company and to the Selling Stockholders that the
information set forth (i) on the cover page of the Prospectus with respect to
price, underwriting discounts and commissions and terms of offering and (ii)
under "Underwriting" in the Prospectus was furnished to the Company by and on
behalf of the Underwriters for use in connection with the preparation of the
Registration Statement and the Prospectus and is correct in all material
respects. The Representatives represent and warrant that they have been
authorized by each of the other Underwriters as the Representatives to enter
into this Agreement on its behalf and to act for it in the manner herein
provided.
SECTION 5
PURCHASE, SALE AND DELIVERY OF COMMON SHARES
On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, (i) the
Company agrees to issue and sell to the Underwriters 1,450,000 of the Firm
Common Shares and (ii) the Selling Stockholders agree, severally and not
jointly, to sell to the Underwriters in the respective amounts set forth in
Schedule B hereto, an aggregate of 850,000 of the Firm Common Shares. The
Underwriters agree, severally and not jointly, to purchase from the Company
and the Selling Stockholders, respectively, the number of Firm Common Shares
described below. The purchase price per share to be paid by the several
Underwriters to the Company and to the Selling Stockholders, respectively,
shall be $_____ per share.
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The obligation of each Underwriter to the Company shall be to purchase
from the Company that number of full shares which (as nearly as practicable,
as determined by you) bears to 1,450,000 the same proportion as the number of
shares set forth opposite the name of such Underwriter in Schedule A hereto
bears to the total number of Firm Common Shares. The obligation of each
Underwriter to the Selling Stockholders shall be to purchase from the Selling
Stockholders that number of full shares which (as nearly as practicable, as
determined by you) bears to 850,000 the same proportion as the number of
shares set forth opposite the name of such Underwriter in Schedule A hereto
bears to the total number of Firm Common Shares.
Delivery of certificates for the Firm Common Shares to be purchased by
the Underwriters shall be made as directed by Representatives and payment
therefor shall be made at the offices of Fenwick & West LLP, Two Palo Alto
Square, Palo Alto, California (or such other place as may be agreed upon by
the Company and the Representatives) at such time and date, not later than
the third (or, if the Firm Common Shares are priced as contemplated by Rule
15c6-1(c) of the Exchange Act, after 4:30 p.m. Washington, D.C. time, the
fourth) full business day following the first date that any of the Common
Shares are released by you for sale to the public, as you shall designate by
at least 48 hours prior notice to the Company (or at such other time and
date, not later than one week after such third or fourth, as the case may be,
full business day as may be agreed upon by the Company and the
Representatives) (the "First Closing Date"); provided, however, that if the
Prospectus is at any time prior to the First Closing Date recirculated to the
public, the First Closing Date shall occur upon the later of the third or
fourth, as the case may be, full business day following the first date that
any of the Common Shares are released by you for sale to the public or the
date that is 48 hours after the date that the Prospectus has been so
recirculated.
Delivery of certificates for the Firm Common Shares shall be made by or
on behalf of the Company and the Selling Stockholders to you, for the
respective accounts of the Underwriters with respect to the Firm Common
Shares to be sold by the Company and by the Selling Stockholders against
payment by you, for the accounts of the several Underwriters, of the purchase
price therefor by certified or official bank checks payable to the order of
the Company and of the Agent in proportion to the number of Firm Common
Shares to be sold by the Company and the Selling Stockholders, respectively.
The certificates for the Firm Common Shares shall be registered in such names
and denominations as you shall have requested at least two full business days
prior to the First Closing Date, and shall be made available for checking and
packaging on the business day preceding the First Closing Date at a location
in New York, New York, as may be designated by you. Time shall be of the
essence, and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein
set forth, the Company hereby grants an option to the several Underwriters to
purchase, severally and not jointly, up to 345,000 Optional Common Shares at
the purchase price per share to be paid for the Firm Common Shares, for use
solely in covering any over-allotments made by you for the account of the
Underwriters in the sale and distribution of the Firm Common Shares. In the
event that the Underwriters elect to purchase less than all of the Optional
Common Shares, the number of Optional Common Shares to be purchased by each
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Underwriter shall be determined by multiplying the aggregate number of
Optional Common Shares to be sold by the Company pursuant to such notice of
exercise by a fraction, the numerator of which is the number of Firm Common
Shares to be purchased by such Underwriter as set forth opposite its name in
SCHEDULE A and the denominator of which is 2,300,000 (subject to such
adjustments to eliminate any fractional share purchases as you in your
discretion may make). The option granted hereunder may be exercised at any
time (but not more than once) within 30 days after the first date that any of
the Common Shares are released by you for sale to the public, upon notice by
you to the Company setting forth the aggregate number of Optional Common
Shares as to which the Underwriters are exercising the option, the names and
denominations in which the certificates for such shares are to be registered
and the time and place at which such certificates will be delivered. Such
time of delivery (which may not be earlier than the First Closing Date),
being herein referred to as the "Second Closing Date," shall be determined by
you, but if at any time other than the First Closing Date shall not be
earlier than the third (or, if the Firm Common Shares are priced as
contemplated by Rule 15c6-1(c) of the Exchange Act, after 4:30 p.m.
Washington, D.C. time, the fourth) full business day after delivery of such
notice of exercise. Certificates for the Optional Common Shares will be made
available for checking and packaging on the business day preceding the Second
Closing Date at a location in New York, New York, as may be designated by
you. The manner of payment for and delivery of the Optional Common Shares
shall be the same as for the Firm Common Shares purchased from the Company as
specified in the two preceding paragraphs. At any time before lapse of the
option, you may cancel such option by giving written notice of such
cancellation to the Company. If the option is canceled or expires
unexercised in whole or in part, the Company will deregister under the Act
the number of Optional Common Shares as to which the option has not been
exercised.
You have advised the Company and the Selling Stockholders that each
Underwriter has authorized you to accept delivery of its Common Shares, to
make payment and to receipt therefor. You, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by you by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but
any such payment shall not relieve such Underwriter from any of its
obligations under this Agreement.
Subject to the terms and conditions hereof, the Underwriters propose to
make a public offering of their respective portions of the Common Shares as
soon after the effective date of the Registration Statement as in the
judgment of the Representatives is advisable and at the public offering price
set forth on the cover page of and on the terms set forth in the Prospectus.
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SECTION 6
COVENANTS OF THE COMPANY
The Company covenants and agrees that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereto, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective. If the Registration Statement has become or becomes effective
pursuant to Rule 430A of the Rules and Regulations, or the filing of the
Prospectus is otherwise required under Rule 424(b) of the Rules and Regulations,
the Company will file the Prospectus, properly completed, pursuant to the
applicable paragraph of Rule 424(b) of the Rules and Regulations within the time
period prescribed and will provide evidence satisfactory to you of such timely
filing. The Company will promptly advise you in writing (i) of the receipt of
any comments of the Commission, (ii) of any request of the Commission for
amendment of or supplement to the Registration Statement (either before or after
it becomes effective), any Preliminary Prospectus or the Prospectus or for
additional information, (iii) when the Registration Statement shall have become
effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the institution
of any proceedings for that purpose. If the Commission shall enter any such
stop order at any time, the Company will use its best efforts to obtain the
lifting of such order at the earliest possible moment. The Company will not
file any amendment or supplement to the Registration Statement (either before or
after it becomes effective), any Preliminary Prospectus or the Prospectus of
which you have not been furnished with a copy a reasonable time prior to such
filing or to which you reasonably object or which is not in compliance with the
Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly upon
your request, a registration statement pursuant to Rule 462(b) of the Rules and
Regulations related to the Common Shares and any amendments or supplements to
the Registration Statement or the Prospectus which in your judgment may be
necessary or advisable to enable the several Underwriters to continue the
distribution of the Common Shares and will use its best efforts to cause the
same to become effective as promptly as possible. The Company will fully and
completely comply with the provisions of Rule 430A of the Rules and Regulations
with respect to information omitted from the Registration Statement in reliance
upon such Rule.
(c) If at any time within the nine-month period referred to in
Section 10(a)(3) of the Act during which a prospectus relating to the Common
Shares is required to be delivered under the Act any event occurs, as a result
of which the Prospectus, including any amendments or supplements, would include
an 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, or if it is necessary at any time to amend the Prospectus, including
any amendments or supplements, to comply with the Act or the Rules and
Regulations, the Company will promptly advise you thereof and will promptly
prepare and file with the Commission, at its own expense, an amendment or
supplement which will correct such statement or omission or an amendment or
supplement which will effect such compliance and
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will use its best efforts to cause the same to become effective as soon as
possible; and, in case any Underwriter is required to deliver a prospectus
after such nine-month period, the Company upon request, but at the expense of
such Underwriter, will promptly prepare such amendment or amendments to the
Registration Statement and such Prospectus or Prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of
the Act.
(d) As soon as practicable, but not later than 45 days after the end of
the first quarter ending after one year following the "effective date of the
Registration Statement" (as defined in Rule 158(c) of the Rules and
Regulations), the Company will make generally available to its security holders
an earnings statement (which need not be audited) covering a period of 12
consecutive months beginning after the effective date of the Registration
Statement which will satisfy the provisions of the last paragraph of
Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to be delivered
in connection with sales by an Underwriter or dealer, the Company, at its
expense, but only for the nine-month period referred to in Section 10(a) (3) of
the Act, will furnish to you and the Selling Stockholders or mail to your order
copies of the Registration Statement, the Prospectus, the Preliminary Prospectus
and all amendments and supplements to any such documents in each case as soon as
available and in such quantities as you and the Selling Stockholders may
reasonably request, for the purposes contemplated by the Act.
(f) The Company shall cooperate with you and your counsel in order to
qualify or register the Common Shares for sale under (or obtain exemptions from
the application of) the Blue Sky laws of such jurisdictions as you designate,
will comply with such laws and will continue such qualifications, registrations
and exemptions in effect so long as reasonably required for the distribution of
the Common Shares. The Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise you promptly of the
suspension of the qualification or registration of (or any such exemption
relating to) the Common Shares for offering, sale or trading in any jurisdiction
or any initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification, registration
or exemption, the Company, with your cooperation, will use its best efforts to
obtain the withdrawal thereof.
(g) During the period of five years hereafter, the Company will furnish to
the Representatives and, upon request of the Representatives, to each of the
other Underwriters: (i) as soon as practicable after the end of each fiscal
year, copies of the Annual Report to Stockholders of the Company containing the
balance sheet of the Company as of the close of such fiscal year and statements
of income, stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement, Annual
Report on Form 10-K, Quarterly Report on Form 10-Q, Report on Form 8-K or other
report filed by the Company with the Commission, the NASD or any securities
exchange; and (iii) as soon as available, copies of any other report or
communication of the Company mailed generally to holders of its Common Stock.
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(h) During the period of 180 days after the first date that any of the
Common Shares are released by you for sale to the public, without the prior
written consent of either Montgomery Securities or each of the Representatives
(which consent may be withheld at the sole discretion of Montgomery Securities
or the Representatives, as the case may be), the Company will not issue, offer,
sell, grant options to purchase or otherwise dispose of any of the Company's
equity securities or any other securities convertible into or exchangeable with
its Common Stock or other equity security other than (i) the Company's (1)
issuance of Common Stock upon the exercise of warrants and stock options that
are presently outstanding and described as such in the Prospectus or which may
be issued hereafter under the option plans described in the Registration
Statement and the Prospectus and (2) grant of options pursuant to the option
plans described in the Registration Statement and the Prospectus, (ii) the
Company's issuance of Common Stock under the employee stock purchase plan
described in the Registration Statement and the Prospectus, (iii) the Company's
issuance of warrants to purchase up to _______ shares of Common Stock (and the
issuance of Common Stock upon exercise thereof) upon the terms described in the
Registration Statement and the Prospectus and (iv) the Company's issuance of
shares of Common Stock in an acquisition of another corporation or entity
provided that (1) such shares represent less than [20%] of the Company's then
outstanding shares of Common Stock and (2) the individuals or entities to whom
such shares are issued agree that such shares may not be resold during the 180
days following the first date that any of the shares of Common Stock are
released by the Underwriters for sale to the public.
(i) The Company will apply the net proceeds of the sale of the Common
Shares sold by it substantially in accordance with its statements under the
caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to qualify or register its
Common Stock for sale in non-issuer transactions under (or obtain exemptions
from the application of) the Blue Sky laws of the State of California (and
thereby permit market making transactions and secondary trading in the Common
Stock in California), will comply with such Blue Sky laws and will continue such
qualifications, registrations and exemptions in effect for a period of five
years after the date hereof.
(k) The Company will use its best efforts to designate the Common Stock
for quotation as a national market system security on the NASD Automated
Quotation System.
You, on behalf of the Underwriters, may, in your sole discretion, waive in
writing the performance by the Company of any one or more of the foregoing
covenants or extend the time for their performance.
SECTION 7
PAYMENT OF EXPENSES
Whether or not the transactions contemplated hereunder are consummated or
this Agreement becomes effective or is terminated, the Company and, unless
otherwise paid by the Company, the Selling Stockholders agree to pay in such
proportions as they may agree upon among themselves all
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costs, fees and expenses incurred in connection with the performance of their
obligations hereunder and in connection with the transactions contemplated
hereby, including without limiting the generality of the foregoing, (i) all
expenses incident to the issuance and delivery of the Common Shares
(including all printing and engraving costs), (ii) all fees and expenses of
the registrar and transfer agent of the Common Stock, (iii) all necessary
issue, transfer and other stamp taxes in connection with the issuance and
sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel and the Company's independent accountants, (v) all
costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement, each
Preliminary Prospectus and the Prospectus (including all exhibits and
financial statements) and all amendments and supplements provided for herein,
this Agreement, the Agreement Among Underwriters, the Selected Dealers
Agreement, the Underwriters' Questionnaire, the Underwriters' Power of
Attorney and the Blue Sky memorandum, (vi) all filing fees, reasonable
attorneys' fees and expenses incurred by the Company or the Underwriters in
connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for
offer and sale under the state or Canadian Blue Sky laws, (vii) the filing
fee, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with the National Association of Securities Dealers, Inc. and
(viii) all other fees, costs and expenses referred to in Item 25 of the
Registration Statement. The Underwriters may deem the Company to be the
primary obligor with respect to all costs, fees and expenses to be paid by
the Company and by the Selling Stockholders. Except as provided in this
Section 7, Section 9 and Section 11 hereof, the Underwriters shall pay all of
their own expenses, including the fees and disbursements of their counsel
(excluding those relating to qualification, registration or exemption under
the Blue Sky laws and the Blue Sky memorandum referred to above). This
Section 7 shall not affect any agreements relating to the payment of expenses
between the Company and the Selling Stockholders.
The Selling Stockholders will pay (directly or by reimbursement) all fees
and expenses incident to the performance of their obligations under this
Agreement which are not otherwise specifically provided for herein, including
but not limited to (i) any fees and expenses of counsel for any Selling
Stockholders other than Fenwick & West LLP and Wise & Shepard LLP and (ii) all
expenses and taxes incident to the sale and delivery of the Common Shares to be
sold by such Selling Stockholders to the Underwriters hereunder.
SECTION 8
CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS
The obligations of the several Underwriters to purchase and pay for the
Firm Common Shares on the First Closing Date and the Optional Common Shares on
the Second Closing Date shall be subject to the accuracy of the representations
and warranties on the part of the Company and the Selling Stockholders herein
set forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of Company
officers and the Selling Stockholders made pursuant to the provisions hereof, to
the performance by the Company
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and the Selling Stockholders of their respective obligations hereunder, and
to the following additional conditions:
(a) The Registration Statement shall have become effective not later than
5:00 p.m. (or in the case of a registration statement filed pursuant to
Rule 462(b) of the Rules and Regulations relating to the Common Shares, not
later than 10:00 p.m.), Washington, D.C. Time, on the date of this Agreement, or
at such later time as shall have been consented to by you; if the filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424(b) of
the Rules and Regulations, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424(b) of the Rules and Regulations;
and prior to such Closing Date, no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or, to the knowledge of
the Company, the Selling Stockholders or you, shall be contemplated by the
Commission; and any request of the Commission for inclusion of additional
information in the Registration Statement, or otherwise, shall have been
complied with to your reasonable satisfaction.
(b) You shall be reasonably satisfied that since the respective dates as
of which information is given in the Registration Statement and Prospectus,
(i) there shall not have been any change in the capital stock of the Company or
any of its subsidiaries or any material change in the indebtedness (other than
in the ordinary course of business) of the Company or any of its subsidiaries
other than as set forth in or contemplated by the Registration Statement and the
Prospectus, (ii) except as set forth in or contemplated by the Registration
Statement or the Prospectus, no material verbal or written agreement or other
transaction shall have been entered into by the Company or any of its
subsidiaries, which is not in the ordinary course of business or which could
result in a material reduction in the future earnings of the Company and its
subsidiaries, taken as a whole, (iii) no loss or damage (whether or not insured)
to the property of the Company or any of its subsidiaries shall have been
sustained which materially and adversely affects the condition (financial or
otherwise), business or results of operations of the Company and its
subsidiaries, taken as a whole, (iv) no legal or governmental action, suit or
proceeding affecting the Company or any of its subsidiaries which is materially
adverse to the Company and its subsidiaries, taken as a whole, or which
adversely affects or may affect the transactions contemplated by this Agreement
shall have been instituted or threatened and (v) there shall not have been any
material adverse change in the condition (financial or otherwise), business,
management or results of operations of the Company and its subsidiaries, taken
as a whole, which makes it impractical or inadvisable in the reasonable judgment
of the Representatives to proceed with the public offering or purchase the
Common Shares as contemplated hereby.
(c) There shall have been furnished to you, as Representatives of the
Underwriters, on each Closing Date, in form and substance reasonably
satisfactory to you, except as otherwise expressly provided below:
(i) An opinion of Wise & Shepard LLP, counsel for the Company,
addressed to the Underwriters and dated the First Closing Date, or the
Second Closing Date, as the case may be, to the effect that:
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(1) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation, is duly qualified
to do business as a foreign corporation and is in good standing in all
other jurisdictions where the ownership or leasing of properties or
the conduct of its business requires such qualification, except for
jurisdictions in which the failure to so qualify would not have a
material adverse effect on the Company and its subsidiaries, and has
full corporate power and authority to own its properties and conduct
its business as described in the Registration Statement;
(2) The authorized, issued and outstanding capital stock of
the Company is as set forth under the caption "Capitalization" in the
Prospectus; all necessary and proper corporate proceedings have been
taken in order to authorize validly such authorized Common Stock; all
outstanding shares of Common Stock (including the Firm Common Shares
and any Optional Common Shares) have been duly and validly issued, are
fully paid and nonassessable, were issued in compliance with federal
and state securities laws, to such counsel's knowledge were not issued
in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase any securities and conform in all material
respects to the description thereof contained in the Prospectus;
without limiting the foregoing, to such counsel's knowledge there are
no preemptive or other rights to subscribe for or purchase any of the
Common Shares to be sold by the Company hereunder;
(3) All of the issued and outstanding shares of the
Company's subsidiaries have been duly and validly authorized and
issued, are fully paid and nonassessable and are owned beneficially by
the Company free and clear of all liens, encumbrances, equities,
claims, security interests, voting trusts or other defects of title
whatsoever;
(4) The certificates evidencing the Common Shares to be
delivered hereunder are in due and proper form under Delaware law, and
when duly countersigned by the Company's transfer agent and registrar,
and delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of this
Agreement, the Common Shares represented thereby will be duly
authorized and validly issued, fully paid and nonassessable, will not
have been issued in violation of or subject to any preemptive rights
or other rights known to such counsel to subscribe for or purchase
securities and will conform in all respects to the description thereof
contained in the Prospectus;
(5) Except as disclosed in or specifically contemplated by
the Prospectus, to such counsel's knowledge, there are no outstanding
options, warrants or other rights calling for the issuance of, and no
commitments, plans or arrangements to issue, any shares of capital
stock of the Company or any security convertible into or exchangeable
for capital stock of the Company;
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(6) The execution and performance of this Agreement and the
consummation of the transactions herein contemplated will not conflict
with, result in the breach of, or constitute, either by itself or upon
notice or the passage of time or both, a default under, any agreement,
mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument known to such counsel to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of its or their property may be bound or affected
which is material to the Company and its subsidiaries, or violate any
of the provisions of the certificate of incorporation or bylaws, or
other organizational documents, of the Company or any of its
subsidiaries or, so far as is known to such counsel, violate any
statute, judgment, decree, order, rule or regulation of any court or
governmental body having jurisdiction over the Company or any of its
subsidiaries or any of its or their property;
(7) Neither the Company nor any subsidiary is in violation
of its certificate of incorporation or bylaws, or other organizational
documents, or to such counsel's knowledge, in breach of or default
with respect to any provision of any agreement, mortgage, deed of
trust, lease, franchise, license, indenture, permit or other
instrument known to such counsel to which the Company or any such
subsidiary is a party or by which it or any of its properties may be
bound or affected, except where such default would not materially
adversely affect the Company and its subsidiaries;
(8) To such counsel's knowledge, no holders of securities
of the Company have rights which have not been waived or satisfied to
the registration of shares of Common Stock or other securities,
because of the filing of the Registration Statement by the Company or
the offering contemplated hereby;
(9) The information set forth in the Prospectus under the
captions "Risk Factors - Factors Inhibiting Takeover," "Risk Factors -
Shares Eligible for Future Sale," "Capitalization," "Business -
Intellectual Property Rights," "Management - Executive Compensation,"
"Management - Director Compensation," "Management - Employee Benefit
Plans," "Management - Indemnification of Directors and Executive
Officers and Limitation of Liability," "Certain Transactions,"
"Principal and Selling Stockholders," "Description of Capital Stock"
and "Shares Eligible for Future Sale," insofar as such information
relates to issuances of securities of the Company or purports to
summarize provisions of any contract, plan or law, fairly describes
such issuances or provisions.
In rendering such opinion, such counsel may rely as to matters of
local law or the laws of a state other than California or the corporate law
of the State of Delaware, on opinions of local counsel, and as to matters
of fact, on certificates of officers of the Company and of governmental
officials, without verification except as specified, in which case their
opinion is to state that they are so doing and that the Underwriters and
their counsel are justified in relying on such opinions or certificates.
Such counsel shall also include a statement to the effect that nothing has
come to such counsel's attention that would lead such counsel to
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believe that either at the effective date of the Registration Statement or
at the applicable Closing Date the Registration Statement or the
Prospectus, or any such amendment or supplement, contains any 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.
(ii) An opinion of Fenwick & West LLP, special counsel to the
Company and the Selling Stockholders (other than Selling Stockholder
Pacific Media Development, Inc. ("Pacific Media")), addressed to the
Underwriters and dated the First Closing Date, or the Second Closing Date,
as the case may be, to the effect that:
(1) The Registration Statement has become effective under
the Act, and, to such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement or preventing the use
of the Prospectus has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated by the Commission;
any required filing of the Prospectus and any supplement thereto
pursuant to Rule 424(b) of the Rules and Regulations has been made in
the manner and within the time period required by such Rule 424(b);
(2) The Registration Statement, the Prospectus and each
amendment or supplement thereto (except for the financial statements
included therein and the financial data derived therefrom, 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;
(3) To such counsel's knowledge, there are no franchises,
leases, contracts, agreements or documents of a character required to
be disclosed in the Registration Statement or Prospectus or to be
filed as exhibits to the Registration Statement which are not
disclosed or filed, as required;
(4) To such counsel's knowledge, there are no legal or
governmental actions, suits or proceedings pending or threatened
against the Company which are required to be described in the
Prospectus which are not described as required;
(5) The Company has full right, power and authority to
enter into this Agreement and to sell and deliver the Common Shares to
be sold by it to the several Underwriters; this Agreement has been
duly and validly authorized by all necessary corporate action by the
Company, has been duly and validly executed and delivered by and on
behalf of the Company, and is a valid and binding agreement of the
Company in accordance with its terms, except as enforceability may be
limited by general equitable principles, bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally and except as to those provisions relating to indemnity or
contribution for liabilities arising under the Act as to which no
opinion need be expressed; and no approval, authorization, order,
consent, registration, filing, qualification, license or permit of or
with any court, regulatory, administrative or other
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governmental body is required for the execution and delivery of this
Agreement by the Company or the performance by the Company of its
obligations pursuant to this Agreement, except such as have been
obtained and are in full force and effect under the Act and such as
may be required under applicable Blue Sky laws in connection with the
purchase and distribution of the Common Shares by the Underwriters
and the clearance of such offering with the NASD;
(6) To such counsel's knowledge, (a) this Agreement and the
Stockholders Agreement have been duly authorized, executed and
delivered by or on behalf of each of the Selling Stockholders (other
than Pacific Media) and (b) the Agent has been duly and validly
authorized to act as the custodian of the Common Shares to be sold by
each such Selling Stockholder; and the performance by the Selling
Stockholders (other than Pacific Media) of their respective
obligations pursuant to this Agreement and the Stockholders Agreement
will not result in a breach of, or constitute a default under, any
material indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other agreement
or instrument known to such counsel to which any of the Selling
Stockholders (other than Pacific Media) is a party or by which any of
the Selling Stockholders (other than Pacific Media) or any of their
properties may be bound, or violate any statute, judgment, decree,
order, rule or regulation known to such counsel of any court or
governmental body having jurisdiction over any of the Selling
Stockholders (other than Pacific Media) or any of their properties if
such breach or violation would adversely affect a Selling
Stockholder's ability to perform such Selling Stockholder's
obligations pursuant to this Agreement or the Stockholders Agreement;
and to such counsel's knowledge, no approval, authorization, order or
consent of any court, regulatory body, administrative agency or other
governmental body is required for the execution and delivery of this
Agreement or the Stockholders Agreement or the consummation by the
Selling Stockholders (other than Pacific Media) of the transactions
contemplated by this Agreement, except such as have been obtained and
are in full force and effect under the Act and such as may be required
under applicable Blue Sky laws in connection with the purchase and
distribution of the Common Shares by the Underwriters and the
clearance of such offering with the NASD;
(7) To such counsel's knowledge, the Selling Stockholders
(other than Pacific Media) have full right, power and authority to
enter into this Agreement and the Stockholders Agreement and to sell,
transfer and deliver the Common Shares to be sold on such Closing Date
by such Selling Stockholders hereunder and upon delivery of and
payment for the Common Shares to be sold by the Selling Stockholders
(other than Pacific Media) as provided in this Agreement and upon
registration of such Common Shares in the names of the Underwriters
(or their nominees) in the stock records of the Company, the
Underwriters will be the owners of such Common Shares, free and clear
of any adverse claim, provided that the Underwriters are purchasing
such Common Shares in good faith and without notice of any adverse
claim; and
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(8) To such counsel's knowledge, this Agreement and the
Stockholders Agreement are valid and binding agreements of each of the
Selling Stockholders (other than Pacific Media) in accordance with
their terms except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and
except with respect to those provisions relating to indemnities or
contributions for liabilities under the Act, as to which no opinion
need be expressed.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States, of the State of California
or the corporate laws of the State of Delaware upon opinions of local or
foreign counsel satisfactory in form and scope to counsel for the
Underwriters. Copies of any opinions so relied upon shall be delivered to
the Representatives and to counsel for the Underwriters and the foregoing
opinion shall also state that counsel knows of no reason the Underwriters
are not entitled to rely upon the opinions of such local counsel. Counsel
may base the opinions set forth in paragraphs (6)-(8) above, solely upon
the representations and warranties contained in this Agreement, or
Stockholders Agreements executed by each Selling Securityholder, provided
that such counsel confirms that it has no reason to believe that such
representations or warranties are materially inaccurate.
In addition to the matters set forth above, counsel rendering the
foregoing opinion shall also include a statement to the effect that,
although it has not independently verified the accuracy or completeness of
the statements in the Registration Statement and the Prospectus, nothing
has come to the attention of such counsel that causes it to believe that
the Registration Statement (except as to the financial statements and the
financial data derived therefrom, as to which such counsel need not express
any opinion or belief) at the Effective Date contained any 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 the Prospectus (except as to the financial statements and the
financial data derived therefrom, as to which such counsel need not express
any opinion or belief) at the Effective Date contained any 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 the Prospectus (except as to the financial statements and the
financial data derived therefrom, as to which such counsel need not express
any opinion or belief) as of its date or at the Closing Date (or, if there
is a second closing, any later date on which Option Stock is purchased),
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statement
therein, in the light of the circumstances under which they were made, not
misleading. With respect to such statement, counsel may state that its
belief is based upon the procedures set forth therein, but is without
independent check or verification.
(iii) An opinion of George Hohnsbeen, Esq., counsel to
Pacific Media, addressed to the Underwriters and dated the First Closing
Date to the effect that:
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(1) To such counsel's knowledge, (a) this Agreement and the
Stockholders Agreement have been duly authorized, executed and
delivered by or on behalf of Pacific Media and (b) the Agent has been
duly and validly authorized to act as the custodian of the Common
Shares to be sold by Pacific Media; and the performance by Pacific
Media of its obligations pursuant to this Agreement and the
Stockholders Agreement will not result in a breach of, or constitute a
default under, any material indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise, license or
other agreement or instrument known to such counsel to which Pacific
Media is a party or by which Pacific Media or any of its properties
may be bound, or violate any statute, judgment, decree, order, rule or
regulation known to such counsel of any court or governmental body
having jurisdiction over Pacific Media or any of its properties if
such breach or violation would adversely affect a Pacific Media's
ability to perform such Pacific Media's obligations pursuant to this
Agreement or the Stockholders Agreement; and to such counsel's
knowledge, no approval, authorization, order or consent of any court,
regulatory body, administrative agency or other governmental body is
required for the execution and delivery of this Agreement or the
Stockholders Agreement or the consummation by the Pacific Media of the
transactions contemplated by this Agreement, except such as have been
obtained and are in full force and effect under the Act and such as
may be required under the rules of the NASD and applicable Blue Sky
laws;
(2) To such counsel's knowledge, Pacific Media has full
right, power and authority to enter into this Agreement and the
Stockholders Agreement and to sell, transfer and deliver the Common
Shares to be sold on such Closing Date by Pacific Media hereunder and
upon delivery of and payment for the Common Shares to be sold by
Pacific Media as provided in this Agreement and upon registration of
such Common Shares in the names of the Underwriters (or their
nominees) in the stock records of the Company, the Underwriters will
be the owners of such Common Shares, free and clear of any adverse
claim, provided that the Underwriters are purchasing such Common
Shares in good faith and without notice of any adverse claim; and
(3) To such counsel's knowledge, this Agreement and the
Stockholders Agreement are valid and binding agreements of Pacific
Media in accordance with their terms except as enforceability may be
limited by general equitable principles, bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally and except with respect to those provisions relating to
indemnities or contributions for liabilities under the Act, as to
which no opinion need be expressed.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States, of the State of California
or the corporate laws of the State of Delaware upon opinions of local or
foreign counsel satisfactory in form and scope to counsel for the
Underwriters. Copies of any opinions so relied upon shall be delivered to
the Representatives and to counsel for the Underwriters and the foregoing
opinion shall also state
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that counsel knows of no reason the Underwriters are not entitled to rely
upon the opinions of such local counsel.
(iv) An opinion of Skjerven, Morrill, MacPherson, Franklin &
Friel, for the Company's intellectual property counsel, addressed to the
Underwriters and dated the First Closing Date or the Second Closing Date,
as the case may be, to the effect that:
(1) To such counsel's knowledge, the Company owns all
patents, trademarks, trademark registrations, service marks, service
mark registrations, trade names, maskworks, copyrights, licenses,
inventions, trade secrets and rights described in the Prospectus as
being owned by it or necessary for the conduct of its business, and
such counsel is not aware of any claim to the contrary or any
challenge by any other person to the ownership rights of the Company
with respect to the foregoing;
(2) No fact has come to such counsel's attention that would
lead such counsel to believe that the patents presently issued and
held by the Company are not valid and enforceable.
(3) Such counsel is not aware of any material fact with
respect to the patent applications of the Company presently on file
that (a) would preclude the issuance of patents with respect to such
applications or (b) would lead such counsel to believe that such
patents when issued would not be valid and enforceable.
(4) Such counsel is not aware of any legal actions, claims
or proceedings pending or threatened against the Company alleging that
the Company has infringed or currently is infringing or otherwise
violating any patents rights, trademarks, service marks, trade name
rights, maskworks, copyrights, licenses, inventions, trade secrets and
similar rights owned by any other person or entity and no fact has
come to such counsel's attention that any of the Company's present or
proposed products or processes described in the Prospectus have
infringed or currently infringe any patents, trademarks, trademark
registrations, service marks, service mark registrations, trade names,
maskworks, copyrights, licenses, inventions, trade secrets and rights
owned by any other person or entity.
(5) Such counsel has reviewed the descriptions of patents
and patent applications under the captions "Risk Factors -- Dependence
on Proprietary Technology" and "Business -- Intellectual Property
Rights" in the Registration Statement and Prospectus, and, to the
extent they constitute matters of law or legal conclusions, these
descriptions are true and correct in all material respects and fairly
present the patent situation of the Company; and
(6) Nothing has come to such counsel's attention that
causes such counsel to believe that, as of the date the Registration
Statement became effective and as of the date of such opinion, the
statements set forth under the captions "Risk Factors --
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Dependence on Proprietary Technology" and "Business -- Intellectual
Property Rights" in the Registration Statement and Prospectus contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(v) Such opinion or opinions of Wilson, Sonsini, Goodrich &
Rosati PC, counsel for the Underwriters dated the First Closing Date or the
Second Closing Date, as the case may be, with respect to the incorporation
of the Company, the sufficiency of all corporate proceedings and other
legal matters relating to this Agreement, the validity of the Common
Shares, the Registration Statement and the Prospectus and other related
matters as you may reasonably require, and the Company and the Selling
Stockholders shall have furnished to such counsel such documents and shall
have provided to them such papers and records as they may reasonably
request for the purpose of enabling them to pass upon such matters. In
connection with such opinions, such counsel may rely on representations or
certificates of officers of the Company and governmental officials.
(vi) A certificate of the Company executed by the Chairman of the
Board or President and the chief financial or accounting officer of the
Company, dated the First Closing Date or the Second Closing Date, as the
case may be, to the effect that:
(1) The representations and warranties of the Company set
forth in Section 2 of this Agreement are true and correct as of the
date of this Agreement and as of the First Closing Date or the Second
Closing Date, as the case may be, and the Company has complied with
all the agreements and satisfied all the conditions on its part to be
performed or satisfied on or prior to such Closing Date;
(2) To their knowledge (a) the Commission has not issued
any order preventing or suspending the use of the Prospectus or any
Preliminary Prospectus filed as a part of the Registration Statement
or any amendment thereto; (b) no stop order suspending the
effectiveness of the Registration Statement has been issued; and
(c) no proceedings for that purpose have been instituted or are
pending or contemplated under the Act;
(3) Each of the respective signers of the certificate has
carefully examined the Registration Statement and the Prospectus; in
his opinion and to the best of his knowledge, neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto
includes any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading;
(4) Since the initial date on which the Registration
Statement was filed, no agreement, written or oral, transaction or
event has occurred which is required to be set forth in an amendment
to the Registration Statement or in a supplement to or
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amendment of any prospectus which has not been disclosed in such a
supplement or amendment;
(5) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as
disclosed in or contemplated by the Prospectus, (a) there has not been
any material adverse change or a development involving a material
adverse change in the condition (financial or otherwise), business,
properties, results of operations or management of the Company and its
subsidiaries, taken as a whole, (b) no legal or governmental action,
suit or proceeding is pending or threatened against the Company or any
of its subsidiaries which is material to the Company and its
subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, or which may
adversely affect the transactions contemplated by this Agreement, (c)
neither the Company nor any of its subsidiaries has entered into any
verbal or written agreement or other transaction which is not in the
ordinary course of business or which could result in a material
reduction in the future net income of the Company and its
subsidiaries, taken as a whole, or incurred any material liability or
obligation, direct, contingent or indirect, made any change in its
capital stock, made any material change in its short-term debt or
funded debt or repurchased or otherwise acquired any of the Company's
capital stock, and (d) the Company has not declared or paid any
dividend, or made any other distribution, upon its outstanding capital
stock payable to stockholders of record on a date prior to the First
Closing Date or Second Closing Date; and
(6) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus and except as
disclosed in or contemplated by the Prospectus, the Company and its
subsidiaries have not sustained a material loss or damage by strike,
fire, flood, windstorm, accident or other calamity (whether or not
insured).
(vii) On the First Closing Date or the Second Closing Date,
as the case may be, a certificate, dated such Closing Date and addressed to
you, signed by or on behalf of each of the Selling Stockholders to the
effect that the representations and warranties of such Selling Stockholder
in Section 3 of this Agreement are true and correct, as if made at and as
of the First Closing Date or the Second Closing Date, as the case may be,
and that such Selling Stockholder has complied with all the agreements and
satisfied all the conditions on his part to be performed or satisfied prior
to the First Closing Date or the Second Closing Date, as the case may be.
(viii) On the date on which this Agreement is executed and
also on the First Closing Date and the Second Closing Date a letter
addressed to you, as Representatives of the Underwriters, from KPMG Peat
Marwick, independent accountants, the first one to be dated the date of
this Agreement, the second one to be dated the First Closing Date and the
third one (in the event of a Second Closing) to be dated the Second Closing
Date, in form and substance reasonable satisfactory to you.
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(ix) On or before the First Closing Date, letters from each of
the Selling Stockholders, each holder of _____ percent or more of the
Company's Common Stock and each director and officer of the Company, in
form and substance satisfactory to you, confirming the undersigned will
not, without the prior written consent of Montgomery Securities (which
consent may be withheld in its sole discretion), directly or indirectly,
sell, offer, contract or grant any option to sell, make any short sale
(including without limitation any "short vs. the box"), pledge, transfer,
establish an open "put equivalent position" within the meaning of
Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended, or
otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock, or securities exchangeable or exercisable
for or convertible into shares of Common Stock currently or hereafter owned
either of record or beneficially (as defined in Rule 13d-3 under Securities
Exchange Act of 1934, as amended) by the undersigned, or publicly announce
the undersigned's intention to do any of the foregoing, for a period
commencing on the date hereof and continuing to a date 180 days after the
first date any of the Common Stock to be sold in the Offering is released
by you for sale to the public.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
to you and to Wilson, Sonsini, Goodrich & Rosati, counsel for the Underwriters.
The Company shall furnish you with such manually signed or conformed copies of
such opinions, certificates, letters and documents as you reasonably request.
Any certificate signed by any officer of the Company and delivered to the
Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the
statements made therein.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at the First Closing Date is not so satisfied, this Agreement at
your election will terminate upon notification by you as Representatives to the
Company and the Selling Stockholders without liability on the part of any
Underwriter or the Company, the Company or the Selling Stockholders except for
the expenses to be paid or reimbursed by the Company and by the Selling
Stockholders pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof.
SECTION 9
REIMBURSEMENT OF UNDERWRITERS' EXPENSES
Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by you pursuant to Section 8, or if the sale to the Underwriters of
the Common Shares at the First Closing is not consummated because of any
refusal, inability or failure on the part of the Company or the Selling
Stockholders to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse you and the other Underwriters upon
demand for all out-of-pocket expenses that shall have been reasonably incurred
by you and them in connection with the proposed purchase and the sale of the
Common Shares, including, but not limited to, reasonable fees and disbursements
of counsel, printing expenses, travel expenses, postage, telegraph charges and
telephone charges relating
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directly to the offering contemplated by the Prospectus. Any such
termination shall be without liability of any party to any other party except
that the provisions of this Section, Section 7 and Section 11 shall at all
times be effective and shall apply.
SECTION 10
EFFECTIVENESS OF REGISTRATION STATEMENT
You, the Company and the Selling Stockholders will use your, its and their
respective best efforts to cause the Registration Statement to become effective,
to prevent the issuance of any stop order suspending the effectiveness of the
Registration Statement and, if such stop order be issued, to obtain as soon as
possible the lifting thereof.
SECTION 11
INDEMNIFICATION
(a) The Company, Pacific Media and Whit T. Jackson (each of Pacific Media
and Whit T. Jackson may be referred to herein as an "Indemnifying Stockholder"
and collectively they may be referred to as the "Indemnifying Stockholders"),
severally and not jointly, agree to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of the
Act against any losses, claims, damages, liabilities or expenses, joint or
several, to which such Underwriter or such controlling person may become
subject, under the Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company and a majority in
interest of the Indemnifying Stockholders) insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof as contemplated
below) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state in
any of them a material fact required to be stated therein or necessary to make
the statements in any of them not misleading, or arise out of or are based in
whole or in part, in the case of the Company, on any inaccuracy in the
representations and warranties of the Company contained herein or any failure of
the Company to perform its obligations hereunder or under law or, in the case of
an Indemnifying Stockholder, on any inaccuracy in the representations or
warranties of such Indemnifying Stockholder contained herein or any failure of
such Indemnifying Stockholder to perform its obligations hereunder or under law;
and will reimburse each Underwriter and each such controlling person for any
legal and other expenses as such expenses are reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that neither the Company nor an
Indemnifying Stockholder will be liable in any such case to the extent that any
such loss, claim, damage, liability or expense arises out of or is based upon an
untrue
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statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto in reliance upon and in conformity with
the information furnished to the Company pursuant to Section 4 hereof; and
provided further that, with respect to any untrue statement or omission or
alleged untrue statement or omission made in any Preliminary Prospectus, the
indemnity agreement contained in this subsection (a) shall not inure to the
benefit of any Underwriter from whom the person asserting any such loss, claim,
damage or liability purchased Common Shares (or to the benefit of any such
person controlling such Underwriter) to the extent that any such loss, claim,
damage, liability or expense of such Underwriter or controlling person results
from the fact that a copy of the Prospectus was not sent or given to such person
at or prior to the written confirmation of the sale of such Common Shares to
such person as required by the Act, and if the untrue statement or omission
concerned has been corrected in the Prospectus, unless such failure is the
result of noncompliance by the Company with Section 6(e) hereof.
Notwithstanding the foregoing, the Indemnifying Stockholders shall not be
required to provide indemnification pursuant to this Section 11(a) unless the
Underwriter or controlling person seeking indemnification shall have first made
a written demand for payment to the Company with respect to any losses, claims,
damages, liabilities or expenses for which the Company and the Indemnifying
Stockholders are required to indemnify the Underwriters pursuant to this
Section 11(a) and the Company shall have failed to make such demanded payment
within one hundred twenty (120) days after receipt thereof. The Company and the
Indemnifying Stockholders may agree, as among themselves and without limiting
the rights of the Underwriters under this Agreement, as to their respective
amounts of such liability for which they each shall be responsible. [The
Company and Pacific Media confirm that they have so agreed pursuant to a
Registration Right Agreement dated as of June 12, 1991.] In addition to its
other obligations under this Section 11(a), the Company and the Indemnifying
Stockholders, severally and not jointly, agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, or any inaccuracy in the representations and
warranties of the Company (in the case of the Company) or an Indemnifying
Stockholder (in the case of such Indemnifying Stockholder) herein or failure to
perform its obligations hereunder, all as described in this Section 11(a) and
subject to the limitations set forth in this Section 11(a), they will reimburse
each Underwriter on a quarterly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
or the Indemnifying Stockholders' obligation to reimburse each Underwriter for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, each Underwriter
shall promptly return it to the Company or the Indemnifying Stockholders as
applicable, together with interest, compounded daily, determined on the basis of
the prime rate (or other commercial lending rate for borrowers of the highest
credit standing) announced from time to time by Bank of America NT&SA, San
Francisco, California (the "Prime Rate"). Any such interim reimbursement
payments which are not made to an Underwriter within 30 days of a request for
reimbursement, shall bear interest at the Prime Rate from, in the case of the
Company, the date of such request and, in the case of the Indemnifying
Stockholders, one hundred twenty (120) days after the date of such request.
This indemnity
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agreement will be in addition to any liability which the Company or the
Indemnifying Stockholders may otherwise have.
(b) Each of the Selling Stockholders other than the Indemnifying
Stockholders, severally and not jointly, agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of the Act against any losses, claims, damages, liabilities or
expenses, joint or several, to which such Underwriter or such controlling person
may become subject, under the Act, the Exchange Act, or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the and the Selling Stockholders holding a majority of the Common
Shares being sold by the Selling Stockholders other than the Indemnifying
Stockholders pursuant to this Agreement), insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof as contemplated
below) arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state in
any of them a material fact required to be stated therein or necessary to make
the statements in any of them 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 the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto
in reliance upon and in conformity with information furnished by such Selling
Stockholder, or (ii) arise out of or are based in whole or in part, on any
inaccuracy in the representations or warranties of such Selling Stockholder
contained herein or any failure of such Selling Stockholder to perform its
obligations hereunder or under law; and will reimburse each Underwriter and each
such controlling person for any legal and other expenses as such expenses are
reasonably incurred by such Underwriter or such controlling person in connection
with investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that, with
respect to any untrue statement or omission or alleged untrue statement or
omission made in any Preliminary Prospectus, the indemnity agreement contained
in this subsection (b) shall not inure to the benefit of any Underwriter from
whom the person asserting any such loss, claim, damage or liability purchased
Common Shares (or to the benefit of any such person controlling such
Underwriter) to the extent that any such loss, claim, damage, liability or
expense of such Underwriter or controlling person results from the fact that a
copy of the Prospectus was not sent or given to such person at or prior to the
written confirmation of the sale of such Common Shares to such person as
required by the Act, and if the untrue statement or omission concerned has been
corrected in the Prospectus, unless such failure is the result of noncompliance
by the Company with Section 6(e) hereof. In addition to its other obligations
under this Section 11(b), each Selling Stockholder other than the Indemnifying
Stockholders, severally and not jointly, agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any such statement or omission, or any
alleged statement or omission, or any inaccuracy in the representations and
warranties of any Selling Stockholder (in the case of such Selling Stockholder)
herein or failure to perform its obligations hereunder, all as described in this
Section 11(b) and subject to the limitations set forth in this Section 11(b),
they will reimburse each Underwriter on a quarterly basis for all reasonable
legal or other expenses incurred in connection with investigating or defending
any such claim, action, investigation, inquiry or other proceeding,
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notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Selling Stockholder's obligation to reimburse each
Underwriter for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, each Underwriter shall promptly return it to the Selling Stockholders,
as applicable, together with interest, compounded daily, determined on the basis
of the Prime Rate. Any such interim reimbursement payments which are not made
to an Underwriter within 30 days of a request for reimbursement, shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement will be in addition to any liability which the Selling Stockholders
may otherwise have.
(c) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, the Selling Stockholders and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act, against any
losses, claims, damages, liabilities or expenses, joint or several, to which the
Company, or any such director, officer, Selling Stockholder or controlling
person may become subject, under the Act, the Exchange Act, or other federal or
state statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of such Underwriter), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, 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 the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with the information furnished to the Company pursuant to Section 4
hereof; and will reimburse the Company, or any such director, officer, Selling
Stockholder or controlling person for any legal and other expenses as such
expenses are reasonably incurred by the Company, or any such director, officer,
Selling Stockholder or controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. In addition to its other obligations under this
Section 11(c), each Underwriter severally agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in this Section 11(c) which relates to
information furnished to the Company pursuant to Section 4 hereof, it will
reimburse the Company (and, to the extent applicable, each officer, director,
Selling Stockholder or controlling person) on a quarterly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Underwriters' obligation to reimburse the Company (and, to
the extent applicable, each officer, director, Selling Stockholder or
controlling person) for such expenses and the possibility that such payments
might later be held to have been improper by a court of competent jurisdiction.
To the extent that any such interim reimbursement payment is so held to have
been improper, the Company (and, to the extent applicable, each officer,
director, Selling Stockholder or controlling person) shall
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promptly return it to the Underwriters together with interest, compounded
daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company (and, to the extent
applicable, each officer, director, controlling person or Selling
Stockholder) within 30 days of a request for reimbursement, shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.
(d) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section or to the
extent that it is not prejudiced as a proximate result of such failure. In case
any such action is brought against any indemnified party and such indemnified
party seeks or intends to seek indemnity from an indemnifying party, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with all other indemnifying parties similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be a conflict
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
such counsel in connection with the assumption of legal defenses in accordance
with the proviso to the next preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of more than
one separate counsel, approved by the Representatives in the case of
paragraph (a) or (b), representing the indemnified parties who are parties to
such action) or (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the action, in
each of which cases the reasonable fees and expenses of counsel shall be at the
expense of the indemnifying party.
(e) If the indemnification provided for in this Section 11 is required by
its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (a), (b),
(c) or (d) in respect of any losses, claims, damages, liabilities or expenses
referred to herein, then each applicable indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such
proportion as is appropriate to reflect the relative benefits received by the
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Company and the Selling Stockholders, on the one hand, and the Underwriters, on
the other hand, from the offering of the Common Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Selling Stockholders, on the one hand, and the Underwriters, on the other hand,
in connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The respective relative benefits received by the Company and
the Selling Stockholders, on the one hand, and the Underwriters, on the other
hand, shall be deemed to be in the same proportion, in the case of the Company
and the Selling Stockholders, as the total price paid to the Company and to the
Selling Stockholders, respectively, for the Common Shares sold by them to the
Underwriters (net of underwriting commissions but before deducting expenses),
and in the case of the Underwriters as the underwriting commissions received by
them bears to the total of such amounts paid to the Company and to the Selling
Stockholders and received by the Underwriters as underwriting commissions. The
relative fault of the Company and the Selling Stockholders, on the one hand, and
the Underwriters, on the other hand, 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 or the inaccurate
or the alleged inaccurate representation and/or warranty relates to information
supplied by the Company, the Selling Stockholders or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in subparagraph (d) of this Section 11, any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in subparagraph (d) of
this Section 11 with respect to notice of commencement of any action shall apply
if a claim for contribution is to be made under this subparagraph (e); provided,
however, that no additional notice shall be required with respect to any action
for which notice has been given under subparagraph (d) for purposes of
indemnification. The Company, the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 11 were determined solely by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. Notwithstanding the
provisions of this Section 11, no Underwriter shall be required to contribute
any amount in excess of the amount of the total underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. 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 to contribute pursuant to this
Section 11 are several in proportion to their respective underwriting
commitments and not joint.
(f) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Sections 11(a), 11(b) and 11(c)
hereof, including the amounts of any requested reimbursement payments and the
method of determining such amounts, shall be settled by arbitration conducted
under the provisions of the Constitution and Rules of the
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Board of Governors of the New York Stock Exchange, Inc. or pursuant to the
Code of Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or written notice of
intention to arbitrate, therein electing the arbitration tribunal. In the
event that the party demanding arbitration does not make such designation of
an arbitration tribunal in such demand or notice, then the party responding
to said demand or notice is authorized to do so. Such an arbitration would
be limited to the operation of the interim reimbursement provisions contained
in Sections 11(a), 11(b) and 11(c) hereof and would not resolve the ultimate
propriety or enforceability of the obligation to reimburse expenses which is
created by the provisions of such Sections 11(a), 11(b) and 11(c) hereof.
(g) The liability of a Selling Stockholder for a breach of a
representation or warranty set forth in Section 3 hereof or pursuant to this
Section 11 shall be limited to an amount equal to the product obtained by
multiplying the number of shares sold by such Selling Stockholder pursuant to
this Agreement by the price set forth in Section 5 above.
SECTION 12
DEFAULT OF UNDERWRITERS
It shall be a condition to this Agreement and the obligation of the Company
and the Selling Stockholders to sell and deliver the Common Shares hereunder,
and of each Underwriter to purchase the Common Shares in the manner as described
herein, that, except as hereinafter in this paragraph provided, each of the
Underwriters shall purchase and pay for all the Common Shares agreed to be
purchased by such Underwriter hereunder upon tender to the Representatives of
all such shares in accordance with the terms hereof. If any Underwriter or
Underwriters default in their obligations to purchase Common Shares hereunder on
either the First or Second Closing Date and the aggregate number of Common
Shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase on such Closing Date does not exceed 10% of the total number of Common
Shares which the Underwriters are obligated to purchase on such Closing Date,
the non-defaulting Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the Common Shares which such
defaulting Underwriters agreed but failed to purchase on such Closing Date. If
any Underwriter or Underwriters so default and the aggregate number of Common
Shares with respect to which such default occurs is more than the above
percentage and arrangements satisfactory to the Representatives and the Company
for the purchase of such Common Shares by other persons are not made within 48
hours after such default, this Agreement will terminate without liability on the
part of any non-defaulting Underwriter or the Company or the Selling
Stockholders except for the expenses to be paid by the Company and the Selling
Stockholders pursuant to Section 7 hereof and except to the extent provided in
Section 11 hereof.
In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than five business days in
order that the necessary changes in the Registration Statement, Prospectus and
any
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<PAGE>
other documents, as well as any other arrangements, may be effected. As used
in this Agreement, the term "Underwriter" includes any person substituted for
an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 13
EFFECTIVE DATE
This Agreement shall become effective immediately as to Sections 7, 9, 11,
13, 14 and 16 and, as to all other provisions, (i) if at the time of execution
of this Agreement the Registration Statement has not become effective, at 2:00
p.m., California time, on the first full business day following the
effectiveness of the Registration Statement, or (ii) if at the time of
execution of this Agreement the Registration Statement has been declared
effective, at 2:00 p.m., California time, on the first full business day
following the date of execution of this Agreement; but this Agreement shall
nevertheless become effective at such earlier time after the Registration
Statement becomes effective as you may determine on and by notice to the
Company or by release of any of the Common Shares for sale to the public. For
the purposes of this Section 13, the Common Shares shall be deemed to have been
so released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by you of telegrams (i)
advising Underwriters that the Common Shares are released for public offering
or (ii) offering the Common Shares for sale to securities dealers, whichever
may occur first.
SECTION 14
TERMINATION
Without limiting the right to terminate this Agreement pursuant to any
other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you and
the Selling Stockholders or by you by notice to the Company and the Selling
Stockholders at any time prior to the time this Agreement shall become
effective as to all its provisions, and any such termination shall be without
liability on the part of the Company or the Selling Stockholders to any
Underwriter (except for the expenses to be paid or reimbursed by the Company
and the Selling Stockholders pursuant to Sections 7 and 9 hereof and except to
the extent provided in Section 11 hereof) or of any Underwriter to the Company
or the Selling Stockholders (except to the extent provided in Section 11
hereof).
(b) This Agreement may also be terminated by you prior to the First
Closing Date by notice to the Company (i) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the Nasdaq National Market, or trading in
securities generally shall have been
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<PAGE>
suspended on either such Exchange or in the Nasdaq National Market, or a
general banking moratorium shall have been established by federal, New York or
California authorities, (ii) if an outbreak of major hostilities or other
national or international calamity or any substantial change in political,
financial or economic conditions shall have occurred or shall have accelerated
or escalated to such an extent, as, in the reasonable judgment of the
Representatives, to affect materially and adversely the marketability of the
Common Shares, (iii) if any adverse event shall have occurred or shall exist
which makes untrue or incorrect in any material respect any statement or
information contained in the Registration Statement or Prospectus or which is
not reflected in the Registration Statement or Prospectus but should be
reflected therein in order to make the statements or information contained
therein not misleading in any material respect, or (iv) if there shall be any
action, suit or proceeding pending or threatened, or there shall have been any
development or prospective development involving particularly the business or
properties or securities of the Company or any of its subsidiaries or the
transactions contemplated by this Agreement, which, in the reasonable judgment
of the Representatives, may materially and adversely affect the business or net
income of the Company and its subsidiaries, taken as a whole, and makes it
impracticable or inadvisable to offer or sell the Common Shares. Any
termination pursuant to this subsection (b) shall without liability on the part
of any Underwriter to the Company or the Selling Stockholders or on the part of
the Company or the Selling Stockholders to any Underwriter (except for expenses
to be paid or reimbursed by the Company and the Selling Stockholders pursuant
to Sections 7 and 9 hereof and except to the extent provided in Section 11
hereof).
SECTION 15
FAILURE OF THE SELLING STOCKHOLDERS TO SELL AND DELIVER
If one or more of the Selling Stockholders shall fail to sell and deliver
to the Underwriters the Common Shares to be sold and delivered by such Selling
Stockholders at the First Closing Date under the terms of this Agreement, then
the Underwriters may at their option, by written notice from you to the Company
and the Selling Stockholders, either (i) terminate this Agreement without any
liability on the part of any Underwriter or, except as provided in Sections 7, 9
and 11 hereof, the Company or the Selling Stockholders, or (ii) purchase the
shares which the Company and other Selling Stockholders have agreed to sell and
deliver in accordance with the terms hereof. In the event of a failure by one
or more of the Selling Stockholders to sell and deliver as referred to in this
Section, either you or the Company shall have the right to postpone the Closing
Date for a period not exceeding seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected.
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<PAGE>
SECTION 16
REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY
The respective indemnities, agreements, representations, warranties and
other statements of the Company, of its officers, of the Selling Stockholders
and of the several Underwriters set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by
or on behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholders,
as the case may be, and will survive delivery of and payment for the Common
Shares sold hereunder and any termination of this Agreement.
SECTION 17
NOTICES
All communications hereunder shall be in writing and, (a) if sent to the
Representatives shall be mailed, delivered or telegraphed and confirmed to you
at 600 Montgomery Street, San Francisco, California 94111, Attention: Mr. Frank
M. Dunlevy, with a copy to Wilson, Sonsini, Goodrich & Rosati PC, at 650 Page
Mill Road, Palo Alto, California 94304-1050, Attention: Jeffrey D. Saper,
Esq.; and (b) if sent to the Company shall be mailed, delivered or telegraphed
and confirmed to the Company at 1341 Orleans Drive, Sunnyvale, California
94089, Attention: Mr. Victor A. Viegas with a copy to Fenwick & West LLP, at
Two Palo Alto Square, Palo Alto, California 94306, Attention: Laird H. Simons
III, Esq. and (c) if sent to the Selling Stockholders shall be mailed,
delivered or telegraphed and confirmed to (i) the Company at 1341 Orleans
Drive, Sunnyvale, California 94089, Attention: Mr. Victor A. Viegas with a
copy to Fenwick & West LLP, at Two Palo Alto Square, Palo Alto, California
94306, Attention: Laird H. Simons III, Esq. and (ii) Pacific Media
Development, Inc., c/o Victor Company of Japan, Limited, 12, 3-chome,
Moriya-cho, Kanagawa-ku Yokohama 221, Japan, Attention: _________ with a copy
to George H. Hohnsbeen II, Esq., 314 Lytton Avenue, Suite 200, Palo Alto,
California 94301. The Company, the Selling Stockholders or you may change the
address for receipt of communications hereunder by giving notice to the others.
SECTION 18
SUCCESSORS
This Agreement will inure to the benefit of and be binding upon the
parties hereto, including any substitute Underwriters pursuant to Section 12
hereof, and to the benefit of the officers and directors and controlling
persons referred to in Section 11, and in each case their respective
successors, personal representatives and assigns, and no other person will have
any right or obligation hereunder. No such assignment shall relieve any party
of its obligations hereunder. The term
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<PAGE>
"successors" shall not include any purchaser of the Common Shares as such from
any of the Underwriters merely by reason of such purchase.
SECTION 19
REPRESENTATION OF UNDERWRITERS
You will act as Representatives for the several Underwriters in connection
with all dealings hereunder, and any action under or in respect of this
Agreement taken by you jointly or by Montgomery Securities, as Representatives,
will be binding upon all the Underwriters.
SECTION 20
PARTIAL UNENFORCEABILITY
The invalidity or unenforceability of any Section, paragraph or provision
of this Agreement shall not affect the validity or enforceability of any other
Section, paragraph or provision hereof. If any Section, paragraph or provision
of this Agreement is for any reason determined to be invalid or unenforceable,
there shall be deemed to be made such minor changes (and only such minor
changes) as are necessary to make it valid and enforceable.
SECTION 21
APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with the
internal laws (and not the laws pertaining to conflicts of laws) of the State
of California.
SECTION 22
GENERAL
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in several counterparts, each one of
which shall be an original, and all of which shall constitute one and the same
document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties
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<PAGE>
only and will not affect the construction or interpretation of this Agreement.
This Agreement may be amended or modified, and the observance of any term of
this Agreement may be waived, only by a writing signed by the Company, the
Selling Stockholders and you.
Any person executing and delivering this Agreement as Attorney-in-fact for
the Selling Stockholders represents by so doing that he has been duly appointed
as Attorney-in-fact by such Selling Stockholders pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-fact to take
such action. Any action taken under this Agreement by any of the
Attorneys-in-fact will be binding on all the Selling Stockholders.
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<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon
it will become a binding agreement among the Company, the Selling Stockholders
and the several Underwriters including you, all in accordance with its terms.
Very truly yours,
MACROVISION CORPORATION
By: ____________________________
John O. Ryan, Chairman of the
Board of Directors and Chief
Executive Officer
SELLING STOCKHOLDERS
By: ____________________________
(Attorney-in-fact)
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as of
the date first above written.
MONTGOMERY SECURITIES
HAMBRECHT & QUIST LLC
COWEN & COMPANY
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By MONTGOMERY SECURITIES
By: ______________________________
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<PAGE>
SCHEDULE A
Number of Firm
Common Shares
NAME OF UNDERWRITER TO BE PURCHASED
- ------------------- ---------------
Montgomery Securities. . . . . . . . . . . .
Hambrecht & Quist LLC. . . . . . . . . . . .
Cowen & Company. . . . . . . . . . . . . . .
_____
TOTAL. . . . . . . . . . . . . . . 2,300,000
---------
---------
A-1
<PAGE>
SCHEDULE B
Number of Firm Common
Shares to be Sold by
Name of Selling Stockholder Selling Stockholders
- --------------------------- ---------------------
Pacific Media Development, Inc............................ 555,555
Brian T. and Linda J. Prinn as Trustees of the
Prinn Family Trust...................................... 25,416
Erin M. Prinn Trust....................................... 1,388
Ian T. Prinn Trust........................................ 1,388
Robert J. Lowe............................................ 22,222
Whit T. Jackson........................................... 2,500
[add others]
-------
TOTAL............................................... 850,000
-------
-------
B-1
<PAGE>
Exhibit 2.01
MERGER AGREEMENT
Merger Agreement dated this ________ day of ___________, 1996, pursuant to
Section 252 of the General Corporation Law of the State of Delaware, between
Macrovision Corporation, a Delaware corporation ("Macrovision-Delaware"), and
Macrovision Corporation, a California corporation ("Macrovision-California").
WITNESSETH that:
WHEREAS, the respective Boards of Directors of Macrovision-Delaware and
Macrovision-California have determined that, for the purpose of effecting the
reincorporation of Macrovision California in the State of Delaware, it is
advisable and to the advantage of said two corporations and their shareholders
that Macrovision-California merge with and into Macrovision-Delaware upon the
terms and conditions provided herein (the "Merger"); and
WHEREAS, the respective Boards of Directors of Macrovision-Delaware and
Macrovision-California have approved this Agreement and have directed that this
Agreement be submitted to a vote of the shareholders of Macrovision-Delaware and
Macrovision-California;
NOW, THEREFORE, in consideration of the mutual covenants, agreements and
provisions hereinafter contained, Macrovision-Delaware and
Macrovision-California hereby agree as follows:
FIRST: Macrovision-Delaware hereby merges Macrovision-California into
itself, and Macrovision-California shall be, and hereby is, merged into
Macrovision-Delaware, which shall be the surviving corporation.
SECOND: The Certificate of Incorporation of Macrovision-Delaware as in
effect on the date of the merger provided for in this Merger Agreement,
shall continue in full force and effect as the Certificate of Incorporation
of Macrovision-Delaware, the corporation surviving this merger.
THIRD: The manner of converting the outstanding shares of the capital
stock of each of the constituent corporations into shares or other
securities of the surviving corporation shall be as follows:
(a) Each of the one hundred (100) shares of the Common Stock of
Macrovision-Delaware presently issued and outstanding shall be
retired, and no shares of Common Stock or other securities of
Macrovision-Delaware shall be issued in respect thereof.
(b) Each share of Common Stock of Macrovision-California which shall
be outstanding on the effective date of this Merger Agreement, and all
rights in respect thereof shall forthwith be changed and converted
into one (1) share of Common Stock of Macrovision-Delaware.
1
<PAGE>
(c) Each share of Series A Preferred Stock of Macrovision-California
which shall be outstanding on the effective date of this Merger
Agreement, and all rights in respect thereof shall forthwith be
changed and converted into one (1) share of Series A Preferred Stock
of Macrovision-Delaware.
(c) After the effective date of this Merger Agreement, each holder of
an outstanding certificate representing shares of Common Stock or
Series A Preferred Stock of Macrovision-California shall surrender the
same to Macrovision-Delaware and each such holder shall be entitled
upon such surrender to receive the number of shares of Common Stock or
Series A Preferred Stock of Macrovision-Delaware on the basis provided
herein. Until so surrendered, the outstanding shares of stock of
Macrovision-California to be converted into the stock of the
Macrovision-Delaware as provided herein, may be treated by
Macrovision-Delaware, for all corporate purposes, as evidencing the
ownership of shares of Macrovision-Delaware as though said surrender
and exchange had taken place. After the effective date of this Merger
Agreement, each registered owner of any uncertificated shares of
Common Stock of Macrovision-California shall have said shares canceled
and said registered owner shall be entitled to the number of shares of
Common Stock of Macrovision-Delaware on the basis provided herein.
FOURTH: The terms and conditions of the merger are as follows:
(a) The Bylaws of Macrovision-Delaware as they shall exist on the
effective date of this Merger Agreement shall be and remain the Bylaws
of Macrovision-Delaware until the same shall be altered, amended or
repealed as therein provided.
(b) The directors and officers of Macrovision-Delaware shall continue
in office until the next Annual Meeting of Shareholders or until their
successors shall have been duly elected and qualified.
(c) This merger shall become effective upon filing of the Certificate
of Merger with the Secretary of State of Delaware.
(d) Upon the merger becoming effective, all property, rights,
privileges, franchises, patents, trademarks, licenses, registrations
and other assets of every kind and description of
Macrovision-California shall be transferred to, vested in and devolve
upon Macrovision-Delaware without further act or deed and all
property, rights, and every other interest of Macrovision-Delaware and
Macrovision-California shall be as effectively the property of
Macrovision-Delaware as they were of Macrovision-Delaware and
Macrovision-California, respectively. Macrovision-California hereby
agrees from time to time, as and when requested by
Macrovision-Delaware or by its successors or assigns, to execute and
deliver or cause to be executed and delivered all such deeds and
instruments and to take or cause to be taken such further or other
action as
2
<PAGE>
Macrovision-Delaware may deem necessary or desirable in order to vest
in and confirm to Macrovision-Delaware title to and possession of any
property of Macrovision-California acquired or to be acquired by
reason of or as a result of the merger herein provided for and
otherwise to carry out the intent and purposes hereof and the proper
officers and directors of Macrovision-California and the proper
officers and directors of Macrovision-Delaware are fully authorized in
the name of Macrovision-California or otherwise to take any and all
such action.
FIFTH: This Merger Agreement shall become effective immediately upon
compliance with the laws of the States of California and Delaware.
IN WITNESS WHEREOF, the parties to this Merger Agreement, pursuant to the
approval and authority duly given by resolution adopted by the respective Boards
of Directors of Macrovision-Delaware and Macrovision-California have caused
these presents to be executed by the President of each party hereto as the
respective act, deed and agreement of each said corporations on this
_____________ day of ________________, 1996.
Macrovision Corporation,
a Delaware Corporation
By:_____________________________
Title: President
Macrovision Corporation,
a California corporation
By:_____________________________
Title: President
3
<PAGE>
OFFICERS' CERTIFICATE
OF
MACROVISION CORPORATION,
A CALIFORNIA CORPORATION
William A. Krepick, President and John O. Ryan, Secretary of Macrovision
Corporation, a corporation duly organized and existing under the laws of the
State of California ("the Corporation"), does hereby certify:
1. That they are the President and Secretary, respectively, of the
Corporation.
2. The Merger Agreement in the form attached hereto as EXHIBIT A was duly
approved by the board of directors of the Corporation.
3. The Merger Agreement in the form attached hereto as EXHIBIT A was
approved by the shareholders of the Corporation by a vote of __% of the
outstanding shares of Common Stock and 100% of the outstanding shares of Series
A Preferred Stock, which vote equaled or exceeded the vote required to approve
said Merger Agreement. The total number of shares of Common Stock of the
Corporation outstanding ___ shares, and the total number of shares of Series A
Preferred Stock of the Corporation outstanding is two million four hundred
seventy-seven thousand five hundred seventy-eight (2,477,578) shares.
The undersigned declare under penalty of perjury that the statements
contained in the foregoing certificate are true and correct of their own
knowledge. Executed at Sunnyvale, California on ____________, 1996.
Macrovision Corporation,
a California corporation
By:
-------------------------------
Title: President
By:
-------------------------------
Title: Secretary
<PAGE>
OFFICERS' CERTIFICATE
OF
MACROVISION CORPORATION,
A DELAWARE CORPORATION
William A. Krepick, President and John O. Ryan, Secretary of Macrovision
Corporation, a corporation duly organized and existing under the laws of the
State of Delaware ("the Corporation"), does hereby certify:
1. That they are the President and Secretary, respectively, of the
Corporation.
2. The Merger Agreement in the form attached hereto as EXHIBIT A was duly
approved by the board of directors of the Corporation.
3. The Merger Agreement in the form attached hereto as EXHIBIT A was
approved by the shareholders of the Corporation by a vote of 100% of the
outstanding shares of Common Stock which vote equaled or exceeded the vote
required to approve said Merger Agreement. The total number of shares of Common
Stock of the Corporation outstanding is one hundred (100) shares.
The undersigned declare under penalty of perjury that the statements
contained in the foregoing certificate are true and correct of their own
knowledge. Executed at Sunnyvale, California on _____________, 1996.
Macrovision Corporation,
a Delaware corporation
By:
-----------------------------
Title: President
By:
-----------------------------
Title: Secretary
<PAGE>
CERTIFICATE OF MERGER
BETWEEN
MACROVISION CORPORATION, A CALIFORNIA CORPORATION
INTO
MACROVISION CORPORATION, A DELAWARE CORPORATION
The undersigned corporation does hereby certify:
FIRST: That the names and states of incorporation of each of the
constituent corporations of the merger are as follows:
NAME STATE
---- -----
Macrovision Corporation Delaware
Macrovision Corporation California
SECOND: That certain Merger Agreement between the parties to the merger
has been approved, adopted, certified, executed and acknowledged by each of the
constituent corporations in accordance with the requirements of Section 252 of
the General Corporation Law of the State of Delaware.
THIRD: That the name of the surviving corporation of the merger is
Macrovision Corporation, a Delaware corporation ("Surviving Corporation").
FOURTH: That the Certificate of Incorporation of Surviving Corporation,
shall continue in full force and effect as the Certificate of Incorporation of
the Surviving Corporation.
FIFTH: That the executed Merger Agreement is on file at the principal
place of business of the Surviving Corporation, the address of which is 1341
Orleans Drive, Sunnyvale, California 94089.
SIXTH: That a copy of the Merger Agreement will be furnished, on request
and without cost, to any shareholder or stockholder of any constituent
corporation.
SEVENTH: The authorized capital stock of Macrovision Corporation, a
California corporation is one hundred million (100,000,000) shares of Common
Stock, no par value, and five million (5,000,000) shares of Preferred Stock, no
par value.
EIGHTH: That this Certificate of Merger shall be effective upon its filing
date.
Dated: ______________, 1996 Macrovision Corporation,
a Delaware corporation
By:
----------------------------
Title: President
<PAGE>
Exhibit 3.01
CERTIFICATE OF INCORPORATION OF
MACROVISION CORPORATION
A DELAWARE CORPORATION
FIRST: The name of this corporation is MACROVISION CORPORATION.
SECOND: The address of the corporation's registered office in the State
of Delaware is 1209 Orange Street, Wilmington, County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH: This corporation is authorized to issue two classes of shares to
be designated Common Stock and Preferred Stock, respectively. The corporation
is authorized to issue One Hundred Million (100,000,000) shares of Common Stock,
par value $.001 per share, and Five Million (5,000,000) shares of Preferred
Stock, par value $.001 per share, of which Two Million Four Hundred Seventy
Seven Thousand Five Hundred Seventy Eight (2,477,578) shares shall be designated
Series A Preferred Stock. The relative rights, preferences, privileges and
restrictions granted to or imposed upon the respective classes of shares of
capital stock or the holders thereof are as follows:
1. DIVIDENDS.
(a) The holders of the Series A Preferred Stock shall be entitled to
receive, out of the funds legally available therefor, dividends at the rate of
$0.30 per annum on each outstanding share of Series A Preferred Stock (as
adjusted for any stock dividends, stock splits, recapitalizations,
consolidations, or the like, with respect to shares of Series A Preferred
Stock), payable in preference and priority to any payment of any dividend or
other distribution on Common Stock, other than dividends payable solely in
Common Stock. No dividends or other distributions (other than pro rata
dividends or distributions payable solely in Common Stock) shall be paid with
respect to the Common Stock during any fiscal year of the Corporation until
dividends in the amount of $0.30 per share on the Series A Preferred Stock shall
have been paid or declared and set apart during that fiscal year. Dividends
shall accrue and be cumulative to any share of Series A Preferred Stock and
shall be paid in equal quarterly installments the last day of each fiscal
quarter of the Corporation. If any shares of Series A Preferred Stock are
converted into Common Stock prior to the last day of a fiscal quarter in which
the payment of dividends to holders of Series A Preferred Stock is due, the
dividend due such holders shall be pro-rated by multiplying the dividend due
such holder by the number of days in the fiscal quarter prior to the conversion
date and dividing by the number of days in the fiscal quarter.
(b) Notwithstanding Section 1(a) of this Article FOURTH, the
Corporation may at any time, out of funds legally available therefor, repurchase
shares of Common Stock of the Corporation issued to or held by employees,
officers, directors or consultants of the Corporation or its
1
<PAGE>
subsidiaries upon termination of their employment or services or pursuant to any
agreement providing for such right of repurchase entered into in connection with
the original issuance of such shares (or options to purchase such shares)
whether or not all declared dividends on the Series A Preferred Stock shall have
been paid or funds set aside therefor. Each holder of Series A Preferred Stock
shall be deemed to have consented to any such repurchase by the Corporation of
shares of Common Stock.
2. LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary, distributions
to the stockholders of the Corporation shall be made in the following manner:
(a) The holders of the Series A Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any assets or surplus
funds of the Corporation to the holders of the Common Stock by reason of their
ownership of such stock, the amount of $3.00 per share for each share of Series
A Preferred Stock then held by them (as adjusted for any stock dividends, stock
splits, recapitalizations, combinations, consolidations or the like, with
respect to shares of the Series A Preferred Stock), plus an amount equal to any
accrued but unpaid dividends on the Series A Preferred Stock as of such date.
If the assets and funds to be distributed are insufficient to permit the payment
to the holders of the Series A Preferred Stock of their full preferential
amount, the entire assets and funds legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred Stock.
(b) The effectuation by the Corporation of the sale, transfer or
other disposition of all or substantially all of the assets of this Corporation
to a person other than a corporation or partnership controlled by the
Corporation or its stockholders shall be deemed to be a liquidation, dissolution
or winding up within the meaning of this Section 2.
(c) In the event the Corporation proposes to take any action of the
types described in Sections 2(a) and (b) of this Article FOURTH, the Corporation
shall, within five (5) days after the date the Board of Directors approves such
action, or fifteen (15) days prior to any stockholders' meeting called to
approve such action, whichever is earlier, give each holder of shares of Series
A Preferred Stock initial written notice of the proposed action. Such initial
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 Series A Preferred Stock and of shares of Common
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 initial notice
shall occur, the Corporation shall promptly give written notice of such material
change to each holder of shares of Series A Preferred Stock.
(d) The Corporation shall not consummate any proposed action of the
types described in Sections 2(a) and (b) of this Article FOURTH before the
expiration of thirty (30) days after the mailing of the initial notice or ten
(10) days after the mailing of any subsequent written notice, whichever is
later; provided 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 series
A Preferred Stock,
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voting together as a single class. The approval of the holders of a majority of
the outstanding shares of Series A Preferred Stock, voting together as a single
class, shall be required to amend this provision to reduce the minimum portion
of the outstanding shares of Series A Preferred Stock whose approval is required
to shorten any such 30-day or 10-day period.
(e) In the event the Corporation shall propose to take any action of
the types described in Sections 2(a) and (b) of this Article FOURTH which will
involve the distribution of assets other than cash, the Corporation shall
promptly engage independent appraisers to determine the value of the assets to
be distributed to the holders of shares of Series A Preferred Stock. The
Corporation shall, upon receipt of such appraiser's valuation, give prompt
written notice of such valuation to the holders of the Series A Preferred Stock.
(f) Notwithstanding Sections 2(a) and 2(b) of this Article FOURTH,
the Corporation may at any time, out of funds legally available therefor,
repurchase shares of Common Stock of the Corporation issued to or held by
employees, officers, directors or consultants of the Corporation or its
subsidiaries upon termination of their employment or services or pursuant to any
agreement providing for such right of repurchase entered into in connection with
the original issuance of such shares (or options to purchase such shares)
whether or not all declared dividends on the Series A Preferred Stock shall have
been paid or funds set aside therefor. Each holder of Series A Preferred Stock
shall have been paid or funds set aside therefor. Each holder of Series A
Preferred Stock shall be deemed to have consented to any such repurchase by the
Corporation of shares of Common Stock.
3. VOTING. Except as set forth in Section 5 or Section 7 of this
Article FOURTH or as otherwise required by law, the Corporation's Series A
Preferred Stock shall be voted together with the Corporation's Common Stock as a
single class at any annual or special meeting of stockholders of the
Corporation, or any act by written consent in the same manner as the
Corporation's Common Stock. With respect to all matters upon which the holders
of Series A Preferred Stock are entitled to vote, including without limitation
the matters set forth in Section 5 and Section 7 of this Article FOURTH, each
holder of Series A Preferred Stock shall be entitled to such number of votes for
the Series A Preferred Stock held by it on the record date fixed for such
meeting, or, if no record date is established, at the date vote is taken or on
the effective date of any such written consent, as shall be equal to the number
of votes such shares would be entitled to upon conversion of such shares into
shares of Common Stock.
4. CONVERSION. The holder of the Series A Preferred Stock shall have
the following conversion rights (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock shall
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share, at the office of the Corporation or any transfer
agent for the Series A Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $3.00 by the
Conversion Price, determined as hereinafter provided, in effect at the time of
conversion. The price at which shares of Common Stock shall be deliverable upon
conversion of the Series A Preferred Stock (the "Conversion Price") shall be, as
of the date hereof, $3.00 per share of Common Stock.
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The initial Conversion Price shall be subject to adjustment as hereinafter
provided. Upon conversion of any Series A Preferred Stock, the Common Stock so
issued shall be duly and validly issued, fully paid and nonassessable shares of
the Corporation. Each share of Series A Preferred Stock shall automatically
convert to Common Stock in accordance with this Section 4 immediately prior to
the closing of an initial public offering of equity securities of the
Corporation registered under the Securities Act of 1933, as amended and having
an aggregate net offering price of at least Ten Million Dollars ($10,000,000)
("Public Offering").
(b) MECHANICS OF CONVERSION. Before any holder of Series A 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 office of the Corporation
or of any transfer agent for the Series A 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 holders wishes the certificate or certificates for Common Stock to be
issued. The Corporation, as soon as practicable thereafter, shall issue and
deliver at such office to such holder's nominee or nominees, certificates for
the number of full 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.
Except as set forth above, such conversion shall be deemed to have been made as
of the date of such surrender of the Series A 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. If the conversion is in connection
with an underwritten offer of securities registered pursuant to the Securities
Act of 1933, the conversion may, at the option of any holder tendering Preferred
stock for conversion, be conditioned upon the closing with the underwriter of
the sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock issuable upon such conversion of the Series
A Preferred stock shall not be deemed to have converted such Series A Preferred
Stock until immediately prior to the closing of such sale of securities.
(c) ADJUSTMENTS FOR DIVIDENDS, SUBDIVISIONS OR COMBINATIONS. In case
the Corporation shall at any time subdivide the outstanding Common Stock, or
shall issue a stock dividend on its outstanding Common Stock, the number of
shares of Common Stock issuable upon conversion of the Series A Preferred Stock
immediately prior to such subdivision or the issuance of such stock dividend
shall be proportionately increased (with appropriate adjustments in the
Conversion Price of the Series A Preferred Stock), and in case the Corporation
shall at any time combine the outstanding Common Stock, the number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock
immediately prior to such combination shall be proportionately decreased (with
appropriate adjustments in the Conversion Price of the Series A Preferred
Stock), effective at the close of business on the date of such subdivision,
stock dividend or combination, as the case may be.
(d) ADJUSTMENTS FOR REORGANIZATIONS AND RECLASSIFICATIONS. In case of
any capital reorganization (other than in connection with a merger or other
reorganization in which the
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Corporation is not the continuing or surviving entity) or any reclassification
of the Common Stock of the Corporation, the Series A Preferred Stock shall
thereafter be convertible into the number of shares of stock or other securities
or property to which a holder of the number of shares of Series A Preferred
Stock immediately prior to such reorganization or recapitalization would have
been entitled upon such reorganization or reclassification; and, in such case,
appropriate adjustment (as determined by the Board of Directors) shall be made
in the application of the provision herein set forth with respect to the rights
and interests thereafter of the holders of Series A Preferred Stock, to the end
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.
(e) NOTICE. 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 capital stock of the Corporation (other
than a subdivision or combination of its outstanding Common Stock),
consolidation or merger of the Corporation (other than a merger or other
reorganization in which the Corporation is not the continuing or surviving
entity);
(f) RESERVE. 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 Series A Preferred Stock, the full
number of hares of Common Stock deliverable upon the conversion of all Series A
Preferred Stock from time to time outstanding. The Corporation shall from time
to time in accordance with the laws of the State of Delaware increase the
authorized amount of its Common Stock if at any time the authorized amount of
its Common Stock remaining unissued shall not be sufficient to permit the
conversion of all the shares of Series A Preferred Stock at the time
outstanding.
(g) ADJUSTMENTS OF CONVERSION PRICE FOR DILUTIVE ISSUANCE. Upon the
issuance by the Corporation on or after May 24, 1991 (the "Original Issue Date")
of Common Stock, any obligation or shares of stock convertible into or
exchangeable for Common Stock, or any right or option to purchase Common Stock
or any such issue or sale, the Conversion Price shall be reduced to a price
calculated (to the nearest cent) by dividing:
(i) an amount equal to the sum of (A) the number of shares of
Common Stock outstanding immediately prior to such issue or sale multiplied
by the ten by the then existing Conversion Price of the Series A Preferred
Stock, (B) the number of shares of Common Stock issuable upon conversion of
any shares of stock of the Corporation outstanding immediately prior to
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such issue or sale multiplied by the then existing Conversion Price of the
Series A Preferred Stock, and (C) an amount equal to the initial Conversion
Price ($3.00 per share) divided by Two Dollars and Fifty Cents ($2.50) then
multiplied by the aggregate consideration received by the corporation upon
such issue or sale of shares of Common after the Original Issue Date; by
(ii) the sum of the number of shares of Common Stock outstanding
immediately after such issue or sale and the number of shares of Common Stock
(without taking into account any adjustment in such number resulting from such
issue or sale) issuable upon conversion of nay shares of stock of the
Corporation outstanding immediately after such issue or sale.
No adjustment to the Conversion Price of a particular share of Series
A Preferred Stock shall be made in respect of the issuance of shares of Common
Stock after the Original Issue Date unless the consideration per share for such
shares of Common Stock issued by the Corporation is less than Two Dollars and
Fifty Cents ($2.50).
This section 4(g) of Article FOURTH shall become not applicable (i)
immediately prior to the closing of a Public Offering or (ii) upon the
expiration of two (2) years from the Original Issue Date, whichever is earlier.
(h) CALCULATION OF ISSUANCE PRICE. For purposes of Section
4(g) of this Article FOURTH, the following provisions shall apply:
(i) In the case of an issue or sale for cash of shares of Common
Stock, the consideration received by the Corporation therefor shall be deemed to
be the amount of cash received, before deducting therefrom any commissions or
expenses paid or incurred by the Corporation.
(ii) In case of the issuance (other than upon conversion or
exchange of obligations or shares of stock of the Corporation) of additional
shares of Common Stock for a consideration other than cash or a consideration
partly other than cash, the amount of the consideration other than cash received
by the Corporation for such shares shall be deemed to be the value of such
consideration as reasonably determined by the Board of Directors.
(iii) In case of the issuance by the Corporation in any
manner of any rights to subscribe for or to purchase shares of Common Stock, the
maximum number of shares of Common Stock to which the holders of such rights or
options shall be entitled to subscribe for or purchase pursuant to such rights
or options shall be deemed to be issued or sold as of the date of the offering
of such rights or the granting of such rights or options shall be deemed to be
issued or sold as of the date of the offering of such rights or the granting of
such options, as the case may be, and the minimum aggregate consideration named
in such rights or options for the shares of Common Stock covered thereby, plus
the consideration, if any, received by the Corporation (as of the date of the
offering of such rights or the granting of such options, as the case may be) for
the issuance of such shares.
(iv) In the case of the issuance or issuances by the Corporation
in any obligations or of any shares of stock of the Corporation that shall be
convertible into or exchangeable
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for Common Stock, or any right or option to purchase any such obligation or
shares, the maximum number of shares of Common Stock issuable upon the
conversion or exchange of such obligations or shares are issued, and the amount
of the consideration received by the Corporation for such additional shares of
Common Stock shall be deemed issued as of the date such obligations or shares
are issued, and the amount of the consideration received by the Corporation for
such additional shares of Common Stock shall be deemed to be the total of (x)
the amount of consideration received by the Corporation upon the issuance of
such obligations or shares, as the case may be, plus (y) the minimum aggregate
consideration, if any, other than such obligations or shares, receivable by the
Corporation upon such conversion or exchange, except in adjustment of dividends.
(v) The amount of the consideration received by the Corporation
upon the issuance of any rights or options referred to in Section 4(h)(iii) of
this Article FOURTH or upon the issuance of any obligations or shares which are
convertible or exchangeable as described in Section 4(h)(iv) of this Article
FOURTH, and the amount of the consideration, if any, other than such obligations
or shares convertible or exchangeable, receivable by the Corporation upon the
exercise, conversion or exchange thereof shall be determined in the same manner
provided in Sections 4(h)(ii) and 4(h)(ii) of this Article FOURTH with respect
to the consideration received by the corporation in case of the issuance of
additional shares of Common Stock. On the expiration of any rights or options
referred to in Section 4(h)(iii) or (iv) of this Article FOURTH, or the
termination of any right of conversion or exchange referred to in Section
4(h)(iv) of this Article FOURTH, the Conversion Price then in effect shall
forthwith be readjusted to such Conversion Price as would have pertained had the
adjustments made upon the issuance of such option, right or convertible or
exchangeable securities been made upon the basis of the delivery of only the
number of shares of Common Stock actually delivered upon the exercise of such
rights or options or upon the conversion or exchange of such securities.
(vi) The foregoing notwithstanding, no adjustment of any
Conversion Price shall be made as a result of the issuance after the Original
Issue Date of:
(A) up to One Million Seven Hundred Fifty Thousand
(1,750,000) shares, net of repurchases, of Common Stock, as adjusted for splits,
stock dividends, reorganizations and the like, or any options, warrants or
rights to purchase such shares of Common Stock (counting against such number of
shares of shares of all shares called for by options, warrants and rights issued
on or prior to the Original Issue Date that remain outstanding after the
Original Issue Date) issued or issuable to employees, officers, directors or
consultants of the Corporation pursuant to any stock option plan, stock
incentive or purchase plan or agreement approved by the Board of Directors of
the Corporation;
(B) any shares of Common Stock issuable pursuant to an
adjustment in any Conversion Price under Sections 4(c), (d) or (g) of this
Article FOURTH;
(C) any shares of Common Stock issued upon conversion of
the Series A Stock; or
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(D) any shares of Common Stock issuable pursuant to a
merger involving the Corporation or any acquisition by the Corporation of stock
or assets of another entity.
No shares of Common Stock issuable upon exercise of the rights, options or
warrants described in Section 4(h)(vi)(A) above shall be deemed outstanding for
purposes of calculating any adjustment of the Conversion Price of any series of
Preferred Stock pursuant to Section 4(g) of this Article FOURTH until such
shares are actually issued.
(i) CONVERTED SHARES. Upon any conversion of Series A
Preferred Stock pursuant to this Section 4 or any acquisition of Series A
Preferred Stock by the Corporation by way of conversion to another class or
series or otherwise, the shares of Series A Preferred Stock which are so
converted or acquired shall not be reissued and, upon such conversion or
acquisition, the number of authorized shares of the class and series, if any, to
which the shares of such Series A Preferred Stock belonged shall be reduced by
the number of shares so converted or acquired.
(j) NOTICE OF ADJUSTMENT. Upon the occurrence of each adjustment or
readjustment of the conversion rights of any series of Preferred Stock pursuant
to this Section 4, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Preferred Stock a certificate setting forth such
adjustment or readjustment showing in detil the facts upon which such adjustment
or readjustment is based. The Corporation shall, upon the reasonable written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, and (ii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversion of the Series A Preferred Stock.
(k) OTHER DISTRIBUTIONS. In the event the Corporation at any time or
from time to time makes or fixes a record date for the determination of holders
of Common Stock entitled to receive any distribution payable in securities or
other property of the Corporation other than Common Stock and other than as
otherwise adjusted in this Section 4, then and in each such event provision
shall be made so that the holders of Preferred Stock shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities and other property of the
Corporation which they would have received had their shares of Preferred Stock
been converted into shares of Common Stock on the date of such event and had
they thereafter, during the period from the date of such event to and including
the date of conversion, retained such securities and other property receivable
by them as aforesaid during such period, subject to all other adjustments called
for during such period under this Section 4 with respect to the rights of the
holders of Preferred Stock.
(l) NO IMPAIRMENT. Except as provided in Section 5 of this Article
FOURTH, the Corporation shall not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation but will at all times in good
faith assist in the carrying out of
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all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the conversion rights of the
holders of the Series A Preferred Stock against impairment.
5. PROTECTIVE PROVISIONS. Except as otherwise required by law or the
Certificate of Incorporation, so long as any shares of Series A Preferred Stock
remain 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 outstanding shares of the
Series A Preferred Stock:
(a) alter or change any of the rights, powers, preferences or
privileges of the Series A Preferred Stock; or
(b) create any new class or series of shares having rights,
preferences or privileges prior to or on a parity with the Series A Preferred
Stock; or
(c) undertake or effect (i) any merger or consolidation of the
Corporation with or into any other corporation or entity, any acquisition by the
Corporation of any other corporation or entity, or all or substantially all of
the assets of any such corporation or entity, or any acquisition by any other
corporation or entity of the Corporation, unless the stockholders of the
Corporation immediately prior to such transaction own directly or indirectly,
immediately following such transaction, as a result of their ownership of shares
of the Corporation prior to such transaction, greater than fifty percent (50%)
of the voting power attributable to the outstanding securities of the surviving
or acquiring corporation or entity; or (ii) any sale, lease, conveyance,
exchange, transfer or other disposal of all or substantially all of the
Corporation's assets (other than for the purposes of securing payment of any
contract or obligation); or (iii) any transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Corporation is disposed of; or
(d) pay any dividends, whether in cash or property, with respect to
any class of capital stock of this Corporation, other than the Series A
Preferred Stock, if the Corporation is not current in its payment of dividends
to holders of shares of Series A Preferred Stock; or
(e) repurchase or redeem any outstanding shares, except for the
repurchase of shares issued to or held by employees, officers, directors or
consultants of the Corporation or its subsidiaries upon termination of their
employment or services or pursuant to any agreement providing for such right of
repurchase entered into in connection with the original issuance of such shares;
or
(f) issue any shares of Series A Preferred Stock after the Original
Issue Date except to fulfill the conversion obligation under the Convertible
Notes issued pursuant to the Stock Purchase and Convertible Note Agreement dated
May 24, 1991; or
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(g) amend the provisions of this Section 5 or the Corporation's
Certificate of Incorporation or Bylaws.
6. NOTICES. Any notice required by the provisions of this Certificate of
Incorporation, except as specifically provided herein, to be given to the
holders of shares of Preferred Stock shall be in writing and may be delivered by
personal service or sent by telegraph or cable or sent by registered or
certified mail, return receipt requested, with postage thereon fully prepaid.
All such communications shall be addressed to each holder of record at its
address appearing on the books of the Corporation. If sent by telegraph or
cable, a confirming copy of such telegraphic or cabled notice shall promptly be
sent by mail (in the manner provided above) to the holders. Service of any such
communication made only by mail shall be deemed complete on the date of actual
delivery as shown by the addressee's registry or certification receipt.
7. NUMBER AND ELECTION OF DIRECTORS. The number of directors of the
Corporation shall be set in the Bylaws of the Corporation.
(a) the holders of the Series A Preferred Stock shall have the right,
voting as a single class, to elect the following number of directors: two (2)
directors if the number of directors is set at five (5); three (3) directors if
the number of directors is set at seven (7); four (4) directors if the number of
directors is set at nine (9).
(b) the holders of the Common Stock shall have the right, voting as a
single class, to elect the following number of directors: three (3) directors if
the number of directors is set at five (5); four (4) directors if the number of
directors is set at seven (7); five (5) directors if the number of directors is
set at nine (9).
(c) Any vacancy on the Corporation's Board of Directors shall be
filled by the holders of the voting securities entitled to elect such director
pursuant to this Section 7 of Article FOURTH.
FIFTH: The name and mailing address of the incorporator is David W.
Herbst, c/o Wise & Shepard LLP, 3030 Hansen Way, Suite 100, Palo Alto,
California 94304.
SIXTH: The Board of Directors of the corporation is expressly authorized
to make, alter, or repeal bylaws of the corporation, but the stockholders may
make additional bylaws and may alter or repeal any bylaw whether adopted by them
or otherwise.
SEVENTH: Elections of directors need not be by written ballot except and
to the extent provided by the bylaws of the corporation.
EIGHTH: The corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of Delaware, as the same may be amended and
supplemented from time to time, indemnify any and all directors and officers
which it shall have the power to indemnify under said Section 145 from and
against any and all of the expenses, liabilities, or other matters referred to
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or covered by said Section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in their official capacities and as
to action in another capacity while holding such office, and shall continue as
to a person who has ceased to be a director or officer, and shall inure to the
benefit of the heirs, executors and administrators of such a person. To the
fullest extent permitted by Delaware law, as it may be amended and supplemented
from time to time, a director of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director.
The undersigned incorporator hereby acknowledges that the foregoing
certificate of incorporation is his act and deed and that the facts stated
therein are true.
Dated: December 2, 1996
/s/ David W. Herbst
----------------------------------
David W. Herbst, Incorporator
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AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION OF
MACROVISION CORPORATION
Macrovision Corporation, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is Macrovision Corporation.
SECOND: The date on which the Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of Delaware is
December 2, 1996, under the name of Macrovision Corporation.
THIRD: That the Board of Directors of this Corporation, pursuant to
Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware, adopted resolutions amending and restating the Certificate of
Incorporation to read in full as follows:
"ARTICLE I
The name of this Corporation is Macrovision Corporation.
ARTICLE II
The address of the registered office of this Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at that address is The Corporation
Trust Company.
ARTICLE III
The purpose of this Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
A. CLASSES OF STOCK. This Corporation is authorized to issue two classes
of stock to be designated, respectively, "Preferred Stock" and "Common Stock".
The total number of shares which the Corporation is authorized to issue is
fifty-five million (55,000,000) shares. Fifty million (50,000,000) shares shall
be Common Stock, par value One Tenth of One Cent ($0.001) per share (the "Common
Stock"), and five million (5,000,000) shares shall be Preferred Stock, par value
One Tenth of One Cent ($0.001) per share (the "Preferred Stock").
B. POWERS, PREFERENCES, RIGHTS QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS OF PREFERRED STOCK. The Preferred Stock may be issued from time to
time in one or more series.
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The Board of Directors is hereby authorized to fix or alter the dividend
rights, dividend rate, conversion rights, voting rights, rights and terms of
redemption (including sinking fund provisions), the redemption price or
prices, and the liquidation preferences of any wholly unissued series of
Preferred Stock, and the number of shares constituting any such series and
the designation thereof, or any of them, and to increase or decrease the
number of shares of any series subsequent to the issue of shares of that
series, but not below the number of shares of such series then outstanding.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to
the adoption of the resolution originally fixing the number of shares of such
series.
ARTICLE V
A. EXCULPATION.
1. CALIFORNIA. Prior to the date upon which the Corporation is no
longer subject to Section 2215 of the California Corporations Code (the "Record
Date"), and to the extent California law applies, the liability of each and
every director of this Corporation for monetary damages shall be eliminated to
the fullest extent permissible under California law.
2. DELAWARE. A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived any
improper personal benefit. If the Delaware General Corporation Law is amended
after approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
B. INDEMNIFICATION.
1. CALIFORNIA Prior to the Record Date and to the extent California
law applies, this corporation is authorized to indemnify the directors and
officers of the corporation to the fullest extent permissible under California
law. Moreover, this corporation is authorized to provide indemnification of
(and advancement of expenses to) agents (as defined in Section 317 of the
California Corporation Code) through Bylaw provisions, agreements with agents,
vote of shareholders of disinterested directors or otherwise, in excess of
indemnification and advancement otherwise permitted by Section 317 of the
California Corporations Code, subject only to applicable limits set forth in
Section 204 of the California Corporations Code, with respect to actions for
breach of duty to the corporation and its shareholders.
2. DELAWARE. To the extent permitted by applicable law, this
corporation is also authorized to provide (and advancement of expenses to) such
agents (and any other persons
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to which Delaware law permits this corporation to provide indemnification)
through Bylaw provisions, agreements with such agents or other person, vote
of stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the
Delaware General Corporation Law, subject only to limits created by
applicable Delaware law (statutory or nonstatutory), with respect to actions
for breach of duty to the corporation, its stockholders, and others.
C. EFFECT OF REPEAL OR MODIFICATION. Any repeal or modification of the
foregoing paragraph by the stockholders of the Corporation shall be prospective
only and shall not adversely affect any right or protection of a director,
officer, agent or other person existing at the time of, or increase the
liability of any director of the corporation with respect to any acts or
omissions of such director occurring prior to the time of such repeal or
modification.
ARTICLE VI
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Restated Certificate of Incorporation, in the manner
now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ARTICLE VII
The Board of Directors may from time to time make, amend, supplement or
repeal the Bylaws; provided, however, that the stockholders may change or repeal
any Bylaw adopted by the Board of Directors; provided, however, that Bylaws
shall not be adopted, changed or repealed by the stockholders of the corporation
except by the vote of the holders of not less than eighty percent (80%) of the
outstanding shares of stock entitled to vote upon the election of directors.
ARTICLE VIII
No action shall be taken by the stockholders of the corporation except at
an annual or special meeting of stockholders called in accordance with the
Bylaws, and no action shall be taken by the stockholders by written consent.
ARTICLE IX
Notwithstanding any other provision of this Certificate of Incorporation
or the Bylaws of the corporation, the affirmative vote of the holders of at
least eighty percent (80%) of the outstanding shares of capital stock of the
corporation entitled to vote generally in the election of directors shall be
required to add an article to this Certificate of Incorporation imposing
cumulative voting in the election of directors, or to amend, alter or repeal
any provision of Articles III, IV, V, VI, VII, VIII or IX of this Certificate
of Incorporation.
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ARTICLE X
In addition to any affirmative vote required by law, any business combination
(as hereinafter defined) shall require the affirmative vote of the holders of
at least eighty percent (80%) of the outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors.
Such affirmative vote shall be required notwithstanding the fact that no vote
may be required, or that some lesser percentage may be specified by law. The
"business combination" as used in this Article shall mean any transaction
which is referred to in any one or more of the following clauses (A) through
(C):
(A) any merger or consolidation of the Corporation in which the
Corporation is not the surviving entity, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of related transactions) of all or
substantially all of the assets of the Corporation, or
(C) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation."
FOURTH: That thereafter, pursuant to resolution of the Board of Directors,
the Amended and Restated Certificate of Incorporation, as so amended, was
submitted to the stockholders for their approval, which approval was given by
written consent of a majority of the stockholders pursuant to Section 228 of the
General Corporation Law of the State of Delaware.
FIFTH: That prompt written notice was duly given pursuant to Section 228
of the General Corporation Law of the State of Delaware to those stockholders
who did not approve the Amended and Restated Certificate of Incorporation by
written consent.
SIXTH: That said Amended and Restated Certificate of Incorporation was
duly adopted in accordance with the provisions of Sections 242 and 245 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Macrovision corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by its President and attested
to by its Secretary this _______ day of ____________, 1996.
MACROVISION CORPORATION
________________________
President
ATTEST:
____________________
Secretary
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Exhibit 3.03
BYLAWS OF
MACROVISION CORPORATION
On December 2, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I - Offices
Section 1 Registered Office . . . . . . . . . . . . . . . . . . . .1
Section 2 Other Offices . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II - Meetings of Shareholders
Section 1 Place of Meetings . . . . . . . . . . . . . . . . . . . .1
Section 2 Annual Meetings of Shareholders . . . . . . . . . . . . .1
Section 3 Special Meetings. . . . . . . . . . . . . . . . . . . . .1
Section 4 Notice of Shareholders' Meetings. . . . . . . . . . . . .2
Section 5 Manner of Giving Notice; Affidavit of Notice. . . . . . .2
Section 6 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 7 Adjourned Meeting and Notice Thereof. . . . . . . . . . .3
Section 8 Voting. . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 9 Waiver of Notice or Consent by Absent Shareholders. . . .3
Section 10 Shareholder Action by Written Consent Without a Meeting .4
Section 11 Record Date for Shareholder Notice, Voting, and Giving
Consents. . . . . . . . . . . . . . . . . . . . . . . .5
Section 12 Proxies . . . . . . . . . . . . . . . . . . . . . . . . .5
Section 13 Inspectors of Election. . . . . . . . . . . . . . . . . .5
Section 14 List of Shareholders Entitled to Vote . . . . . . . . . .6
ARTICLE III - Directors
Section 1 Powers. . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 2 Number of Directors . . . . . . . . . . . . . . . . . . .7
Section 3 Election and Term of Office of Directors. . . . . . . . .7
Section 4 Vacancies . . . . . . . . . . . . . . . . . . . . . . . .8
Section 5 Place of Meetings and Telephonic Meetings . . . . . . . .8
Section 6 Annual Meetings . . . . . . . . . . . . . . . . . . . . .8
Section 7 Other Regular Meetings. . . . . . . . . . . . . . . . . .9
Section 8 Special Meetings. . . . . . . . . . . . . . . . . . . . .9
Section 9 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 10 Waiver of Notice. . . . . . . . . . . . . . . . . . . . .9
Section 11 Adjournment . . . . . . . . . . . . . . . . . . . . . . 10
Section 12 Notice of Adjournment . . . . . . . . . . . . . . . . . 10
Section 13 Action Without Meeting. . . . . . . . . . . . . . . . . 10
Section 14 Fees and Compensation of Directors. . . . . . . . . . . 10
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ARTICLE IV - Committees
Section 1 Committees of Directors . . . . . . . . . . . . . . . . 10
Section 2 Meetings and Action of Committees . . . . . . . . . . . 11
ARTICLE V - Officers
Section 1 Officers. . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2 Election of Officers. . . . . . . . . . . . . . . . . . 11
Section 3 Subordinate Officers, Etc.. . . . . . . . . . . . . . . 11
Section 4 Removal and Resignation of Officers . . . . . . . . . . 12
Section 5 Vacancies in Offices. . . . . . . . . . . . . . . . . . 12
Section 6 Chairman of the Board . . . . . . . . . . . . . . . . . 12
Section 7 President . . . . . . . . . . . . . . . . . . . . . . . 12
Section 8 Vice Presidents . . . . . . . . . . . . . . . . . . . . 12
Section 9 Secretary . . . . . . . . . . . . . . . . . . . . . . . 12
Section 10 Chief Financial Officer . . . . . . . . . . . . . . . . 13
ARTICLE VI - Indemnification of Directors, Officers, Employees and
Other Agents . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VII - Records and Reports
Section 1 Maintenance and Inspection of Share Register. . . . . . 14
Section 2 Maintenance and Inspection of Bylaws. . . . . . . . . . 14
Section 3 Maintenance and Inspection of Other Corporate Records . 14
Section 4 Inspection by Directors . . . . . . . . . . . . . . . . 15
Section 5 Annual Report to Shareholders . . . . . . . . . . . . . 15
ARTICLE VIII - General Corporate Matters
Section 1 Record Date for Purposes Other Than Notice and Voting . 15
Section 2 Checks, Drafts, Evidences of Indebtedness . . . . . . . 15
Section 3 Corporate Contracts and Instruments; How Executed . . . 16
Section 4 Certificates for Shares . . . . . . . . . . . . . . . . 16
Section 5 Lost Certificates . . . . . . . . . . . . . . . . . . . 16
Section 6 Representation of Shares of Other Corporations. . . . . 16
Section 7 Construction and Definitions. . . . . . . . . . . . . . 16
ARTICLE IX - Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . 16
CERTIFICATE OF INCORPORATOR. . . . . . . . . . . . . . . . . . . . . . . . 17
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BYLAWS
OF
MACROVISION CORPORATION
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The board of directors shall fix the
location of the registered office of the corporation at any place within the
State of Delaware.
SECTION 2. OTHER OFFICES. The board of directors may at any time
establish the principal executive or branch or subordinate offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at
any place within or outside the State of Delaware designated by the board of
directors. In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the corporation.
SECTION 2. ANNUAL MEETINGS OF SHAREHOLDERS. The annual meeting of
shareholders shall be held each year on a date and at a time designated by the
board of directors. At each annual meeting directors shall be elected, and any
other proper business may be transacted.
SECTION 3. SPECIAL MEETINGS. A special meeting of the shareholders may be
called at any time by the board of directors, or by the chairman of the board,
or by the president, or by one or more shareholders holding shares in the
aggregate entitled to cast not less than 10% of the votes at any such meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, any
vice president or the secretary of the corporation. The officer receiving such
request forthwith shall cause notice to be given to the shareholders entitled to
vote, in accordance with the provisions of Sections 4 and 5 of this Article II,
that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, the person or persons requesting the
meeting may give the notice. Nothing contained in this paragraph of this
Section 3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
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SECTION 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting being noticed. The notice shall specify the place, date and
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 the shareholders. The notice of any meeting at
which directors are to be elected shall include the name of any nominee or
nominees which, at the time of the notice, management intends to present for
election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 144 of the General Corporation Law of Delaware,
(ii) an amendment of the certificate of incorporation, pursuant to Section 242
of such Law, (iii) a reorganization of the corporation, pursuant to Section 251
of such Law, or (iv) a voluntary dissolution of the corporation, pursuant to
Section 275 of such Law, the notice shall also state the general nature of such
proposal.
SECTION 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of shareholders shall be given either personally or by first-class mail
or telegraphic or other written communication, charges prepaid, addressed to the
shareholder at the address of such shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice. If no such address appears on the corporation's books or has been so
given, notice shall be deemed to have been given if sent by first-class mail or
telegraphic or other written communication to the corporation's principal
executive office, or if published at least once in a newspaper of general
circulation in the county where such office is located. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by telegram or other means of written communication.
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 by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at such address, all
future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the shareholder upon 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 such notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the secretary, assistant secretary or
any transfer agent of the corporation giving such notice, and shall be filed and
maintained in the minute book of the corporation.
SECTION 6. QUORUM. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting of shareholders shall
constitute a quorum for the transaction of business. 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
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shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
SECTION 7. ADJOURNED MEETING AND NOTICE THEREOF. 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 such
meeting, either in person or by proxy, but in the absence of a quorum, no other
business may be transacted at such meeting, except as provided in Section 6 of
this Article II.
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 thereof are announced at a meeting at which the adjournment is
taken, unless a new record date for the adjourned meeting is fixed, or unless
the adjournment is for more than thirty (30) days from the date set for the
original meeting, in which case the board of directors shall set a new record
date. Notice of any such adjourned meeting, if required, shall be given to each
shareholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of Sections 4 and 5 of this Article II. At any adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting.
SECTION 8. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section 11
of this Article II, subject to the provisions of Section 217 of the General
Corporation Law of Delaware (relating to voting shares held by a fiduciary or in
joint ownership). Such vote may be by voice vote, copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission,
or by ballot; provided, however, that all elections for directors must be by
ballot upon demand by a shareholder at any election and before the voting
begins. Any shareholder entitled to vote on any matter (other than the election
of directors) 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 such shareholder is voting
affirmatively, it will be conclusively presumed that the shareholder's approving
vote is with respect to all shares such 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 the General Corporation Law
of Delaware or the certificate of incorporation.
SECTION 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transactions of any meeting of shareholders, either annual or special, 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 person
entitled to vote, not present in person or by proxy, signs a written waiver of
notice or a consent to a holding of the meeting, or an approval of the minutes
thereof. The waiver of notice or consent need not specify either the business
to be transacted or the purpose of any annual or special meeting of
shareholders, except that if action is taken or proposed to be taken for
approval of any of those matters specified in the second paragraph of Section 4
of this Article II, the waiver of notice or
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consent shall state the general nature of such proposal. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Attendance of a person at a meeting shall also constitute a waiver of
notice of such 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 the meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if such objection is expressly made at the meeting.
SECTION 10. SHAREHOLDER ACTION BY WRITTEN CONSENT 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 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 not filled by the
directors by the written consent of the holders of a majority of the outstanding
shares entitled to vote for the election of directors. All such consents shall
be filed with the secretary of the corporation and shall be maintained in the
corporate records. 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 holder, may revoke
the consent by a writing received by the secretary of 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.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the secretary shall give prompt
notice of the corporate action approved by the shareholders without a meeting.
Such notice shall be given in the manner specified in Section 5 of this
Article II. In the case of approval of (i) contracts or transactions in which a
director has a direct or indirect financial interest, pursuant to Section 144 of
the General Corporation Law of Delaware, (ii) indemnification of agents of the
corporation, pursuant to Section 145 of such Law, or (iii) a reorganization of
the corporation, pursuant to Section 251 of such Law, such notice shall be given
at least ten (10) days before the consummation of any such action authorized by
any such approval.
SECTION 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING
CONSENTS. For purposes of determining the shareholders entitled to notice of
any meeting or to vote or entitled to give consent to corporate action without a
meeting, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) days nor less than ten (10) days prior to the date
of any such meeting nor more than sixty (60) days prior to such action without a
meeting, and in such case only shareholders of record on the date so fixed are
entitled to notice and to vote or to give consents, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date fixed as aforesaid, except as otherwise provided in the General
Corporation Law of Delaware.
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If the board of directors does not so fix a record date:
(a) 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.
(b) The record date for determining shareholders entitled to give consent
to corporate action in writing without a meeting, (i) when no prior action by
the board has been taken, shall be the day on which the first written consent is
given, or (ii) when prior action of the board has been taken, shall be at the
close of business on the day on which the board adopts the resolution relating
thereto, or the sixtieth (60th) day prior to the date of such corporate action,
whichever is later.
SECTION 12. PROXIES. Every person entitled to vote for directors or on
any other matter 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, prior to the vote pursuant thereto, by a
writing delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of such proxy is received by the corporation before the
vote pursuant thereto is counted; provided, however, that no such proxy shall be
valid after the expiration of three (3) years from the date of such proxy,
unless otherwise provided in the proxy. The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of
Sections 212(c) and 218 of the General Corporation Law of Delaware.
SECTION 13. INSPECTORS OF ELECTION. Before any meeting of shareholders,
the board of directors may appoint any 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 such vacancy.
The duties of these inspectors shall be as follows:
(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;
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(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.
SECTION 14. LIST OF SHAREHOLDERS ENTITLED TO VOTE. The officer who has
charge of the stock ledger of the corporation shall prepare and make, at least
ten (10) days before every meeting of shareholders, a complete list of the
shareholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each shareholder and the number of shares registered
in the name of each shareholder. Such list shall be open to the examination of
any shareholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any shareholder who is present.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Subject to the provisions of the Delaware General
Corporation Law and any limitations in the certificate of incorporation and
these bylaws relating to action required to be approved by the shareholders or
by the outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
the board of directors.
Without prejudice to such general powers, but subject to the same
limitations, it is hereby expressly declared that the directors shall have the
power and authority to:
(a) Select and remove all officers, agents, and employees of the
corporation, prescribe such powers and duties for them as may not be
inconsistent with law, the certificate of incorporation or these bylaws, fix
their compensation, and require from them security for faithful service.
(b) Change the principal registered office in the State of Delaware or the
principal executive office from one location to another; cause the corporation
to be qualified to do business in any other state, territory, dependency, or
foreign country and conduct business within or outside the State of Delaware;
designate any place within or without the state for the holding of any
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shareholders' meeting or meetings, including annual meetings; adopt, make and
use a corporate seal, and prescribe the forms of certificates of stock, and
alter the form of such seal and of such certificates from time to time as in
their judgment they may deem best, provided that such forms shall at all times
comply with the provisions of law.
(c) Authorize the issuance of shares of stock of the corporation from time
to time, upon such terms as may be lawful, in consideration of money paid, labor
done or services actually rendered, debts or securities cancelled or tangible or
intangible property actually received.
(d) Borrow money and incur indebtedness for the purposes of the
corporation, and cause to be executed and delivered therefor, in the corporate
name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges,
hypothecations, or other evidences of debt and securities therefor.
SECTION 2. NUMBER OF DIRECTORS. The number of directors of the
corporation shall be not less than three (3) nor more than five (5).
SECTION 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be
elected at each annual meeting of the shareholders by a plurality of the shares
represented in person or by proxy at each annual meeting of shareholders, to
hold office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected or until his earlier death, resignation or removal.
SECTION 4. VACANCIES. Vacancies in the board of directors may be filled
by a majority of the remaining directors, though less than a quorum, or by a
sole remaining director, except that a vacancy created by the removal of a
director by the vote or written consent of the shareholders or by court order
may be filled only by the vote of a majority of the shares entitled to vote
represented at a duly held meeting at which a quorum is present, or by the
written consent of holders of a majority of the outstanding shares entitled to
vote. Each director so elected shall hold office until the next annual meeting
of the shareholders and until a successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to exist
in the case 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 be increased, or if the shareholders
fail, at any meeting of shareholders at which any director or directors are
elected, to elect the full authorized number of directors to be voted for at
that meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any director may resign upon giving written notice to the chairman or the
board, the president, the secretary or the board of directors. A resignation
shall be effective upon the giving of the notice, unless the notice specifies a
later time for its effectiveness. If the resignation of a director
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is effective at a future time, the board of directors may elect a successor to
take office when the resignation becomes effective.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of his term of office.
SECTION 5. PLACE OF MEETINGS AND TELEPHONIC MEETINGS. Regular meetings of
the board of directors may be held at any place within or without the State that
has been designated from time to time by resolution of the board. In the
absence of such designation, regular meetings shall be held at the principal
executive office of the corporation. Special meetings of the board shall be
held at any place within or without the State that has been designated in the
notice of the meeting or, if not stated in the notice or if there is no notice,
at the principal executive office of the corporation. Any meeting, regular or
special, may be held by conference telephone or similar communication equipment,
so long as all directors participating in such meeting can hear one another, and
all such directors shall be deemed to be present in person at such meeting.
SECTION 6. ANNUAL MEETINGS. Immediately following each annual meeting of
shareholders, the board of directors shall hold a regular meeting for the
purpose of organization, any desired election of officers and the transaction of
other business. Notice of this meeting shall not be required.
SECTION 7. OTHER REGULAR MEETINGS. Other regular meetings of the board of
directors shall be held without call at such time as shall from time to time be
fixed by the board of directors. Such regular meetings may be held without
notice.
SECTION 8. SPECIAL MEETINGS. Special meetings of the board of directors
for any purpose or purposes may be called at any time by the chairman of the
board or the president or any vice president or secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at his or her address as
it is shown upon the records of the corporation. In case such notice is mailed,
it shall be deposited in the United States mail at least four (4) days prior to
the time of the holding of the meeting. In case such notice is delivered
personally, or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours prior to
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated to either the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose of the meeting nor the place if the meeting is to be held at the
principal executive office of the corporation.
SECTION 9. QUORUM. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to adjourn as
hereinafter provided. Every act or decision done or made 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, subject to the provisions of
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Section 144 of the General Corporation Law of Delaware (approval of contracts or
transactions in which a director has a direct or indirect material financial
interest), Section 141(c) (appointment of committees), and Section 145
(indemnification of directors). 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 such meeting.
SECTION 10. WAIVER OF NOTICE. The transactions of any meeting of the
board of directors, however called and noticed or 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, a consent to holding the
meeting or an approval of the minutes thereof. The waiver of notice or consent
need not specify the purpose of the meeting. All such waivers, consents and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Notice of a meeting shall also be deemed given to any
director who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director.
SECTION 11. ADJOURNMENT. A majority of the directors present, whether or
not constituting a quorum, may adjourn any meeting to another time and place.
SECTION 12. NOTICE OF ADJOURNMENT. 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 (24) hours, in which case notice of such time and
place shall be given prior to the time of the adjourned meeting, in the manner
specified in Section 8 of this Article III, to the directors who were not
present at the time of the adjournment.
SECTION 13. 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 shall individually or collectively consent in writing to
such action. Such action by written consent shall have the same force and
effect as a unanimous vote of the board of directors. Such written consent or
consents shall be filed with the minutes of the proceedings of the board.
SECTION 14. FEES AND COMPENSATION OF DIRECTORS. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement of expenses, as may be fixed or determined by resolution of the
board of directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for such services.
ARTICLE IV
COMMITTEES
SECTION 1. 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 one 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
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any meeting of the committee. Any such 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 Delaware, 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 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 determined by the board
of directors; or
(g) the appointment of any other committees of the board of directors
or members thereof.
SECTION 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, Section 5 (place of meetings),
7 (regular meetings), 8 (special meetings and notice), 9 (quorum), 10 (waiver of
notice), 11 (adjournment), 12 (notice of adjournment) and 13 (action without
meeting), 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 by resolution of the board of directors as well as 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.
ARTICLE V
OFFICERS
SECTION 1. OFFICERS. The officers of the corporation shall be a
president, a secretary and chief financial officer. The corporation may also
have, at the discretion of the board of directors, a chairman of the board, one
or more vice presidents, one or more assistant secretaries, one or more
assistant treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 3 of this Article V. Any number of offices may
be held by the same person.
SECTION 2. ELECTION OF OFFICERS. The officers of the corporation, except
such officers as may be appointed in accordance with the provisions of Section 3
of this Article V, shall be
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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 3. SUBORDINATE OFFICERS, ETC. The board of directors may appoint,
and may empower the president to appoint, such other officers as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in the bylaws or as
the board of directors may from time to time determine.
SECTION 4. REMOVAL AND RESIGNATION OF OFFICERS. 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, at any regular or
special meeting thereof, or, except in case of an officer chosen by the board of
directors, by any officer upon whom such power of removal may be conferred by
the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any such resignation shall take effect at the date of the 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 such resignation is without prejudice to the rights, if
any, of the corporation under any contract to which the officer is a party.
SECTION 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these bylaws for regular appointments to such
office.
SECTION 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such an
officer be elected, shall, if present, preside at all meetings of the board of
directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the board of directors or prescribed by the
bylaws. If there is no president, the chairman of the board shall in addition
be the chief executive officer of the corporation and shall have the powers and
duties prescribed in Section 7 of this Article V.
SECTION 7. PRESIDENT. Subject to such supervisory powers, if any, as may
be given by the board of directors to the chairman of the board, if there be
such an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction and control of the business and the officers of
the corporation. He shall preside at all meetings of the shareholders and, in
the absence of the chairman of the board, or if there be none, at all meetings
of the board of directors. He shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the board of directors
or the bylaws.
SECTION 8. VICE PRESIDENTS. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by the
board of directors or, if not ranked, a vice president designated by the board
of directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may
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be prescribed for them respectively by the board of directors or the bylaws, the
president or the chairman of the board if there is no president.
SECTION 9. SECRETARY. The secretary shall keep or cause to be kept, at
the principal executive office or such other place as the board of directors may
order, a book of minutes of all meetings and actions of directors, committees of
directors and shareholders, with the time and place of holding, whether regular
or special, and, if special, how authorized, the notice thereof given, the names
of those present at directors' and committee meetings, the number of shares
present or represented at shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent or registrar, as
determined by resolution of the board of directors, a share register, or a
duplicate share register, showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same, and the number and date of cancellation of
every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required by the bylaws or by law
to be given, and he shall keep the seal of the corporation, if one be adopted,
in a safe custody, and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by the bylaws.
SECTION 10. CHIEF FINANCIAL OFFICER. The chief financial officer 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 books
of account shall be open at all reasonable times to inspection by any director.
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. He 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 of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have other powers and perform such other duties as may be
prescribed by the board of directors or the bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
The corporation shall, to the maximum extent permitted by applicable law,
have power to indemnify each of its agents against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding arising by reason of the fact that any such person is or was
an agent of the corporation and shall likewise have power to advance to each
such agent expenses incurred in defending any such proceeding to the maximum
extent permitted by such law. For purposes of this Article VI, an "agent" of
the corporation includes any person who is or was a director, officer, employee
or other agent of the corporation, or is or was
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serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or was a director, officer, employee or agent of a corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
ARTICLE VII
RECORDS AND REPORTS
SECTION 1. MAINTENANCE AND INSPECTION 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.
Any shareholder or shareholders of the corporation may (i) inspect and copy
the records of shareholders' names and addresses and shareholdings during usual
business hours upon five days' prior written demand upon the corporation, and/or
(ii) obtain from the transfer agent of the corporation, upon written demand
under oath and upon the tender of such transfer agent's usual charges for such
list, a list of the shareholders' names and addresses, who are entitled to vote
for the election of directors, and their shareholdings, as of the most recent
record date for which such list has been compiled or as of the date specified by
the shareholder subsequent to the date of demand. Such list shall be made
available to such shareholder or shareholders by the transfer agent on or before
the later of five (5) days after the demand is received or the date specified
therein as the date as of which the list is to be compiled. The record of
shareholders shall also be open to inspection upon the written demand of any
shareholder or holder of a voting trust certificate, at any time during usual
business hours, for a purpose reasonably related to such holder's interests as a
shareholder or as the holder of a voting trust certificate. Any inspection and
copying under this Section 1 may be made in person or by an agent or attorney of
the shareholder or holder of a voting trust certificate making such demand.
SECTION 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall
keep at its principal executive office, or at its principal business office in
this State, the original or a copy of the bylaws as amended to date, which shall
be open to inspection by the shareholders at all reasonable times during office
hours. If the principal executive office of the corporation is outside this
State and the corporation has no principal business office in this State, the
Secretary shall, upon the written request of any shareholder, furnish to such
shareholder a copy of the bylaws as amended to date.
SECTION 3. MAINTENANCE AND INSPECTION 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. Such minutes and accounting books and
records shall be open to
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inspection upon the written demand under oath of any shareholder or holder of a
voting trust certificate, at any reasonable time during usual business hours,
for a purpose reasonably related to such holder's interests as a shareholder or
as the holder of a voting trust certificate. Such inspection may be made in
person or by an agent or attorney, and shall include the right to copy and make
extracts. The foregoing rights of inspection shall extend to the records of
each subsidiary corporation of the corporation.
SECTION 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. Such inspection by a director may be made in
person or by agent or attorney and the right of inspection includes the right to
copy and make extracts.
SECTION 5. ANNUAL REPORT TO SHAREHOLDERS. Unless otherwise expressly
required by the General Corporation Law of Delaware or any other state, any
rights to annual reports to shareholders is hereby expressly waived and
dispensed with; provided, that nothing herein set forth shall be construed to
prohibit or restrict the right of the board to issue such annual or other
periodic reports to the shareholders of the corporation as they may from time to
time consider appropriate.
ARTICLE VIII
GENERAL CORPORATE MATTERS
SECTION 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For
purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action, (other than action by
shareholders by written consent without a meeting) the board of directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
prior to any such action, and in such case only shareholders of record on the
date so fixed are entitled 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 the record date
fixed as aforesaid, except as otherwise provided in the Delaware General
Corporation Law.
If the board of directors does not so fix a record date, the record date
for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the resolution relating thereto,
or the sixtieth (60th) day prior to the date of such action, whichever is later.
SECTION 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts
or other orders for payment of money, notes or other evidences of indebtedness,
issued in the name of or payable to the corporation, shall be signed or endorsed
by such person or persons and in such manner as, from time to time, shall be
determined by resolution of the board of directors.
SECTION 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board
of directors, except as otherwise provided in these bylaws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on
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behalf of the corporation, and such authority may be general or confined to
specific instances; and, unless so authorized or ratified by the board of
directors or within the agency power of an officer, no officer, agent or
employee shall have any power or authority to bind the corporation by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or to any amount.
SECTION 4. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of the capital stock of the corporation shall be issued to each
shareholder when any such shares are fully paid, and the board of directors may
authorize the issuance of certificates or shares as partly paid provided that
such certificates shall state the amount of the consideration to be paid
therefor and the amount paid thereon. All certificates shall be signed in the
name of the corporation by the chairman of the board or vice chairman of the
board or the president or vice president and by the chief financial officer or
an assistant treasurer or the secretary or any assistant secretary, certifying
the number of shares and the class or series of shares owned by the shareholder.
Any or all of the signatures on the certificates may be facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is 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 5. LOST CERTIFICATES. Except as hereinafter in this Section 5
provided, no new certificates for shares shall be issued in lieu of an old
certificate unless the latter is surrendered to the corporation and cancelled at
the same time. The board of directors may in case any share certificate or
certificate for any other security is lost, stolen or destroyed, authorize the
issuance of a new certificate in lieu thereof, upon such terms and conditions as
the board may require, including provisions for indemnification of the
corporation secured by a bond or other adequate security sufficient to protect
the corporation against any claim that may be made against it, including any
expense or liability, on account of the alleged loss, theft or destruction of
such certificate or the issuance of such new certificate.
SECTION 6. 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 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 herein granted to said
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 such officer in person or by any person authorized to do so by
proxy duly executed by said officer.
SECTION 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
Delaware General Corporation Law shall govern the construction of the bylaws.
Without limiting the generality of the foregoing, the singular number includes
the plural, the plural number includes the singular, and the term "person"
includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
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The Board of Directors may from time to time make, amend, supplement or
repeal these bylaws; provided, however, that the stockholders may change or
repeal any bylaw adopted by the Board of Directors; and provided, further, that
no amendment or supplement to these bylaws adopted by the Board of Directors
shall vary or conflict with any amendment or supplement adopted by the
stockholders.
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CERTIFICATE OF INCORPORATOR
The undersigned hereby certifies that he is the Incorporator of Macrovision
Corporation, a Delaware corporation (the "Corporation") and that the attached
Bylaws of the Corporation were duly adopted and are in full force and effect as
of the date hereof.
Date: December 2, 1996 /s/ David W. Herbst
---------------------------------------
David W. Herbst
Incorporator
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AMENDED AND RESTATED
BYLAWS
OF
MACROVISION CORPORATION
<PAGE>
AMENDED AND RESTATED BYLAWS OF
MACROVISION CORPORATION
TABLE OF CONTENTS
PAGE
------
ARTICLE I - OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Principal Office. . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - MEETINGS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . 1
2.01 Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . 1
2.02 Annual Meetings of Stockholders . . . . . . . . . . . . . . . . 1
2.03 Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . 3
2.04 Notice of Stockholders' Meetings. . . . . . . . . . . . . . . . 3
2.05 Manner of Giving Notice;
Affidavit of Notice. . . . . . . . . . . . . . . . . . . . . . 4
2.06 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.07 Adjourned Meeting and Notice Thereof. . . . . . . . . . . . . . 4
2.08 Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.09 Waiver of Notice or Consent by
Absent Stockholders. . . . . . . . . . . . . . . . . . . . . . 5
2.10 Stockholder Action by Written
Consent Without a Meeting. . . . . . . . . . . . . . . . . . . 6
2.11 Record Date for Stockholder Notice, Voting
and Giving Consents. . . . . . . . . . . . . . . . . . . . . . 6
2.12 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.13 Inspectors of Election. . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III - DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.01 Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.02 Number and Qualification of Directors . . . . . . . . . . . . . 8
3.03 Election and Term of Office of Directors. . . . . . . . . . . . 8
3.04 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.05 Place of Meetings and Telephonic Meetings . . . . . . . . . . . 9
3.06 Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . 9
3.07 Other Regular Meetings. . . . . . . . . . . . . . . . . . . . . 9
3.08 Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . 10
3.09 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.10 Waiver of Notice. . . . . . . . . . . . . . . . . . . . . . . . 10
3.11 Adjournment . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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3.12 Notice of Adjournment . . . . . . . . . . . . . . . . . . . . . 11
3.13 Action Without Meeting. . . . . . . . . . . . . . . . . . . . . 11
3.14 Fees and Compensation of Directors. . . . . . . . . . . . . . . 11
ARTICLE IV - COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.01 Committees of Directors . . . . . . . . . . . . . . . . . . . . 11
4.02 Meetings and Action of Committees . . . . . . . . . . . . . . . 12
ARTICLE V - OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.01 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.02 Election of Officers. . . . . . . . . . . . . . . . . . . . . . 12
5.03 Subordinate Officers, Etc.. . . . . . . . . . . . . . . . . . . 12
5.04 Removal and Resignation of Officers . . . . . . . . . . . . . . 13
5.05 Vacancies in Offices. . . . . . . . . . . . . . . . . . . . . . 13
5.06 Chairman of the Board . . . . . . . . . . . . . . . . . . . . . 13
5.07 President . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.08 Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . 13
5.09 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.10 Chief Financial Officer . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS . . . . . . . . . . . . . . . . . 14
6.01 Agents, Proceedings and Expenses. . . . . . . . . . . . . . . . 14
6.02 Actions Other Than by the Corporation . . . . . . . . . . . . . 15
6.03 Actions by the Corporation. . . . . . . . . . . . . . . . . . . 15
6.04 Successful Defense by Agent . . . . . . . . . . . . . . . . . . 16
6.05 Required Approval . . . . . . . . . . . . . . . . . . . . . . . 17
6.06 Advance of Expenses . . . . . . . . . . . . . . . . . . . . . . 17
6.07 Other Contractual Rights. . . . . . . . . . . . . . . . . . . . 18
6.08 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.09 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.10 Fiduciaries of Corporate Employee Benefit Plans . . . . . . . . 18
6.11 Other Indemnification . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VII - RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . 19
7.01 Maintenance and Inspection of
Share Register . . . . . . . . . . . . . . . . . . . . . . . . 19
7.02 Maintenance and Inspection of Bylaws. . . . . . . . . . . . . . 19
7.03 Maintenance and Inspection of
Other Corporate Records. . . . . . . . . . . . . . . . . . . . 20
7.04 Inspection by Directors . . . . . . . . . . . . . . . . . . . . 20
7.05 Annual Report to Stockholders . . . . . . . . . . . . . . . . . 20
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ARTICLE VIII - GENERAL CORPORATE MATTERS. . . . . . . . . . . . . . . . . 20
8.01 Record Date for Purposes Other
Than Notice and Voting . . . . . . . . . . . . . . . . . . . . 20
8.02 Checks, Drafts, Evidences of
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.03 Corporate Contracts and
Instruments; How Executed. . . . . . . . . . . . . . . . . . . 21
8.04 Certificates for Shares . . . . . . . . . . . . . . . . . . . . 21
8.05 Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . 21
8.06 Representation of Shares of
Other Corporations . . . . . . . . . . . . . . . . . . . . . . 22
8.07 Construction and Definitions. . . . . . . . . . . . . . . . . . 22
ARTICLE IX - AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 22
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AMENDED AND RESTATED
BYLAWS
OF
MACROVISION CORPORATION
ARTICLE I
OFFICES
1.01 PRINCIPAL OFFICE. The Board of Directors shall fix the location of
the principal executive office of the corporation at any place within or
outside the State of Delaware.
1.02 OTHER OFFICES. The Board of Directors may at any time establish
branch or subordinate offices at any place or places where the corporation is
qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.01 PLACE OF MEETINGS. Meetings of stockholders shall be held at any
place within or outside the State of Delaware designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings
shall be held at the principal executive office of the corporation.
2.02 ANNUAL MEETINGS OF STOCKHOLDERS. The annual meeting of stockholders
shall be held each year on a date and at a time designated by the Board of
Directors. At each annual meeting directors shall be elected, and any other
proper business may be transacted.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, a stockholder's notice must be delivered
to or mailed and received at the principal executive offices of the
corporation not less than one hundred twenty (120) calendar days in advance
of the date specified in the corporation's proxy statement release to
stockholders in connection with the previous year's annual meeting of
stockholders; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been
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changed by more than thirty (30) days from the date contemplated at the time
of the previous year's proxy statement, notice by the stockholder to be
timely must be so received a reasonable time before the solicitation is made.
A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (ii) the
name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (iii) the class and number of shares of
the corporation which are beneficially owned by the stockholder, (iv) any
material interest of the stockholder in such business and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), in his capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect
to a stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph. The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the
meeting and in accordance with the provisions of this paragraph, and, if he
or she should so determine, he or she shall so declare at the meeting that
any such business not properly brought before the meeting shall not be
transacted.
Only persons who are nominated in accordance with the procedures set forth
in this paragraph shall be eligible for election as Directors. Nominations
of persons for election to the Board of Directors of the corporation may be
made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of Directors at the meeting who complies with the notice procedures
set forth in this paragraph. Such nominations, other than those made by or
at the direction of the Board of Directors, shall be made pursuant to timely
notice in writing to the Secretary of the corporation in accordance with the
provisions of the second paragraph of this Section. Timely notice shall also
be given of any stockholder's intention to cumulate votes in the election of
Directors at a meeting if cumulative voting is available. Such stockholder's
notice shall set forth (i) as to each persons, if any, whom the stockholder
proposes to nominate for election or re-election as a Director: (A) the
name, age, business address and residence address of such person, (B) the
principal occupation or employment of such person, (C) the class and number
of shares of the corporation which are beneficially owned by such person, if
any, (D) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nominations are to be made by the
stockholder, and (E) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of
Directors, or is otherwise required, in each case pursuant to Regulation 14A
under the 1934 Act (including without limitation such person's written
consent to being named in the proxy statement, if any, as a nominee and to
serving as a Director if elected); and (ii) as to such stockholder giving
notice, the information required to be provided pursuant to the second
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paragraph of this Section and, if cumulative voting is available to such
stockholder, whether such stockholder intends to request cumulative voting in
the election of Directors at the meeting. At the request of the Board of
Directors, any person nominated by a stockholder for election as a Director
shall furnish to the Secretary of the corporation that information required
to be set forth in the stockholder's notice of nomination which pertains to
the nominee. No person shall be eligible for election as a Director of the
corporation unless nominated in accordance with the procedures set forth in
this paragraph. The chairman of the meeting shall, if the facts warrant,
determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he or she
should so determine, he or she shall so declare at the meeting, and the
defective nomination shall be disregarded.
2.03 SPECIAL MEETINGS. A special meeting of the stockholders may be
called at any time by the Board of Directors, or by the Chairman of the
Board, or by the President, or by one or more stockholders holding shares in
the aggregate entitled to cast not less than twenty percent (20%) of the
entire capital stock of the corporation issued and outstanding and entitled
to vote.
If a special meeting is called by any person or persons other than
the Board of Directors, the request shall be in writing, specifying the time
of such meeting and the nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board, the President, any
Vice President or the Secretary of the corporation. The officer receiving
such request forthwith shall cause notice to be given to the stockholders
entitled to vote, in accordance with the provisions of Sections 2.04 and
2.05, that a meeting will be held at the time requested by the person or
persons calling the meeting, not less than thirty-five (35) nor more than
sixty (60) days after the receipt of the request. If the notice is not given
within twenty (20) days after receipt of the request, the person or persons
requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 2.03 shall be construed as limiting, fixing or
affecting the time when a meeting of stockholders called by action of the
Board of Directors may be held. Business transacted at any special meeting
of stockholders shall be limited to the purposes stated in the notice.
2.04 NOTICE OF STOCKHOLDERS' MEETINGS. All notices of meetings of
stockholders shall be sent or otherwise given in accordance with Section 2.05
not less than ten (10) nor more than sixty (60) days before the date of the
meeting being noticed. The notice shall specify the place, date and 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 the stockholders. The notice of any meeting
at which directors are to be elected shall include the name of any nominee or
nominees which, at the time of the notice, management intends to present for
election.
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If action is proposed to be taken at any meeting for approval of (i)
a contract or transaction in which a director has a direct or indirect
financial interest, pursuant to Section 144 of the General Corporation Law of
Delaware, (ii) an amendment of the Articles of Incorporation, pursuant to
Section 242 of such Law, (iii) a reorganization of the corporation, pursuant
to Section 251 of such Law, (iv) a voluntary dissolution of the corporation,
pursuant to Section 275 of such Law, the notice shall also state the general
nature of such proposal.
2.05 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any meeting
of stockholders shall be given either personally or by first-class mail or
telegraphic or other written communication, charges prepaid, addressed to the
stockholder at the address of such stockholder appearing on the books of the
corporation or given by the stockholder to the corporation for the purpose of
notice. If no such address appears on the corporation's books or has been so
given, notice shall be deemed to have been given if sent by first-class mail
or telegraphic or other written communication to the corporation's principal
executive office, or if published at least once in a newspaper of general
circulation in the county where such office is located. Notice shall be
deemed to have been given at the time when delivered personally or deposited
in the mail or sent by telegram or other means of written communication.
If any notice addressed to a stockholder at the address of such
stockholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the
stockholder at such address, all future notices or reports shall be deemed to
have been duly given without further mailing if the same shall be available
to the stockholder upon written demand of the stockholder at the principal
executive office of the corporation for a period of one (1) year from the
date of the giving of such notice.
An affidavit of the mailing or other means of giving any notice of
any stockholders' meeting shall be executed by the Secretary, Assistant
Secretary or any transfer agent of the corporation giving such notice, and
shall be filed and maintained in the minute book of the corporation.
2.06 QUORUM. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting of stockholders shall
constitute a quorum for the transaction of business. The stockholders
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 stockholders to leave less than a quorum, if any action taken (other
than adjournment) is approved by at least a majority of the shares required
to constitute a quorum.
2.07 ADJOURNED MEETING AND NOTICE THEREOF. Any stockholders' 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 such
meeting, either in person or by proxy, but in the absence of a quorum, no
other business may be transacted at such meeting, except as provided in
Section 2.06.
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When any meeting of stockholders, 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 thereof are announced at a meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than forty-five (45) days from
the date set for the original meeting, in which case the Board of Directors
shall set a new record date. Notice of any such adjourned meeting, if
required, shall be given to each stockholder of record entitled to vote at
the adjourned meeting in accordance with the provisions of Sections 2.04 and
2.05. At any adjourned meeting, the corporation may transact any business
which might have been transacted at the original meeting.
2.08 VOTING. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.11, subject to the provisions of Section 217 of the General Corporation Law
of Delaware (relating to voting shares held by a fiduciary, in the name of a
corporation or in joint ownership). Such vote may be by voice vote or by
ballot; provided, however, that all elections for directors must be by ballot
upon demand by a stockholder at any election and before the voting begins.
Any stockholder entitled to vote on any matter (other than the election of
directors) 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 stockholder fails to specify the number of shares such stockholder is
voting affirmatively, it will be conclusively presumed that the stockholder's
approving vote is with respect to all shares such stockholder 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 stockholders, unless
the vote of a greater number or voting by classes is required by the General
Corporation Law of Delaware or the Articles of Incorporation.
2.09 WAIVER OF NOTICE OR CONSENT BY ABSENT STOCKHOLDERS. The transactions
of any meeting of stockholders, either annual or special, 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 person entitled
to vote, not present in person or by proxy, signs a written waiver of notice
or a consent to a holding of the meeting, or an approval of the minutes
thereof. The waiver of notice or consent need not specify either the
business to be transacted or the purpose of any annual or special meeting of
stockholders, except that if action is taken or proposed to be taken for
approval of any of those matters specified in the second paragraph of Section
2.04, the waiver of notice or consent shall state the general nature of such
proposal. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall also constitute a waiver of
notice of such 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 the meeting is not
a waiver of any right to object to the consideration of
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matters not included in the notice of the meeting if such objection is
expressly made at the meeting.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. No action
shall be taken by the stockholders of the corporation except at an annual or
special meeting of stockholders called in accordance with these Bylaws, and
no action shall be taken by the stockholders by written consent.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE AND VOTING. For purposes of
determining the stockholders entitled to notice of any meeting or to vote,
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty (60) days nor less than ten (10) days prior to the date of
any such meeting, and in such case only stockholders of record on the date so
fixed are entitled to notice and to vote, as the case may be, notwithstanding
any transfer of any shares of the books of the corporation after the record
date fixed as aforesaid, except as otherwise provided in the General
Corporation Law of Delaware.
If the Board of Directors does not so fix a record date:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders 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.
(b) The record date for determining stockholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the Board has been taken, shall be the day on which the first
written consent is given, or (ii) when prior action of the Board has been
taken, shall be at the close of business on the day on which the Board adopts
the resolution relating thereto, or the sixtieth (60th) day prior to the date
of such other action, whichever is later.
2.12 PROXIES. Every person entitled to vote for directors or on any other
matter 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
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder'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, prior to the vote pursuant thereto,
by a writing delivered to the corporation stating that the proxy is revoked
or by a subsequent proxy executed by, or attendance at the meeting and voting
in person by, the person executing the proxy; or (ii) written notice of the
death or incapacity of the maker of such proxy is received by the corporation
before the vote pursuant thereto is counted; provided, however, that no such
proxy shall be valid after the expiration of three (3) years from the date of
such proxy, unless otherwise provided in the proxy. The
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revocability of a proxy that states on its face that it is irrevocable shall
be governed by the provisions of Sections 212(c) and 218 of the General
Corporation Law of Delaware.
2.13 INSPECTORS OF ELECTION. Before any meeting of stockholders, the
Board of Directors may appoint any 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 stockholder or a stockholder'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 stockholders 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 stockholder or a stockholder's proxy
shall, appoint a person to fill such vacancy.
The duties of these inspectors shall be as follows:
(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 stockholders.
ARTICLE III
DIRECTORS
3.01 POWERS. Subject to the provisions of the General Corporation Law of
Delaware and any limitations in the Articles of Incorporation and these
Bylaws relating to action required to be approved by the stockholders or by
the outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction
of the Board of Directors.
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Without prejudice to such general powers, but subject to the same
limitations, it is hereby expressly declared that the directors shall have
the power and authority to:
(a) Select and remove all officers, agents and employees of the
corporation, prescribe such powers and duties for them as may not be
inconsistent with law, the Articles of Incorporation or these Bylaws, fix
their compensation and require from them security for faithful service.
(b) Change the principal executive office or the principal business
office in the State of Delaware from one location to another; cause the
corporation to be qualified to do business in any other state, territory,
dependency or foreign country and conduct business within or outside the
State of Delaware; designate any place within or without the state for the
holding of any stockholders' meeting or meetings, including annual meetings;
adopt, make and use a corporate seal, and prescribe the forms of certificates
of stock, and alter the form of such seal and of such certificates from time
to time as in their judgment they may deem best, provided that such forms
shall at all times comply with the provisions of law.
(c) Authorize the issuance of shares of stock of the corporation
from time to time, upon such terms as may be lawful, in consideration of
money paid, labor done or services actually rendered, debts or securities
cancelled or tangible or intangible property actually received.
(d) Borrow money and incur indebtedness for the purposes of the
corporation, and cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecations or other evidences of debt and securities
therefor.
3.02 NUMBER OF DIRECTORS. The number of directors of the corporation
shall be not less than three (3) nor more than five (5).
3.03 ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be elected
at each annual meeting of the stockholders to hold office until the next
annual meeting. Each director, including a director elected to fill a
vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
3.04 VACANCIES. Vacancies in the Board of Directors may be filled by
approval of the Board or, if the number of directors then in office is less
than a quorum, by (i) the unanimous written consent of the directors then in
office, (ii) the affirmative vote of a majority of the directors then in
office at a meeting held pursuant to notice or waivers of notice complying
with Section 3.10 or (iii) a sole remaining director, except that a vacancy
created by the removal of a director by the vote or written consent of the
stockholders or by
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court order may be filled only by the vote of a majority of the shares
entitled to vote represented at a duly held meeting at which a quorum is
present, or by the written consent of holders of a majority of the
outstanding shares entitled to vote. Each director so elected shall hold
office until the next annual meeting of the stockholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist in the case 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 be increased, or if the
stockholders fail, at any meeting of stockholders at which any director or
directors are elected, to elect the full authorized number of directors to be
voted for at that meeting.
The stockholders may elect a director or directors at any time to
fill any vacancy or vacancies not filled by the directors.
Any director may resign upon giving written notice to the Chairman of
the Board, the President, the Secretary or the Board of Directors. A
resignation shall be effective upon the giving of the notice, unless the
notice specifies a later time for its effectiveness. If the resignation of a
director is effective at a future time, the Board of Directors may elect a
successor to take office when the resignation becomes effective.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of his term of office.
3.05 PLACE OF MEETINGS AND TELEPHONIC MEETINGS. Regular meetings of the
Board of Directors may be held at any place within or without the State that
has been designated from time to time by resolution of the Board. In the
absence of such designation, regular meetings shall be held at the principal
executive office of the corporation. Special meetings of the Board shall be
held at any place within or without the State that has been designated in the
notice of the meeting or, if not stated in the notice or if there is no
notice, at the principal executive office of the corporation. Any meeting,
regular or special, may be held by conference telephone or similar
communication equipment, so long as all directors participating in such
meeting can hear one another, and all such directors shall be deemed to be
present in person at such meeting.
3.06 ANNUAL MEETINGS. Immediately following each annual meeting of
stockholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, any desired election of officers and the transaction
of other business. Notice of this meeting shall not be required.
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3.07 OTHER REGULAR MEETINGS. Other regular meetings of the Board of
Directors shall be held without call at such time as shall from time to time
be fixed by the Board of Directors. Such regular meetings may be held
without notice.
3.08 SPECIAL MEETINGS. Special meetings of the Board of Directors for any
purpose or purposes may be called at any time by the Chairman of the Board or
the President or any Vice President or Secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at his or her address
as it is shown upon the records of the corporation. In case such notice is
mailed, it shall be deposited in the United States mail at least four (4)
days prior to the time of the holding of the meeting. In case such notice is
delivered personally, or by telephone or telegram, it shall be delivered
personally or by telephone or to the telegraph company at least forty-eight
(48) hours prior to the time of the holding of the meeting. Any oral notice
given personally or by telephone may be communicated to either the director
or to a person at the office of the director who the person giving the notice
has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose of the meeting or the place if the
meeting is to be held at the principal executive office of the corporation.
3.09 QUORUM. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to adjourn as
hereinafter provided. Every act or decision done or made 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, subject to the
provisions of Section 144 of the General Corporation Law of Delaware
(approval of contracts or transactions in which a director has a direct or
indirect material financial interest), Section 141(c) (appointment of
committees), and Section 145 (indemnification of directors). 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 such meeting.
3.10 WAIVER OF NOTICE. The transactions of any meeting of the Board of
Directors, however called and noticed or 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, a consent to holding the
meeting or an approval of the minutes thereof. The waiver of notice or
consent need not specify the purpose of the meeting. All such waivers,
consents and approvals shall be filed with the corporate records or made a
part of the minutes of the meeting. Notice of a meeting shall also be deemed
given to any director who attends the meeting without protesting, prior
thereto or at its commencement, the lack of notice to such director.
3.11 ADJOURNMENT. A majority of the directors present, whether or not
constituting a quorum, may adjourn any meeting to another time and place.
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3.12 NOTICE OF ADJOURNMENT. 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 (24) hours, in which case notice of such time and place
shall be given prior to the time of the adjourned meeting, in the manner
specified in Section 3.08, to the directors who were not present at the time
of the adjournment.
3.13 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 shall individually or collectively consent in writing to such
action. Such action by written consent shall have the same force and effect
as a unanimous vote of the Board of Directors. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board.
3.14 FEES AND COMPENSATION OF DIRECTORS. Directors and members of
committees may receive such compensation, if any, for their services, and
such reimbursement of expenses, as may be fixed or determined by resolution
of the Board of Directors. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as
an officer, agent, employee or otherwise, and receiving compensation for such
services.
ARTICLE IV
COMMITTEES
4.01 COMMITTEES OF DIRECTORS. The Board of Directors may, by resolution
adopted by a majority of the authorized number of directors, designate one
(1) or more committees, each consisting of two (2) or more directors, to
serve at the pleasure of the Board. The Board may designate one (1) or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. Any such 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 Delaware, also requires stockholders' 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 Bylaws or the adoption of new Bylaws;
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(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amenable or repeatable;
(f) a distribution to the stockholders of the corporation, except at
a rate or in a periodic amount or within a price range determined by the
Board of Directors; or
(g) the appointment of any other committees of the Board of
Directors or members thereof.
4.02 MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these Bylaws, Section 3.05 (place of meetings),
3.07 (regular meetings), 3.08 (special meetings and notice), 3.09 (quorum),
3.10 (waiver of notice), 3.11 (adjournment), 3.12 (notice of adjournment) and
3.13 (action without meeting), 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 by resolution of the Board of Directors as
well as 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.
ARTICLE V
OFFICERS
5.01 OFFICERS. The officers of the corporation shall be a President, a
Secretary and Chief Financial Officer. The corporation may also have, at the
discretion of the Board of Directors, a Chairman of the Board, one or more
Vice Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers and such other officers as may be appointed in accordance with the
provisions of Section 5.03. Any number of offices may be held by the same
person.
5.02 ELECTION OF OFFICERS. The officers of the corporation, except such
officers as may be appointed in accordance with the provisions of Section
5.03, 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.
5.03 SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint, and
may empower the President to appoint, such other officers as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in the Bylaws or
as the Board of Directors may from time to time determine.
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5.04 REMOVAL AND RESIGNATION OF OFFICERS. 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, at any regular or
special meeting thereof, or, except in case of an officer chosen by the Board
of Directors, by any officer upon whom such power of removal may be conferred
by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any such resignation shall take effect at the date of the
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 such resignation is without prejudice to
the rights, if any, of the corporation under any contract to which the
officer is a party.
5.05 VACANCIES IN OFFICES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in
the manner prescribed in these Bylaws for regular appointments to such office.
5.06 CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an officer
be elected, shall, if present, preside at all meetings of the Board of
Directors and exercise and perform such other powers and duties as may be
from time to time assigned to him by the Board of Directors or prescribed by
the Bylaws. If there is no President, the Chairman of the Board shall, in
addition, be the Chief Executive Officer of the corporation and shall have
the powers and duties prescribed in Section 5.07.
5.07 PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers
of the corporation. He shall preside at all meetings of the stockholders
and, in the absence of the Chairman of the Board, or if there be none, at all
meetings of the Board of Directors. He shall have the general powers and
duties of management usually vested in the office of President of a
corporation, and shall have such other powers and duties as may be prescribed
by the Board of Directors or the Bylaws.
5.08 VICE PRESIDENTS. In the absence or disability of the President, the
Vice Presidents, if any, in order of their rank as fixed by the Board of
Directors or, if not ranked, a Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and be subject to all the restrictions upon,
the President. The Vice Presidents shall have such other powers and perform
such other duties as from time to time may be prescribed for them,
respectively, by the Board of Directors or the Bylaws, the President or the
Chairman of the Board if there is no President.
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5.09 SECRETARY. The Secretary shall keep, or cause to be kept, at the
principal executive office or such other place as the Board of Directors may
order, a book of minutes of all meetings and actions of directors, committees
of directors and stockholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice thereof
given, the names of those present at directors' and committee meetings, the
number of shares present or represented at stockholders' meetings, and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register, showing the names of all
stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates issued for the same, and the number
and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors required by the
Bylaws or by law to be given, and he shall keep the seal of the corporation,
if one be adopted, in a safe custody, and shall have such other powers and
perform such other duties as may be prescribed by the Board of Directors or
by the Bylaws.
5.10 CHIEF FINANCIAL OFFICER. The Chief Financial Officer 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
books of account shall be open at all reasonable times to inspection by any
director.
The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. He 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 of his transactions as Chief Financial Officer and of
the financial condition of the corporation, and shall have other powers and
perform such other duties as may be prescribed by the Board of Directors or
the Bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
6.01 GENERAL. The corporation, to the maximum extent permitted by the
General Corporation Law of Delaware, shall indemnify any person who was or is
a party or is threatened to be made a party to any contemplated, pending or
completed action, suit, arbitration, alternate
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dispute resolution mechanism, investigation, administrative hearing or any
other proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) ("Proceeding")
in whole or in part attributable to (a) the fact that he is or was a director
or officer 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, employee benefit plan, trust or other enterprise
("Indemnitee"), or (b) anything done or not done by such Indemnitee in any
such capacity, against expenses (including attorneys' fees) and losses,
claims, liabilities, judgments, fines and amounts paid in settlement incurred
by him or on his behalf in connection with such Proceeding ("Losses") if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal Proceeding, had no reasonable cause to believe his conduct was
unlawful.
6.02. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The corporation
shall, to the maximum extent permitted by the General Corporation Law of
Delaware, indemnify any person who was or is made a party or is threatened to
be made a party to any contemplated, pending, or completed Proceeding brought
by or in the right of the corporation to procure a judgment in its favor in
whole or in part attributable to (a) the fact that he is or was a director or
officer 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 or other enterprise (also an "Indemnitee")
or (b) anything done or not done by such Indemnitee in any such capacity
against expenses (including attorneys' fees) and Losses actually incurred by
him or on his behalf in connection with such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation. Notwithstanding the foregoing, no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been adjudged to be liable to the corporation if
the General Corporation Law of Delaware expressly prohibits such
indemnification unless and only to the extent that the Court of Chancery of
the State of Delaware or the court in which such action or suit was brought,
or is pending, shall determine that indemnification may nevertheless be made
under the circumstances.
6.03 INDEMNIFICATION IN CERTAIN CASES. Notwithstanding any other
provision of this Article VI, to the extent that an Indemnitee has been
wholly successful on the merits or otherwise absolved in any Proceeding
referred to in Section 6.01 or 6.02 on any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) incurred by
him or on his behalf in connection therewith. If Indemnitee is not wholly
successful in such Proceeding but is successful, on the merits or otherwise,
as to one or more but less than all claims, issues or matters in such
Proceeding, the corporation shall indemnify Indemnitee, to the maximum extent
permitted by law, against expenses (including attorneys' fees) actually
incurred by Indemnitee in connection with each successfully resolved claim,
issue or matter. For purposes of this Section 6.03 and without limitation,
the termination of any such claim, issue or matter by dismissal with or
without prejudice shall be deemed to be a successful resolution as to such
claim, issue or matter.
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6.04 PROCEDURE. (a) Any indemnification under Section 6.01 and 6.02
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the Indemnitee is proper (except that the right of Indemnitee to receive
payments pursuant to Section 6.05 shall not be subject to this Section 6.04)
in the circumstances because he has met the applicable standard of conduct
set forth in such Sections 6.01 and 6.02. When seeking indemnification,
Indemnitee shall submit a written request for indemnification to the
corporation. Such requests shall include documentation or information which
is necessary for the corporation to make a determination of Indemnitee's
entitlement to indemnification and is reasonably available to Indemnitee.
The Secretary of the corporation shall, promptly upon receipt of Indemnitee's
request for indemnification, advise the Board of Directors that Indemnitee
has made such request for indemnification.
(b) The entitlement of Indemnitee to indemnification shall be
determined in the specific case by a majority vote of a quorum of the Board
of Directors consisting of Disinterested Directors, except that such
determination shall be made by Independent Legal Counsel, if either such a
quorum is not obtainable or the Board of Directors, by the majority vote of
Disinterested Directors, so directs.
(c) In the event the determination of entitlement is to be made by
Independent Legal Counsel, such Independent Legal Counsel shall be selected
by the Board of Directors and approved by Indemnitee. Upon failure of the
Board of Directors to so select such Independent Legal Counsel or upon
failure of Indemnitee to so approve, such Independent Legal Counsel shall be
selected by the Chancellor of the State of Delaware or such other person as
such Chancellor shall designate to make such selection.
(d) If the Board of Directors or Independent Legal Counsel shall
have determined (which determination, in the case of Independent Counsel,
shall be in the form of a written opinion stating that the facts known to
such Independent Counsel demonstrate clearly and convincingly that Indemnitee
acted in bad faith or in a manner that Indemnitee did not believe to be in or
not opposed to the best interest of the corporation) that Indemnitee is not
entitled to indemnification to the full extent of Indemnitee's request,
Indemnitee shall have the right to seek entitlement to indemnification in
accordance with the procedures set forth in Section 6.06.
(e) If the person or persons empowered pursuant to Section 6.04(b)
to make a determination with respect to entitlement to indemnification shall
have failed to make the requested determination within 90 days after receipt
by the Corporation of such request, the requisite determination of
entitlement to indemnification shall be deemed to have been made and
Indemnitee shall be absolutely entitled to such indemnification, absent (i)
misrepresentation by Indemnitee of a material fact in the request for
indemnification or (ii) a final judicial determination that all or any part
of such indemnification is expressly prohibited by law.
(f) The termination of any Proceeding by judgment, order, settlement
or conviction, or upon a plea of nolo contenders or its equivalent, shall
not, of itself, adversely affect the rights of Indemnitee to indemnification
hereunder except as may be specifically
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provided herein, or create a presumption that Indemnitee did not act in good
faith and in a manner which Indemnitee reasonably believed to be in or not
opposed to the best interests of the corporation or create a presumption that
(with respect to any criminal action or proceeding) Indemnitee had reasonable
cause to believe that Indemnitee's conduct was unlawful.
(g) For purposes of any determination of good faith hereunder, to
the fullest extent permitted by General Corporation Law of Delaware,
Indemnitee shall be deemed to have acted in good faith if Indemnitee's action
is based on the records or books of account of the corporation or an
Affiliate, including financial statements, or on information supplied to
Indemnitee by the officers of the corporation or an Affiliate in the course
of their duties, or on the advice of legal counsel for the corporation or an
Affiliate or on information or records given or reports made to the
corporation or an Affiliate by an independent certified public accountant or
by an appraiser or other expert selected with reasonable care by the
corporation or an Affiliate. The provisions of this Section 6.04(g) shall
not be deemed to be exclusive or to limit in any way the other circumstances
in which the Indemnitee may be deemed to have met the applicable standard of
conduct set forth in these Bylaws.
6.05 ADVANCES FOR EXPENSES AND COSTS. All expenses (including attorneys'
fees) incurred by or on behalf of Indemnitee in connection with any
Proceeding shall be paid by the corporation, as incurred, in advance of the
final disposition of such Proceeding within twenty (20) days after the
receipt by the corporation of a statement or statements from Indemnitee
requesting from time to time such advance or advances whether or not a
determination to indemnify has been made under Section 6.04. Such statement
or statements shall evidence such expenses incurred by Indemnitee in
connection therewith and shall include or be accompanied by a written
undertaking by or on behalf of Indemnitee to repay such amount if it shall
ultimately be determined that Indemnitee is not entitled to be indemnified
therefor pursuant to the terms of this Article VI.
6.06 REMEDIES IN CASES OF DETERMINATION NOT TO INDEMNIFY OR TO ADVANCE
EXPENSES. (a) In the event that (i) a determination is made that Indemnitee
is not entitled to indemnification hereunder, (ii) advances are not made
pursuant to Section 6.05 or (iii) payment has not been timely made following
a determination of entitlement to indemnification pursuant to Section 6.04,
Indemnitee shall be entitled to seek a final adjudication in an appropriate
court of the State of Delaware or any other court of competent jurisdiction
of Indemnitee's entitlement to such indemnification or advance.
(b) In the event a determination has been made in accordance with
the procedures set forth in Section 6.04, in whole or in part, that
Indemnitee is not entitled to indemnification, any judicial proceeding
referred to in Section 6.06(a) shall be DE NOVO and Indemnitee shall not be
prejudiced by reason of any such prior determination that Indemnitee is not
entitled to indemnification.
(c) If a determination is made or deemed to have been made pursuant
to the terms of Sections 6.04 or 6.06 that Indemnitee is entitled to
indemnification, the corporation shall
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be bound by such determination in any judicial proceeding in the absence of
(i) a misrepresentation of a material fact by Indemnitee or (ii) a final
judicial determination that all or any part of such indemnification is
expressly prohibited by law.
(d) To the extent deemed appropriate by the court, interest shall be
paid by the corporation to Indemnitee at a reasonable interest rate for
amounts which the corporation indemnifies or is obliged to indemnify
Indemnitee for the period commencing with the date on which Indemnitee
requested indemnification (or reimbursement or advancement of expenses) and
ending with the date on which such payment is made to Indemnitee by the
corporation.
6.07 RIGHTS NON-EXCLUSIVE. The rights of indemnification and advancement
of expenses provided by, or granted pursuant to, this Article VI shall not be
deemed exclusive of any other rights to which any person seeking
indemnification or advancement of expenses may be entitled under any law, the
Certificate of Incorporation or Bylaws of the corporation, any agreement, a
vote of stockholders or resolution of directors of otherwise, and the
corporation may, by action of the Board of Directors from time to time, enter
into indemnification agreements with its directors, officers, employees and
agents. No amendment, alteration, rescission or replacement of these Bylaws
or any provision hereof shall be effective as to Indemnitee with respect to
any action taken or omitted by such Indemnitee in Indemnitee's position with
the corporation or an affiliate or any other entity which Indemnitee is or
was serving at the request of the corporation prior to such amendment,
alteration, rescission or replacement.
6.08 INSURANCE. The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, 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 or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article VI.
6.09 SURVIVAL OF RIGHTS. The indemnification and advancement of expenses
provided by, or granted pursuant to this Article VI shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
6.10 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The
corporation may, by action of the Board of Directors from time to time, grant
rights to indemnification and advancement of expenses to employees and agents
of the corporation with the same scope and effect as the provisions of this
Article VI with respect to the indemnification of directors and officers of
the corporation.
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6.11 DEFINITIONS. For purposes of this Article VI:
(a) "Affiliate" includes any corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise directly or
indirectly owned by the corporation.
(b) "corporation" includes all constituent corporations absorbed in
a consolidation or merger as well as the resulting or surviving corporation
so that any person who is or was a director, officer, employee or agent of
such a constituent corporation or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise shall
stand in the same position under the provisions of this Article VI with
respect to the resulting or surviving corporation as he would if he had
served the resulting or surviving corporation in the same capacity.
(c) "Disinterested Director" shall mean a director of the
corporation who is not or was not a party to the Proceeding in respect of
which indemnification is being sought by Indemnitee.
(d) "Independent Legal Counsel" shall mean a law firm or lawyer that
neither is presently nor in the past five years has been retained to
represent: (i) the corporation or Indemnitee in any matter material to either
such party or (ii) any other party to the Proceeding giving rise to a claim
for indemnification hereunder. Notwithstanding the foregoing, the term
'Independent Counsel" shall not include any firm or person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the corporation or Indemnitee in
an action to determine Indemnitee's right to indemnification under these
Bylaws. All fees and expenses of the Independent Counsel incurred in
connection with acting pursuant to these Bylaws shall be borne by the
corporation.
ARTICLE VII
RECORDS AND REPORTS
7.01 MAINTENANCE AND INSPECTION 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 stockholders, giving the names and
addresses of all stockholders and the number and class of shares held by each
stockholder.
7.02 MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall keep at
its principal executive office, or if its principal executive office is not
in this State, at its principal business office in this State, the original
or a copy of the Bylaws as amended to date, which shall be open to inspection
by the stockholders at all reasonable times during office hours. If the
principal executive office of the corporation is outside this State and the
corporation has no principal business office in this State, the Secretary
shall, upon the written
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request of any stockholder, furnish to such stockholder a copy of the Bylaws
as amended to date.
7.03 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The
accounting books and records and minutes of proceedings of the stockholders
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. Such minutes and
accounting books and records shall be open to inspection upon the written
demand of any stockholder or holder of a voting trust certificate, at any
reasonable time during usual business hours, for a purpose reasonably related
to such holder's interests as a stockholder or as the holder of a voting
trust certificate. Such inspection may be made in person or by an agent or
attorney, and shall include the right to copy and make extracts. The
foregoing rights of inspection shall extend to the records of each subsidiary
corporation of the corporation.
7.04 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. Such inspection by a director may be made in person
or by agent or attorney and the right of inspection includes the right to
copy and make extracts.
7.05 ANNUAL REPORT TO STOCKHOLDERS. Unless otherwise expressly required
by the General Corporation Law of Delaware, or any other state, any rights to
annual reports to stockholders is hereby expressly waived and dispensed with;
provided, that nothing herein set forth shall be construed to prohibit or
restrict the right of the Board to issue such annual or other periodic
reports to the stockholders of the corporation as they may from time to time
consider appropriate.
ARTICLE VIII
GENERAL CORPORATE MATTERS
8.01 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For purposes
of determining the stockholders entitled to receive payment of any dividend
or other distribution or allotment of any rights or entitled to exercise any
rights in respect of any other lawful action (other than action by
stockholders by written consent without a meeting), the Board of Directors
may fix, in advance, a record date, which shall not be more than sixty (60)
days prior to any such action, and in such case only stockholders of record
on the date so fixed are entitled 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
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after the record date fixed as aforesaid, except as otherwise provided in the
General Corporation Law of Delaware.
If the Board of Directors does not so fix a record date, the record
date for determining stockholders for any such purpose shall be at the close
of business on the day on which the Board adopts the resolution relating
thereto, or the sixtieth (60th) day prior to the date of such action,
whichever is later.
8.02 CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts or
other orders for payment of money, notes or other evidences of indebtedness,
issued in the name of or payable to the corporation, shall be signed or
endorsed by such person or persons and in such manner as, from time to time,
shall be determined by resolution of the Board of Directors.
8.03 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of
Directors, except as otherwise provided in these Bylaws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances; and, unless so
authorized or ratified by the Board of Directors or within the agency power
of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or to any amount.
8.04 CERTIFICATES FOR SHARES. A certificate or certificates for shares of
the capital stock of the corporation shall be issued to each stockholder when
any such shares are fully paid, and the Board of Directors may authorize the
issuance of certificates or shares as partly paid, provided that such
certificates shall state the amount of the consideration to be paid therefor
and the amount paid thereon. All certificates shall be signed in the name of
the corporation by the Chairman of the Board or Vice Chairman of the Board or
the President or Vice President and by the Chief Financial Officer or an
Assistant Treasurer or the Secretary or any Assistant Secretary, certifying
the number of shares and the class or series of shares owned by the
stockholder. Any or all of the signatures on the certificates may be
facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such
certificate is 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.
8.05 LOST CERTIFICATES. Except as hereinafter in this Section 9.05
provided, no new certificates for shares shall be issued in lieu of an old
certificate unless the latter is surrendered to the corporation and cancelled
at the same time. The Board of Directors may in case any share certificate
or certificate for any other security is lost, stolen or destroyed, authorize
the issuance of a new certificate in lieu thereof, upon such terms and
conditions as the Board may require, including provisions for indemnification
of the corporation secured by a bond or other adequate security sufficient to
protect the corporation
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against any claim that may be made against it, including any expense or
liability, on account of the alleged loss, theft or destruction of such
certificate or the issuance of such new certificate.
8.06 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 herein granted to
said 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 such officer in person or by any person authorized to do
so by proxy duly executed by said officer.
8.07 CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise,
the general provisions, rules of construction and definitions in the General
Corporation Law of Delaware shall govern the construction of the Bylaws.
Without limiting the generality of the foregoing, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
The Board of Directors may from time to time make, amend, supplement or
repeal these Bylaws; provided, however, that the stockholders may change or
repeal any bylaw adopted by the Board of Directors; and provided, further,
that no amendment or supplement to these Bylaws adopted by the Board of
Directors shall vary or conflict with any amendment or supplement adopted by
the stockholders.
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Exhibit 4.01
MACROVISION CORPORATION
700 East El Camino Real
Mountain View, California 94040
___________________________
REGISTRATION RIGHTS AGREEMENT
June 12, 1991
___________________________
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TABLE OF CONTENTS
Page
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SECTION 1 - Definitions .......................................................1
SECTION 2 - Restrictions Upon Transferability..................................3
2.1 Restrictions on Transferability....................................3
2.2 Restrictive Legend.................................................3
2.3 Notice of Proposed Transfers.......................................3
SECTION 3 - Registration Rights................................................4
3.1 Demand Registration................................................4
3.2 Company Registration...............................................6
3.3 Registration on Form S-3...........................................7
3.4 Limitations on Subsequent Registration Rights......................8
3.5 Expenses of Registration ..........................................9
3.6 Registration Procedures............................................9
3.7 Indemnification...................................................10
3.8 Information by Holder.............................................11
3.9 Rule 144 Reporting................................................11
3.10 Standoff Agreement................................................12
3.11 Termination of Registration Rights................................12
SECTION 4 - Miscellaneous.....................................................13
4.1 Governing Law.....................................................13
4.2 Successors and Assigns............................................13
4.3 Entire Agreement; Amendment.......................................13
4.4 Notices, etc......................................................13
4.5 Delays or Omissions...............................................14
4.6 Counterparts......................................................14
4.7 Severability......................................................14
4.8 Titles and Subtitles..............................................14
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MACROVISION CORPORATION
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is entered into as of June __, 1991 among
Macrovision Corporation, a California corporation ("Company"), and University
National Bank & Trust Company, Trustee under Trust dated May 22, 1991
("Purchaser").
SECTION 1
DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"COMMON SHARES" shall mean the Common Stock purchased by the Purchaser from
the Selling Shareholder pursuant to the Purchase Agreement.
"CONVERSION STOCK" shall mean the Common Stock issued or issuable pursuant
to (a) conversion of the Preferred and (b) conversion of the Note if, at the
time the Note is converted, no Preferred is outstanding.
"HOLDER" shall mean the Purchaser and any person holding Registrable
Securities to whom the rights under Section 3 have been transferred in
accordance with Section 3.10 hereof.
"INITIATING HOLDERS" shall mean the Purchaser or transferees of the
Purchaser who in the aggregate are Holders of greater than 40% of the
Registrable Securities.
"NOTE" shall mean the Convertible Note dated as of this date issued by the
Company to the Purchaser.
"PREFERRED" shall mean the shares of Series A Preferred Stock issued to the
Purchaser (a) pursuant to the Stock and Convertible Note Purchase Agreement
dated as of this date between the Company and the Purchaser and (b) upon
conversion of the Note.
"PURCHASE AGREEMENT" shall mean the Stock and Convertible Note Purchase
Agreement dated as of the date among the Company, the Selling Shareholder and
the Purchaser.
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"REGISTRABLE SECURITIES" shall mean (i) the Conversion Stock, (ii) the
Common Shares; and (iii) any Common Stock of the Company issued or issuable in
respect of the Conversion Stock or other securities issued or issuable pursuant
to the conversion of the Preferred or the Note upon any stock split, stock
dividend, recapitalization, or similar event, or any Common Stock otherwise
issued or issuable with respect to the Preferred or the Note, provided, however,
that shares of Common Stock or other securities shall only be treated as
Registrable Securities if and so long as they have not been (A) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act so that
all transfer restrictions and restrictive legends with respect thereto are
removed upon the consummation of such sale.
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 3.1, 3.2 and 3.3
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 and separate counsel for outside directors.
"RESTRICTED SECURITIES" shall mean the securities of the Company required
to bear the legend set forth in Section 2.2 hereof.
"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.
"SELLING SHAREHOLDER" shall have the meaning given that term in the
Purchase Agreement.
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SECTION 2
RESTRICTIONS UPON TRANSFERABILITY
2.1 RESTRICTIONS ON TRANSFERABILITY. The Preferred and the Conversion
Stock (as defined above) shall not be sold, assigned, transferred or pledged
except upon the conditions specified in this Section 2, which conditions are
intended to ensure compliance with the provisions of the Securities Act. The
Purchaser will cause any proposed purchaser, assignee, transferee, or pledgee of
the Preferred or such Common Stock held by the Purchaser to agree to take and
hold such securities subject to the provisions and upon the conditions specified
in this Section 2.
2.2 RESTRICTIVE LEGEND. Each certificate representing (i) the Preferred,
(ii) the Conversion Stock and (iii) any other securities issued in respect of
the Preferred or the Conversion Stock upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall (unless
otherwise permitted by the provisions of Section 2.3 below) be stamped or
otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSFER IS MADE IN COMPLIANCE WITH RULE 144,
RULE 144A OR REGULATION S, OR UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID
ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND
RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
The Purchaser and each Holder consents to the Company making a notation on
its records and giving instructions to any transfer agent of the Preferred or
the Common Stock in order to implement the restrictions on transfer established
in this Section 2.
2.3 NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 2.3. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than (i) a
transfer not involving a change in
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beneficial ownership, or (ii) unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, the holder thereof
shall give written notice to the Company of such holder's intention to effect
such transfer, sale, assignment or pledge. Each such notice shall describe the
manner and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail and, except with respect to transfers made in compliance with
Rule 144, Rule 144A or Regulation S, shall be accompanied, at such holder's
expense by either (i) an unqualified written opinion of legal counsel who shall,
and whose legal opinion shall be, reasonably satisfactory to the Company
addressed to the Company, to the effect that the proposed transfer of the
Restricted Securities may be effected without registration under the Securities
Act, or (ii) a "no action" letter from the Commission to the effect that the
transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the holder of such Restricted Securities shall be entitled to
transfer such Restricted Securities promptly in accordance with the terms of the
notice delivered by the holder to the Company. Each certificate evidencing the
Restricted Securities transferred as above provided shall bear, except if such
transfer is made pursuant to Rule 144, Rule 144A or Regulation S, the
appropriate restrictive legend set forth in Section 2.2 above, except that such
certificate shall not bear such restrictive legend if in the opinion of counsel
for such holder and the Company such legend is not required in order to
establish compliance with any provision of the Securities Act.
SECTION 3
REGISTRATION RIGHTS
3.1 DEMAND REGISTRATION
(a) REQUEST FOR REGISTRATION. In case the Company shall receive from
Initiating Holders a written request that the Company effect any registration,
qualification or compliance with respect to all or part of the Registrable
Securities (other than a registration on Form S-3 or any successor form
regardless of its designation) having an aggregate proposed offering price to
the public of at least $10,000,000, 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
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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 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 3.1:
(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) Prior to the earlier of (i) the third anniversary of
the date of this Agreement, and (ii) six months after the effective date of the
Company's first registered public offering of its stock;
(C) After the Company has effected one such registration
pursuant to this Section 3.1, and the registration has been declared or ordered
effective;
(D) During the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
six (6) months immediately following 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; and
(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 3.1 shall be deferred for a period not to
exceed 90 days from the date of receipt of written request from the Initiating
Holders; provided that the Company cannot defer its obligations more than once
in a 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 practicable, after receipt of the request or requests of the
Initiating Holders.
(b) UNDERWRITING. In the event that a registration pursuant to
Section 3.1 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 3.1(a)(i). In such event, the right of any Holder to registration
pursuant to Section 3.1 shall be
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conditioned upon such Holder's participation in the underwriting arrangements
required by this Section 3.1, 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 3.1,
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 holders of Registrable
Securities, 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.
3.2 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, or (ii) a registration
relating solely to a Commission Rule 145 transaction, 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 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
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Section 3.2(a)(i). In such event the right of any Holder to registration
pursuant to Section 3.2 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of Registrable Securities in the
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.
Notwithstanding any other provision of this Section 3.2, if the managing
underwriter determines that marketing factors require a limitation of the
number of shares to be underwritten, and (a) if such registration is the
first registered offering of the sale of the Company's securities to the
public, the managing underwriter may limit the Registrable Securities to be
included in such registration or exclude such Registrable Securities
completely, and (b) if such registration is other than the first registered
offering of the sale of the Company's securities to the public, the
underwriter may limit the number of Registrable Securities to be included in
the registration and underwriting to not less than 40% of the securities
included therein (based on aggregate market value). The Company shall so
advise all Holders and other holders distributing their securities through
such underwriting and the number of shares of Registrable Securities that may
be included in the registration and underwriting shall be allocated among all
Holders and such other holders in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders and
such other holders at the time of filing the registration statement. 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.
(c) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 3.2 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
3.3 REGISTRATION ON FORM S-3.
(a) If the Holders of at least 25% of the Registrable Securities
(appropriately adjusted for any stock split, stock dividend,
recapitalization, or similar event) request that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering for the Registrable Securities having a market value of at
least $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
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the Company shall not be required to effect more that one registration pursuant
to this Section 3.3 per year. The substantive provisions of Section 3.1(b)
shall be applicable to each registration initiated under this Section 3.3.
(b) Notwithstanding the foregoing, the Company shall not be obligated
to take any action pursuant to this Section 3.3: (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 ninety (90) 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); or (iii) if the
Company shall furnish to such Holder 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
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 (60) days from the receipt of the request to
file such registration by such Holder.
3.4 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Company shall not, without the prior written
consent of the holders of a majority-in-interest of the Registrable
Securities originally held by the Purchaser, and Holders of a majority of the
outstanding Registrable Securities not held by the Purchaser or Purchaser's
successors and assigns, enter into any agreement with any holder or
prospective holder of any securities of the Company which (a) provides for
registration rights on terms other than the terms set forth herein, or (b)
which would allow such holder or prospective holder (i) to include such
securities in any registration filed under Section 3.1 unless under the terms
of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of
his securities will not reduce the amount of the Registrable Securities of
the Holders which is included. Except as set forth in the prior sentence,
such holders and prospective holders, who have been granted rights under this
Agreement by the Board of Directors of the Company, may become parties to
this Agreement or an addendum to this Agreement, as required by the Company,
without the consent of the Purchaser, the Purchaser's successors and assigns,
or any other Holders, whereupon, such holders and prospective holders shall
be deemed to be a Holder and the Common Stock held by them or issuable upon
conversion of securities of the Company, shall be deemed to be Registrable
Securities.
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3.5 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with a registration pursuant to Section 3.1 shall be shared between
the Company and the Holders based on each party's pro rata portion of the
registration. All Registration Expenses incurred in connection with
registrations pursuant to Section 3.2 and Section 3.3 shall be borne by the
Company. Unless otherwise stated, all Selling Expenses relating to securities
registered on behalf of the Holders and all other Registration Expenses shall be
borne by the Holders of such securities pro rata on the basis of the number of
shares so registered.
3.6 REGISTRATION PROCEDURES. Whenever required under this Section 3.6 to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to one hundred twenty (120) days.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(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
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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 the light of the circumstances then existing.
3.7 INDEMNIFICATION
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder 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 3, 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 the Securities Exchange Act of 1934, as amended ("1934 Act"),
or any rule or regulation promulgated under the Securities Act, 1934 Act or any
state securities laws 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, provided that the Company will not be liable 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.
(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 or based on any untrue statement) of a material fact
contained in any such registration statement,
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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 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. Notwithstanding the
foregoing, the liability of each Holder under this subsection (b) shall be
limited in an amount equal to the initial public 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 3.7
(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 3 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.
3.8 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holer or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 3.
3.9 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
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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 Securities Exchange Act of 1934, as
amended;
(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 Securities Exchange Act of 1934, as amended (at any
time after it has become subject to such reporting requirements); and
(c) So long as a Purchaser owns any Restricted Securities, furnish
to the Purchaser 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 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 Securities Exchange Act of
1934 (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
Purchaser may reasonably request in availing itself of any rule or regulation
of the Commission allowing a Purchaser to sell any such securities without
registration.
3.10 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 ninety (90) days) from the effective date of such
registration as may be requested by the underwriters; provided, that all
officers and directors of the Company who own stock of the Company, and all
holders of more than five percent (5%) of the Company's outstanding Common Stock
(taken on a fully diluted basis) also agree to such restrictions.
3.11 TERMINATION OF REGISTRATION RIGHTS. The registration rights
contained in subsection 3.1 shall terminate ten (10) years from the date of this
Registration Rights Agreement. The registration rights contained in subsections
3.2 and 3.3 shall terminate on the later to occur of (a) the tenth anniversary
of the date of this Agreement and (b) the fifth anniversary of the effective
date of the Company's initial registered public offering under the Securities
Act.
12
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SECTION 4
MISCELLANEOUS
4.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the internal 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.
4.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
permitted successors, assigns, heirs, executors and administrators of the
parties hereto.
4.3 ENTIRE AGREEMENT: AMENDMENT. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subject 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. Except as expressly provided herein, neither
this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against
whom enforcement of any such amendment, waiver, discharge or termination is
sought; provided, however, that Holders of at least a majority of the
Registrable Securities (or securities convertible into or exercisable for
Registrable Securities) may, with the Company's prior written consent, waive,
modify or amend on behalf of all Holders, any provisions hereof; provided
further, however, that any such action which would adversely affect the
rights of the Purchaser or its successors and assigns under this Agreement
shall require the prior written consent of holders of a majority-in-interest
of the Registrable Securities originally held by the Purchaser.
4.4 NOTICES, ETC. All notices and other communications required or
permitted under this Agreement shall be in writing and shall be mailed by
registered or certified mail, postage prepaid, or otherwise delivered by
hand, messenger or facsimile, addressed (a) if to the Purchaser, at the
address or facsimile number set forth on the signature page, with a copy to
George H. Hohnsbeen II, Ware & Freidenrich, 400 Hamilton Avenue, Palo Alto,
CA 94301, FAX: (415) 327-3699, or at such other address as the Purchaser
shall have furnished to the Company in writing, or (b) if to any other holder
of any Registrable Securities, at such address or facsimile number as such
Holder shall have furnished the Company in writing, or, until any such Holder
so furnishes an address to the Company, then to and at the address of the
last Holder of such shares who has so furnished an address to the Company, or
(c) if to the Company, at the address or facsimile number set forth on the
signature page and addressed to the attention of the Corporate Secretary,
with a copy to David Herbst, Holtzmann, Wise & Shepard, 3030 Hansen Way,
Suite 100, Palo Alto, CA 94304, FAX (415)856-1344, or at such other address
as the Company shall have furnished to the Purchaser and the Holders.
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<PAGE>
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when received.
4.5 DELAYS OR OMISIONS. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to Holders, 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.
4.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
4.7 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective
if it materially changes the economic benefit of this Agreement to any party.
4.8 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.
14
<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
MACROVISION CORPORATION
a California corporation
By: /s/ Joseph F. Swyt
----------------------------
Joseph F. Swyt, President
Address: 700 East El Camino Real
Mountain View, CA 94040
Facsimile: (415) 691-2991
"PURCHASER"
UNIVERSITY NATIONAL BANK &
TRUST COMPANY, Trustee under
Trust Agreement dated May 22, 1991
By: /s/ Illegible
----------------------------
Title:
-------------------------
Address: 250 Lytton Avenue
Palo Alto, CA 94302
Facsimile: (415) 321-9715
15
<PAGE>
MACROVISION CORPORATION
STOCK OPTION PLAN
As Adopted Effective September 9, 1988;
Amended September 22, 1988;
Amended September 13, 1990;
Amended and Restated February 6, 1992;
1. PURPOSE. The purpose of the MACROVISION CORPORATION STOCK OPTION PLAN
(the "Plan") is to grant to selected employees, directors, and consultants
of Macrovision Corporation, a California corporation (the "Company") and
its subsidiaries and affiliates, a favorable opportunity to acquire Common
Stock of the Company, thereby encouraging such persons to accept or continue
a qualifying relationship with the Company; increasing the interest of such
persons in the Company's welfare through participation in the growth and
value of the Common Stock; and furnishing such persons with an incentive to
improve operations and increase profits of the Company.
To accomplish the foregoing objectives, this Plan provides a means
whereby employees, directors, and consultants may receive options to purchase
Common Stock. Options granted under this Plan will be either nonstatutory
stock options (subject to federal income taxation upon exercise) or incentive
stock options (generally not subject to immediate federal income taxation
upon exercise).
2. ADMINISTRATION. The Plan shall be administered by the Board of
Directors of the Company (the "Board"), or by a committee appointed by the
Board which shall not have less than two (2) members (in either case, the
"Administrator"). No option shall be granted to a director or officer of
the Company except (i) by the Board when all of its members are disinterested
persons, or (ii) by an Administrator other than the Board when the
Administrator is composed of two (2) or more directors having full authority
to act in the matter and each member of the Administrator is a disinterested
person. "Disinterested person", for this purpose, shall mean a person who,
at the time he exercises discretion in administering the Plan, has not at any
time within one (1) year prior thereto been granted or awarded selection as a
person to whom stock may be allocated or to whom stock options or stock
appreciation rights may be granted pursuant to the Plan or any other plan of
the Company or any of its affiliates entitling the participants therein to
acquire stock, stock options or stock appreciation rights of the Company or
any of its affiliates. The Administrator may delegate nondiscretionary
administrative duties to such employees of the Company as it deems proper.
Subject to the provisions of the Plan, the Administrator shall have the sole
authority, in its discretion:
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(a) to determine to which of the eligible individuals, and the time or
times at which, options to purchase Common Stock of the Company shall be
granted;
(b) to determine the number of shares of Common Stock to be subject to
options granted to each eligible individual;
(c) to determine the price to be paid for the shares of Common Stock
upon the exercise of each option;
(d) to determine the term and the exercise schedule of each option;
(e) to determine the terms and conditions of each stock option
agreement (which need not be identical) entered into between the Company and
any eligible individual to whom the Administrator has granted an option;
(f) to interpret the Plan;
(g) to accelerate the exercise date or schedule with respect to any
option granted under the Plan or, with the consent of the holder thereof,
to modify or amend any such option; and
(h) to make all determinations deemed necessary or advisable for the
administration of the Plan.
3. ELIGIBILITY. Every individual who at the date of grant is an
employee of the Company or of any parent or subsidiary of the Company (as
defined in Section 5.1(c) below) is eligible to receive incentive stock
options and nonstatutory stock options to purchase Common Stock under this
Plan. The term "employee" includes an officer or director who is an
employee of the Company or a parent or subsidiary of it, as well as a
non-officer, non-director employee of the Company or a parent or subsidiary
of it. Every individual who at the date of grant is a consultant to, or a
non-employee director of, the Company or of any affiliate of the Company (as
defined in Section 150 of California Corporations Code) is eligible to
receive nonstatutory stock options to purchase Common Stock under this Plan,
but shall not be eligible to receive incentive stock options. The term
"consultant" includes individuals employed by, or otherwise affiliated
with, a person providing consulting services to the Company. Notwithstanding
the above, neither A. Victor Farrow nor John O. Ryan shall be eligible to
receive any stock options under this Plan, and Eugene Eidenberg shall be
eligible to receive stock options under this Plan for eighty-three thousand
two hundred seventeen (83,217) shares (subject to adjustment as provided in
Section 7 hereof) only.
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<PAGE>
4. COMMON STOCK SUBJECT TO PLAN.
(a) There shall be reserved for issue upon the
exercise of options granted under the Plan one million seven
hundred fifty thousand (1,750,000) shares of Common Stock,
subject to adjustment as provided in Section 7 hereof. If an
option granted under the Plan shall expire or terminate for any
reason without having been exercised in full, the unpurchased
shares subject thereto shall again be available for the purposes
of the Plan.
(b) Notwithstanding any other provisions of this Plan, the aggregate
number of shares of Common Stock subject to outstanding options granted under
this Plan, plus the aggregate number of shares issued upon the exercise of
all options granted under this Plan, shall never be permitted to exceed the
number of shares specified in the first sentence of Section 4(a) above.
5. TERMS OF OPTIONS. Each option granted under the Plan shall be
evidenced by a stock option agreement between the individual to whom the
option is granted (the "optionee") and the Company. Each such agreement
shall designate the option thereby granted as an incentive stock option, a
nonstatutory stock option or in part an incentive stock option and in part a
nonstatutory stock option. Each such agreement shall be subject to the terms
and conditions set forth in Section 5.1, and to such other terms and
conditions not inconsistent herewith as the Administrator may deem
appropriate in each case. Incentive stock options shall be subject also to
the terms and conditions set forth in Section 5.2.
5.1 TERMS AND CONDITIONS TO WHICH ALL OPTIONS ARE SUBJECT. All options
granted under this Plan shall be subject to the following terms and
conditions:
(a) TERM OF OPTIONS. The period or periods within which an option
may be exercised shall be determined by the Administrator at the time the
option is granted, and such period or periods may be amended subsequently
only by written mutual agreement of the Company (at the direction of the
Administrator) and the optionee. In no event shall such period extend beyond
ten (10) years from the date the option is granted in the case of an
incentive stock option or ten (10) years and one (1) week from the date the
option is granted in the case of a nonstatutory stock option.
(b) EXERCISE PRICE. The price to be paid for each share of Common
Stock upon the exercise of an option shall be determined by the Administrator
at the time the option is granted, but shall in no event be less than
eighty-five percent (85%) in the case of a nonstatutory stock option, and one
hundred percent (100%) in the case of an incentive stock
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<PAGE>
option, of the fair market value of a share of Common Stock on the date the
option is granted. For all purposes of this Plan, the fair market value of
the Common Stock on any particular date shall be the closing price on the
trading day next preceding that date on the principal securities exchange on
which the Company's Common Stock is listed, or, if such Common Stock is not
then listed on any securities exchange, then the fair market value of the
Common Stock on such date shall be the mean of the closing bid and asked
prices as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ") on the trading day next preceding
such date. In the event that the Company's Common Stock is neither listed on
a securities exchange nor quoted by NASDAQ, then the Administrator shall
determine the fair market value of the Company's Common Stock on such date.
(c) MORE THAN TEN PERCENT SHAREHOLDERS. No option shall be
granted to any individual who, at the time such option would be granted, owns
stock possessing more than ten percent (10%) of the total combined voting
power of all classes of outstanding capital stock of the Company, or of any
parent corporation or subsidiary corporation of the Company, unless the
exercise price (as provided in Section 5.1(b) hereof) is not less than one
hundred percent (100%) in the case of a nonstatutory stock option, one
hundred ten percent (110%) in the case of an incentive stock option, of the
fair market value of the Common Stock on the date the option is granted, and
in the case of an incentive stock option the period within which the option
may be exercised (as provided in Section 5.1(a) hereof) does not exceed five
(5) years from the date the option is granted. As used in this Plan, the
terms "parent corporation" and "subsidiary corporation" shall have the
meanings set forth in Sections 425(e) and (f), respectively, of the Internal
Revenue Code of 1986, as amended (the "Code"). For purposes of this
Section 5.1(c), in determining stock ownership, an optionee shall be
considered as owning the voting capital stock owned, directly or indirectly,
by or for his brothers and sisters, spouse, ancestors and lineal descendants.
Voting capital stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be considered as being owned
proportionately by or for its shareholders, partners or beneficiaries, as
applicable. Common Stock with respect to which any such optionee holds an
option shall not be counted. Additionally, for purposes of this Section
5.1(c), outstanding capital stock shall include all capital stock actually
issued and outstanding immediately after the grant of the option to the
optionee. Outstanding capital stock shall not include capital stock
authorized for issue under outstanding options held by the optionee or by any
other person.
(d) METHOD OF PAYMENT FOR COMMON STOCK. The exercise price for
each share of Common Stock purchased
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<PAGE>
under an option shall be paid in full in cash at the time of purchase.
(e) NONTRANSFERABILITY. All options shall be nontransferable,
except by will or the laws of descent and distribution, and shall be
exercisable during the lifetime of the optionee only by the optionee.
(f) REPURCHASE OF STOCK. If provided in the stock option
agreement, at the discretion of the Administrator, the stock to be delivered
pursuant to the exercise of any option granted under this Plan may be subject
to a right of repurchase in favor of the Company with respect to any optionee
whose relationship with the Company is terminated. Such right of repurchase
shall be at the option exercise price and shall expire at such time or times
as set by the Administrator. Determination of the number of shares subject
to such right of repurchase shall be made as of the date the optionee's
relationship with the Company terminates.
(g) WITHHOLDING AND EMPLOYMENT TAXES. At the time of exercise of
an option, the optionee shall remit to the Company in cash the amount of any
and all applicable federal and state withholding and employment taxes.
5.2 ADDITIONAL TERMS AND CONDITIONS TO WHICH INCENTIVE STOCK OPTIONS
ARE SUBJECT. Options granted under this Plan which are designated as
incentive stock options shall be subject to the following additional terms
and conditions:
(a) ANNUAL LIMITATION. The aggregate fair market value
(determined as of the date an incentive stock option is granted) of the stock
with respect to which incentive stock options granted are exercisable for the
first time by an employee during any one (1) calendar year (under this Plan
and under all other incentive stock option plans of the Company and of any
parent or subsidiary corporation) shall not exceed One Hundred Thousand
Dollars ($100,000).
(b) DEATH. Upon the death of an employee, any incentive stock
option which such employee holds may be exercised, within such period after
the date of death as the Administrator shall prescribe in the stock option
agreement, by the employee's representative or by the person entitled thereto
under the employee's will or the laws of intestate succession.
(c) DISABILITY. Upon the permanent and total disability of an
employee (as defined in Section 105(d)(4) of the Code), any incentive stock
option which the employee holds may be exercised by the employee within such
period after the date of termination of employment resulting from such
disability (not to exceed twelve (12) months) as the Administrator shall
prescribe in the stock option agreement. The option shall terminate upon the
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<PAGE>
expiration of such prescribed period, unless the employee dies prior thereto,
in which event the provisions of Section 5.2(b) hereof shall apply.
(d) RETIREMENT. Upon the voluntary retirement of an employee at
or after reaching sixty-five (65) years of age, an incentive stock option may
be exercised by such employee with respect to all or any portion of the
balance of the Common Stock subject thereto within such period after the date
of retirement (not to exceed three (3) months) as the Administrator shall
prescribe in the stock option agreement. The option shall terminate upon the
expiration of such prescribed period, unless the employee dies prior thereto,
in which event the provisions of Section 5.2(b) hereof shall apply.
(e) TRANSFER TO RELATED CORPORATION. In the event that an
employee leaves the employ of the Company to become an employee of any parent
or subsidiary corporation of the Company, or if the employee leaves the
employ of any such parent or subsidiary corporation to become an employee of
the Company or of another parent or subsidiary corporation, such employee
shall be deemed to continue as an employee of the Company for all purposes of
this Plan.
(f) OTHER SEVERANCE. In the event an employee leaves the employ
of the Company for any reason other than as set forth in subsections (b)
through (e), above, any incentive stock option which such employee holds may
be exercised by such employee with respect to all or any portion of the
balance of the Common Stock subject thereto within such period after the date
of severance (not to exceed three (3) months) as the Administrator shall
prescribe in the stock option agreement.
(g) DISQUALIFYING DISPOSITIONS. If Common Stock acquired by
exercise of an incentive stock option granted pursuant to this Plan is
disposed of within two (2) years from the date of grant of the option or
within one (1) year after the transfer of the Common Stock to the optionee,
the holder of the Common Stock immediately prior to the disposition shall
promptly notify the Company in writing of the date and terms of the
disposition and shall provide such other information regarding the
disposition as the Company may reasonably require.
6. STOCK ISSUANCE AND RIGHTS AS SHAREHOLDER. Notwithstanding any other
provisions of the Plan, no optionee shall have any of the rights of a
shareholder (including the right to vote and receive dividends) of the
Company, by reason of the provisions of this Plan or any action taken
hereunder, until the date such optionee shall both have paid the exercise
price for the Common Stock and shall have been issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) the stock certificate evidencing such shares.
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<PAGE>
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) Subject to any required action by the Company's shareholders,
the number of shares of Common Stock covered by this Plan as provided in
Section 4, the number of shares covered by each outstanding option granted
hereunder and the exercise price thereof shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a subdivision or consolidation of such shares or the payment
of a stock dividend (but only on the Common Stock) or any other increase or
decrease in the number of such outstanding shares of Common Stock effected
without the receipt of consideration by the Company; provided, however, that
the conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration."
(b) Subject to any required action by the Company's shareholders,
if the Company shall be the surviving corporation in any merger or
consolidation, each outstanding option shall pertain and apply to the
securities to which a holder of the number of shares subject to the option
would have been entitled. A dissolution or liquidation of the Company or a
merger or consolidation in which the Company is not the surviving corporation
shall cause each outstanding option to terminate, unless the surviving
corporation in the case of a merger or consolidation assumes outstanding
options or replaces then with substitute options having substantially similar
terms and conditions; provided, however, that if an outstanding option is to
terminate upon any such event, the Administrator on such terms and conditions
as it deems appropriate, shall provide either by the terms of the stock
option agreement or by a resolution adopted prior to the occurrence of any
such event, that, for some period of time prior to such event, such option
shall be exercisable as to all of the shares covered by the portion of the
option that previously has not lapsed, terminated, or been exercised,
notwithstanding any exercise schedule provided in the stock option agreement.
(c) To the extent that the foregoing adjustments relate to stock
or securities of the Company, such adjustments shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
(d) Except as hereinabove expressly provided in this Section 7, no
optionee shall have any rights by reason of any subdivision or consolidation
of shares of the capital stock of any class or the payment of any stock
dividend or any other increase or decrease in the number of shares of any
class or by reason of any dissolution, liquidation, merger or consolidation
or spin-off of assets or stock of another corporation, and any issue by the
Company of shares of stock of any class or of
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<PAGE>
securities convertible into shares of stock of any class shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number
or price of shares subject to any option granted hereunder.
(e) The grant of an option pursuant to this Plan shall not affect
in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or consolidate or to dissolve, liquidate, sell or
transfer all or any part of its business or assets.
8. SECURITIES LAW REQUIREMENTS.
(a) The Administrator may require an individual as a condition of
the grant and of the exercise of an option, to represent and establish to the
satisfaction of the Administrator that all shares of Common Stock to be
acquired upon the exercise of such option will be acquired for investment and
not for resale. The Administrator shall cause such legends to be placed on
certificates evidencing shares of Common Stock issued upon exercise of an
option as, in the opinion of the Company's counsel, may be required by
federal and applicable state securities laws.
(b) No shares of Common Stock shall be issued upon the exercise of
any option unless and until counsel for the Company determines that: (i) the
Company and the optionee have satisfied all applicable requirements under the
Securities Act of 1933 and the Securities Exchange Act of 1934; (ii) any
applicable listing requirement of any stock exchange on which the Company's
Common Stock is listed has been satisfied; and (iii) all other applicable
provisions of state and federal law have been satisfied.
9. AMENDMENT. The Board may terminate the Plan or amend the Plan from
time to time in such respects as the Board may deem advisable, except that,
without the approval of the Company's shareholders in compliance with the
requirements of applicable law, no such revision or amendment shall:
(a) increase the number of shares of Common Stock reserved under
Section 4 hereof for issue under the Plan, except as provided in Section 7
hereof;
(b) change the class of persons eligible to participate in the
Plan under Section 3 hereof;
(c) extend the term of the Plan under Section 10 hereof; or
(d) amend this Section 9 to defeat its purpose.
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<PAGE>
10. TERMINATION. The Plan shall terminate automatically on August 31,
1998, and may be terminated at any earlier date by the Board. No option
shall be granted hereunder after termination of the Plan, but such
termination shall not affect the validity of any option then outstanding.
11. TIME OF GRANTING OPTIONS. The date of grant of an option hereunder
shall, for all purposes, be the date on which the Administrator makes the
determination granting such option.
12. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of shares of its
Common Stock as shall be sufficient to satisfy the requirements of the Plan.
13. EFFECTIVE DATE. This Plan was adopted by the Board of Directors of
the Company on September 9, 1988, and shall be effective on said date,
provided the Plan is approved within twelve (12) months of said date by the
shareholders of the Company in accordance with the requirements of the Code
and the California General Corporation Law. Options may be granted, but may
not be exercised, prior to the date of such shareholder approval.
14. COMPANY FINANCIAL INFORMATION. The Company shall provide all
optionees on an annual basis with the balance sheet and income statement for
the then ending financial year to the same extent such information is made
available to shareholders of the Company.
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MACROVISION CORPORATION
EMPLOYEE INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
(DATE OF GRANT)
MACROVISION CORPORATION, a California corporation (the "Company"),
does hereby grant to _____________ (the "Employee") a non-transferable
option to purchase an aggregate of _______ shares of the Company's Common
Stock, without par value, at the price of _________________ ($_____) per
share, upon the following terms and conditions:
1. TERM OF OPTION. Notwithstanding any other provision of this
Agreement, the option granted hereby and all rights of the Employee to
purchase Common Stock hereunder shall expire with respect to all of the
shares subject hereto on (10 YEARS) (the "Expiration Date"); provided,
however that this option shall be subject to termination prior to the
Expiration Date in accordance with the provisions of Sections 2, 4, and 10
hereof.
2. EXERCISE SCHEDULE. Subject to the remaining provisions of this
Agreement, the option shall be exercisable in accordance with the following
schedule:
(1/6) shares on or after (1 year from date of grant or employment)
(1/3) additional shares on or after (2 years from date of grant or
employ)
(1/2) additional shares on or after (3 years from date of grant or
employ)
The dates appearing in the above schedule refer to the earliest dates on
which the option may be exercised with respect to the number of shares set
forth therein, and the option may be exercised with respect to all or any
part of such shares at any time (prior to the Expiration Date or earlier
termination of this option) on or after such dates. The Employee must be and
remain in the employ of the Company, or of any parent corporation or
subsidiary corporation of the Company (as defined in Internal Revenue Code
Sections 424(e) and (f), during the entire period commencing with the date of
grant of this option and ending with each of the dates appearing in the above
schedule in order to exercise the option with respect to the number of shares
set forth next to each such date.
3. ACCELERATED EXERCISE. The Company and University National Bank &
Trust Company, Trustee (the "Purchaser") are parties to a Stock and
Convertible Note Purchase Agreement dated May 24, 1991 (the "Purchase
Agreement"). In the event that the Purchaser makes an offer pursuant to
Section 8.4 of the Purchase Agreement to purchase all of the shares of Common
Stock covered by the option granted hereby, then, notwithstanding Section 2
hereof, options granted hereunder that have not lapsed, terminated or been
exercised prior to the date of such offer shall be fully
<PAGE>
exercisable as of the date such offer is made and may be exercised with
respect to all or any part of such shares at any time (prior to the
Expiration Date or earlier termination of this option) on or after such date.
4. RIGHTS ON TERMINATION OF EMPLOYMENT. Upon the termination of the
Employee's employment with the Company or with any parent or subsidiary
corporation of the Company, the Employee's right to exercise this option, to
the extent it is otherwise then exercisable pursuant to Section 2 hereof,
shall be limited in the following manner:
(a) DEATH. If the Employee's employment is terminated by death, the
Employee's estate shall have the right, for a period of twelve (12) months
following the date of the Employee's death, to exercise the option to the
extent it was exercisable by the Employee on the date of death. The
Employee's estate shall mean the Employee's legal representative upon death
or any person who acquires the right to exercise the option by reason of such
death under the Employee's will or the laws of intestate succession.
(b) RETIREMENT. If the Employee's employment is terminated by
voluntary retirement at or after reaching sixty-five (65) years of age, the
Employee may, within three (3) months following such termination, exercise
the option to the extent it was exercisable by the Employee on the date of
such termination. The option shall terminate upon the expiration of such
three (3) month period unless the Employee dies prior thereto, in which event
the Employee shall be treated as though the Employee had died on the date of
retirement and the provisions of Section 4(a) shall apply.
(c) DISABILITY. If the Employee's employment is terminated because of
a permanent and total disability (as defined in Internal Revenue Code Section
22 (e)(3)), the Employee or the Employees estate may, within twelve (12)
months following such termination, exercise the option to the extent it was
exercisable by the Employee on the date of such termination.
(d) OTHER TERMINATION. If the Employee's employment is terminated for
any reason other than those provided in subsection (a), (b) and (c) above,
the Employee may, within three (3) months following such termination,
exercise the option to the extent it was exercisable by the Employee on the
date of such termination. The option shall terminate upon the expiration of
such three (3) month period.
(e) TRANSFER TO RELATED CORPORATION. In the event the Employee leaves
the employ of the Company to become an employee of any parent or subsidiary
corporation of the Company or if the Employee leaves the employ of any such
parent or subsidiary corporation to become an employee of the Company or of
another parent or
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subsidiary corporation, the Employee shall be deemed to continue as
an employee of the Company for all purposes of this Agreement.
5. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) Subject to any required action by the Company's shareholders, the
number of shares of Common Stock covered by the option granted hereby and the
exercise price thereof shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a
subdivision or consolidation of such shares or the payment of a stock
dividend (but only on the Common Stock) or any other increase or decrease in
the number of such outstanding shares of Common Stock effected without the
receipt of consideration by the Company; provided, however, that the
conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration."
(b) Subject to any required action by the Company's shareholders, if
the Company shall be the surviving corporation in any merger or
consolidation, the option granted hereby shall pertain and apply to the
securities to which a holder of the number of shares subject to the
unexercised portion of this option would have been entitled. A dissolution
or liquidation of the Company or a merger or consolidation involving the
Company in which the Company is not the surviving corporation shall cause
this option to terminate on the effective date of any such event, unless the
surviving corporation in the case of a merger or consolidation assumes
outstanding options or replaces them with substitute options having
substantially similar terms and conditions. Notwithstanding Section 2
hereof, options granted hereunder that have not lapsed, terminated, or been
exercised prior to the date of dissolution or liquidation of the Company or
of a merger or consolidation involving the Company in which the Company is
not the surviving corporation shall be fully exercisable for a period of ten
(10) days prior to the effective date of any such liquidation, dissolution
merger or consolidation unless such options are assumed or substituted by the
continuing or surviving corporation.
(c) To the extent that the foregoing adjustments relate to stock or
securities of the company, such adjustments shall be made by the Company's
Board of Directors ("Board"), whose determination in that respect shall be
final, binding and conclusive. The Company agrees to give notice of any such
adjustment to the Employee, provided, however, that any such adjustment shall
be effective and binding for all purpose hereof whether or not such notice is
given or received.
(d) Except as hereinabove expressly provided in this Section 5, the
Employee shall have no rights by reason of any subdivision or consolidation
of shares of the capital stock of any class or the payment of any stock
dividend or any other increase or
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decrease in the number of shares of any class or by reason of any
dissolution, liquidation, merger, or consolidation or spin-off of assets or
stock of another corporation, and any issue by the Company of shares of stock
of any class or of securities convertible into shares of stock of any class,
shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or exercise price of shares subject to the option
granted hereunder.
(e) The grant of the option hereby shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge
or consolidate or to dissolve, liquidate, sell or transfer all or any part of
its business or assets.
6. MANNER OF EXERCISE. The option granted hereby shall be exercised
by the Employee by giving written notice to the Company, in substantially the
form attached hereto as Exhibit A, which notice shall specify the number of
shares of Common Stock which the Employee elects to purchase. Additionally,
the Employee shall execute and deliver an Investment Representation Letter,
in the form of Exhibit B attached hereto. Upon receipt of such notice of
exercise and of payment of the purchase price, the Company shall, as soon as
reasonably possible and subject to all other provisions hereof, deliver
certificates for the shares of Common Stock so purchased, registered in the
Employee's name or in the name of his legal representative. Payment of the
purchase price upon any exercise of the option granted hereby shall be made
by check or in cash.
7. NON-TRANSFERABLE. During the lifetime of the Employee, the option
granted to the Employee hereunder shall be exercisable only by the Employee
and shall not be transferable or assignable by the Employee in whole or in
part otherwise than by will or the laws of descent and distribution. If the
Employee shall make any purported transfer or assignment of the Employee's
option hereunder, such assignment shall be null and void and of no force or
effect whatsoever and the Company shall have the right to terminate this
Agreement as of the date of any such purported transfer or assignment.
8. COMPLIANCE WITH SECURITIES AND OTHER LAWS. As a condition to the
exercise in whole or in part of the option granted hereby, each notice of
exercise shall include a representation by the purchaser that such purchaser
intends to acquire the shares of Common Stock specified therein for
investment, for such purchaser's own account and not with a view to, or for
sale in connection with, any distribution of such shares. The Company shall
not be obligated to deliver any shares of Common Stock hereunder for such
period as may reasonably be required for it to comply with any applicable
requirements of: (i) the Securities Act of 1933; (ii) the Securities
Exchange Act of 1934; (iii) applicable state securities laws; (iv) any
applicable listing requirement of any stock exchange on which the Company's
Common Stock is then listed; and (v)
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any other law or regulation applicable to the issuance of such shares.
Shares of Common Stock issued pursuant to exercise of this option shall
include the following legends and such other legends as in the opinion of the
Company's counsel may be required by the securities laws of any state in
which the Employee resides:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY SALE, TRANSFER, PLEDGE OR
OTHER DISPOSITION THEREOF MAY BE MADE ONLY (i) IN A TRANSACTION
REGISTERED UNDER SAID ACT OR (ii) IF AN EXEMPTION FROM REGISTRATION
UNDER SAID ACT IS AVAILABLE AND IS ESTABLISHED TO THE SATISFACTION OF
THE ISSUER.
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 CORPORATION OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
9. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing contained in this
Agreement shall: (i) confer upon the Employee any right with respect to the
continuance of employment by the Company or by any parent or subsidiary
corporation of the Company; or (ii) limit in any way the right of the Company
or of any parent or subsidiary corporation to terminate the Employee's
employment at any time.
10. OPTION SUBJECT TO TERMS OF PLAN. In addition to the provision
hereof, this Agreement and the option granted hereby are governed by, and
subject to the terms and conditions of, the Macrovision Corporation Stock
Option Plan, as adopted effective September 9, 1988, as amended (the
"Plan"). The Employee acknowledges receipt of a copy of the Plan (a copy
of which is attached hereto as Exhibit C). The Employee represents that he
is familiar with the terms and conditions of the Plan, and hereby accepts the
option granted hereby subject to all of the terms and conditions thereof,
which terms and conditions shall control to the extent inconsistent in any
respect with the provisions of this Agreement. The Employee hereby agrees to
accept as binding, conclusive and final all decisions and interpretations of
the Board, or other administrator of the Plan, as to any questions arising
under the Plan or under this Agreement. This Agreement, as supplemented by
the Plan, shall bind and inure to the benefit of the Company and its
successors and assigns, and the Employee and the Employee's estate in the
event of death.
11. NOTICES. All notices and other communications of any kind which
either party to this Agreement may be required or may desire to serve on the
other party
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hereto in connection with this Agreement shall be in writing and may be
delivered by personal service or by registered or certified mail, return
receipt requested, deposited in the United States mail with the postage
thereon fully prepaid, addressed to the parties at the addresses indicated on
the signature page hereof. Service of any such notice or other communication
so made by mail shall be deemed complete on the date of actual delivery as
shown by the addressee's registry or certification receipt or at the
expiration of the third (3rd) business day after the date of mailing,
whichever is earlier in time. Either party may from time to time by notice
in writing served upon the other as aforesaid, designate a different mailing
address or a different person to which such notices or other communications
are thereafter to be addressed or delivered.
12. INDEPENDENT TAX ADVICE. The Employee agrees that Employee has or
will obtain the advice of independent tax counsel regarding the federal and
state income tax consequences of the receipt and exercise of the option
granted hereby and of the disposition of Common Stock acquired upon exercise
hereof, including advice regarding the imposition of the alternative minimum
tax on tax preferences generated by exercise of stock options and regarding
any holding period requirements for preferential tax treatment. The Employee
acknowledges that he has not relied and will not rely upon any advice or
representations by the Company or by its employees or representatives with
respect to the tax treatment of options granted hereunder.
Date of Grant
-----------------
MACROVISION CORPORATION
1341 Orleans Drive
Sunnyvale, California 94089
By:
--------------------------
William A. Krepick, President
AGREED TO AND ACCEPTED:
-----------------------------
Employee
-----------------------------
(printed name and address)
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EXHIBIT A
FORM OF NOTICE OF EXERCISE
OF MACROVISION CORPORATION
INCENTIVE STOCK OPTION
MACROVISION CORPORATION
1341 Orleans Drive
Sunnyvale, California 94089
Gentlemen:
I hereby exercise the right to purchase __________ shares of Common
Stock, without par value, of MACROVISION CORPORATION, under the terms of the
option granted to me on _____________________, 19____ pursuant to the
Employee Incentive Stock Option Agreement, dated as of said grant date. This
exercise of said option and the purchase and delivery of said shares shall be
subject to all the terms and conditions of such Employee Incentive Stock
Option Agreement.
I enclose my check for $________________ in full payment of the purchase
price of said shares. Please register said shares in my name.
I hereby represent and agree that I am purchasing the shares for my own
account and not with a view to, or for sale in connection with, any
distribution of the shares, and that I will not sell the shares without
registration under the Securities Act of 1933 or an exemption therefrom and
in compliance with applicable state securities laws.
Dated: _______________________, 19____
-----------------------------
(signature)
-----------------------------
-----------------------------
-----------------------------
(print name and home address)
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EXHIBIT B
INVESTMENT REPRESENTATION LETTER
Macrovision Corporation
1341 Orleans Drive
Sunnyvale, California 94089
Gentlemen:
In connection with the exercise by me of a stock option to purchase
____________ shares of the Common Stock (the "Shares") of Macrovision
Corporation (the "Company"), I hereby represent to you the following:
1. I understand that the Shares are highly speculative and that there
can be no assurance as to what return, if any, there may be on my investment.
I have evaluated the risks of making this investment in the Shares, have
determined that such investment is consistent with my investment objectives,
have the ability to bear the economic risk of such investment and can afford
a complete loss of the purchase price of the Shares.
2. I have made an informed, independent judgment with respect to the
desirability of purchasing the Shares from the Company. I have,
independently and without reliance upon the Company or any representations or
statements made by the Company or its representatives, made my own analysis
and decision to purchase the Shares. Neither the Company nor any of its
representatives have made any representations or warranties to me, and no
prior or future acts by the Company or its representatives shall be deemed to
constitute representations or warranties by the Company.
3. I am acquiring the Shares for my own account for investment purposes
only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as
amended (the "Act").
4. I understand that the Shares must be held INDEFINITELY unless
subsequently registered under the Act and qualified under applicable state
securities laws or unless an exemption from such registration and
qualification is applicable to any subsequent transfer. I hereby agree that
the Shares will not be sold without registration under the Act and
qualification under applicable state securities laws or exemption therefrom.
I understand that the Company has no present plans for registration or
qualification of
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<PAGE>
the Shares and that it has no obligation to register or to qualify the Shares
for any future sale thereof by me.
5. I understand that the certificates evidencing the Shares to be held
by me will bear the legends set forth below and may bear certain additional
legends required under applicable state securities law:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND ANY SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
THEREOF MAY BE MADE ONLY (i) IN A TRANSACTION REGISTERED UNDER SAID ACT OR
(ii) IF AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE AND IS
ESTABLISHED TO THE SATISFACTION OF THE ISSUER.
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.
6. I further understand that there is no market for the Shares and
there may never be a market for the Shares, and that even if a market
develops for the Shares, as a result of the foregoing restrictions on
transfer and the representations and warranties hereunder, I may not be able
to sell or dispose of the Shares, and that I may thus have to bear the risk
of my investment in the Shares for a substantial period of time, or forever.
7. I acknowledge that no one is acting as my representative in this
purchase.
8. I agree that the Company may note upon its stock transfer records a
"stop transfer order" with respect to the Shares in order to enforce the
restrictions on transfer hereinabove described. I understand and agree that
any and all share certificates issued by the Company to me in connection with
the proposed purchase may bear the restrictive legends hereinabove described.
I further agree that the Company shall not be liable for any refusal to
transfer the Shares upon the books of the Company, except in compliance with
the terms and conditions of such restrictions.
9. I agree to indemnify and save and hold harmless the Company, its
successors and assigns, and their officers, directors and controlling
persons, if any, against any loss, claim, damage, liability, cost and expense
arising out of a breach by the undersigned of any of the foregoing
representations, warranties and covenants,
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whether under the Act, as the same may be amended from time to time, the
securities laws of any state, or otherwise. Finally, I agree that the terms
and conditions of this letter shall also bind upon my heirs, assigns and
legal representatives.
10. I am a resident of _______________________, County and am
purchasing the Shares in the State of California.
Executed this _______ day of __________________, 199__ at _____________
______________, California.
-----------------------------
Signature
Address:
- -------------------------------
- -------------------------------
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EXHIBIT C
MACROVISION CORPORATION
STOCK OPTION PLAN
As Adopted Effective September 9, 1988;
Amended September 22, 1988:
Amended September 13, 1990;
Amended and Restated February 6, 1992;
1. PURPOSE. The purpose of the MACROVISION CORPORATION STOCK OPTION PLAN
(the "Plan") is to grant to selected employees, directors, and consultants
of Macrovision Corporation, a California corporation (the "Company") and
its subsidiaries and affiliates, a favorable opportunity to acquire Common
Stock of the Company, thereby encouraging such persons to accept or continue
a qualifying relationship with the Company; increasing the interest of such
persons in the Company's welfare through participation in the growth and
value of the Common Stock; and furnishing such persons with an incentive to
improve operations and increase profits of the Company.
To accomplish the foregoing objectives, this Plan provides a means
whereby employees, directors, and consultants may receive options to purchase
Common Stock. Options granted under this Plan will be either nonstatutory
stock options (subject to federal income taxation upon exercise) or incentive
stock options (generally not subject to immediate federal income taxation
upon exercise).
2. ADMINISTRATION. The Plan shall be administered by the Board of
Directors of the Company (the "Board"), or by a committee appointed by the
Board which shall not have less than two (2) members (in either case, the
"Administrator"). No option shall be granted to a director or officer of
the Company except (i) by the Board when all of its members are disinterested
persons, or (ii) by an Administrator other than the Board when the
Administrator is composed of two (2) or more directors having full authority
to act in the matter and each member of the Administrator is a disinterested
person. "Disinterested person", for this purpose, shall mean a person who,
at the time he exercises discretion in administering the Plan, has not at any
time within one (1) year prior thereto been granted or awarded selection as a
person to whom stock may be allocated or to whom stock options or stock
appreciation rights may be granted pursuant to the Plan or any other plan of
the Company or any of its affiliates entitling the participants therein to
acquire stock, stock options or stock appreciation rights of the Company or
any of its affiliates. The Administrator may delegate nondiscretionary
administrative
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duties to such employees of the Company as it deems proper. Subject to the
provisions of the Plan, the Administrator shall have the sole authority, in
its discretion:
(a) to determine to which of the eligible individuals, and the time
or times at which, options to purchase Common Stock of the Company shall be
granted;
(b) to determine the number of shares of Common Stock to be subject
to options granted to each eligible individual;
(c) to determine the price to be paid for the shares of Common
Stock upon the exercise of each option;
(d) to determine the term and the exercise schedule of each option;
(e) to determine the terms and conditions of each stock option
agreement (which need not be identical) entered into between the Company and
any eligible individual to whom the Administrator has granted an option;
(f) to interpret the Plan;
(g) to accelerate the exercise date or schedule with respect to any
option granted under the Plan or, with the consent of the holder thereof, to
modify or amend any such option; and
(h) to make all determinations deemed necessary or advisable for
the administration of the Plan.
3. ELIGIBILITY. Every individual who at the date of grant is an employee
of the Company or of any parent or subsidiary of the Company (as defined in
Section 5.1(c) below) is eligible to receive incentive stock options and
nonstatutory stock options to purchase Common Stock under this Plan. The term
"employee" includes an officer or director who is an employee of the
Company or a parent or subsidiary of it, as well as a non-officer,
non-director employee of the Company or a parent or subsidiary of it. Every
individual who at the date of grant is a consultant to, or a non-employee
director of, the Company or of any affiliate of the Company (as defined in
Section 150 of California Corporations Code) is eligible to receive
nonstatutory stock options to purchase Common Stock under this Plan, but
shall not be eligible to receive incentive stock options. The term
"consultant" includes individuals employed by, or otherwise affiliated
with, a person providing consulting services to the Company. Notwithstanding
the above, neither A. Victor Farrow nor John O. Ryan shall be eligible to
receive any stock options under this Plan, and Eugene Eidenberg shall be
eligible to receive stock options under this Plan for eighty-three
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<PAGE>
thousand two hundred seventeen (83,217) shares (subject to adjustment as
provided in Section 7 hereof) only.
4. COMMON STOCK SUBIECT TO PLAN.
(a) There shall be reserved for issue upon the exercise of options
granted under the Plan one million seven hundred fifty thousand
(1,750,000) shares of Common Stock, subject to adjustment as provided
in Section 7 hereof. If an option granted under the Plan shall expire
or terminate for any reason without having been exercised in full, the
unpurchased shares subject thereto shall again be available for the
purposes of the Plan.
(b) Notwithstanding any other provisions of this Plan, the aggregate
number of shares of Common Stock subject to outstanding options granted
under this Plan, plus the aggregate number of shares issued upon the
exercise of all options granted under this Plan, shall never be
permitted to exceed the number of shares specified in the first
sentence of Section 4(a) above.
5. TERMS OF OPTIONS. Each option granted under the Plan shall be
evidenced by a stock option agreement between the individual to whom the
option is granted (the "optionee") and the Company. Each such agreement
shall designate the option thereby granted as an incentive stock option, a
nonstatutory stock option or in part an incentive stock option and in part a
nonstatutory stock option. Each such agreement shall be subject to the terms
and conditions set forth in Section 5.1, and to such other terms and
conditions not inconsistent therewith as the Administrator may deem
appropriate in each case. Incentive stock options shall be subject also to
the terms and conditions set forth in Section 5.2.
5.1 TERMS AND CONDITIONS TO WHICH ALL OPTIONS ARE SUBJECT. All options
granted under this Plan shall be subject to the following terms and
conditions:
(a) TERM OF OPTIONS. The period or periods within which an option
may be exercised shall be determined by the Administrator at the time
the option is granted, and such period or periods may be amended
subsequently only by written mutual agreement of the Company (at the
direction of the Administrator) and the optionee. In no event shall
such period extend beyond ten (10) years from the date the option is
granted in the case of an incentive stock option or ten (10) years and
one (1) week from the date the option is granted in the case of a
nonstatutory stock option.
(b) EXERCISE PRICE. The price to be paid for each share of Common
Stock upon the exercise of an option shall be determined by the
Administrator at the time the option is granted, but shall in no event
be less than eighty-five percent (85%) in the case of a nonstatutory
stock option, and one hundred percent (100%) in the case of an
incentive stock option, of the fair market value of a share of Common
Stock on the date the option
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<PAGE>
is granted. For all purposes of this Plan,
the fair market value of the Common Stock on any particular date shall
be the closing price on the trading day next preceding that date on the
principal securities exchange on which the Company's Common Stock is
listed, or, if such Common Stock is not then listed on any securities
exchange, then the fair market value of the Common Stock on such date
shall be the mean of the closing bid and asked prices as reported by
the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") on the trading day next preceding such
date. In the event that the Company's Common Stock is neither listed on
a securities exchange nor quoted by NASDAQ, then the Administrator
shall determine the fair market value of the Company's Common Stock on
such date.
(c) MORE THAN TEN PERCENT SHAREHOLDERS. No option shall be granted to
any individual who, at the time such option would be granted, owns
stock possessing more than ten percent (10%) of the total combined
voting power of all classes of outstanding capital stock of the
Company, or of any parent corporation or subsidiary corporation of the
Company, unless the exercise price (as provided in Section 5.1(b)
hereof) is not less than one hundred percent (100%) in the case of a
nonstatutory stock option, one hundred ten percent (110%) in the case
of an incentive stock option, of the fair market value of the Common
Stock on the date the option is granted, and in the case of an
incentive stock option the period within which the option may be
exercised (as provided in Section 5.1(a) hereof) does not exceed five
(5) years from the date the option is granted. As used in this Plan,
the terms "parent corporation" and "subsidiary corporation" shall
have the meanings set forth in Sections 425(e) and (f), respectively,
of the Internal Revenue Code of 1986, as amended (the "Code"). For
purposes of this Section 5.1(c), in determining stock ownership, an
optionee shall be considered as owning the voting capital stock owned,
directly or indirectly, by or for his brothers and sisters, spouse,
ancestors and lineal descendants. Voting capital stock owned, directly
or indirectly, by or for a corporation, partnership, estate or trust
shall be considered as being owned proportionately by or for its
shareholders, partners or beneficiaries, as applicable. Common Stock
with respect to which any such optionee holds an option shall not be
counted. Additionally, for purposes of this Section 5.1(c), outstanding
capital stock shall include all capital stock actually issued and
outstanding immediately after the grant of the option to the optionee.
Outstanding capital stock shall not include capital stock authorized
for issue under outstanding options held by the optionee or by any
other person.
(d) METHOD OF PAYMENT FOR COMMON STOCK. The exercise price for each
share of Common Stock purchased under an option shall be paid in full
in cash at the time of purchase.
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<PAGE>
(e) NONTRANSFERABILITY. All options shall be nontransferable, except by
will or the laws of descent and distribution, and shall be exercisable
during the lifetime of the optionee only by the optionee.
(f) REPURCHASE OF STOCK. If provided in the stock option agreement, at
the discretion of the Administrator, the stock to be delivered pursuant
to the exercise of any option granted under this Plan may be subject to
a right of repurchase in favor of the Company with respect to any
optionee whose relationship with the Company is terminated. Such right
of repurchase shall be at the option exercise price and shall expire at
such time or times as set by the Administrator. Determination of the
number of shares subject to such right of repurchase shall be made as
of the date the optionee's relationship with the Company terminates.
(g) WITHHOLDING AND EMPLOYMENT TAXES. At the time of exercise of an
option, the optionee shall remit to the Company in cash the amount of
any and all applicable federal and state withholding and employment
taxes.
5.2 ADDITIONAL TERMS AND CONDITIONS TO WHICH INCENTIVE STOCK OPTIONS ARE
SUBIECT. Options granted under this Plan which are designated as incentive stock
options shall be subject to the following additional terms and conditions:
(a) ANNUAL LIMITATION. The aggregate fair market value (determined as
of the date an incentive stock option is granted) of the stock with
respect to which incentive stock options granted are exercisable for
the first time by an employee during any one (1) calendar year (under
this Plan and under all other incentive stock option plans of the
Company and of any parent or subsidiary corporation) shall not exceed
One Hundred Thousand Dollars ($100,000).
(b) DEATH. Upon the death of an employee, any incentive stock option
which such employee holds may be exercised, within such period after
the date of death as the Administrator shall prescribe in the stock
option agreement, by the employee's representative or by the person
entitled thereto under the employee's will or the laws of intestate
succession.
(c) DISABILITY. Upon the permanent and total disability of an employee
(as defined in Section 105(d)(4) of the Code), any incentive stock
option which the employee holds may be exercised by the employee within
such period after the date of termination of employment resulting from
such disability (not to exceed twelve (12) months) as the Administrator
shall prescribe in the stock option agreement. The option shall
terminate upon the expiration of such prescribed period, unless the
employee dies prior thereto, in which event the provisions of Section
5.2(b) hereof shall apply.
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<PAGE>
(d) RETIREMENT. Upon the voluntary retirement of an employee at or
after reaching sixty-five (65) years of age, an incentive stock option
may be exercised by such employee with respect to all or any portion of
the balance of the Common Stock subject thereto within such period
after the date of retirement (not to exceed three (3) months) as the
Administrator shall prescribe in the stock option agreement. The
option shall terminate upon the expiration of such prescribed period,
unless the employee dies prior thereto, in which event the provisions
of Section 5.2(b) hereof shall apply.
(e) TRANSFER TO RELATED CORPORATION. In the event that an employee
leaves the employ of the Company to become an employee of any parent or
subsidiary corporation of the Company, or if the employee leaves the
employ of any such parent or subsidiary corporation to become an
employee of the Company or of another parent or subsidiary corporation,
such employee shall be deemed to continue as an employee of the Company
for all purposes of this Plan.
(f) OTHER SEVERANCE. In the event an employee leaves the employ of the
Company for any reason other than as set forth in subsections (b)
through (e), above, any incentive stock option which such employee
holds may be exercised by such employee with respect to all or any
portion of the balance of the Common Stock subject thereto within such
period after the date of severance (not to exceed three (3) months) as
the Administrator shall prescribe in the stock option agreement.
(g) DISQUALIFYINQ DISPOSITIONS. If Common stock acquired by exercise of
an incentive stock option granted pursuant to this Plan is disposed of
within two (2) years from the date of grant of the option or within one
(1) year after the transfer of the Common Stock to the optionee, the
holder of the Common Stock immediately prior to the disposition shall
promptly notify the Company in writing of the date and terms of the
disposition and shall provide such other information regarding the
disposition as the Company may reasonably require.
6. STOCK ISSUANCE AND RIQHTS AS SHAREHOLDER. Notwithstanding any other
provisions of the Plan, no optionee shall have any of the rights of a
shareholder (including the right to vote and receive dividends) of the Company,
by reason of the provisions of this Plan or any action taken hereunder, until
the date such optionee shall both have paid the exercise price for the Common
Stock and shall have been issued (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) the
stock certificate evidencing such shares.
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
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(a) Subject to any required action by the Company's shareholders, the
number of shares of Common Stock covered by this Plan as provided in
Section 4, the number of shares covered by each outstanding option
granted hereunder and the exercise price thereof shall be
proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a subdivision or
consolidation of such shares or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the
number of such outstanding shares of Common Stock effected without the
receipt of consideration by the Company; provided, however, that the
conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration."
(b) Subject to any required action by the Company's shareholders, if
the Company shall be the surviving corporation in any merger or
consolidation, each outstanding option shall pertain and apply to the
securities to which a holder of the number of shares subject to the
option would have been entitled. A dissolution or liquidation of the
Company or a merger or consolidation in which the Company is not the
surviving corporation shall cause each outstanding option to terminate,
unless the surviving corporation in the case of a merger or
consolidation assumes outstanding options or replaces them with
substitute options having substantially similar terms and conditions;
provided, however, that if an outstanding option is to terminate upon
any such event, the Administrator on such terms and conditions as it
deems appropriate, shall provide either by the terms of the stock
option agreement or by a resolution adopted prior to the occurrence of
any such event, that, for some period of time prior to such event, such
option shall be exercisable as to all of the shares covered by the
portion of the option that previously has not lapsed, terminated, or
been exercised, notwithstanding any exercise schedule provided in the
stock option agreement.
(c) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board,
whose determination in that respect shall be final, binding and
conclusive.
(d) Except as hereinabove expressly provided in this Section 7, no
optionee shall have any rights by reason of any subdivision or
consolidation of shares of the capital stock of any class or the
payment of any stock dividend or any other increase or decrease in the
number of shares of any class or by reason of any dissolution,
liquidation, merger or consolidation or spin-off of assets or stock of
another corporation, and any issue by the Company of shares of stock of
any class or of securities convertible into shares of stock of any
class shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares subject to any
option granted hereunder.
(e) The grant of an option pursuant to this Plan shall not affect in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or
17
<PAGE>
changes of its capital or business structure or to merge or
consolidate or to dissolve, liquidate, sell or transfer all
or any part of its business or assets.
8. SECURITIES LAW REQUIREMENTS.
(a) The Administrator may require an individual as a condition of the grant
and of the exercise of an option, to represent and establish to the
satisfaction of the Administrator that all shares of Common Stock to be
acquired upon the exercise of such option will be acquired for investment
and not for resale. The Administrator shall cause such legends to be placed
on certificates evidencing shares of Common Stock issued upon exercise of
an option as, in the opinion of the Company's counsel, may be required by
federal and applicable state securities laws.
(b) No shares of Common Stock shall be issued upon the exercise of any
option unless and until counsel for the Company determines that: (i) the
Company and the optionee have satisfied all applicable requirements under
the Securities Act of 1933 and the Securities Exchange Act of 1934; (ii)
any applicable listing requirement of any stock exchange on which the
Company's Common Stock is listed has been satisfied; and (iii) all other
applicable provisions of state and federal law have been satisfied.
9. AMENDMENT. The Board may terminate the Plan or amend the Plan from time
to time in such respects as the Board may deem advisable, except that, without
the approval of the Company's shareholders in compliance with the requirements
of applicable law, no such revision or amendment shall:
(a) increase the number of shares of Common Stock reserved under
Section 4 hereof for issue under the Plan, except as provided in
Section 7 hereof;
(b) change the class of persons eligible to participate in the Plan
under Section 3 hereof;
(c) extend the term of the Plan under Section 10 hereof; or
(d) amend this Section 9 to defeat its purpose.
10. TERMINATION. The Plan shall terminate automatically on August 31,
1998, and may be terminated at any earlier date by the Board. No option shall
be granted hereunder after termination of the Plan, but such termination
shall not affect the validity of any option then outstanding.
11. TIME OF GRANTING OPTIONS. The date of grant of an option hereunder
shall, for all purposes, be the date on which the Administrator makes the
determination granting such option.
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<PAGE>
12. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of shares of its
Common Stock as shall be sufficient to satisfy the requirements of the Plan.
13. EFFECTIVE DATE. This Plan was adopted by the Board of Directors of
the Company on September 9, 1988, and shall be effective on said date,
provided the Plan is approved within twelve (12) months of said date by the
shareholders of the Company in accordance with the requirements of the Code
and the California General Corporation Law. Options may be granted, but may
not be exercised, prior to the date of such shareholder approval.
14. COMPANY FINANCIAL INFORMATION. The Company shall provide all
optionees on an annual basis with the balance sheet and income statement for
the then ending financial year to the same extent such information is made
available to shareholders of the Company.
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<PAGE>
MACROVISION CORPORATION
NONSTATUTORY STOCK OPTION AGREEMENT
-------------------
(DATE OF GRANT)
MACROVISION CORPORATION, a California corporation (the "Company"),
does hereby grant to _____________ (the "Optionee") a non-transferable
option to purchase an aggregate of _______ shares of the Company's Common
Stock, without par value, at the price of _________________ ($_____) per
share, upon the following terms and conditions:
1. TERM OF OPTION. Notwithstanding any other provision of this
Agreement, the option granted hereby and all rights of the Optionee to
purchase Common Stock hereunder shall expire with respect to all of the
shares subject hereto on (10 YEARS) (the "Expiration Date"); provided,
however that this option shall be subject to termination prior to the
Expiration Date in accordance with the provisions of Sections 2, 4, and 10
hereof.
2. EXERCISE SCHEDULE. Subject to the remaining provisions of this
Agreement, the option shall be exercisable in accordance with the following
schedule:
on or after
-------------- ----------------
The dates appearing in the above schedule refer to the earliest dates on
which the option may be exercised with respect to the number of shares set
forth therein, and the option may be exercised with respect to all or any
part of such shares at any time (prior to the Expiration Date or earlier
termination of this option) on or after such dates. The Optionee must be and
remain in the employ of the Company, or of any parent corporation or
subsidiary corporation of the Company (as defined in Internal Revenue Code
Sections 424(e) and (f), during the entire period commencing with the date of
grant of this option and ending with each of the dates appearing in the above
schedule in order to exercise the option with respect to the number of shares
set forth next to each such date.
3. ACCELERATED EXERCISE. The Company and University National Bank &
Trust Company, Trustee (the "Purchaser") are parties to a Stock and
Convertible Note Purchase Agreement dated May 24, 1991 (the "Purchase
Agreement"). In the event that the Purchaser makes an offer pursuant to
Section 8.4 of the Purchase Agreement to purchase all of the shares of Common
Stock covered by the option granted hereby, then, notwithstanding Section 2
hereof, options granted hereunder that have not lapsed, terminated or been
exercised prior to the date of such offer shall be fully exercisable as of
the date such offer is made and may be exercised with respect to all or any
part of such shares at any time (prior to the Expiration Date or earlier
termination of this option) on or after such date.
<PAGE>
4. RIGHTS ON TERMINATION OF EMPLOYMENT. If the Optionee ceases to be
an employee of the Company or of any affiliate of the Company prior to
exercise in full, lapse or termination of this option, the Optionee's right
to exercise this option, to the extent it is otherwise then exercisable
pursuant to Section 2 hereof, shall be limited in the following manner:
(a) DEATH. If the Optionee's employment is terminated by death, the
Optionee's estate shall have the right, for a period of twelve (12) months
following the date of the Optionee's death, to exercise the option to the
extent it was exercisable by the Optionee on the date of death. The
Optionee's estate shall mean the Optionee's legal representative upon death
or any person who acquires the right to exercise the option by reason of such
death under the Optionee's will or the laws of intestate succession.
(b) RETIREMENT. If the Optionee's employment is terminated by
voluntary retirement at or after reaching sixty-five (65) years of age, the
Optionee may, within three (3) months following such termination, exercise
the option to the extent it was exercisable by the Optionee on the date of
such termination. The option shall terminate upon the expiration of such
three (3) month period unless the Optionee dies prior thereto, in which event
the Optionee shall be treated as though the Optionee had died on the date of
retirement and the provisions of Section 4(a) shall apply.
(c) DISABILITY. If the Optionee's employment is terminated because of
a permanent and total disability (as defined in Internal Revenue Code Section
22 (e)(3)), the Optionee or the Optionee's estate may, within twelve (12)
months following such termination, exercise the option to the extent it was
exercisable by the Optionee on the date of such termination.
(d) OTHER TERMINATION. If the Optionee ceases to be an employee for
any reason other than those provided in subsections (a), (b) or (c) above,
the option shall terminate on the date the Optionee ceases to be an employee.
(e) TRANSFER TO RELATED CORPORATION. In the event the Optionee ceases
to be an employee of the Company in order to become an employee of any parent
or subsidiary corporation of the Company or if the Optionee leaves the employ
of any such parent or subsidiary corporation to become an employee of the
Company or of another parent or subsidiary corporation, the Optionee shall be
deemed to continue as an employee of the Company for all purposes of this
Agreement.
5. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) Subject to any required action by the Company's shareholders, the
number of shares of Common Stock covered by the option granted hereby and the
exercise price thereof shall be proportionately adjusted for any increase or
decrease in
2
<PAGE>
the number of issued shares of Common Stock resulting from a subdivision or
consolidation of such shares or the payment of a stock dividend (but only on
the Common Stock) or any other increase or decrease in the number of such
outstanding shares of Common Stock effected without the receipt of
consideration by the Company; provided, however, that the conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration."
(b) Subject to any required action by the Company's shareholders, if
the Company shall be the surviving corporation in any merger or
consolidation, the option granted hereby shall pertain and apply to the
securities to which a holder of the number of shares subject to the
unexercised portion of this option would have been entitled. A dissolution
or liquidation of the Company or a merger or consolidation involving the
Company in which the Company is not the surviving corporation shall cause
this option to terminate on the effective date of any such event, unless the
surviving corporation in the case of a merger or consolidation assumes
outstanding options or replaces them with substitute options having
substantially similar terms and conditions. Notwithstanding Section 2
hereof, options granted hereunder that have not lapsed, terminated, or been
exercised prior to the date of dissolution or liquidation of the Company or
of a merger or consolidation involving the Company in which the Company is
not the surviving corporation shall be fully exercisable for a period of ten
(10) days prior to the effective date of any such liquidation, dissolution
merger or consolidation unless such options are assumed or substituted by the
continuing or surviving corporation.
(c) To the extent that the foregoing adjustments relate to stock or
securities of the company, such adjustments shall be made by the Company's
Board of Directors ("Board"), whose determination in that respect shall be
final, binding and conclusive. The Company agrees to give notice of any such
adjustment to the Optionee, provided, however, that any such adjustment shall
be effective and binding for all purpose hereof whether or not such notice is
given or received.
(d) Except as hereinabove expressly provided in this Section 5, the
Optionee shall have no rights by reason of any subdivision or consolidation
of shares of the capital stock of any class or the payment of any stock
dividend or any other increase or decrease in the number of shares of any
class or by reason of any dissolution, liquidation, merger, or consolidation
or spin-off of assets or stock of another corporation, and any issue by the
Company of shares of stock of any class or of securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or exercise price of shares
subject to the option granted hereunder.
(e) The grant of the option hereby shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or
3
<PAGE>
changes of its capital or business structure or to merge or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business or
assets.
6. MANNER OF EXERCISE. The option granted hereby shall be exercised
by the Optionee by giving written notice to the Company, in substantially the
form attached hereto as Exhibit A, which notice shall specify the number of
shares of Common Stock which the Optionee elects to purchase. Additionally,
the Optionee shall execute and deliver an Investment Representation Letter,
in the form of Exhibit B attached hereto. Upon receipt of such notice of
exercise and of payment of the purchase price, the Company shall, as soon as
reasonably possible and subject to all other provisions hereof, deliver
certificates for the shares of Common Stock so purchased, registered in the
Optionee's name or in the name of his legal representative. Payment of the
purchase price upon any exercise of the option granted hereby shall be made
by check or in cash.
7. NON-TRANSFERABLE. During the lifetime of the Optionee, the option
granted to the Optionee hereunder shall be exercisable only by the Optionee
and shall not be transferable or assignable by the Optionee in whole or in
part otherwise than by will or the laws of descent and distribution. If the
Optionee shall make any purported transfer or assignment of the Optionee's
option hereunder, such assignment shall be null and void and of no force or
effect whatsoever and the Company shall have the right to terminate this
Agreement as of the date of any such purported transfer or assignment.
8. COMPLIANCE WITH SECURITIES AND OTHER LAWS. As a condition to the
exercise in whole or in part of the option granted hereby, each notice of
exercise shall include a representation by the purchaser that such purchaser
intends to acquire the shares of Common Stock specified therein for
investment, for such purchaser's own account and not with a view to, or for
sale in connection with, any distribution of such shares. The Company shall
not be obligated to deliver any shares of Common Stock hereunder for such
period as may reasonably be required for it to comply with any applicable
requirements of: (i) the Securities Act of 1933; (ii) the Securities
Exchange Act of 1934; (iii) applicable state securities laws; (iv) any
applicable listing requirement of any stock exchange on which the Company's
Common Stock is then listed; and (v) any other law or regulation applicable
to the issuance of such shares. Shares of Common Stock issued pursuant to
exercise of this option shall include the following legends and such other
legends as in the opinion of the Company's counsel may be required by the
securities laws of any state in which the Optionee resides:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND ANY SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
THEREOF MAY BE MADE ONLY (i) IN A TRANSACTION REGISTERED UNDER SAID ACT OR
(ii) IF AN
4
<PAGE>
EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE AND IS
ESTABLISHED TO THE SATISFACTION OF THE ISSUER.
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 CORPORATION OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
9. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing contained in this
Agreement shall: (i) confer upon the Optionee any right with respect
to the continuance of employment by the Company or by any parent or
subsidiary corporation of the Company; or (ii) limit in any way the
right of the Company or of any parent or subsidiary corporation to
terminate the Optionee's employment at any time.
10. OPTION SUBJECT TO TERMS OF PLAN. In addition to the
provision hereof, this Agreement and the option granted hereby are
governed by, and subject to the terms and conditions of, the
Macrovision Corporation Stock Option Plan, as adopted effective
September 9, 1988, as amended (the "Plan"). The Optionee
acknowledges receipt of a copy of the Plan (a copy of which is attached
hereto as Exhibit C). The Optionee represents that he is familiar with
the terms and conditions of the Plan, and hereby accepts the option
granted hereby subject to all of the terms and conditions thereof,
which terms and conditions shall control to the extent inconsistent in
any respect with the provisions of this Agreement. The Optionee hereby
agrees to accept as binding, conclusive and final all decisions and
interpretations of the Board, or other administrator of the Plan, as to
any questions arising under the Plan or under this Agreement. This
Agreement, as supplemented by the Plan, shall bind and inure to the
benefit of the Company and its successors and assigns, and the Optionee
and the Optionee's estate in the event of death.
11. NOTICES. All notices and other communications of any kind
which either party to this Agreement may be required or may desire to
serve on the other party hereto in connection with this Agreement shall
be in writing and may be delivered by personal service or by registered
or certified mail, return receipt requested, deposited in the United
States mail with the postage thereon fully prepaid, addressed to the
parties at the addresses indicated on the signature page hereof.
Service of any such notice or other communication so made by mail shall
be deemed complete on the date of actual delivery as shown by the
addressee's registry or certification receipt or at the expiration of
the third (3rd) business day after the date of mailing, whichever is
earlier in time. Either party may from time to time by notice in
writing served upon the other as aforesaid, designate a different
mailing address or a different person to which such notices or other
communications are thereafter to be addressed or delivered.
5
<PAGE>
12. WITHHOLDING AND EMPLOYMENT TAXES. Upon exercise of any
option granted hereunder, the Optionee shall remit to the Company in
cash the amount of any and all applicable federal and state withholding
and employment taxes.
13. INDEPENDENT TAX ADVICE. The Optionee agrees that Optionee
has or will obtain the advice of independent tax counsel regarding the
federal and state income tax consequences of the receipt and exercise
of the option granted hereby and of the disposition of Common Stock
acquired upon exercise hereof. The Optionee acknowledges that he has
not relied and will not rely upon any advice or representations by the
Company or by its employees or representatives with respect to the tax
treatment of options granted hereunder.
14. NOT INCENTIVE STOCK OPTION. This option shall not be
treated as an Incentive Stock Option.
Date of Grant
---------------
MACROVISION CORPORATION
1341 Orleans Drive
Sunnyvale, California 94089
By:
----------------------------
William A. Krepick, President
AGREED TO AND ACCEPTED:
-------------------------------
Optionee
-------------------------------
-------------------------------
(printed name and address)
6
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE
OF MACROVISION CORPORATION
NONSTATUTORY STOCK OPTION
MACROVISION CORPORATION
1341 Orleans Drive
Sunnyvale, California 94089
Gentlemen:
I hereby exercise the right to purchase __________ shares of
Common Stock, without par value, of MACROVISION CORPORATION, under the
terms of the option granted to me on _____________________, 19____
pursuant to the Nonstatutory Stock Option Agreement, dated as of said
grant date. This exercise of said option and the purchase and delivery
of said shares shall be subject to all the terms and conditions of such
Nonstatutory Stock Option Agreement.
I enclose my check for $________________ in full payment of the
purchase price of said shares. Please register said shares in my name.
I hereby represent and agree that I am purchasing the shares for
my own account and not with a view to, or for sale in connection with,
any distribution of the shares, and that I will not sell the shares
without registration under the Securities Act of 1933 or an exemption
therefrom and in compliance with applicable state securities laws.
Dated: _______________________, 19____
------------------------------
(signature)
------------------------------
------------------------------
------------------------------
(print name and home address)
7
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION LETTER
Macrovision Corporation
1341 Orleans Drive
Sunnyvale, California 94089
Gentlemen:
In connection with the exercise by me of a stock option to purchase
____________ shares of the Common Stock (the "Shares") of Macrovision
Corporation (the "Company"), I hereby represent to you the following:
1. I understand that the Shares are highly speculative and that there
can be no assurance as to what return, if any, there may be on my investment.
I have evaluated the risks of making this investment in the Shares, have
determined that such investment is consistent with my investment objectives,
have the ability to bear the economic risk of such investment and can afford
a complete loss of the purchase price of the Shares.
2. I have made an informed, independent judgment with respect to the
desirability of purchasing the Shares from the Company. I have,
independently and without reliance upon the Company or any representations or
statements made by the Company or its representatives, made my own analysis
and decision to purchase the Shares. Neither the Company nor any of its
representatives have made any representations or warranties to me, and no
prior or future acts by the Company or its representatives shall be deemed to
constitute representations or warranties by the Company.
3. I am acquiring the Shares for my own account for investment purposes
only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as
amended (the "Act").
4. I understand that the Shares must be held INDEFINITELY unless
subsequently registered under the Act and qualified under applicable state
securities laws or unless an exemption from such registration and
qualification is applicable to any subsequent transfer. I hereby agree that
the Shares will not be sold without registration under the Act and
qualification under applicable state securities laws or exemption therefrom.
I understand that the Company has no present plans for registration or
qualification of the Shares and that it has no obligation to register or to
qualify the Shares for any future sale thereof by me.
8
<PAGE>
5. I understand that the certificates evidencing the Shares to be held
by me will bear the legends set forth below and may bear certain additional
legends required under applicable state securities law:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND ANY SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION
THEREOF MAY BE MADE ONLY (i) IN A TRANSACTION REGISTERED UNDER SAID ACT
OR (ii) IF AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE
AND IS ESTABLISHED TO THE SATISFACTION OF THE ISSUER.
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.
6. I further understand that there is no market for the Shares and
there may never be a market for the Shares, and that even if a market
develops for the Shares, as a result of the foregoing restrictions on
transfer and the representations and warranties hereunder, I may not be able
to sell or dispose of the Shares, and that I may thus have to bear the risk
of my investment in the Shares for a substantial period of time, or forever.
7. I acknowledge that no one is acting as my representative in this
purchase.
8. I agree that the Company may note upon its stock transfer records a
"stop transfer order" with respect to the Shares in order to enforce the
restrictions on transfer hereinabove described. I understand and agree that
any and all share certificates issued by the Company to me in connection with
the proposed purchase may bear the restrictive legends hereinabove described.
I further agree that the Company shall not be liable for any refusal to
transfer the Shares upon the books of the Company, except in compliance with
the terms and conditions of such restrictions.
9. I agree to indemnify and save and hold harmless the Company, its
successors and assigns, and their officers, directors and controlling
persons, if any, against any loss, claim, damage, liability, cost and expense
arising out of a breach by the undersigned of any of the foregoing
representations, warranties and covenants, whether under the Act, as the same
may be amended from time to time, the securities laws of any state, or
otherwise. Finally, I agree that the terms and conditions of this letter
shall also bind upon my heirs, assigns and legal representatives.
9
<PAGE>
10. I am a resident of _______________________, County and am
purchasing the Shares in the State of California.
Executed this _______ day of __________________, 199__ at _____________
______________, California.
------------------------------
Signature
Address:
- -------------------------------
- -------------------------------
10
<PAGE>
EXHIBIT C
MACROVISION CORPORATION
STOCK OPTION PLAN
As Adopted Effective September 9, 1988;
Amended September 22, 1988:
Amended September 13, 1990;
Amended and Restated February 6, 1992;
1. PURPOSE. The purpose of the MACROVISION CORPORATION STOCK OPTION PLAN
(the "Plan") is to grant to selected employees, directors, and consultants
of Macrovision Corporation, a California corporation (the "Company") and
its subsidiaries and affiliates, a favorable opportunity to acquire Common
Stock of the Company, thereby encouraging such persons to accept or continue
a qualifying relationship with the Company; increasing the interest of such
persons in the Company's welfare through participation in the growth and
value of the Common Stock; and furnishing such persons with an incentive to
improve operations and increase profits of the Company.
To accomplish the foregoing objectives, this Plan provides a means whereby
employees, directors, and consultants may receive options to purchase Common
Stock. Options granted under this Plan will be either nonstatutory stock
options (subject to federal income taxation upon exercise) or incentive stock
options (generally not subject to immediate federal income taxation upon
exercise).
2. ADMINISTRATION. The Plan shall be administered by the Board of
Directors of the Company (the "Board"), or by a committee appointed by the
Board which shall not have less than two (2) members (in either case, the
"Administrator"). No option shall be granted to a director or officer of
the Company except (i) by the Board when all of its members are disinterested
persons, or (ii) by an Administrator other than the Board when the
Administrator is composed of two (2) or more directors having full authority
to act in the matter and each member of the Administrator is a disinterested
person. "Disinterested person", for this purpose, shall mean a person who,
at the time he exercises discretion in administering the Plan, has not at any
time within one (1) year prior thereto been granted or awarded selection as a
person to whom stock may be allocated or to whom stock options or stock
appreciation rights may be granted pursuant to the Plan or any other plan of
the Company or any of its affiliates entitling the participants therein to
acquire stock, stock options or stock appreciation rights of the Company or
any of its affiliates. The Administrator may delegate nondiscretionary
administrative
11
<PAGE>
duties to such employees of the Company as it deems proper. Subject to the
provisions of the Plan, the Administrator shall have the sole authority, in
its discretion:
(a) to determine to which of the eligible individuals, and the time or
times at which, options to purchase Common Stock of the Company shall
be granted;
(b) to determine the number of shares of Common Stock to be subject to
options granted to each eligible individual;
(c) to determine the price to be paid for the shares of Common Stock
upon the exercise of each option;
(d) to determine the term and the exercise schedule of each option;
(e) to determine the terms and conditions of each stock option
agreement (which need not be identical) entered into between the
Company and any eligible individual to whom the Administrator has
granted an option;
(f) to interpret the Plan;
(g) to accelerate the exercise date or schedule with respect to any
option granted under the Plan or, with the consent of the holder
thereof, to modify or amend any such option; and
(h) to make all determinations deemed necessary or advisable for the
administration of the Plan.
3. ELIGIBILITY. Every individual who at the date of grant is an employee
of the Company or of any parent or subsidiary of the Company (as defined in
Section 5.1(c) below) is eligible to receive incentive stock options and
nonstatutory stock options to purchase Common Stock under this Plan. The term
"employee" includes an officer or director who is an employee of the
Company or a parent or subsidiary of it, as well as a non-officer,
non-director employee of the Company or a parent or subsidiary of it. Every
individual who at the date of grant is a consultant to, or a non-employee
director of, the Company or of any affiliate of the Company (as defined in
Section 150 of California Corporations Code) is eligible to receive
nonstatutory stock options to purchase Common Stock under this Plan, but
shall not be eligible to receive incentive stock options. The term
"consultant" includes individuals employed by, or otherwise affiliated
with, a person providing consulting services to the Company. Notwithstanding
the above, neither A. Victor Farrow nor John O. Ryan shall be eligible to
receive any stock options under this Plan, and Eugene Eidenberg shall be
eligible to receive stock options under this Plan for eighty-three thousand
two hundred seventeen (83,217) shares (subject to adjustment as provided in
Section 7 hereof) only.
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4. COMMON STOCK SUBIECT TO PLAN.
(a) There shall be reserved for issue upon the exercise of options
granted under the Plan one million seven hundred fifty thousand
(1,750,000) shares of Common Stock, subject to adjustment as provided
in Section 7 hereof. If an option granted under the Plan shall expire
or terminate for any reason without having been exercised in full, the
unpurchased shares subject thereto shall again be available for the
purposes of the Plan.
(b) Notwithstanding any other provisions of this Plan, the aggregate
number of shares of Common Stock subject to outstanding options granted
under this Plan, plus the aggregate number of shares issued upon the
exercise of all options granted under this Plan, shall never be
permitted to exceed the number of shares specified in the first
sentence of Section 4(a) above.
5. TERMS OF OPTIONS. Each option granted under the Plan shall be
evidenced by a stock option agreement between the individual to whom the
option is granted (the "optionee") and the Company. Each such agreement
shall designate the option thereby granted as an incentive stock option, a
nonstatutory stock option or in part an incentive stock option and in part a
nonstatutory stock option. Each such agreement shall be subject to the terms
and conditions set forth in Section 5.1, and to such other terms and
conditions not inconsistent therewith as the Administrator may deem
appropriate in each case. Incentive stock options shall be subject also to
the terms and conditions set forth in Section 5.2.
5.1 TERMS AND CONDITIONS TO WHICH ALL OPTIONS ARE SUBJECT. All options
granted under this Plan shall be subject to the following terms and
conditions:
(a) TERM OF OPTIONS. The period or periods within which an option may
be exercised shall be determined by the Administrator at the time the
option is granted, and such period or periods may be amended
subsequently only by written mutual agreement of the Company (at the
direction of the Administrator) and the optionee. In no event shall
such period extend beyond ten (10) years from the date the option is
granted in the case of an incentive stock option or ten (10) years and
one (1) week from the date the option is granted in the case of a
nonstatutory stock option.
(b) EXERCISE PRICE. The price to be paid for each share of Common Stock
upon the exercise of an option shall be determined by the Administrator
at the time the option is granted, but shall in no event be less than
eighty-five percent (85%) in the case of a nonstatutory stock option,
and one hundred percent (100%) in the case of an incentive stock
option, of the fair market value of a share of Common Stock on the date
the option is granted. For all purposes of this Plan, the fair market
value of the Common Stock on any particular date shall be the closing
price on the trading day next preceding that date on the principal
securities exchange on which the Company's Common Stock is listed, or,
if such Common Stock is not then listed on any securities exchange,
then the fair
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market value of the Common Stock on such date shall be the mean of the
closing bid and asked prices as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ") on the
trading day next preceding such date. In the event that the Company's
Common Stock is neither listed on a securities exchange nor quoted by
NASDAQ, then the Administrator shall determine the fair market value of
the Company's Common Stock on such date.
(c) MORE THAN TEN PERCENT SHAREHOLDERS. No option shall be granted to
any individual who, at the time such option would be granted, owns
stock possessing more than ten percent (10%) of the total combined
voting power of all classes of outstanding capital stock of the
Company, or of any parent corporation or subsidiary corporation of the
Company, unless the exercise price (as provided in Section 5.1(b)
hereof) is not less than one hundred percent (100%) in the case of a
nonstatutory stock option, one hundred ten percent (110%) in the case
of an incentive stock option, of the fair market value of the Common
Stock on the date the option is granted, and in the case of an
incentive stock option the period within which the option may be
exercised (as provided in Section 5.1(a) hereof) does not exceed five
(5) years from the date the option is granted. As used in this Plan,
the terms "parent corporation" and "subsidiary corporation" shall
have the meanings set forth in Sections 425(e) and (f), respectively,
of the Internal Revenue Code of 1986, as amended (the "Code"). For
purposes of this Section 5.1(c), in determining stock ownership, an
optionee shall be considered as owning the voting capital stock owned,
directly or indirectly, by or for his brothers and sisters, spouse,
ancestors and lineal descendants. Voting capital stock owned, directly
or indirectly, by or for a corporation, partnership, estate or trust
shall be considered as being owned proportionately by or for its
shareholders, partners or beneficiaries, as applicable. Common Stock
with respect to which any such optionee holds an option shall not be
counted. Additionally, for purposes of this Section 5.1(c), outstanding
capital stock shall include all capital stock actually issued and
outstanding immediately after the grant of the option to the optionee.
Outstanding capital stock shall not include capital stock authorized
for issue under outstanding options held by the optionee or by any
other person.
(d) METHOD OF PAYMENT FOR COMMON STOCK. The exercise price for each
share of Common Stock purchased under an option shall be paid in full
in cash at the time of purchase.
(e) NONTRANSFERABILITY. All options shall be nontransferable, except by
will or the laws of descent and distribution, and shall be exercisable
during the lifetime of the optionee only by the optionee.
(f) REPURCHASE OF STOCK. If provided in the stock option agreement, at
the discretion of the Administrator, the stock to be delivered pursuant
to the exercise of any option granted under this Plan may be subject to
a right of repurchase in favor of the Company
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with respect to any optionee whose relationship with the Company is
terminated. Such right of repurchase shall be at the option exercise
price and shall expire at such time or times as set by the
Administrator. Determination of the number of shares subject to such
right of repurchase shall be made as of the date the Optionee's
relationship with the Company terminates.
(g) WITHHOLDING AND EMPLOYMENT TAXES. At the time of exercise of an
option, the optionee shall remit to the Company in cash the amount of
any and all applicable federal and state withholding and employment
taxes.
5.2 ADDITIONAL TERMS AND CONDITIONS TO WHICH INCENTIVE STOCK OPTIONS ARE
SUBIECT. Options granted under this Plan which are designated as incentive stock
options shall be subject to the following additional terms and conditions:
(a) ANNUAL LIMITATION. The aggregate fair market value (determined as
of the date an incentive stock option is granted) of the stock with
respect to which incentive stock options granted are exercisable for
the first time by an employee during any one (1) calendar year (under
this Plan and under all other incentive stock option plans of the
Company and of any parent or subsidiary corporation) shall not exceed
One Hundred Thousand Dollars ($100,000).
(b) DEATH. Upon the death of an employee, any incentive stock option
which such employee holds may be exercised, within such period after
the date of death as the Administrator shall prescribe in the stock
option agreement, by the employee's representative or by the person
entitled thereto under the employee's will or the laws of intestate
succession.
(c) DISABILITY. Upon the permanent and total disability of an employee
(as defined in Section 105(d)(4) of the Code), any incentive stock
option which the employee holds may be exercised by the employee within
such period after the date of termination of employment resulting from
such disability (not to exceed twelve (12) months) as the Administrator
shall prescribe in the stock option agreement. The option shall
terminate upon the expiration of such prescribed period, unless the
employee dies prior thereto, in which event the provisions of Section
5.2(b) hereof shall apply.
(d) RETIREMENT. Upon the voluntary retirement of an employee at or
after reaching sixty-five (65) years of age, an incentive stock option
may be exercised by such employee with respect to all or any portion of
the balance of the Common Stock subject thereto within such period
after the date of retirement (not to exceed three (3) months) as the
Administrator shall prescribe in the stock option agreement. The
option shall terminate upon the expiration of such prescribed period,
unless the employee dies prior thereto, in which event the provisions
of Section 5.2(b) hereof shall apply.
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(e) TRANSFER TO RELATED CORPORATION. In the event that an employee
leaves the employ of the Company to become an employee of any parent or
subsidiary corporation of the Company, or if the employee leaves the
employ of any such parent or subsidiary corporation to become an
employee of the Company or of another parent or subsidiary corporation,
such employee shall be deemed to continue as an employee of the Company
for all purposes of this Plan.
(f) OTHER SEVERANCE. In the event an employee leaves the employ of the
Company for any reason other than as set forth in subsections (b)
through (e), above, any incentive stock option which such employee
holds may be exercised by such employee with respect to all or any
portion of the balance of the Common Stock subject thereto within such
period after the date of severance (not to exceed three (3) months) as
the Administrator shall prescribe in the stock option agreement.
(g) DISQUALIFYINQ DISPOSITIONS. If Common stock acquired by exercise of
an incentive stock option granted pursuant to this Plan is disposed of
within two (2) years from the date of grant of the option or within one
(1) year after the transfer of the Common Stock to the optionee, the
holder of the Common Stock immediately prior to the disposition shall
promptly notify the Company in writing of the date and terms of the
disposition and shall provide such other information regarding the
disposition as the Company may reasonably require.
6. STOCK ISSUANCE AND RIQHTS AS SHAREHOLDER. Notwithstanding any other
provisions of the Plan, no optionee shall have any of the rights of a
shareholder (including the right to vote and receive dividends) of the Company,
by reason of the provisions of this Plan or any action taken hereunder, until
the date such optionee shall both have paid the exercise price for the Common
Stock and shall have been issued (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) the
stock certificate evidencing such shares.
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) Subject to any required action by the Company's shareholders, the
number of shares of Common Stock covered by this Plan as provided in
Section 4, the number of shares covered by each outstanding option
granted hereunder and the exercise price thereof shall be
proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a subdivision or
consolidation of such shares or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the
number of such outstanding shares of Common Stock effected without the
receipt of consideration by the Company; provided, however, that the
conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration."
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(b) Subject to any required action by the Company's shareholders, if
the Company shall be the surviving corporation in any merger or
consolidation, each outstanding option shall pertain and apply to the
securities to which a holder of the number of shares subject to the
option would have been entitled. A dissolution or liquidation of the
Company or a merger or consolidation in which the Company is not the
surviving corporation shall cause each outstanding option to terminate,
unless the surviving corporation in the case of a merger or
consolidation assumes outstanding options or replaces them with
substitute options having substantially similar terms and conditions;
provided, however, that if an outstanding option is to terminate upon
any such event, the Administrator on such terms and conditions as it
deems appropriate, shall provide either by the terms of the stock
option agreement or by a resolution adopted prior to the occurrence of
any such event, that, for some period of time prior to such event, such
option shall be exercisable as to all of the shares covered by the
portion of the option that previously has not lapsed, terminated, or
been exercised, notwithstanding any exercise schedule provided in the
stock option agreement.
(c) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board,
whose determination in that respect shall be final, binding and
conclusive.
(d) Except as hereinabove expressly provided in this Section 7, no
optionee shall have any rights by reason of any subdivision or
consolidation of shares of the capital stock of any class or the
payment of any stock dividend or any other increase or decrease in the
number of shares of any class or by reason of any dissolution,
liquidation, merger or consolidation or spin-off of assets or stock of
another corporation, and any issue by the Company of shares of stock of
any class or of securities convertible into shares of stock of any
class shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares subject to any
option granted hereunder.
(e) The grant of an option pursuant to this Plan shall not affect in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure or to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
8. SECURITIES LAW REQUIREMENTS.
(a) The Administrator may require an individual as a condition of the
grant and of the exercise of an option, to represent and establish to
the satisfaction of the Administrator that all shares of Common Stock
to be acquired upon the exercise of such option will be acquired for
investment and not for resale. The Administrator shall cause such
legends to be placed on certificates evidencing shares of Common Stock
issued upon exercise of an option as, in the opinion of the Company's
counsel, may be required by federal and applicable state securities
laws.
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(b) No shares of Common Stock shall be issued upon the exercise of any
option unless and until counsel for the Company determines that: (i)
the Company and the optionee have satisfied all applicable requirements
under the Securities Act of 1933 and the Securities Exchange Act of
1934; (ii) any applicable listing requirement of any stock exchange on
which the Company's Common Stock is listed has been satisfied; and
(iii) all other applicable provisions of state and federal law have
been satisfied.
9. AMENDMENT. The Board may terminate the Plan or amend the Plan from time
to time in such respects as the Board may deem advisable, except that, without
the approval of the Company's shareholders in compliance with the requirements
of applicable law, no such revision or amendment shall:
(a) increase the number of shares of Common Stock reserved under
Section 4 hereof for issue under the Plan, except as provided in
Section 7 hereof;
(b) change the class of persons eligible to participate in the Plan
under Section 3 hereof;
(c) extend the term of the Plan under Section 10 hereof; or
(d) amend this Section 9 to defeat its purpose.
10. TERMINATION. The Plan shall terminate automatically on August 31,
1998, and may be terminated at any earlier date by the Board. No option shall
be granted hereunder after termination of the Plan, but such termination
shall not affect the validity of any option then outstanding.
11. TIME OF GRANTING OPTIONS. The date of grant of an option hereunder
shall, for all purposes, be the date on which the Administrator makes the
determination granting such option.
12. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of shares of its
Common Stock as shall be sufficient to satisfy the requirements of the Plan.
13. EFFECTIVE DATE. This Plan was adopted by the Board of Directors of
the Company on September 9, 1988, and shall be effective on said date,
provided the Plan is approved within twelve (12) months of said date by the
shareholders of the Company in accordance with the requirements of the Code
and the California General Corporation Law. Options may be granted, but may
not be exercised, prior to the date of such shareholder approval.
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14. COMPANY FINANCIAL INFORMATION. The Company shall provide all
Optionees on an annual basis with the balance sheet and income statement for
the then ending financial year to the same extent such information is made
available to shareholders of the Company.
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MACROVISION CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
As Adopted Effective December 3, 1996
1. PURPOSE. The purpose of the MACROVISION CORPORATION 1996 EMPLOYEE
STOCK PURCHASE PLAN (the "Plan") is to grant to all employees of Macrovision
Corporation (the "Company") and its subsidiaries and affiliates, a favorable
opportunity to acquire Common Stock of the Company, thereby encouraging all
employees to accept, or to continue in, employment with the Company; increasing
the interest of all employees in the Company's welfare through participation in
the growth and value of the Common Stock; and furnishing employees with an
incentive to improve operations and increase profits of the Company.
To accomplish the foregoing objectives, this Plan provides a means whereby
all employees may accrue rights to purchase shares of Common Stock of the
Company.
2. ADMINISTRATION. The Plan shall be administered by the Board of
Directors (the "Board") of the Company or by a committee of two or more
directors appointed by the Board (the "Administrator").
The Administrator may delegate nondiscretionary administrative duties to
such employees of the Company as it deems proper. Subject to the terms and
conditions of this Plan, the Administrator shall have the sole authority, in its
discretion to interpret the Plan and to make all determinations deemed necessary
or advisable for the administration of the Plan.
3. ELIGIBILITY.
3.1 EMPLOYMENT REQUIREMENT. Except as otherwise set forth herein,
every individual who, on the date of commencement of any offering period
pursuant to this Plan, is an employee of the Company or of any parent or
subsidiary of the Company, as defined below, is eligible to receive purchase
rights to acquire shares of Common Stock of the Company pursuant to this Plan.
The term "employee" includes an officer or director who is an employee of the
Company or a parent or subsidiary of it, as well as a non-officer, non-director
employee of the Company or a parent or subsidiary of it. As used in this Plan,
the terms "parent corporation" and "subsidiary corporation" shall have the
meanings set forth in Sections 424(e) and (f), respectively, of the Internal
Revenue Code of 1986, as amended (the "IRC").
3.2 PERMISSIBLE EMPLOYEES. In no event shall a purchase right be
granted to any individual who, immediately after the grant of such purchase
right, would own five percent (5%) or more of the total combined voting power or
value of all classes of outstanding capital stock of the Company, its parent or
any subsidiary. For purposes of this Section 3.2, in determining stock
ownership, an individual shall be considered as owning the voting capital stock
owned, directly or indirectly, by or for his brothers and sisters, spouse,
ancestors and lineal
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descendants. Voting capital stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be considered as being owned
proportionately by or for its stockholders, partners or beneficiaries, as
applicable. An individual shall be considered as owning the shares of Common
Stock issuable upon exercise of any option or purchase right which such
individual holds. Additionally, for purposes of this Section 3.2,
outstanding capital stock shall include all capital stock actually issued and
outstanding immediately after the grant of the option or the purchase right.
Outstanding capital stock shall not include capital stock authorized for
issue under outstanding options or purchase rights held by any person.
3.3 EXCLUDED EMPLOYEES. The following categories of employees shall
be excluded from participating in this Plan: (i) employees whose customary
employment is twenty (20) hours or less per week; and (ii) employees whose
customary employment is not more than five months in any calendar year.
3.4 TRANSFER TO RELATED CORPORATION. In the event that an employee
leaves the employ of the Company to become an employee of any parent or
subsidiary corporation of the Company, or if the employee leaves the employ of
any such parent or subsidiary corporation to become an employee of the Company
or of another parent or subsidiary corporation, such employee shall be deemed to
continue as an employee of the Company for all purposes of this Plan.
4. COMMON STOCK SUBJECT TO PLAN.
4.1 SHARES RESERVED FOR ISSUE. There shall be reserved for issue
upon the exercise of options granted under this Plan two hundred fifty-two
thousand (252,000) shares of Common Stock ("Plan Shares"), subject to adjustment
as provided in Section 12 hereof. If any purchase rights granted under this Plan
shall expire or terminate for any reason without having been exercised in full,
the unpurchased shares subject thereto shall again be available for the purposes
of the Plan.
4.2 AGGREGATE SHARES. Notwithstanding any other provisions of this
Plan, the aggregate number of shares of Common Stock subject to outstanding
purchase rights granted under this Plan, plus the aggregate number of shares
issued upon the exercise of all purchase rights granted under this Plan, shall
never be permitted to exceed the number of shares specified in the first
sentence of Section 4.1 above.
5. NONTRANSFERABILITY. All purchase rights acquired pursuant to this
Plan shall be nontransferable, except by will or the laws of descent and
distribution, and shall be exercisable during the lifetime of the participant
only by the participant.
6. TERMS AND CONDITIONS OF EACH OFFERING. All offerings under this Plan
shall be subject to the following terms and conditions:
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6.1 TERM AND FREQUENCY OF OFFERINGS. Each offering under the Purchase
Plan will be for a period of twenty-four (24) months (the "Offering Period").
Each Offering Period will consist of four six-month purchase periods (each a
"Purchase Period") commencing, except for the first Offering Period, on the
first business day of February and August of each year. The Board has the power
to change the duration of Offering Periods or Purchase Periods without
stockholder approval, provided that the change is announced at least fifteen
(15) days prior to the scheduled beginning of the first Offering Period or
Purchase Period to be affected. The first Offering Period will begin on the
effective date of the Registration Statement on Form SB-2 for the initial public
offering of the Company's Common Stock and will end
on January 31, 1999.
6.2 PURCHASE RIGHTS AGREEMENT. Purchase rights granted under this
Plan shall be evidenced by a purchase rights agreement between the participant
and the Company. Each such agreement shall be subject to the terms and
conditions set forth herein, and to such other terms and conditions not
inconsistent herewith as the Administrator may deem appropriate, provided that,
except as otherwise permitted herein, the terms and conditions of each such
agreement shall be identical for each participant granted purchase rights
pursuant to any particular offering.
6.3 ELECTION TO PARTICIPATE. An individual who is an eligible
employee and desires to participate in an offering, should notify the
Administrator in writing of his or her election to participate on or before the
15th day of the month before the start of the particular Offering Period. Once
an employee becomes a participant in an Offering Period, such employee will
automatically participate in the Offering Period commencing immediately
following the last day of the prior Offering Period unless the employee
withdraws or is deemed to withdraw from this Plan or terminates further
participation in the Offering Period as set forth in Sections 6.9 and 6.10.
6.4 PURCHASE RIGHTS. On the first day of each Offering Period (or
the first day of participation in an offering), and subject to this Section 6.4,
a participant will be granted purchase rights to acquire that number of Plan
Shares (rounded to the nearest whole share) equal to the quotient obtained by
dividing (i) an amount equal to no less than one percent (1%) nor more than
twenty percent (20%) of the participant's gross compensation from the Company
for the immediately preceding calendar year, as reported for Federal income tax
purposes, by (ii) eighty-five percent (85%) of the fair market value of a share
of Common Stock, as of the date of grant, subject to the following limitation
(the "Maximum Shares"). No participant may accrue purchase rights, pursuant to
this Plan (and/or any other stock purchase plan qualifying under IRC Section 423
of this Company or of any parent or subsidiary of this Company), to acquire more
than twenty-five thousand dollars ($25,000)worth of Common Stock (based on the
fair market value of the Common Stock on the grant date of the purchase rights)
in any one calendar year.
6.5 EXERCISE OF PURCHASE RIGHTS. The exercise of purchase rights
granted pursuant to this Plan may only occur on the Purchase Dates, as defined
in Section 6.7. Each participant must notify the Administrator in writing of
his or her election to exercise his or her purchase rights, if at all, at least
one business day prior to the last Purchase Date during any
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Offering Period, by advising the Administrator in writing that number of Plan
Shares which he or she desires to purchase, not to exceed the Maximum Shares
less any Plan Shares previously purchased during the Offering Period.
6.6 METHOD OF PAYMENT FOR COMMON STOCK. The purchase price will
be paid through periodic payroll deductions from the participant's compensation.
The participant should advise the Administrator in writing, on or before the
15th day of the month preceding any Offering Period, that percent, which shall
be not less than one percent (1%), nor more than twenty percent (20%), of his or
her gross compensation earned during each payroll period during the Offering
Period, which he or she desires to be deducted and set aside for purchases of
Plan Shares for the duration of the Offering Period, up to an aggregate payroll
deduction not to exceed twenty-one thousand two hundred fifty dollars ($21,250)
in any calendar year. Payroll deductions made for each participant shall be
credited to a special book account on the Company's books, but no funds will be
actually set aside in any special fund or account.
6.7 PURCHASE DATES. The semi-annual purchase dates will occur on the
last business day of each Purchase Period(the "Purchase Dates"). Except as set
forth in Section 6.10 hereof, all payroll deductions collected from the
participant and not theretofore applied to the purchase of Plan Shares, will
automatically be applied to the purchase of that number of Plan Shares for which
the participant was granted purchase rights pursuant to the formula set forth in
Section 6.4 hereof. Any funds deducted from the participant's compensation
pursuant to this Plan in excess of the purchase price of the shares purchased
during the Offering Period shall be promptly refunded to the participant
following the expiration of the Offering Period.
6.8 PURCHASE PRICE. The purchase price for the Company's Common
Stock purchased under the Purchase Plan is 85% of the lesser of the fair market
value of the Company's Common Stock on the first day of the applicable Offering
Period or the last day of the respective Purchase Period. For all purposes of
this Plan, the fair market value of the Common Stock on any particular date
shall be the closing price on the trading day next preceding that date on the
principal securities exchange on which the Company's Common Stock is listed, or,
if such Common Stock is not then listed on any securities exchange, then the
fair market value of the Common Stock on such date shall be the closing bid
price as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ") on the trading day next preceding such
date. In the event that the Company's Common Stock is neither listed on a
securities exchange nor quoted by NASDAQ, then the Administrator shall determine
the fair market value of the Company's Common Stock on such date.
6.9 WITHDRAWAL. Each participant may withdraw from an Offering
Period under this Plan by notifying the Administrator in writing of his or her
election to withdraw at any time at least fifteen (15) days prior to the end of
an Offering Period. Upon receipt of such notice by the Administrator, all future
payroll deductions will cease, and any payroll deductions previously collected
during such Offering Period pursuant to Section 6.6 (to the extent not already
applied to the purchase of Plan Shares) will be refunded, without interest. In
the event a
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participant voluntarily elects to withdraw from this Plan, he or she may not
resume his or her participation in this Plan during the same Offering Period,
but he or she may participate in any Offering Period under this Plan which
commences on a date subsequent to such withdrawal in the same manner as set
forth above for initial participation in this Plan.
6.10 TERMINATION OF PARTICIPATION IN AN OFFERING. Payroll deductions
with respect to any participant in an offering will automatically terminate upon
the participant's cessation of employment, retirement, permanent or total
disability, as defined in Section 105(d)(4) of the IRC or death (a "terminating
event"). The Company shall not issue shares in exercise of such participant's
purchase rights unless the participant makes an election in accordance with
Sections 6.10.1 or 6.10.2, as applicable.
6.10.1 ELECTION TO WITHDRAW FUNDS. During the period
commencing with a terminating event and ending seventy-five (75) days
thereafter, the participant will be entitled, at his or her election, to (i)
withdraw the payroll deductions made during such Offering Period not
theretofore applied to the purchase of Plan Shares, or (ii) to have such
funds applied to the purchase of Plan Shares. If no election is made prior
to the expiration of seventy-five (75) days following a terminating event,
the Company shall refund the payroll deductions previously collected during
such offering and not theretofore applied to the purchase of Plan Shares,
without interest. In the event the participant elects to purchase all or any
of the Plan Shares to which he or she is entitled, then the Administrator and
such participant should proceed in accordance with Section 6.6 hereof, except
that for the purposes of this Section 6.10.1, Purchase Date shall mean that
day immediately following the day the Administrator is notified of the
participant's election, not to exceed seventy-six (76) days following the
terminating event.
6.10.2 DEATH. In the case of the death of a participant, the
period to elect whether to withdraw the payroll deductions or to have such
withheld funds applied to the purchase of Plan Shares shall be extended until
three hundred sixty-five (365) days following the date of death, and such
election may be made by the decedent's representative or the person entitled to
acquire, or direct the acquisition of, the purchase rights under the employee's
will or the laws of intestate succession (the "Representative"). The preceding
sentence shall only apply if the decedent was an employee of the Company, its
parent or subsidiary, either at the time of death or within three (3) months
prior to such date. If no election is made prior to the expiration of three
hundred sixty-five (365) days following the date of death, then the Company
shall refund the payroll deductions previously collected during such offering
and not theretofore applied to the purchase of Plan Shares, without interest.
In the event the Representative elects to purchase all or any of the Plan Shares
to which the participant is entitled, then the Administrator and the
Representative should proceed in accordance with Section 6.6 hereof, except that
for purposes of this Section 6.10.2, Purchase Date shall mean the day
immediately following the day the Administrator is notified of the
Representative's election, not to exceed three hundred sixty-six (366) days
following the date of death.
6.11 REGISTRATION OF PLAN AND DUE AUTHORIZATION. Notwithstanding
anything to the contrary, express or implied herein, no rights granted under the
Plan may be exercised to any
5
<PAGE>
extent unless the Plan (including the purchase rights and the shares covered
thereby) is covered by an effective registration statement pursuant to the
Securities Act of 1933, as amended (the "Securities Act"). If on any
Purchase Date, the Plan is not so registered, no rights granted under the
Plan or any offering shall be exercised, and the Purchase Date shall be
delayed until the Plan is subject to an effective registration statement,
except that the Purchase Date shall not be delayed more than six (6) months,
and in no event shall the Purchase Date be more than twenty-seven (27) months
from the commencement of the particular Offering Period. If on the Purchase
Date of any offering hereunder, as delayed to the maximum extent permissible,
the Plan is still not registered, no purchase rights shall be exercised and
all payroll deductions accumulated (to the extent not already applied to the
purchase of Plan Shares) shall be refunded to the participants, without
interest. If after reasonable efforts, the Company is unable to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as counsel for the Company deems necessary or appropriate, the
Company shall be relieved from any liability for failure to issue and sell
Plan Shares upon exercise of such purchase rights unless and until such
authority is obtained.
7. WITHHOLDING AND EMPLOYMENT TAXES. The Company shall be entitled to
withhold and/or pay from any payroll deductions made pursuant to this Plan, the
amount of any and all applicable federal and state withholding and employment
taxes.
8. EQUAL RIGHTS AND PRIVILEGES. Except as set forth in Sections 3.2 and
3.3, if the Company or any parent or subsidiary grants any purchase rights
pursuant to this Plan, then it must grant such rights to all its employees. All
participants shall have the same rights and privileges, except in any particular
offering, the amount of stock which may be purchased by any employee may bear a
uniform relationship to the employee's total compensation, or his or her basic
or regular rate of compensation.
9. DISQUALIFYING DISPOSITIONS. If any Plan Shares are disposed of within
two (2) years from the date the purchase rights were acquired or within one (1)
year after the acquisition of the Plan Shares by the participant, immediately
prior to the disposition, the participant shall promptly notify the Company in
writing of the date and terms of the disposition and shall provide such other
information regarding the disposition as the Company may reasonably require.
10. STOCK ISSUANCE AND RIGHTS AS STOCKHOLDER. Notwithstanding any other
provisions of the Plan, no participant shall have any of the rights of a
stockholder (including the right to vote and receive dividends) of the Company,
by reason of the provisions of this Plan or any action taken hereunder, until
the date such participant shall both have paid the purchase price for the Plan
Shares and shall have been issued (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) the
stock certificate evidencing such shares.
11. DESIGNATION OF BENEFICIARY. A participant may file a written
designation of a beneficiary who is to receive any shares and cash, if any, from
the participant's account under the
6
<PAGE>
Plan in the event of such participant's death subsequent to the end of an
Offering Period but prior to delivery to him or her of such shares and cash.
In addition, a participant may file a written designation of a beneficiary
who is to receive any cash from the participant's account under the Plan in
the event of such participant's death prior to the Exercise Date of an
Offering Period. If a participant is married and the designated beneficiary
is not the spouse, spousal consent shall be required for such designation to
be effective. Such designation of beneficiary may be changed by the
participant (and his or her spouse, if any) at any time by written notice.
In the event of the death of a participant and in the absence of a
beneficiary validly designated under the Plan who is living at the time of
such participant's death, the Company shall deliver such shares and/or cash
to the executor or administrator of the estate of the participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares and/or cash
to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
12.1 APPROPRIATE ADJUSTMENT IN NUMBER OF SHARES. Subject to any
required action by the Company's stockholders, the number of shares of Common
Stock covered by this Plan as provided in Section 4, the number of shares
covered by each outstanding purchase right granted hereunder and the purchase
price thereof shall be proportionately adjusted for any increase or decrease in
the number of issued shares of Common Stock resulting from a subdivision or
consolidation of such shares or the payment of a stock dividend (but only on the
Common Stock) or any other increase or decrease in the number of such
outstanding shares of Common Stock effected without the receipt of consideration
by the Company; provided, however, that the conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration."
12.2 MERGERS AND/OR ACQUISITIONS. Subject to any required action by
the Company's stockholders, if the Company shall be the surviving corporation in
any merger or consolidation, each outstanding purchase right shall pertain and
apply to the securities to which a holder of the number of shares subject to the
purchase right would have been entitled. A dissolution or liquidation of the
Company or a merger or consolidation in which the Company is not the surviving
corporation shall cause each outstanding purchase right to terminate, unless the
surviving corporation in the case of a merger or consolidation assumes
outstanding purchase rights or replaces them with substitute purchase rights
having substantially similar terms and conditions; provided, however, that if an
outstanding purchase right is to terminate upon any such event, the
Administrator on such terms and conditions as it deems appropriate, shall
provide either by the terms of the agreement or by a resolution adopted prior to
the occurrence of any such event, that, for some period of time prior to such
event, such purchase right shall be exercisable as to all of the shares covered
by the portion of the purchase right that previously has not lapsed, terminated,
or been exercised.
7
<PAGE>
12.3 BOARD'S DETERMINATION CONCLUSIVE. To the extent that the
foregoing adjustments relate to stock or securities of the Company, such
adjustments shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive.
12.4 LIMITATION ON RIGHTS. Except as hereinabove expressly provided
in this Section 11, no participant shall have any rights by reason of any
subdivision or consolidation of shares of the capital stock of any class or the
payment of any stock dividend or any other increase or decrease in the number of
shares of any class or by reason of any dissolution, liquidation, merger or
consolidation or spin-off of assets or stock of another corporation, and any
issue by the Company of shares of stock of any class or of securities
convertible into shares of stock of any class shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to any purchase right granted hereunder.
12.5 RESERVATION OF RIGHTS. The grant of a purchase right pursuant to
this Plan shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge or consolidate or to dissolve, liquidate, sell or
transfer all or any part of its business or assets.
13. SECURITIES LAW REQUIREMENTS.
13.1 INVESTMENT REPRESENTATIONS. The Administrator may require an
individual as a condition of the grant and of the exercise of a purchase right,
to represent and establish to the satisfaction of the Administrator that all
Plan Shares to be acquired will be acquired for investment and not for resale.
The Administrator shall cause such legends to be placed on certificates
evidencing Plan Shares as, in the opinion of the Company's counsel, may be
required by federal and applicable state securities laws.
13.2 COMPLIANCE WITH APPLICABLE SECURITIES LAWS. No Plan Shares shall
be issued unless and until counsel for the Company determines that: (i) the
Company and the participant have satisfied all applicable requirements under the
Securities Act of 1933, as amended, and the Exchange Act; (ii) any applicable
requirement of any stock exchange or quotation system on which the Company's
Common Stock is listed or quoted has been satisfied; and (iii) all other
applicable provisions of state and federal law have been satisfied.
14. AMENDMENT. The Board may terminate the Plan or amend the Plan from
time to time, immediately after the close of any offering, in such respects as
the Board may deem advisable, provided that, the Plan shall not be amended more
than once every six months, other than to comport with changes in the IRC or the
Employee Retirement Income Security Act, or the rules thereunder, and provided
further, that, without the approval of the Company's stockholders in compliance
with the requirements of applicable law, no such revision or amendment shall:
(a) increase the number of shares of Common Stock reserved under
Section 4 hereof for issue under the Plan, except as provided in Section 12
hereof;
8
<PAGE>
(b) change the class of persons eligible to participate in the Plan
under Section 3 hereof;
(c) extend the term of the Plan under Section 15 hereof; or
(d) amend this Section 14 to defeat its purpose.
15. TERMINATION. The Plan will terminate automatically on the earlier of
termination by the Board, issuance of all the shares reserved under the Purchase
Plan or ten years from the date the Purchase Plan was adopted by the Board. No
offering shall be initiated hereunder after termination of the Plan, but such
termination shall not affect the validity of any purchase rights then
outstanding.
16. TIME OF GRANTING OPTIONS. The date of grant of a purchase right
hereunder shall, for all purposes, be the date on which the particular Offering
Period commences.
17. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of shares of its Common
Stock as shall be sufficient to satisfy the requirements of the Plan.
18. EFFECTIVE DATE. This Plan was adopted by the Board of Directors of
the Company on December 3, 1996, and shall be effective on said date. The Plan
was approved by the stockholders of the Company on January ___, 1997.
9
<PAGE>
MACROVISION CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
ENROLLMENT/CHANGE FORM
___ Enrollment
___ Change in Payroll Deductions for Next Offering Period
___ Stop Payroll Deductions for Offering Period
___ Designation of Beneficiary
_________________________________ ________________________________
Print Name Social Security No.
_________________________________
Address
_________________________________
City, State Zip
1. I hereby elect to participate in the Macrovision Corporation Employee Stock
Purchase Plan (the "Plan") and subscribe to purchase shares of Macrovision
Corporation (the "Company") Common Stock ("Common Stock") in accordance
with this Enrollment/Change Form and the Plan.
2. I hereby authorize payroll deductions from each paycheck for ____% of my
compensation, as compensation is defined in the Plan.
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common stock at the applicable purchase price
determined in accordance with the Plan.
4. I have received a copy of the Company's Employee Stock Purchase Plan. I
understand that my participation in the Plan is in all respects subject to
the terms of the Plan.
5. I understand that shares purchased for me under the Plan will be issued in
my name and will be sent to me at my home address. If I change my home
address I will notify the Company's Chief Financial Officer.
<PAGE>
6. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the
Plan:
Name (Please Print)
________________________________ ___________________________
(First) (Middle) (Last) (Relationship)
________________________________
(Address)
________________________________
7. I understand that if I dispose of any of these shares before the lapse of
two (2) years after the first day of the Offering Period in which they were
acquired and one (1) year after the Purchase Date, the excess of the fair
market value of the shares at time of purchase over the price I paid for
the shares will be treated, for federal income tax purposes, as ordinary
income. I further understand that if I dispose of such shares at any time
after the expiration of the two (2) year and one (1) year holding period, I
will be treated as having received income only at the time of such
disposition, and such income will be treated as ordinary income to the
extent of an amount equal to the lesser of: (i) the excess of the current
fair market value of the shares over the purchase price, or (ii) the excess
of the current fair market value of the shares over the fair market value
of the shares on the first day of the Offering Period in which they were
acquired. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.
I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE
DATE OF ANY DISPOSITION. I UNDERSTAND THAT TAX CONSEQUENCES INCURRED IN
CONNECTION WITH THIS STOCK ARE VERY COMPLICATED AND I WILL CONSULT WITH MY
OWN TAX PROFESSIONAL TO BE CERTAIN I UNDERSTAND THE RULES AND REGULATIONS
GOVERNING STOCK PURCHASE PLANS.
8. I hereby agree to be bound by the terms of the Plan. The effectiveness of
this Enrollment/Change Form is dependent upon my eligibility to participate
in the Plan.
I UNDERSTAND THAT THIS ENROLLMENT/CHANGE FORM SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS AND UNTIL TERMINATED BY ME.
________________________________ _______________
Signature Date
===============================================================================
For use by Stock Administrator only
Date: _________________
No. of shares eligible to purchase: ___________________________________________
Comments: _____________________________________________________________________
<PAGE>
[Letterhead]
June 5, 1996
Mr. Victor Viegas
99 James Avenue
Atherton, California 94027
Dear Vic:
We are pleased to offer you the position of Vice President, Finance/CFO at
Macrovision Corporation reporting directly to me and on a dotted line basis
to John Ryan with regard to IPO issues and merger and acquisition
opportunities. In this capacity, you will be responsible for overall
management of the Company's administrative, MIS, HR, contracts, legal and
financial/accounting operations. As you are aware, Bob Netter, our current
CFO, has agreed to stay with the Company through October 3, 1996 and assist
with the IPO and the management transition. Bob's title will be changed to
VP Finance/Administration.
Your annual compensation will be $135,000 and a recommendation will be made
to the Board of Directors on June 7th for grant upon your commencement of
employment a 105,000 share stock option grant (at $1.50 per share) under
Macrovision's Stock Option Plan, representing approximately one percent
ownership of Macrovision stock. A form of stock option is attached.
Alternatively, in lieu of stock options, at your election the Board will be
asked to approve a sale to you of 105,000 shares of Macrovision common stock,
immediately upon the commencement of your employment, for $1.50 per share
payable with a full recourse promissory note from you to Macrovision due five
years from the date of grant or upon earlier termination of employment with a
minimum interest rate necessary to avoid imputed interest. Such stock
options will become exercisable, or such purchased shares will vest,
according to the schedule generally applied to stock options granted under
the Company's Employee Stock Option Plan including full vesting upon an offer
by University National Bank & Trust, Trustee under Stock and Convertible Note
Purchase Agreement dated May 24, 1991 as described in Section 3 of the
Company's Stock Option Agreement. As of this date, the Company's total shares
of fully diluted outstanding stock (including preferred stock, option grants
and nongranted options) is 10,559,244. In addition to Macrovision stock or
stock options, you will be granted a 1.3% (one and three-tenths of one
percent) percentage of ownership in Command Audio Corporation (CAC) stock
options if Macrovision spins off its ownership in CAC on the same terms and
conditions at the fair market value of date of such spinoff.
In the event that the Company terminates your employment as CFO without cause
or your employment is constructively terminated within three months before or
one year following a change in control of the Company, any Macrovision stock
that you have
<PAGE>
June 5, 1996
Page Two
purchased, but which otherwise would not then be vested, shall immediately
vest upon such termination of employment. For this purpose, "change in
control" shall mean any merger, corporate acquisition or other similar
transaction in which the persons who are shareholders of Macrovision
immediately prior to the transaction own less than 50% of the equity
interests in the resulting entity immediately after the transaction. With
respect to the above, "Constructive termination" shall mean:
a. there is a material adverse change in executive's position causing it
to be of less stature or of less responsibility
b. a change in the position to whom executive reports
c. a reduction of more than 20% of executive's base compensation, AND
d. within 30 days immediately following such material adverse change or
reduction, executive elects to terminate his employment voluntarily.
"cause" shall mean:
a. willful and repeated failure to comply with the lawful written
direction of the Company's Board of Directors
b. gross negligence or willful misconduct in the performance of duties to
the Company and/or its subsidiaries
c. commission of any act of fraud with respect to the Company and/or its
subsidiaries
d. conviction of a felony or a crime involving moral turpitude causing
material harm to the standing and reputation of the Company and/or
its subsidiaries in each case as determined in good faith by the
Company's Board of Directors.
The Company also agrees to provide, the day after its initial public
offering, if any, an option for you to acquire 40,000 shares of Macrovision
common stock by stock option grant in the same manner as described above with
vesting rights according to the schedule generally applied to stock options
granted under the Company's Employee Stock Option Plan at the closing price
of the first day's trade.
You will participate in the Company's Executive Incentive Program on a
pro-rated basis for the remainder of 1996.
As an employee, you will receive the standard benefits including medical and
dental benefits, as well as life, long-term and short-term disability
coverage and enrollment into our flexible spending plan. A brief description
of our benefits is attached; however, feel free to call Kim with any
questions.
As Macrovision's relationships with employees is at-will, either you or
Macrovision may terminate the employment relationship at any time for any
reason, with or without notice. Also, any dispute arising out of or relating
to your employment with Macrovision, including, but not limited to, the
manner in which that employment is terminated, or any claims that
<PAGE>
June 5, 1996
Page Three
Macrovision has violated any state or federal law, shall be settled by final
and binding arbitration in Santa Clara County, California, in accordance with
the then-existing rules of the American Arbitration Association and judgment
upon the award rendered by the arbitrator(s) may be entered in any court
having jurisdiction thereof; provided, however, that the law applicable to
any controversy shall be the law of California, regardless of its or any
jurisdiction's choice of law principles. Notwithstanding the foregoing, you
are entitled to a special provision of the Company's severance plan
applicable to stock options or stock purchases and severance pay which is
attached.
It is understood that with respect to the at-will employment relationship and
the binding arbitration provision stated above, that this constitutes the
full, complete and final expression of the agreement with Macrovision
Corporation, and that it may not be modified, altered or amended, either
expressly or implied, unless in writing signed by the President of
Macrovision. As a condition of employment, all employees must sign a
Proprietary Information, Inventions and Ethics Agreement (a copy of which is
enclosed).
If the foregoing meets with your approval, please indicate by signing below
and returning a copy of this letter as soon as possible. Vic, we all look
forward to having you join our team and assist us in achieving our growth
objectives.
Sincerely,
/s/ Bill Krepick
William A. Krepick
President and COO
Agreed and Accepted: /s/ Victor Viegas
---------------------------------
Victor Viegas
Date: June 6, 1996
---------------------------------
<PAGE>
MACROVISION CORPORATION
BENEFITS - BRIEF SUMMARY
Medical: Blue Cross Prudent Buyer Plan or Kaiser Permanente effective
the first day of the month following date of hire. Entire
employee premium paid by Macrovision with 75% contribution
toward dependent premiums.
Dental: Blue Cross (Wellpoint) Insurance effective first day of the
month following date of hire. Same payment coverage as medical.
Life Insurance: Two policies totaling $15,000 over two times employee's annual
salary. Policy includes long-term disability with payment at
66% of salary, short-term disability and accidental death &
dismemberment. Employer paid -- eligibility date contingent
upon proof of health.
Flexible Contribution of monies by Macrovision into a cafeteria
Spending: plan to be used by employee for medical expenses. Effective
as of date of hire.
401(k): Salary reduction plan with 18 possible investment options.
Current employer match of 20% of salary reduction. Enrollment
after 90 days of date of hire.
Stock Option Macrovision Corporation and/or Command Audio Corporation stock
Plan: options or stock purchases granted upon Board approval as
outlined in cover letter.
Stock Option or Stock Grant
Exercise/Vesting Schedule:
Exercise/Vesting of Options and
Service Following Stock Grant
Grant Date (fraction of outstanding grant)
----------------------- ---------------------------------
Less than 1 year 0
After 1 year but less than 1/6
2 years
After 2 years but less than 1/2
3 years
After 3 years 100%
<PAGE>
Special Exercise/ Stock options and stock grants
Vesting Provision will become exercisable/vested
Upon Termination according to the following
By Company with- schedule:
out Cause or upon
a Constructive
Termination:
Exercise/Vesting of Options and
Service Following Stock Grant
Grant Date (fraction of outstanding grant)
----------------------- ---------------------------------
Less than 1 year 1/6
Greater than 1 year but
less than 2 years 1/2
Greater than 2 years 100%
Tuition Reimbursement up to $5,250 per year of educational
Reimbursement: expenses for approved courses of study or degree programs.
Vacation: First through third years of employment accrues monthly at
the rate of 6.67 hours (10 days per year) beginning on date
of hire.
Sick Time: Maximum 10 days, accrued at the monthly rate of 6.67 hours.
Effective as of date of hire.
Severance: If length of service is less than 3 years, payment is two
weeks salary plus 1 week for every $10K of base salary
(salary rounded to nearest $10K increment). For length of
service over 3 years, payment is four weeks salary plus 1
week for every $10K of base salary, to a maximum of six
months salary (salary rounded to nearest $10K increment).
<PAGE>
MACROVISION CORPORATION
RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement ("Agreement") is made as of the
seventh day of June, 1996 by and between Macrovision Corporation, a California
corporation ("Company"), and Victor Viegas ("Purchaser").
WHEREAS, Company desires to issue and sell shares of its Common Stock to
Purchaser and Purchaser desires to purchase such shares upon the terms and
conditions set forth herein.
NOW, THEREFORE, the parties agree as follows:
1.0 PURCHASE AND SALE OF COMMON STOCK.
1.1 PURCHASE. Subject to the terms and conditions of this Agreement,
Company hereby issues and sells to Purchaser and Purchaser purchases from
Company upon the execution of this Agreement, one hundred five thousand
(105,000) shares of Common Stock of Company (individually a "Share" or
collectively the "Shares") at the price of One Dollar and Fifty Cents ($1.50)
per Share (the "Purchase Price"), for an aggregate purchase price of One Hundred
Fifty-Seven Thousand Five Hundred Dollars ($157,500). Said Purchase Price shall
be paid in cash or pursuant to the terms of the promissory note attached as
EXHIBIT C hereto. If Purchaser executes said promissory note, Purchaser shall
also sign a stock pledge agreement in the form attached as EXHIBIT D hereto.
1.2 DELIVERY OF SHARES. The certificates representing the Shares
shall be held in escrow by Wise & Shepard LLP, attorneys for Company, as
provided below.
2.0 UNVESTED SHARES.
2.1 GENERALLY. For purposes of this Agreement, the term "Unvested
Shares" shall initially mean one hundred percent (100%) of the Shares being
issued by Company to Purchaser pursuant to this Agreement; provided, however,
that subject to Sections 2.2 and 3 below, the Unvested Shares shall become
Vested Shares with respect to (a) one sixth (1/6) of the Shares on June 7, 1997
(hereinafter such date shall be referred to as the "Initial Vesting Date"), (b)
an additional one third (1/3) of the Shares one (1) year after the Initial
Vesting Date and (c) the balance of the Shares two (2) years after the Initial
Vesting Date, so long as Purchaser remains a full-time employee of Company
during the applicable annual vesting periods, so that two (2) years after the
Initial Vesting Date (provided that Purchaser remains a full-time employee of
Company during such vesting period) all of the Shares shall be Vested Shares.
2.2 TERMINATION OF EMPLOYMENT WITHOUT CAUSE OR FOR GOOD REASON. If
the Company terminates Purchaser's status as a full-time employee of the Company
without Cause, or if Purchaser completely terminates his employment with the
Company for Good Reason, additional Unvested Shares shall become Vested Shares
in accordance with the following: (a) if
1
<PAGE>
such termination occurs before the Initial Vesting Date, one sixth (1/6) of the
Shares shall become Vested Shares; (b) if such termination occurs on or after,
but less than one (1) year after, the Initial Vesting Date, an additional one
third (1/3) of the Shares shall become Vested Shares; and (c) if such
termination occurs at least one (1) year after the Initial Vesting Date, all of
the Shares shall become Vested Shares.
2.3 TERMINATION OF EMPLOYMENT WITHOUT CAUSE OR FOR GOOD REASON
FOLLOWING A CHANGE IN CONTROL. If, within the period commencing three (3)
months prior to, and ending one (1) year after, a Change in Control, the Company
terminates Purchaser's status as a full-time employee of the Company without
Cause or Purchaser completely terminates his employment with the Company for
Good Reason, all Unvested Shares shall become Vested Shares.
2.4 DEFINITIONS OF "CAUSE", "GOOD REASON" AND "CHANGE IN CONTROL".
The following definitions shall apply in interpreting this Section 2:
(a) "Cause" shall mean any one or more of the following, in each
case as determined in good faith by the Company's Board of Directors: (i)
Purchaser's willful and repeated failure to comply with the lawful written
direction of the Company's Board of Directors; (ii) Purchaser's gross negligence
or willful misconduct in the performance of duties for or on behalf of the
Company and/or its subsidiaries; (iii) Purchaser's commission of any act of
fraud with respect to the Company and/or its subsidiaries; or (iv) Purchaser's
conviction of a felony or of a crime involving moral turpitude causing material
harm to the standing and reputation of the Company and/or its subsidiaries.
(b) "Good Reason" shall mean any one or more of the following
occurring within the thirty (30) day period immediately preceding the date on
which Purchaser's employment with the Company has completely terminated: (i) a
material adverse change in Purchaser's position with the Company causing it to
be of less stature or of less responsibility; (ii) a change in the position to
whom Purchaser reports, or (iii) a reduction of Purchaser's annual rate of base
compensation by more than twenty percent (20%).
(c) "Change in Control" shall mean any merger, corporate
acquisition or other similar transaction in which the persons who are
shareholders of the Company immediately prior to the transaction own less than
fifty percent (50%) of the equity interests in the resulting entity immediately
after the transaction.
3.0 REPURCHASE OPTION. Notwithstanding any provision contained in this
Agreement to the contrary, Company shall have the right, but not the obligation,
to repurchase all or any portion of the Unvested Shares (the "Repurchase
Option"), if, at any time, Purchaser ceases for any reason (including death or
permanent disability) to be a full time employee of, Company (a "Termination").
4.0 REPURCHASE PRICE. The price at which Company shall be entitled to
repurchase the Unvested Shares shall be the Purchase Price per Share specified
in Section 1.1 above. Company
2
<PAGE>
may repurchase the Unvested Shares by cancellation of indebtedness, if any, or
by tendering cash (via check).
5.0 EXERCISE OF OPTION. Company's Repurchase Option shall terminate if
not exercised within ninety (90) days of the date of any Termination. If
Company exercises its Repurchase Option, Company shall, concurrently with its
receipt of the share certificate(s) from the escrow described in Section 8.0
below, pay to Purchaser an amount in cash or cancellation of indebtedness equal
to the Repurchase Price multiplied by the number of Unvested Shares being
repurchased. If, by the end of the ninety (90) day period, Company has not so
elected to purchase some or all of the Shares subject to the Repurchase Option,
the Shares not purchased shall no longer be subject to the Repurchase Option.
6.0 SHAREHOLDER RIGHTS. Until such time as Company actually exercises its
Repurchase Option under this Agreement, Purchaser shall have all the rights of a
shareholder of Company with respect to the Shares.
7.0 RESTRICTION ON TRANSFER. Purchaser shall not sell, transfer, pledge,
hypothecate or otherwise dispose of any Shares which remain subject to the
Repurchase Option.
8.0 ESCROW. As security for the faithful performance of the terms of this
Agreement and to ensure the availability for delivery of Purchaser's Shares upon
exercise of the Repurchase Option herein provided for, Purchaser agrees to
deliver to and deposit with Wise & Shepard LLP, attorneys for Company, or such
other person designated by Company, as escrow agent in this transaction ("Escrow
Agent"), two stock assignments duly endorsed (with date and number of Shares
left blank) in the form attached hereto as EXHIBIT A, together with the
certificate or certificates evidencing the Shares. Said documents are to be
held by the Escrow Agent and delivered by the Escrow Agent pursuant to the Joint
Escrow Instructions of Company and Purchaser set forth in EXHIBIT B attached
hereto and incorporated by this reference; said instructions shall also be
delivered to the Escrow Agent upon the execution hereof.
9.0 STOCK SPLITS, ETC. If, from time to time during the term of this
Agreement:
(a) there is any stock dividend or liquidating dividend of cash
and/or property, stock split or other change in the character or amount of or on
any of the Shares; or
(b) there is any consolidation, merger or sale of all, or
substantially all, of the assets of Company;
then, in such event, any and all new, substituted or additional securities or
other property, if any, to which Purchaser is entitled by reason of his
ownership of the Shares shall be immediately subject to this Agreement and be
included in the term the "Shares" for all purposes with the same force and
effect as the Shares presently subject to the Repurchase Option and other terms
of this Agreement. While the aggregate Purchase Price pursuant to the
Repurchase Option for the Unvested Shares shall remain the same after each such
event, the Purchase Price per Share of the Unvested Shares upon exercise of the
Repurchase Option shall be appropriately adjusted.
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10.0 LEGENDS ON SHARES. Each certificate representing the Shares shall
have conspicuously printed on it the following legends, among other legends:
THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
THE VARIOUS STATES, AND HAS BEEN ISSUED AND SOLD PURSUANT TO AN EXEMPTION FROM
THE ACT, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED BY THE HOLDER
THEREOF AT ANY TIME, EXCEPT (1) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT,
FILED UNDER THE ACT COVERING THE SECURITY, OR (2) UPON DELIVERY TO COMPANY OF AN
OPINION OF COUNSEL SATISFACTORY TO COMPANY THAT THIS SECURITY MAY BE TRANSFERRED
WITHOUT REGISTRATION.
SALE, TRANSFER, OR HYPOTHECATION OF THIS SECURITY IS RESTRICTED BY THE
PROVISIONS OF A RESTRICTED STOCK PURCHASE AGREEMENT ENTERED INTO BY COMPANY AND
THIS SHAREHOLDER (INCLUDING RIGHTS OF FIRST REFUSAL), A COPY OF WHICH IS ON FILE
AT THE PRINCIPAL OFFICE OF COMPANY, AND ALL OF THE PROVISIONS OF WHICH ARE
INCORPORATED HEREIN.
11.0 INVESTMENT REPRESENTATIONS. As an inducement to Company to issue the
Shares to Purchaser, and in order to establish the suitability for Purchaser of
such an investment, Purchaser hereby makes the following representations and
warranties, and authorizes Company to rely upon the same:
(a) INVESTMENT INTENT. The Purchaser is aware of and familiar with
Company's business affairs and financial condition and has acquired sufficient
information about Company to reach a knowledgeable and informed decision to
acquire the Shares. The Purchaser is acquiring the Shares for his own account
and not with a view to or for sale in connection with any distribution of the
Shares.
(b) RELATIONSHIP. The Purchaser has either a preexisting personal or
business relationship with Company or its partners, officers, directors or
controlling persons.
(c) EXPERIENCE. The Purchaser and/or his professional advisors who are
not compensated by or affiliated with Company or a selling agent of Company
("Representatives"), if any, have such business or financial experience so that
Purchaser has the capacity to protect his own interests in connection with the
purchase of Shares hereunder.
(d) RISKS. The Purchaser understands that an investment in Company is
speculative, that any possible profits therefrom are uncertain, and that he must
bear the economic risks of the investment in Company for an indefinite period of
time. The Purchaser is able to bear these economic risks and to hold the Shares
for an indefinite period.
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(e) INFORMATION. The Purchaser and his Representatives, if any, have
received all information and data with respect to Company which Purchaser or his
Representatives have requested and have deemed relevant in connection with an
evaluation of the merits and risks of this investment in Company, and do not
desire any further information or data with respect to Company prior to the
purchase of the Shares.
(f) DOMICILE. The Purchaser is a bona fide resident and domiciliary,
not a temporary transient resident, of and has his principal residence in the
State of California, and does not have any present intention of moving his
principal residence from California.
(g) SECURITIES LAWS. The Purchaser understands that the Shares have
not been registered under the Securities Act of 1933, as amended (the "1933
Act"), in reliance on certain exemptions from registration provided by the
Securities and Exchange Commission (including that of Rule 701 for issuances
under compensatory benefit arrangements); and that the Shares have not been
registered under the "blue sky" laws of any state, including that the Shares
have not been qualified or a permit obtained for issuance of securities from the
California Department of Corporations or any other agency of the State of
California.
(h) TRANSFERS. The Purchaser understands that the Shares may have to
be held indefinitely unless they are subsequently registered under the 1933 Act
and qualified or registered under other applicable securities laws, rules and
regulations, or unless an exemption from such qualification or registration is
available.
(i) LEGENDS. The Purchaser understands and agrees that (i) the legends
set forth in Section 10 will be placed on certificate(s) evidencing the Shares
and on certificate(s) issued to permitted transferees; (ii) the stock records of
Company will be noted with respect to such restrictions; (iii) Company will not
be under any obligation to register the Shares or to comply with any exemption
available for sale of the Shares without registration; and (iv) the information
or conditions necessary to permit routine sales of securities of Company under
Rule 144 of the 1933 Act are not now available and it is not likely that they
will become available.
(j) FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
Purchaser's representations set forth above, Purchaser further agrees that he or
she shall in no event make any disposition of all or any portion of the Shares,
unless and until:
i. (A) There is then in effect a Registration Statement under the
1933 Act covering such proposed disposition and such disposition is made in
accordance with said Registration Statement; or (B) (1) Purchaser shall have
notified Company of the proposed disposition and shall have furnished Company
with a detailed statement of the circumstances surrounding the proposed
disposition, (2) Purchaser shall have furnished Company with an opinion of
Purchaser's counsel to the effect that such disposition will not require
registration of such Shares under the 1933 Act, and (3) such opinion of
Purchaser's counsel shall have been reasonably concurred in by counsel for
Company and Company shall have advised Purchaser of such concurrence;
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ii. The Shares proposed to be transferred are no longer subject to
the Repurchase Option set forth in Section 3 hereof; and
iii. Company has declined to exercise its right of first refusal as
set forth in Section 13 below.
12.0 VALUATION OF SHARES AND 83(b) ELECTION.
12.1 VALUATION. Purchaser understands that the Shares have been valued
by the Board of Directors of Company and that Company believes this valuation
represents a fair attempt at reaching an accurate appraisal of their worth at
the time of sale. Purchaser understands, however, that Company can give no
assurances that the Purchase Price is in fact the fair market value of the
Shares and that it is possible that the Internal Revenue Service could
successfully assert that the value of the Shares on the date of purchase is
greater than the value determined by the Board of Directors. If the Internal
Revenue Service were to succeed in a tax determination that the Shares had value
greater than that upon which the transaction was based, the additional value
would constitute ordinary income as of the date of its receipt. The additional
taxes (and interest) due would be payable by Purchaser, and Purchaser
acknowledges that Company is under no obligation to reimburse or be liable to
Purchaser for that tax liability, and Purchaser assumes all responsibility for
such additional tax liability, if any. In the event such additional value would
represent more than twenty-five percent (25%) of Purchaser's gross income for
the year in which the value of the Shares was taxable, the Internal Revenue
Service would have six (6) years from the due date for filing the return (or the
actual filing date of the return if filed thereafter) within which to assess
Purchaser the additional taxes (and interest) which would then be due.
12.2 SECTION 83(b) ELECTION. Purchaser understands that Section 83 of
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
income the difference between the amount paid for the Shares and the fair market
value of the Shares as of the date any restrictions on the Shares lapse. In
this context, "restriction" means the right of Company to buy back the Shares
pursuant to the Repurchase Option. Purchaser understands that if such provision
is applicable to him he may elect to be taxed at the time the Shares are
purchased rather than when and as the Repurchase Option expires by filing an
election under Section 83(b) of the Code with the Internal Revenue Service
within thirty (30) days from the date of purchase and with his income tax
returns for the year to which the 83(b) election pertains. Even if the fair
market value of the Shares equals the amount paid for the Shares, the election
must be made to avoid adverse tax consequences in the future. Purchaser
understands that the failure to make this filing timely will result in the
recognition of ordinary income by Purchaser, as the Repurchase Option lapses, on
the difference between the purchase price and the fair market value of the
Shares at the time such restrictions lapse.
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND
NOT COMPANY'S, TO FILE TIMELY THE ELECTION UNDER THE INTERNAL REVENUE CODE
SECTION 83(b), EVEN IF PURCHASER REQUESTS
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COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON PURCHASER'S BEHALF.
13.0 RIGHT OF FIRST REFUSAL FOR VESTED SHARES.
(a) GRANT. Company is hereby granted the right of first refusal with
respect to any proposed sale or other transfer of any Vested Shares. For
purposes of this Section 13, the term "transfer" shall include any assignment,
pledge, encumbrance or other disposition for value of the Vested Shares, but
shall not include any of the permitted transfers pursuant to the terms of this
Agreement.
(b) NOTICE OF INTENDED DISPOSITION. In the event Purchaser desires to
accept a bona fide third-party offer to purchase any or all of the Vested Shares
(the shares subject to such offer to be hereinafter called the "Target Shares"),
Purchaser shall promptly (i) deliver to Company written notice of the offer and
the basic terms and conditions thereof, including the proposed purchase price,
and (ii) provide satisfactory proof that the disposition of the Target Shares to
the third-party offeror would not be in contravention of the representations
made by Purchaser in Section 11 above.
(c) EXERCISE OF RIGHT. Company (or its assignees) shall, for a period
of twenty-five (25) days following receipt of the notice of intended disposition
under Section 13(b) above, have the right to repurchase any or all of the Target
Shares specified in the notice of intended disposition upon substantially the
same terms and conditions specified in such notice. Such right shall be
exercisable by written notice given to Purchaser prior to the expiration of the
twenty-five (25) day exercise period. If such right is exercised with respect
to all the Target Shares specified in the notice of intended disposition,
Company (or its assignees) shall effect the repurchase of the Target Shares,
including payment of the purchase price, not more than five (5) business days
thereafter, except as provided below; and at such time Purchaser shall deliver
to Company the certificates representing the Target Shares to be repurchased,
each certificate to be properly endorsed for transfer. To the extent any of the
Target Shares are at any time held in escrow under Section 8 above, the
certificates for such shares shall automatically be released from escrow and
surrendered to Company for cancellation. The Target Shares so purchased shall
thereupon be canceled and cease to be issued and outstanding shares of Company's
Common Stock. However, should the purchase price specified in the notice of
intended disposition be payable (in whole or in part) in property other than
cash or evidences of indebtedness, Company (or its assignees) shall have the
right to make a cash payment in an amount equal to the fair market value of such
property other than cash or evidences of indebtedness, in lieu of making payment
in the form of such other property. If the purchase price is payable (in whole
or in part) in property other than cash or evidences of indebtedness and
Purchaser and Company (or its assignees) cannot agree on the fair market value
of such other property within ten (10) days after Company's receipt of the
notice of intended disposition, the valuation shall be made by an appraiser of
recognized standing selected by Purchaser and Company (or its assignees) or, if
they cannot agree on an appraiser within twenty (20) days after Company's
receipt of such notice, each shall select an appraiser of recognized standing
and the two appraisers shall designate a third appraiser of recognized standing,
whose appraisal shall be determinative of such value. The
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closing of Company's purchase of stock under this Section 13 shall be held on
the LATER of (i) the fifth business day following Company's (or its assignees')
exercise of its repurchase rights hereunder or (ii) the fifteenth day after such
cash valuation is made.
(d) NON-EXERCISE OF RIGHT. In the event Company does not give
Purchaser written notice of its intent to exercise its right of first refusal
within twenty-five (25) days following the date of Company's receipt of the
notice of intended disposition under Section 13(b), Purchaser shall, for a
period of thirty (30) days thereafter, have the right to sell or otherwise
dispose of the Target Shares upon terms and conditions (including the purchase
price) no more favorable to the third party purchaser than those specified in
the notice of intended disposition given to Company; PROVIDED, HOWEVER, that any
such sale or disposition must not be effected in contravention of the
representations made by Purchaser in Section 11 above. To the extent any of the
Target Shares are at the time held in escrow under Section 8 above, the
certificates for such shares shall automatically be released from escrow and
surrendered to Purchaser. The third-party purchaser shall acquire the Target
Shares free and clear of all the terms and provisions of this Agreement. In the
event Purchaser does not sell or otherwise dispose of the Target Shares within
the specified thirty (30) day period, Company's right of first refusal shall
continue to be applicable to any subsequent disposition of the Target Shares by
Purchaser until such right lapses in accordance with Section 13(e) below.
(e) LAPSE. Company's right of first refusal under this Section 13
shall lapse and cease to have effect upon the EARLIER of (i) the date Company
first becomes subject to the periodic reporting requirements under the
Securities Exchange Act of 1934, as amended, (ii) a determination is made by
Company's Board of Directors that a public market exists for the outstanding
shares of Company's Common Stock, and (iii) any merger or other reorganization
of Company into a successor corporation or other business entity in which
Company is not the surviving business entity or corporation.
(f) RESTRICTIVE LEGEND. Until such time as Company's right of first
refusal lapses and ceases to have effect pursuant to the provisions of this
Section 13, the stock certificate for the Shares shall be endorsed with the
following additional legend:
"The shares represented by this certificate may not be sold, assigned,
transferred, pledged or encumbered, except in conformity with the terms of the
Restricted Stock Purchase Agreement between Company and the registered holder of
the shares (or his predecessor in interest). Such agreement grants certain
rights of first refusal to Company (or its assigns) upon the sale, assignment,
transfer, pledge or encumbrance of the shares. A copy of such agreement is on
file at the principal office of Company."
14.0 VOID TRANSFERS. Purchaser, as a condition to purchasing the Shares,
shall not sell, transfer or pledge any Shares subject to the restriction on
transfer described in Section 7, other than in the manner expressly permitted in
this Agreement, and any such sale, transfer or pledge of the Shares in violation
of this Agreement shall be void. Company shall not be required (i) to transfer
on its books any Shares which shall have been sold or transferred in violation
of this
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Agreement, or (ii) to treat as the owner of such Shares, or to accord the right
to vote as such owner or to pay dividends to any transferee to whom such Shares
shall have been so transferred.
15.0 NOTICE OF TAX ELECTION AND DISPOSITION OF SHARES. If Purchaser makes
any tax election relating to the treatment of the Shares under the Internal
Revenue Code of 1986, as amended, at the time of such election Purchaser shall
promptly notify Company of such election.
16.0 RELATED TRANSFEREES. Notwithstanding any provision to the contrary
contained in this Agreement, Purchaser shall not be under any restrictions as to
the transfer by him of any or all of the Vested Shares to his Related
Transferees (as defined herein) provided that each such Related Transferee shall
first (i) execute a written consent to be bound by the restrictions on transfer
imposed under this Agreement, in form and substance satisfactory to Company, and
(ii) deliver a duplicate original of such consent to Company; provided, however,
that no Vested Shares shall be transferred unless all such Vested Shares shall
have been paid for in full and no indebtedness is outstanding to Company with
respect to any such Vested Shares. For purposes of this Agreement, the term
"Related Transferees" of Purchaser shall consist of Purchaser's spouse, his
adult lineal descendants, the adult spouses of his adult lineal descendants and
trusts for the benefit of Purchaser, his spouse and/or any of his lineal
descendants. In the event of any such transfer by Purchaser to his Related
Transferees of all or any part of the Vested Shares (or in the event of any
subsequent transfer by any such Related Transferees to any other Related
Transferees of Purchaser), such Related Transferees shall receive and hold the
transferred Vested Shares subject to the terms of this Agreement and the rights
and obligations of Purchaser hereunder as though the Vested Shares were still
owned by Purchaser, and shall together with Purchaser continue to be deemed to
be the "Purchaser" for purposes of this Agreement, including, without
limitation, restrictions on the transfer of Shares contained in this Agreement.
There shall be no further transfer of the Shares by any Related Transferees
except between and among such Related Transferees, Purchaser and other Related
Transferees of Purchaser, or as otherwise permitted in this Agreement.
17.0 "MARKET STAND-OFF". In connection with the first underwritten
registration of the offering of the Common Stock of Company, Company (or a
representative of the underwriter) may require that Purchaser not sell or
otherwise transfer or dispose of any Shares not registered under the 1933 Act
during a period (not to exceed one hundred eighty (180) days) following the
effective date of the registration statement of Company filed under the 1933
Act, provided that all officers and directors of Company enter into similar
agreements.
18.0 ATTORNEYS' FEES. In the event either party shall commence any action or
proceeding against the other party by reason of any breach or claimed breach in
the performance of any of the terms or conditions of this Agreement or to seek a
judicial declaration of rights under this Agreement, the prevailing party in
such action shall be entitled to recover reasonable attorneys' fees and costs
from the non-prevailing party.
19.0 CONTROLLING LAW. This Agreement is entered into and to be performed in
California, and it shall be interpreted and enforced under, and all questions
relating thereto shall be determined in accordance with the laws of the State of
California.
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20.0 WAIVER. No waiver of any provision of this Agreement shall be deemed or
shall constitute a waiver of any other provision, whether or not similar, nor
shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
21.0 PARTIAL INVALIDITY. The illegality, invalidity or unenforceability of
any provision of this Agreement under the law of any jurisdiction shall not
affect its legality, validity or enforceability under the law of any other
jurisdiction nor the legality, validity or enforceability of any other
provision.
22.0 ENTIRE AGREEMENT. This Agreement, together with its Attachments and
Exhibits, is intended by the parties as a final expression of their agreement
and as a complete and exclusive statement of the terms of their agreement with
respect to its subject matter. This Agreement may not be contradicted by
evidence of any prior or contemporaneous agreement, oral or written, and this
Agreement may not be explained or supplemented by evidence of consistent
additional terms. This Agreement supersedes, merges, and voids all prior
representations, statements, negotiations, understandings, proposed agreements,
and other agreements, written or oral, relating to its subject matter.
23.0 AMENDMENTS. This Agreement may not be amended, modified or supplemented
except by a writing executed by both parties.
24.0 COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each an original but all one and the same instrument.
25.0 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
the successors and assigns of Company and any successors and permitted assigns
of Purchaser, and shall be binding upon the successors and assigns of Company
and of Purchaser, including any executors, administrators or other legal
representatives of Purchaser.
26.0 NOTICES. Any notice or other communication required or permitted under
this Agreement shall be in writing and either personally delivered or deposited
in the first class United States mail, prepaid, certified or registered, return
receipt requested, addressed as follows:
(a) If to Company:
Macrovision Corporation
1341 Orleans Drive
Sunnyvale, California 94089
Attn: President
with a copy to:
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Wise & Shepard LLP
3030 Hansen Way, Suite 100
Palo Alto, California 94304
Attn: David W. Herbst, Esq.
(b) If to Purchaser:
Victor Viegas
99 James Avenue
Atherton, CA 94027
Notice shall be deemed to have been given upon receipt. Either party may
change its address by giving written notice of such change to the other party in
the manner provided in this Section.
27.0 CONSENT OF SPOUSE. If Purchaser is married, Purchaser shall obtain the
signature of Purchaser's spouse as set forth on the Consent of Spouse form which
is attached to this Agreement. Purchaser's failure to obtain such consent shall
constitute a representation by Purchaser, on which Company shall rely, that
Purchaser is unmarried and that Purchaser has sole authority with respect to
Purchaser's actions regarding the Shares.
28.0 NO IMPLIED EMPLOYMENT TERM. Nothing in this Agreement shall affect in
any manner whatsoever the right or power of Company to terminate Purchaser's
employment with Company, or Purchaser's ability to quit Company's employment,
with or without cause, at any time.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of
the date first above written.
PURCHASER: MACROVISION CORPORATION
/s/ Victor Viegas By: /s/ W. A. Krepick
---------------------- ----------------------------
VICTOR VIEGAS Title: President
------------------------
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ATTACHMENTS TO THIS AGREEMENT:
Consent of Spouse
Section 83(b) Tax Election
EXHIBITS TO THIS AGREEMENT:
Exhibit A - Assignments Separate from Certificate
Exhibit B - Joint Escrow Instructions
Exhibit C - Promissory Note
Exhibit D - Stock Pledge Agreement
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CONSENT OF SPOUSE
The undersigned spouse of Purchaser agrees that my interest, if any, in the
stock subject to the foregoing Restricted Stock Purchase Agreement between
Purchaser and Company shall be irrevocably bound by such Agreement and further
understands and agrees that my community property interest, if any, shall be
similarly bound by such Agreement. The undersigned spouse further agrees
Purchaser's actions, omissions, and/or deeds with respect to the Shares,
including the execution of any and all documents by Purchaser, shall bind the
undersigned irrevocably, the same as if the undersigned had executed such
document or performed such action, omission and/or deed and further that any
third party, including, but not limited to, Company, shall be entitled to rely
upon same.
Spouse of Purchaser
/s/ Loren Viegas
------------------------------------
(signature)
Name: /s/ Loren Viegas
-------------------------------
(print)
<PAGE>
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue
Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name: Victor Viegas
------------------------------------------------
Address: 99 James Avenue
------------------------------------------------
Atherton, CA 94027
------------------------------------------------
Taxpayer Identification No.: ###-##-####
-----------------------------
(2) The property with respect to which the election is being made is one
hundred five thousand (105,000) shares of the common stock of Macrovision
Corporation, a California corporation.
(3) The property was issued on June 7, 1996.
(4) The taxable year in which the election is being made is the calendar
year 1996.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase price if
for any reason taxpayer's employment with the issuer is terminated. The
issuer's repurchase right lapses with respect to the property (unvested shares
vest) over a three year period.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will never lapse)
is One Dollar and Fifty Cents ($1.50) per share.
(7) The amount paid for such property is One Dollar Fifty Cents ($1.50) per
share.
(8) A copy of this statement was furnished to Macrovision Corporation for
whom taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed as of June 27, 1996.
Victor Viegas
- ------------------------------ ------------------------------
Spouse (if any) Taxpayer
This form must be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within thirty (30) days after the execution date of the Stock Purchase
Agreement.
<PAGE>
Exhibit 10.07
JOINT ESCROW INSTRUCTIONS
These Joint Escrow Instructions are entered into as of June 7, 1996.
RECITALS
MACROVISION CORPORATION, a California corporation ("Company"), and the
undersigned purchaser of stock ("Purchaser") desire to appoint Wise & Shepard
LLP, a Partnership including Professional Corporations, or any such other person
so designated by Company as their agent ("Agent") with respect to certain
certificate(s) evidencing shares of Company's common stock purchased pursuant to
the Restricted Stock Purchase Agreement (the "Agreement"), dated the date
hereof, to which a copy of these Joint Escrow Instructions is attached as
EXHIBIT B.
ESCROW INSTRUCTIONS
Company and Purchaser hereby authorize and direct Agent to hold the
documents and certificate(s) delivered to Agent pursuant to these Escrow
Instructions and to take the following actions with respect thereto, and Company
and Purchaser hereby agree as follows:
1. Purchaser hereby delivers and/or agrees to deliver to Agent
Purchaser's certificate(s) evidencing the stock purchased under the Stock
Purchase Agreement ("Stock") and an Assignment Separate from Certificate
executed in blank. Purchaser irrevocably authorizes Company to deposit with
Agent any certificates evidencing shares of Company's stock acquired by
Purchaser pursuant to the Agreement.
2. The provisions of these Escrow Instructions shall apply for so long as
the Stock is subject to the Repurchase Option set forth in the Agreement (the
"Repurchase Rights") and/or any balance of principal and/or interest remains
unpaid on the Promissory Note (the form of which is attached as EXHIBIT C to the
Stock Purchase Agreement) issued by Purchaser to Company for the purchase of the
Stock. Upon termination of Company's Repurchase Rights pursuant to the
Agreement and payment of the Promissory Note in full, this escrow shall
terminate.
3. In the event Company shall elect to exercise any of the Repurchase
Rights, Company shall give to Purchaser and Agent a written notice (the
"Repurchase Notice") which states (a) the terms and conditions of such purchase,
determined in accordance with the provisions of the Agreement, and (b) a time
and date for a closing hereunder at the principal office of Company. Purchaser
and Company hereby irrevocably authorize and direct Agent to close the
transaction contemplated by the Repurchase Notice in accordance with the terms
of the Repurchase Notice. At the closing, Agent shall deliver the
certificate(s) evidencing the shares of Stock to be transferred to Company
against the simultaneous delivery by Company to Agent of the consideration, if
any, for the number of shares of Stock being thus purchased. The balance of
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any such shares and the consideration so received shall be retained by Agent and
held in accordance with these Escrow Instructions.
4. Company may at any time release some or all of the Stock from the
provisions of these Escrow Instructions by giving written notice to Purchaser
and Agent directing delivery to Purchaser of the shares of Stock to be released.
5. To facilitate the exercise of any of the Repurchase Rights, the
exercise of Company's rights as a secured party under the Stock Pledge Agreement
attached as EXHIBIT D to the Stock Purchase Agreement, and the performance of
these instructions, Purchaser does hereby constitute and appoint Agent as
Purchaser's attorney-in-fact and agent for the term of this escrow to execute
with respect to such securities all stock certificates, stock assignments or
other instruments which shall be necessary or appropriate to make such
securities negotiable and complete any transaction herein contemplated,
including Company's exercise of its rights as a secured party. Purchaser
understands that such appointment is coupled with an interest and is
irrevocable. Subject to the provisions of this Agreement, Purchaser shall
exercise all rights and privileges of a stockholder of Company while the Stock
is held by Agent; provided, however, Purchaser may not sell, transfer, dispose
of or in any manner encumber any shares of the Stock while such shares of Stock
are held by Agent hereunder.
6. If at the time of termination of this escrow, Agent shall have in its
possession any documents, securities, or other property belonging to Purchaser,
Agent shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder.
7. Agent's duties hereunder may be altered, amended, modified or revoked
only by a writing signed by Company and Purchaser, and approved by Agent.
8. Agent shall not be personally liable for any act Agent may do or omit
to do hereunder as escrow agent, agent for Company, or attorney-in-fact for
Purchaser while acting in good faith and in the exercise of Agent's own good
judgment, and any act done or omitted by Agent pursuant to the advice of Agent's
own attorneys shall be conclusive evidence of such good faith.
9. Agent is hereby expressly authorized to disregard any and all warnings
by any of the parties hereto or by any other person, firm, corporation, or other
entity, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In the event Agent obeys or complies with any such order, judgment or
decree of any court, Agent shall not be liable to any of the parties hereto or
to any other person, firm, corporation, or other entity by reason of such
compliance notwithstanding that any such order, judgment or decree shall be
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
10. Agent shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver any agreements or
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documents called for by the Agreement or any documents or papers deposited or
called for hereunder.
11. Agent shall not be liable for the barring of any rights under the
Statute of Limitations with respect to these Escrow Instructions or any
documents deposited with Agent.
12. Agent may resign from its duties hereunder at any time upon written
notice to Company and Purchaser and delivery of all documents and certificates
held in this escrow to the successor escrow agent. If a successor escrow agent
has not been appointed within thirty (30) days, Agent may deliver all such
documents and certificates to Company, at which time, all further
responsibilities and duties of Agent shall cease.
13. If prior to the termination of these Escrow Instructions Agent shall
resign or otherwise cease to operate as escrow agent, a successor escrow agent
shall be designated by the Board of Directors of Company. The Board of
Directors of Company may, at any time, substitute another party in Agent's place
as escrow agent hereunder, and Purchaser hereby expressly accepts such
substitution.
14. Any notices required or permitted hereunder shall be in writing and
shall be deemed effectively given if delivered personally upon receipt, if
mailed by registered or certified mail (return receipt requested), first-class
postage prepaid, or transferred via telex or facsimile, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Company, to:
MACROVISION CORPORATION
1341 Orleans Drive
Sunnyvale, CA 94089
Attn: President
(b) if to Purchaser, to:
Mr. Victor Viegas
99 James Avenue
Atherton, CA 94027
(c) if to Agent, to:
Wise & Shepard LLP
3030 Hansen Way, Suite 100
Palo Alto, California 94304
Attn: David W. Herbst, Esq.
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15. The provisions of these Escrow Instructions shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
16. This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without giving effect to the conflict of
law principles thereof.
17. By signing these Escrow Instructions, Agent becomes a party hereby
only for the purpose of said Escrow Instructions; Agent does not become a party
to the Agreement.
18. Agent shall be entitled to reimbursement by Company for reasonable
costs and expenses incurred in connection with the performance of the services
provided for herein.
19. These Escrow Instructions contain the entire understanding of Company
and Purchaser, and there are no other contracts, agreements, understandings,
representations, warranties, or covenants with respect to the subject matter
contained herein.
IN WITNESS WHEREOF, Company and Purchaser have executed these Escrow
Instructions as of the date first above written.
COMPANY:
MACROVISION CORPORATION
By: /s/William A. Krepick
------------------------------
William A. Krepick, President
PURCHASER:
/s/ Victor Viegas
------------------------------
VICTOR VIEGAS
ESCROW AGENT:
WISE & SHEPARD LLP
By:/s/ David W. Herbst
------------------------------
David W. Herbst, Partner
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STOCK PLEDGE AGREEMENT
In consideration of the loan which Macrovision Corporation, a California
corporation ("Company"), having its principal offices at 1341 Orleans Drive,
Sunnyvale, California 94089 has on this day extended to the undersigned and as
security for the payment of that certain promissory note ("Note") in the
principal sum of One Hundred Fifty-Seven Thousand Five Hundred Dollars
($157,500.00) payable to Company which the undersigned has on this day executed
to evidence such loan, the undersigned hereby grants Company a security interest
in, and assigns, transfers to and pledges with the Company, the following
securities and other property:
(i) One hundred five thousand (105,000) shares of Company's Common
Stock which were acquired by the undersigned on June 7, l996 and which have on
this day been delivered to and deposited with Company;
(ii) any and all new, additional or different securities subsequently
distributed with respect to the shares identified in (i) above which are to be
delivered to and deposited with Company pursuant to the requirements of Section
3 of this Stock Pledge Agreement (the "Agreement");
(iii) any and all other property and money which is delivered to or
comes into the possession of Company pursuant to the terms and provisions of
this Agreement; and
(iv) the proceeds of any sale, exchange or disposition of the property
and securities described in clauses (i), (ii) or (iii) above.
All securities, property and money so assigned, transferred to and pledged
with Company shall be herein referred to as the "Collateral." Company shall
hold the Collateral in accordance with the following terms and provisions:
l. WARRANTIES. The undersigned hereby warrants that the undersigned is the
owner of the Collateral and has the right to pledge the Collateral and that the
Collateral is free from liens, adverse claims and other security interests,
except as provided in the Restricted Stock Purchase Agreement, of even date
herewith, between the undersigned and Company, to which this Agreement is
attached as EXHIBIT B ("Purchase Agreement").
2. RIGHTS AND POWERS. Company may, without obligation to do so, exercise
at any time and from time to time one or more of the following rights and powers
with respect to any or all of the Collateral:
(a) accept in its discretion, but subject to the limitations of Section 7 of
this Agreement, other property of the undersigned in exchange for all or part of
the Collateral and release Collateral to the undersigned to the extent necessary
to effect such exchange,
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and in such event the money, property or securities received in the exchange
shall be held by Company as substitute security for the Note and all other
indebtedness secured hereunder;
(b) perform such acts as are necessary to preserve and protect the
Collateral and the rights, powers and remedies granted with respect to such
Collateral by this Agreement; and
(c) transfer record ownership of the Collateral to Company or its nominee
and receive, endorse and give receipt for, or collect by legal proceedings or
otherwise, dividends or other distributions made or paid with respect to the
Collateral, provided and only if there exists at the time an outstanding event
of default under Section 8 of this Agreement.
Expenses reasonably incurred in the exercise of such rights and powers shall
be payable by the undersigned to Company and form part of the indebtedness
secured hereunder as provided in Section 10 of this Agreement.
So long as there exists no event of default under Section 8 of this
Agreement, the undersigned may exercise all shareholder voting rights and be
entitled to receive any cash distribution with respect to the Collateral.
Accordingly, until such time as an event of default occurs under this Agreement,
all proxy statements and other shareholder materials shall be delivered to the
undersigned at the address indicated below.
3. DUTY TO DELIVER. Any new, additional or different securities which may
now or hereafter become distributable with respect to the Collateral by reason
of a stock dividend, stock split or reclassification of the capital stock of
Company or by reason of a merger, consolidation or other reorganization
affecting the capital structure of Company shall, upon receipt by the
undersigned, be promptly delivered to and deposited with Company as part of the
Collateral hereunder. Such securities shall be accompanied by one or more
properly endorsed stock power assignments.
4. CARE OF COLLATERAL. Company shall exercise reasonable care in the
custody and preservation of the Collateral, but shall have no obligation to
initiate any action with respect to, or otherwise inform the undersigned of, any
conversion, call, exchange right, preemption right, subscription right, purchase
offer or other right or privilege relating to or affecting the Collateral.
Company shall have no duty to preserve the rights of the undersigned against
adverse claims or to protect the Collateral against the possibility of a decline
in market value. Company shall not be obligated to take any action with respect
to the Collateral requested by the undersigned unless the request is made in
writing and Company determines that the requested action will not unreasonably
jeopardize the value of the Collateral as security for the Note.
Company may at any time deliver all or part of the Collateral to the
undersigned, and the receipt thereof by the undersigned shall constitute a
complete and full release for
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the Collateral so delivered. Company shall accordingly be discharged from any
further liability or responsibility for the delivered Collateral.
5. PAYMENT OF TAXES AND OTHER CHARGES. The undersigned shall pay, prior to
the delinquency date, all taxes, liens, assessments and other charges against
the Collateral; if undersigned fails to do so, Company may at its election pay
any or all of such taxes, liens, assessments and charges without contesting the
validity or legality thereof. Any payments so made by Company under this
Section 5 shall become part of the indebtedness secured hereunder and shall bear
interest at the same rate provided in the Note.
6. TRANSFER OF COLLATERAL. In connection with the transfer or assignment
of the Note (whether by negotiation, discount or otherwise), if any, Company may
transfer all or any part of the Collateral, and the transferee shall thereupon
succeed to all the rights, powers and remedies granted Company hereunder with
respect to the Collateral so transferred. Upon such transfer, Company shall be
fully discharged from all liability and responsibility for the transferred
Collateral.
7. RELEASE OF COLLATERAL.
(a) If all indebtedness secured hereunder is either paid in full, the shares
of Company's Common Stock pledged and deposited by the undersigned hereunder,
together with any additional Collateral which may hereafter be pledged and
deposited with Company pursuant to the requirements of Section 3 above, shall to
the extent such shares are vested under the Purchase Agreement, be released from
pledge thirty (30) days after such payment in full.
(b) If the Collateral becomes in whole or in part comprised of "margin
security" within the meaning of Section 207.2(d) of Regulation G of the Federal
Reserve Board ("Regulation G"), then no Collateral shall thereafter be released
or substituted under this Agreement unless:
(i) the amount of indebtedness at the time secured hereunder is not in
excess of the maximum loan value (as determined pursuant to the provisions of
Regulation G) of the Collateral remaining after the release or substitution is
effected; OR
(ii) the amount of indebtedness secured hereunder is reduced by at least
the amount by which the maximum loan value of the new Collateral (if any)
deposited hereunder is less than the maximum loan value of the Collateral to be
released or otherwise withdrawn.
8. EVENTS OF DEFAULT. The occurrence of one or more of the following
events shall constitute an event of default under this Agreement:
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(a) failure of the undersigned to pay principal or accrued interest when due
under the Note;
(b) the occurrence of any event of default specified in the Note;
(c) the failure of the undersigned to perform any obligation imposed on the
undersigned by reason of this Agreement; or
(d) the breach of any warranty of the undersigned contained in this
Agreement.
Upon the occurrence of any such event of default, Company may, at its
election, declare the Note and all other indebtedness secured hereunder to
become immediately due and payable and may exercise any or all of the rights and
remedies granted to a secured party under the provisions of the California
Uniform Commercial Code (as now or hereafter in effect), including (without
limitation) the power to dispose of the Collateral by public or private sale or
to accept the Collateral in full payment of the Note and all other indebtedness
secured hereunder. Any proceeds realized from the disposition of the Collateral
pursuant to the power of sale hereby granted to Company shall first be applied
to the payment of expenses incurred by Company in connection with the
disposition, and the balance shall be applied to the payment of the Note and any
other indebtedness secured hereunder in such order of application as Company
shall deem appropriate. Any surplus proceeds shall be paid over to the
undersigned. In the event such proceeds prove insufficient to satisfy all
indebtedness secured hereunder, then the undersigned shall be personally liable
for the deficiency.
9. OTHER REMEDIES. The rights, powers and remedies granted to Company
pursuant to the provisions of this Agreement shall be in addition to all rights,
powers and remedies granted to Company under any statute or rule of law. Any
forbearance, failure or delay by Company in exercising any right, power or
remedy under this Agreement shall not be deemed to be waiver of such right,
power or remedy. Any single or partial exercise of any right, power or remedy
under this Agreement shall not preclude the further exercise thereof, and every
right, power and remedy of Company under this Agreement shall continue in full
force and effect until such right, power or remedy is specifically waived by an
instrument executed by Company.
l0. COSTS AND EXPENSES. All costs and expenses (including reasonable
attorneys' fees) incurred by Company in the exercise or enforcement of any
right, power or remedy granted it under this Agreement shall become part of the
indebtedness secured hereunder and shall be payable immediately by the
undersigned, without demand, and until paid, shall bear interest at the rate
provided for in the Note.
ll. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
the conflict of
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law principles thereof. This Agreement shall be binding upon the executors,
administrators, heirs and assigns of the undersigned.
l2. SEVERABILITY. If any provision of this Agreement is held to be invalid
under applicable law, then such provision shall be ineffective only to the
extent of such invalidity, and neither the remainder of such provision nor any
other provisions of this Agreement shall be affected thereby.
IN WITNESS WHEREOF, this Agreement has been executed by the undersigned on
this 27 day of June, 1996.
/s/ Victor Viegas
--------------------------------
VICTOR VIEGAS
Address: 99 James Avenue
Atherton, CA 94027
Agreed to and Accepted by:
MACROVISION CORPORATION
By: /s/ W. A. Krepick
----------------------------------------
William A. Krepick, President
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<PAGE>
PROMISSORY NOTE
$157,500.00 June 7, 1996
Sunnyvale, California
FOR VALUE RECEIVED, VICTOR VIEGAS ("Borrower") promises to pay to
MACROVISION CORPORATION ( the "Company") or order, at 1341 Orleans Drive,
Sunnyvale, California 94089 or such other place as the Company or holder hereof
may from time to time designate, the principal sum of One Hundred Fifty-Seven
Thousand Five Hundred Dollars ($157,500.00).
1. INTEREST RATE. Interest shall accrue on the unpaid principal portion
of this Note at the rate of six and fifty-eight hundredths percent (6.58%) per
annum, simple interest.
2. PAYMENT SCHEDULE. Principal and accrued interest, if any, shall be
due and payable on June 7, 2001. Notwithstanding the foregoing, principal and
accrued interest, if any, shall be due and payable in full thirty (30) days
after Borrower ceases to be an employee of Company.
3. PREPAYMENT. Borrower shall have the right to prepay all or any part
of the unpaid balance hereof at any time, without penalty.
4. NO OFFSETS. Company shall not be entitled to offset any amounts owed
to Borrower as compensation arising out of Borrower's employment with Company
against the balance owing on this Note at the time of Borrower's termination of
employment.
5. TAX CONSEQUENCES. Borrower represents and warrants to Company that
Borrower has consulted his tax advisers and understands the tax consequences of
this Note, and Borrower has not relied on Company, its officers, directors,
employees, or attorneys for any tax advice. Borrower shall make provision for
and indemnify Company against the payment by Company of or damages incurred by
Company with respect to any federal or state withholding taxes required to be
paid or withheld by Company due to the terms of this Note.
6. WAIVERS. Borrower waives any right of demand, presentment, notice of
nonpayment, protest or notice of dishonor.
7. AMENDMENT OF NOTE. This Note may be terminated or amended only by
prior written consent of Company.
8. SEVERABILITY. If for any reason any of the provisions of this Note
shall be determined to be inoperative or invalid, the validity and effect of the
other provisions hereof shall not be affected thereby and such other provisions
shall remain in full force and effect.
<PAGE>
9. ATTORNEYS FEES. In the event an action is brought by Company to
enforce or to interpret the terms of this Note, the prevailing party in such
action shall be entitled to its reasonable attorney's fees in addition to any
other relief to which that party may be entitled.
10. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
the conflict of law principles thereof.
BORROWER:
/s/ Victor Viegas
--------------------------
VICTOR VIEGAS
Address: 99 James Avenue
Atherton, CA 94027
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
_____________________ _____________________ (________) shares of the Common
Stock of MACROVISION CORPORATION, a California corporation, standing in the
undersigned's name on the books of said corporation represented by Certificate
No. ____ herewith, and does hereby irrevocably constitute and appoint Wise &
Shepard LLP, as attorney-in-fact, to transfer the said stock on the books of the
said corporation with full power of substitution in the premises.
Dated: /s/ Victor Viegas
--------------- ---------------------
(signature)
Name: Victor Viegas
----------------
(print)
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
___________________ _________________ (_________) shares of the Common Stock of
MACROVISION CORPORATION, a California corporation, standing in the undersigned's
name on the books of said corporation represented by Certificate No. ____
herewith, and does hereby irrevocably constitute and appoint Wise & Shepard LLP,
as attorney-in-fact, to transfer the said stock on the books of the said
corporation with full power of substitution in the premises.
Dated: /s/ Victor Viegas
--------------- --------------------
(signature)
Name: Victor Viegas
---------------
(print)
<PAGE>
Exhibit 10.08
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered into
as of ____________, 1996, by and among Macrovision Corporation, a Delaware
corporation (the "Corporation") and _______________________ ("Indemnitee"):
WHEREAS, recently, highly competent persons have become more reluctant to
serve both privately- and publicly-held corporations as directors, officers, or
in other capacities, unless they are provided with better protection from the
risk of claims and actions against them arising out of their service to and
activities on behalf of such corporations; and
WHEREAS, the current impracticability of obtaining adequate insurance and
the uncertainties related to indemnification have increased the difficulty of
attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Corporation (the "Board") has
determined that the ability to attract and retain such persons is in the best
interests of the Corporation's stockholders and that such persons should be
assured that they will have better protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Corporation to
obligate itself contractually to indemnify such persons to the fullest extent
permitted by applicable law, so that such persons will serve or continue to
serve the Corporation free from undue concern that they will not be adequately
indemnified; and
WHEREAS, this Agreement is a supplement to and in furtherance of Article
____ of the Amended and Restated Certificate of Incorporation of the Corporation
(the "Certificate"), Article VI of the By-Laws of the Corporation (the
"By-Laws"), and the rights granted under the Certificate, the By-Laws and any
resolutions adopted pursuant thereto, and nothing contained in this Agreement
shall be deemed to be a substitute therefor or construed to diminish or abrogate
any rights of Indemnitee thereunder; and
WHEREAS, Indemnitee may serve, continue to serve and to take on additional
service for or on behalf of the Corporation;
NOW, THEREFORE, in consideration of the premises and the covenants contained
herein, the Corporation and Indemnitee do hereby covenant and agree as follows:
Section I DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" includes any corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise directly or indirectly owned
by the Corporation.
(b) "Corporate Status" means the status of a person who is or was a
director, officer, employee, agent or fiduciary of the Corporation or any
majority owned subsidiary of the
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Corporation, or of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which such person is or was serving at
the request of the Corporation.
(c) "Disinterested Director" means a director of the Corporation who is
not and was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
(d) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness in a
Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent: (i) the Corporation or
Indemnitee in any other matter material to either such party, or (ii) any other
party to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Corporation or Indemnitee in an action to determine Indemnitee's rights under
this Agreement.
(f) "Proceeding" means any action, suit, arbitration, alternate dispute
resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except one
initiated by an Indemnitee pursuant to Section 11 of this Agreement to enforce
his or her rights under this Agreement.
Section 2. SERVICES BY INDEMNITEE. Indemnitee may at any time and for
any reason resign from any position (subject to any other contractual obligation
or any obligation imposed by operation of law), without affecting the
indemnification hereunder, except as specifically provided in this Agreement.
Section 3. INDEMNIFICATION - GENERAL. The Corporation shall indemnify,
and advance Expenses to, Indemnitee as provided in this Agreement to the fullest
extent permitted by applicable law in effect on the date hereof and to such
greater extent as applicable law may thereafter from time to time permit. The
rights of Indemnitee provided under the preceding sentence shall include, but
shall not be limited to, the rights set forth in the other sections of this
Agreement.
Section 4. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
CORPORATION. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 4 if, by reason of his or her Corporate Status, he or
she is, or is threatened to be made, a party to any contemplated, pending or
completed Proceeding, other than a Proceeding by or in the right of the
Corporation. Pursuant to this Section 4, Indemnitee shall be indemnified
against Expenses, losses, claims, liabilities, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or her or on
his or her behalf in connection with any such Proceeding
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<PAGE>
or any claim, issue or matter therein, if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal Proceeding, had
no reasonable cause to believe his or her conduct was unlawful. For purposes of
this Section 4, Indemnitee shall be deemed to have acted in good faith if
Indemnitee's action is based on the records or the books of account of the
Corporation or an Affiliate, including financial statements, or on information
supplied to the Indemnitee by the officers of the Corporation or an Affiliate in
the course of their duties, or on the advice of legal counsel for the
Corporation or an Affiliate by an independent certified public accountant or by
an appraiser or other expert selected with reasonable care by the Corporation or
an Affiliate.
Section 5. PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION.
Indemnitee shall be entitled to the rights of indemnification provided in this
Section 5 if, by reason of his or her Corporate Status, he or she is, or is
threatened to be made, a party to any contemplated, pending, or completed
Proceeding brought by or in the right of the Corporation to procure a judgment
in its favor. Pursuant to this Section 5, Indemnitee shall be indemnified
against Expenses, judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by him or her or on his or her behalf in
connection with any such Proceeding if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation. Notwithstanding the foregoing, no indemnification
against such Expenses shall be made in respect of any claim, issue or matter in
any such Proceeding as to which Indemnitee shall have been adjudged to be liable
to the Corporation if applicable law expressly prohibits such indemnification
unless and only to the extent that the Chancery Court of the State of Delaware
or the court in which such Proceeding shall have been brought or is pending,
shall determine that indemnification against Expenses may nevertheless be made
by the Corporation. For purposes of this Section 5, Indemnitee shall be deemed
to have acted in good faith if Indemnitee's action is based on the records or
the books of account of the Corporation or an Affiliate, including financial
statements, or on information supplied to the Indemnitee by the officers of the
Corporation or an Affiliate in the course of their duties, or on the advice of
legal counsel for the Corporation or an Affiliate by an independent certified
public accountant or by an appraiser or other expert selected with reasonable
care by the Corporation or an Affiliate.
Section 6. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR
PARTLY SUCCESSFUL. Notwithstanding any other provision of this Agreement, to
the extent that Indemnitee is, by reason of his or her Corporate Status, a party
to and is successful, on the merits or otherwise, in any Proceeding, he or she
shall be indemnified against all Expenses actually and reasonably incurred by
him or her or on his or her behalf in connection therewith. If Indemnitee is
not wholly successful in such Proceeding but is successful, on the merits or
otherwise, as to one or more but less than all claims, issues or matters in such
Proceeding, the Corporation shall indemnify Indemnitee, to the maximum extent
permitted by law, against all Expenses actually and reasonably incurred by him
or her or on his or her behalf in connection with each successfully resolved
claim, issue or matter. For the purposes of this Section and without limiting
the foregoing, the termination of any claim, issue or matter in any such
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.
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Section 7. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his or her Corporate Status, a witness in any Proceeding, he or she
shall be indemnified against all Expenses actually and reasonably incurred by
him or her or on his or her behalf in connection therewith.
Section 8. ADVANCEMENT OF EXPENSES. The Corporation shall advance all
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding within 20 days after the receipt by the Corporation of a statement or
statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
Section 9. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION.
(a) To obtain indemnification under this Agreement in connection with any
Proceeding, and for the duration thereof, Indemnitee shall submit to the
Corporation a written request, including therein or therewith such documentation
and information as is reasonably available to Indemnitee and is necessary to
determine whether and to what extent Indemnitee is entitled to indemnification.
The Secretary of the Corporation shall, promptly upon receipt of any such
request for indemnification, advise the Board in writing that Indemnitee has
requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to
Section 9(a) hereof, a determination with respect to Indemnitee's entitlement
thereto shall be made in such case: (i) (A) by the Board by a majority vote of a
quorum consisting of Disinterested Directors, or (B) if a quorum of the Board
consisting of Disinterested Directors is not obtainable, or even if such quorum
is obtainable, if such quorum of Disinterested Directors so directs, by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee; or (ii) as provided in Section 10(b) of this Agreement.
If it is so determined that Indemnitee is entitled to indemnification, payment
to Indemnitee shall be made within 30 days after such determination. Indemnitee
shall cooperate with the person, persons or entity making such determination
with respect to Indemnitee's entitlement to indemnification, including providing
to such person, persons or entity upon reasonable advance request any
documentation or information which is not privileged or otherwise protected from
disclosure and which is reasonably available to Indemnitee and reasonably
necessary to such determination. Any costs or expenses (including attorneys'
fees and disbursements) incurred by Indemnitee in so cooperating with the
person, persons or entity making such determination shall be borne by the
Corporation (irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Corporation hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) If required, Independent Counsel shall be selected by the Board, and
the Corporation shall give written notice to Indemnitee advising him or her of
the identity of Independent Counsel so selected. Indemnitee may within seven
days after such written notice of
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<PAGE>
selection shall have been given, deliver to the Corporation, a written objection
to such selection. Such objection may be asserted only on the grounds that
Independent Counsel so selected does not meet the requirements of "Independent
Counsel" as defined in Section 1 of this Agreement, and the objection shall set
forth with particularity the factual basis of such assertion. If such written
objection is made, Independent Counsel so selected may not serve as Independent
Counsel unless and until a court has determined that such objection is without
merit. If, within 30 days after submission by Indemnitee of a written request
for indemnification pursuant to Section 9(a) hereof, no Independent Counsel
shall have been selected and not objected to, either the Corporation or
Indemnitee may petition the Chancery Court of the State of Delaware, or other
court of competent jurisdiction, for resolution of any objection which shall
have been made by the Corporation or Indemnitee to the other's selection of
Independent Counsel and/or for the appointment as Independent Counsel of a
person selected by such court or by such other person as such court shall
designate, and the person with respect to whom an objection is so resolved or
the person so appointed shall act as Independent Counsel under Section 9(b)
hereof. The Corporation shall pay any and all reasonable fees and expenses of
Independent Counsel incurred by such Independent Counsel in connection with its
actions pursuant to this Agreement, and the Corporation shall pay all reasonable
fees and expenses incident to the procedures of this Section 9(c), regardless of
the manner in which such Independent Counsel was selected or appointed. Upon
the due commencement date of any judicial proceeding or arbitration pursuant to
Section 11(a)(iii) of this Agreement, Independent Counsel shall be discharged
and relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
Section 10. PRESUMPTION AND EFFECTS OF CERTAIN PROCEEDINGS.
(a) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 9(a) of this Agreement, and the Corporation shall have
the burden of proof to overcome that presumption in connection with the making
by any person, persons or entity of any determination contrary to that
presumption.
(b) If the person, persons or entity empowered or selected under Section 9
of this Agreement to determine whether Indemnitee is entitled to indemnification
shall not have made a determination within 90 days after receipt by the
Corporation of the request therefor, the requisite determination of entitlement
to indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) prohibition of such indemnification under applicable
law.
Section 11. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to Section 9 of
this Agreement that Indemnitee is not entitled to indemnification hereunder,
(ii) advancement of Expenses is not timely made pursuant to Section 8 of this
Agreement, (iii) the determination of
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entitlement to indemnification is to be made by Independent Counsel pursuant to
Section 9(b) of this Agreement and such determination shall not have been made
and delivered in a written opinion within 90 days after receipt by the
Corporation of the request for indemnification, (iv) payment of indemnification
is not made pursuant to Section 7 of this Agreement within 30 days after receipt
by the Corporation of a written request therefor, or (v) payment of
indemnification is not made within 30 days after a determination has been made
that Indemnitee is entitled to indemnification or such determination is deemed
to have been made pursuant to Section 9 or 10 of this Agreement, Indemnitee
shall be entitled to an adjudication in the Chancery Court of the State of
Delaware, or in any other court of competent jurisdiction, of his or her
entitlement to such indemnification or advancement of Expenses. Alternatively,
Indemnitee, at his or her option, may seek an award in arbitration to be
conducted by a single arbitrator in Delaware. Indemnitee shall commence such
proceeding seeking an adjudication or award in arbitration within 180 days
following the date on which Indemnitee has the right to commence such proceeding
pursuant to this Section 11(a). The Corporation shall not oppose Indemnitee's
right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to
Section 9 of this Agreement that Indemnitee is not entitled to indemnification,
any judicial proceeding or arbitration commenced pursuant to this Section shall
be conducted in all respects as a DE NOVO trial or arbitration on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination.
(c) If a determination shall have been made or deemed to have been made
pursuant to Section 9 or 10 of this Agreement that Indemnitee is entitled to
indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 11, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii)
prohibition of such indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 11, seeks a
judicial adjudication of, or an award in arbitration to enforce, his or her
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Corporation, and shall be indemnified by
the Corporation against, any and all expenses (of the kinds described in the
definition of Expenses) actually and reasonably incurred by him or her in such
judicial adjudication or arbitration, but only if he or she prevails therein.
If it shall be determined in such judicial adjudication or arbitration that
Indemnitee is entitled to receive part but not all of the indemnification or
advancement of expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
Section 12. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION.
(a) The rights of indemnification and to receive advancement of Expenses
as provided by this Agreement shall not be deemed exclusive of any other rights
to which Indemnitee may at any time be entitled under applicable law, the
Certificate, the By-Laws, any
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agreement, a vote of stockholders or a resolution of directors, or otherwise.
No termination of this Agreement pursuant to Section 13 herein shall be
effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in his or her Corporate Status prior to such termination and he
or she shall continue to be fully indemnified for such actions or omissions in
accordance with the terms of this Agreement.
(b) In the event of any payment under this Agreement, the Corporation
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Corporation to bring suit to enforce such rights.
(c) The Corporation shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
Section 13. DURATION OF AGREEMENT. This Agreement shall continue until
and terminate upon the later of (a) five years after the date that Indemnitee
shall have ceased to serve as a director, officer, employee, agent or fiduciary
of the Corporation or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which Indemnitee served at the
request of the Corporation; or (b) the final termination of all pending
Proceedings in respect of which Indemnitee is granted rights of indemnification
or advancement of Expenses hereunder and of any proceeding commenced by
Indemnitee pursuant to Section 11 of this Agreement. This Agreement shall be
binding upon the Corporation and its successors and assigns and shall inure to
the benefit of Indemnitee and his or her heirs, executors and administrators.
Section 14. SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation. each portion of any
section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (b) to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of any section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable
Section 15. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF
EXPENSES. Except as provided in Section 11(d), Indemnitee shall not be entitled
to indemnification or advancement of Expenses under this Agreement with respect
to any Proceeding, or any claim therein brought or made by him or her against
the Corporation.
Section 16. IDENTICAL COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which
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together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
Section 17. HEADINGS. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
Section 18. 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.
Section 19. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify
the Corporation in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification or advancement of
Expenses covered hereunder.
Section 20. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom such
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed to Indemnitee at his or her address set
forth in the Corporation's records and to the Corporation at its principal
executive offices, or to such other address as may have been furnished to
Indemnitee by the Corporation or to the Corporation by Indemnitee, as the case
may be.
Section 21. GOVERNING LAW. The parties agree that this Agreement shall
be governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.
Section 22. MISCELLANEOUS. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
MACROVISION CORPORATION,
a Delaware corporation
By: ______________________________
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Title: _____________________________
INDEMNITEE
__________________________________
9
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Exhibit 10.09
RECAPITALIZATION AND STOCK PURCHASE AGREEMENT
This Recapitalization and Stock Purchase Agreement ("Agreement") is made as
of this 31st day of July, 1996 by and between Command Audio Corporation, a
California corporation ("Company"), and Macrovision Corporation, a California
corporation ("Macrovision").
WHEREAS, Macrovision presently holds one million (1,000,000) shares of
Company's Common Stock and five hundred thousand (500,000) shares of Company's
Series A Preferred Stock; and
WHEREAS, Macrovision and Company desire that Macrovision invest an
additional One Million Dollars ($1,000,000) in Company, provide three hundred
fifty thousand (350,000) shares of Macrovision Common Stock to Company pursuant
to a Restricted Stock Acquisition Agreement, and surrender Macrovision's five
hundred thousand (500,000) shares of Company's Series A Preferred Stock in
exchange for six hundred four thousand (604,000) shares of Company's Common
Stock and three hundred ninety-six thousand (396,000) shares of Company's Series
B Preferred Stock upon the terms and conditions set forth herein.
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE AND SALE OF COMMON STOCK AND SERIES B PREFERRED STOCK.
(a) PURCHASE. Subject to the terms and conditions of this Agreement,
Company hereby issues and sells to Macrovision and Macrovision purchases from
Company upon the execution of this Agreement six hundred four thousand (604,000)
shares of Common Stock of Company and three hundred ninety-six thousand
(396,000) shares of Series B Preferred Stock of Company (collectively the
"Shares") for the aggregate consideration of One Million Dollars ($1,000,000)
consisting of Six Hundred Forty-Five Thousand Dollars ($645,000) in cash, a
Promissory Note in the form of Exhibit B hereto, and a Security Agreement in the
form of Exhibit C hereto, PLUS three hundred fifty thousand (350,000) shares of
Macrovision Common Stock subject to the terms and conditions of a Restricted
Stock Acquisition Agreement in the form attached hereto as Exhibit A, PLUS the
surrender and delivery to the Company of the five hundred thousand (500,000)
shares of Company's Series A Preferred Stock currently held by Macrovision. The
cash portion of the purchase price, Six Hundred Forty-Five Thousand Dollars
($645,000), shall be allocated to the Company's Common Stock. The cash portion
of such consideration shall be paid, the share certificates for the Series A
Preferred Stock shall be surrendered, and the Promissory Note and the Security
Agreement shall be executed and delivered to Company upon the signing of this
Agreement by both parties hereto.
(b) DELIVERY OF SHARES. The certificates representing the Shares
shall be delivered to Macrovision upon the signing of this Agreement by both
parties hereto, at which time Macrovision shall have all rights of a shareholder
of Company with respect to the Shares.
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2. LEGEND ON SHARES. Each certificate representing the Shares shall have
conspicuously printed on it the following legend:
THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF THE VARIOUS STATES, AND HAS BEEN ISSUED AND SOLD PURSUANT TO AN
EXEMPTION FROM THE ACT, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED BY THE HOLDER THEREOF AT ANY TIME, EXCEPT (1) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT, FILED UNDER THE ACT COVERING THE
SECURITY, OR (2) UPON DELIVERY TO COMPANY OF AN OPINION OF COUNSEL
SATISFACTORY TO COMPANY THAT THIS SECURITY MAY BE TRANSFERRED WITHOUT
REGISTRATION.
3. INVESTMENT REPRESENTATIONS. As an inducement to Company to issue the
Shares to Macrovision, and in order to establish the suitability for Macrovision
of such an investment, Macrovision hereby makes the following representations
and warranties, and authorizes Company to rely upon the same:
(a) INVESTMENT INTENT. Macrovision is aware of and familiar with
Company's business affairs and financial condition and has acquired sufficient
information about Company to reach a knowledgeable and informed decision to
acquire the Shares. Macrovision is acquiring the Shares which are Series B
Preferred Stock for its own account and not with a view to or for sale in
connection with any distribution of such Shares.
(b) RELATIONSHIP. Macrovision has either a preexisting personal or
business relationship with Company or its partners, officers, directors or
controlling persons.
(c) EXPERIENCE. Macrovision and/or its professional advisors who are
not compensated by or affiliated with Company or a selling agent of Company
("Representatives"), if any, have such business or financial experience so that
Macrovision has the capacity to protect its own interests in connection with the
purchase of Shares hereunder.
(d) RISKS. Macrovision understands that an investment in Company is
speculative, that any possible profits therefrom are uncertain, and that
Macrovision must bear the economic risks of the investment in Company for an
indefinite period of time. Macrovision is able to bear these economic risks and
to hold the Shares for an indefinite period.
(e) INFORMATION. Macrovision and its Representatives, if any, have
received all information and data with respect to Company which Macrovision or
its Representatives have requested and have deemed relevant in connection with
an evaluation of the merits and risks of this investment in Company, and do not
desire any further information or data with respect to Company prior to the
purchase of the Shares.
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(f) DOMICILE. Macrovision has its principal place of business in the
State of California.
(g) SECURITIES LAWS. Macrovision understands that the Shares have
not been registered under the Securities Act of 1933, as amended (the "1933
Act"), in reliance on certain exemptions from registration provided by the
Securities and Exchange Commission; and that the Shares have not been registered
under the "blue sky" laws of any state, including that the Shares have not been
qualified or a permit obtained for issuance of securities from the California
Department of Corporations or any other agency of the State of California.
(h) TRANSFERS. Macrovision understands that the Shares which are
Series B Preferred Stock may have to be held indefinitely unless they are
subsequently registered under the 1933 Act and qualified or registered under
other applicable securities laws, rules and regulations, or unless an exemption
from such qualification or registration is available.
(i) LEGENDS. Macrovision understands and agrees that (i) the legend
set forth in Section 2 will be placed on certificate(s) evidencing the Shares
and on certificate(s) issued to permitted transferees; (ii) the stock records of
Company will be noted with respect to such restrictions; (iii) Company will not
be under any obligation to register the Shares or to comply with any exemption
available for sale of the Shares without registration; and (iv) the information
or conditions necessary to permit routine sales of securities of Company under
Rule 144 of the 1933 Act are not now available and it is not likely that they
will become available.
4. RIGHT OF FIRST REFUSAL.
(a) THE RIGHT. Prior to any sale or issuance by Company of any
Equity Securities, Company shall give Macrovision the first right to purchase
all or part of Macrovision's Available Share of such Equity Securities on the
same terms as Company is willing to sell such Equity Securities to potential
investors. For purposes of this first right of purchase, the term "Equity
Securities" means Common Stock of the Company and any other securities having
voting rights in the election of the Company's Board of Directors not contingent
upon default, or any securities evidencing an ownership interest in the Company,
or any securities convertible into or exercisable or exchangeable for any shares
of the foregoing, or any agreement or commitment to issue any of the foregoing,
or any right to acquire any of the foregoing. The term "Available Share" means
(i) nineteen and eight-tenths percent (19.8%) of any offering of Equity
Securities that do not have voting rights, and (ii) the portion of any offering
of Equity Securities having voting rights that, if issued to Macrovision, would
cause Macrovision to have, immediately following the issuance of all such Equity
Securities, stock and other securities representing nineteen and eight-tenths
percent (19.8%) of the number of votes represented by all then issued and
outstanding shares of the Company's Common Stock, shares of the Company's
Preferred Stock and other voting securities of the Company.
(b) NOTICE. Prior to any sale or issuance by Company of any Equity
Securities, Company shall notify Macrovision, in writing, of its intention to
sell and issue such securities, setting forth the general terms under which it
proposes to make such sale.
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Macrovision shall have twenty (20) days after the date of delivery of such
notice (the "Right Notice Date") to notify Company in writing that it elects to
purchase all or a portion of the Equity Securities required to be offered to it.
(c) MACROVISION'S FAILURE TO NOTIFY. If, within twenty (20) days
after the Right of Notice Date, Macrovision does not notify Company that it
desires to purchase all or a portion of Macrovision's Available Share of the
Equity Securities offered to Macrovision in such notice upon the terms and
conditions set forth in such notice, then Company may, during a period of ninety
(90) days following the end of such twenty (20) day period, sell and issue such
Equity Securities with respect to which Macrovision's option was not exercised
at a price and upon terms and conditions no more favorable in any material
respect to other purchasers than those set forth in the notice to Macrovision.
In the event that Company has not sold such Equity Securities to other
purchasers within said ninety (90) day period, Company shall not thereafter
issue or sell any Equity Securities without first offering such securities to
Macrovision in the manner provided above.
(d) PAYMENT. If Macrovision gives Company notice that it desires to
purchase all or part of the Equity Securities offered by Company, then such
purchase will be pursuant to the terms and conditions agreed to by the other
purchasers of such Equity Securities and payment for such Equity Securities
shall be made against delivery of the securities at the executive offices of
Company at the time of the scheduled closing of the purchase with such other
purchasers or, if later, at 2:00 p.m. California time on the later to occur of
the following dates: (a) the third business day following the expiration or
earlier termination of all applicable waiting periods imposed on such purchase
and sale by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the
Exon-Florio Amendment to the Omnibus Trade and Competitiveness Act of 1988 and
any successor legislation or other applicable law, and (b) such other date as
Company and Macrovision may agree. Company shall take all such action (except
registration under the Securities Act) as may reasonably be required by any
regulatory authority in connection with the exercise by Macrovision of the right
to purchase Equity Securities as set forth in this Section 4.
(e) REDUCED OFFERING. Notwithstanding any other provisions of this
Section 4 and any notice Macrovision may have given of its intention to purchase
shares hereunder, Macrovision will have no obligation to purchase any Equity
Securities unless other purchasers are purchasing all of the Equity Securities
covered by Company's notice to Macrovision under Section 4(b) (the "Offered
Equity Securities"), other than Macrovision's Available Share. If less than all
of the Offered Equity Securities are sold by Company, Macrovision will be
entitled to purchase at any closing a lesser amount of such Equity Securities
than the amount of which Macrovision had notified Company previously, such
lesser amount being not less than the same percentage portion of the smaller
offering than the portion of which Macrovision notified Company with respect to
the larger offering.
(f) LIMITATION. The right of refusal contained in this Section 4
shall not apply to the following issuances by Company of Shares of Company's
Common Stock:
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(i) shares of Common Stock issued or issuable to employees,
officers, directors and consultants pursuant to stock options or stock purchase
plans or agreements, or the issuance to such persons of options or warrants to
purchase such shares, provided that each such issuance is approved unanimously
by Company's Board of Directors.
(ii) shares of Common Stock issued upon conversion of the
Series B Preferred Shares.
(iii) shares of Common Stock issued or issuable upon a stock
dividend, stock split, recapitalization or the like.
(iv) shares of Common Stock issued pursuant to the acquisition of
another corporation by Company by merger, purchase of all or substantially all
of the assets, or other reorganization.
(v) shares of Common Stock issued in an initial public offering.
5. ATTORNEYS' FEES. In the event either party shall commence any action
or proceeding against the other party by reason of any breach or claimed breach
in the performance of any of the terms or conditions of this Agreement or to
seek a judicial declaration of rights under this Agreement, the prevailing party
in such action shall be entitled to recover reasonable attorneys' fees and costs
from the non-prevailing party.
6. CONTROLLING LAW. This Agreement is entered into and to be performed
in California, and it shall be interpreted and enforced under, and all questions
relating thereto shall be determined in accordance with the laws of the State of
California.
7. WAIVER. No waiver of any provision of this Agreement shall be deemed
or shall constitute a waiver of any other provision, whether or not similar, nor
shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
8. PARTIAL INVALIDITY. The illegality, invalidity or unenforceability of
any provision of this Agreement under the law of any jurisdiction shall not
affect its legality, validity or enforceability under the law of any other
jurisdiction nor the legality, validity or enforceability of any other
provision.
9. ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and as a complete and exclusive statement of
the terms of their agreement with respect to its subject matter. This Agreement
may not be contradicted by evidence of any prior or contemporaneous agreement,
oral or written, and this Agreement may not be explained or supplemented by
evidence of consistent additional terms. This Agreement supersedes, merges, and
voids all prior representations, statements, negotiations, understandings,
proposed agreements, and other agreements, written or oral, relating to its
subject matter.
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10. AMENDMENTS. This Agreement may not be amended, modified or
supplemented except by a writing executed by both parties.
11. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each an original but all one and the same instrument.
12. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
the successors and assigns of Company and any successors and permitted assigns
of Macrovision, and shall be binding upon the successors and assigns of Company
and of Macrovision.
13. NOTICES. Any notice or other communication required or permitted
under this Agreement shall be in writing and either personally delivered or
deposited in the first class United States mail, prepaid, certified or
registered, return receipt requested, addressed as follows:
(a) If to Company:
Command Audio Corporation
1341 Orleans Drive
Sunnyvale, California 94089
Attn: President
with a copy to:
Brobeck, Phleger & Harrison
Spear Street Tower
1 Market Plaza
San Francisco, California 94105
Attn: William L. Hudson, Esq.
(b) If to Macrovision:
Macrovision Corporation
1341 Orleans Drive
Sunnyvale, California 94089
Attn: President
with a copy to:
Wise & Shepard LLP
3030 Hansen Way, Suite 100
Palo Alto, California 94304
Attn: David W. Herbst, Esq.
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Notice shall be deemed to have been given upon receipt. Either party may change
its address by giving written notice of such change to the other party in the
manner provided in this Section.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
MACROVISION CORPORATION COMMAND AUDIO CORPORATION
By: /s/ William A. Krepick By: /s/ Donald F. Bogue
--------------------------- ---------------------------
Title: President Title: President
------------------------ ------------------------
7
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Exhibit A to
Recapitalization and Stock Purchase Agreement
MACROVISION CORPORATION
RESTRICTED STOCK ACQUISITION AGREEMENT
This Restricted Stock Acquisition Agreement ("Agreement") is made as of
this 31st day of July, 1996 by and between Macrovision Corporation, a California
corporation ("Macrovision"), and Command Audio Corporation, a California
corporation ("CAC").
WHEREAS, Macrovision desires to issue and transfer shares of its Common
Stock to CAC, and CAC desires to acquire such shares upon the terms and
conditions set forth herein.
NOW, THEREFORE, the parties agree as follows:
1. ACQUISITION OF COMMON STOCK.
1.1 ACQUISITION. Subject to the terms and conditions of this
Agreement, Macrovision hereby agrees to issue and transfer to CAC, and CAC
agrees to acquire from Macrovision upon the execution of this Agreement, three
hundred fifty thousand (350,000) shares of Common Stock of Macrovision
(individually a "Share" or collectively the "Shares") in partial consideration
for common stock and Series B preferred stock of CAC to be received by
Macrovision pursuant to the Recapitalization and Stock Purchase Agreement
entered into between CAC and Macrovision to which the form of this Agreement is
attached as EXHIBIT A.
1.2 DELIVERY OF SHARES. The certificates representing the Shares
shall be held in escrow by Wise & Shepard LLP, attorneys for Macrovision, as
provided below.
2. UNVESTED SHARES. For purposes of this Agreement, the term "Unvested
Shares" initially shall mean all three hundred fifty thousand (350,000) of the
Shares being issued by Macrovision to CAC pursuant to this Agreement. Subject
to Section 3 below, the Shares shall become "Vested Shares", upon the later of
(a) the effective date of a first underwritten registration of an offering of
the Common Stock of Macrovision pursuant to the Securities Act of 1933, as
amended (the "1933 Act"), and (b) the occurrence of the following:
2.1 RECEIVER PROTOTYPE. As to one hundred thousand (100,000) Shares,
if and when CAC completes the development of a working prototype receiver having
the following characteristics and functionality:
(a) Tunable to an FM radio signal.
(b) Receives a digitized stream of voice-coded and ASCII text
program material (collectively, "files") from a subcarrier frequency of a
broadcast FM radio signal.
(c) Stores files in random access "Flash" memory.
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(d) Recalls files from memory based on user commands issued by
either keypad or voice.
(e) Converts voice-coded files to audible form and demonstrates
acceptable audio quality at not more than 4.8 kilobits per second.
(f) Converts ASCII text files to audible form (synthesized
speech).
(g) Presents converted files through an imbedded speaker, a
headphone jack or a separate radio (using a built-in FM transmitter).
(h) Has basic data base navigation functions, such as pause,
continue, skip, return to beginning, go to end, and save.
2.2 MANUFACTURING ALLIANCE. As to an additional one hundred fifty
thousand (150,000) Shares, if and when the conditions of Section 2.1 have been
met and CAC enters into a written agreement or agreements with one or more
leading consumer electronics manufacturer(s) and distributor(s), which
agreements are approved by CAC's Board of Directors and satisfy CAC's current
business plan requirements for a manufacturing and distribution alliance,
providing to such manufacturer(s) and distributor(s) the right and obligation to
manufacture and sell receivers under one or more nationally-recognized consumer
electronics brand name(s).
2.3 CONTENT ALLIANCE. As to an additional one hundred thousand
(100,000) Shares, if and when the conditions of Section 2.1 have been met and
CAC enters into written agreements, approved by CAC's Board of Directors, with
four (4) nationally-recognized providers of audio programming under which
program content is made available to CAC for broadcast to customers.
3. SURRENDER OF UNVESTED SHARES. Notwithstanding any provision contained
in this Agreement to the contrary, CAC shall surrender and transfer the Unvested
Shares to Macrovision if any of the following circumstances occurs ("Surrender
Events"):
3.1 NOT VESTED BY DATE SPECIFIED. Such Shares, for any reason,
continue to be Unvested Shares on December 31, 1998; or such Shares, for any
reason, continue to be Unvested Shares on November 30, 1996, and a first
underwritten registration of the offering of the Common Stock of Macrovision
pursuant to the 1933 Act has not become effective on or before November 30,
1996.
3.2 ADDITIONAL EVENTS. Any one or more of the following specified
events occurs:
(a) The United States Patent Office determines that no patent is
issuable to CAC with respect to any one or more of the patent applications
listed on EXHIBIT A attached hereto, or the United States Patent Office or a
court of competent jurisdiction
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determines that any one or more of the patents listed on EXHIBIT A attached
hereto or that issue with respect the patent applications listed on EXHIBIT A
attached hereto is invalid.
(b) A major change occurs which presents a clear, material, near
term threat to the continued viability of CAC's business, as evidenced by
actions of CAC's Board of Directors indicating a significant departure from
CAC's current business plan.
4. NO EFFECT ON OTHER TRANSACTIONS. The surrender of Unvested Shares
pursuant to Section 3 above shall not affect in any way the rights and
obligations of Macrovision and CAC under the Recapitalization and Stock Purchase
Agreement and/or under any other agreement or agreements between the parties
hereto.
5. SHAREHOLDER RIGHTS; PROXY FOR UNVESTED SHARES. Until such time as
Macrovision actually exercises its Repurchase Option under this Agreement, CAC
shall have all the rights of a shareholder of Macrovision with respect to the
Shares, except as set forth in Section 6 and except that CAC shall provide
Macrovision an irrevocable proxy with respect to Unvested Shares and CAC shall
have no rights to receive any dividend distributions whether in cash or property
(other than any dividend paid in shares of Macrovision stock) with respect to
any Unvested Shares. CAC hereby assigns to Macrovision any and all rights that
CAC otherwise might have to receive such dividend distributions with respect to
Unvested Shares. CAC hereby grants to, and executes in favor of, Macrovision's
corporate secretary an irrevocable proxy to vote or give written consent with
respect to, or to abstain from voting or consenting, the Unvested Shares, which
irrevocable proxy is coupled with an interest in such Unvested Shares as
specified in this Agreement.
6. RESTRICTION ON TRANSFER. CAC shall not sell, transfer, pledge,
hypothecate or otherwise dispose of any Unvested Shares.
7. ESCROW. As security for the faithful performance of the terms of this
Agreement and to ensure the availability for delivery of CAC's Shares upon
exercise of the Repurchase Option herein provided for, CAC agrees to deliver to
and deposit with Wise & Shepard LLP, attorneys for Macrovision, or such other
person designated by Macrovision, as escrow agent in this transaction ("Escrow
Agent"), two stock assignments duly endorsed (with date and number of Shares
left blank) in the form attached hereto as EXHIBIT B, together with the
certificate or certificates evidencing the Shares. Said documents are to be
held by the Escrow Agent and delivered by the Escrow Agent pursuant to the Joint
Escrow Instructions of Macrovision and CAC set forth in EXHIBIT C attached
hereto and incorporated by this reference; said instructions shall also be
delivered to the Escrow Agent upon the execution hereof.
8. STOCK SPLITS, ETC. If, from time to time during the term of this
Agreement:
(a) there is any stock dividend or liquidating dividend of cash
and/or property, stock split or other change in the character or amount of or on
any of the Shares; or
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(b) there is any consolidation, merger or sale of all, or
substantially all, of the assets of Macrovision;
then, in such event, any and all new, substituted or additional securities or
other property, if any, to which CAC is entitled by reason of his ownership of
the Shares shall be immediately subject to this Agreement and be included in the
term the "Shares" for all purposes with the same force and effect as the Shares
presently subject to the vesting provisions and other terms of this Agreement.
9. LEGENDS ON SHARES. Each certificate representing the Shares shall
have conspicuously printed on it the following legends, among other legends:
THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF THE VARIOUS STATES, AND HAS BEEN ISSUED AND SOLD PURSUANT TO AN
EXEMPTION FROM THE ACT, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED BY THE HOLDER THEREOF AT ANY TIME, EXCEPT (1) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT, FILED UNDER THE ACT COVERING THE
SECURITY, OR (2) UPON DELIVERY TO COMPANY OF AN OPINION OF COUNSEL
SATISFACTORY TO COMPANY THAT THIS SECURITY MAY BE TRANSFERRED WITHOUT
REGISTRATION.
SALE, TRANSFER, OR HYPOTHECATION OF THIS SECURITY IS RESTRICTED BY THE
PROVISIONS OF A RESTRICTED STOCK ACQUISITION AGREEMENT ENTERED INTO BY
COMPANY AND THIS SHAREHOLDER (INCLUDING RIGHTS OF FIRST REFUSAL), A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF COMPANY, AND ALL OF THE
PROVISIONS OF WHICH ARE INCORPORATED HEREIN.
10. INVESTMENT REPRESENTATIONS. As an inducement to Macrovision to issue
the Shares to CAC, and in order to establish the suitability for CAC of such an
investment, CAC hereby makes the following representations and warranties, and
authorizes Macrovision to rely upon the same:
(a) INVESTMENT INTENT. CAC is aware of and familiar with
Macrovision's business affairs and financial condition and has acquired
sufficient information about Macrovision to reach a knowledgeable and informed
decision to acquire the Shares. CAC is acquiring the Shares for its own account
and not with a view to or for sale in connection with any distribution of the
Shares.
(b) RELATIONSHIP. CAC has either a preexisting personal or business
relationship with Macrovision or its partners, officers, directors or
controlling persons.
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(c) EXPERIENCE. CAC and/or its professional advisors who are not
compensated by or affiliated with Macrovision or a selling agent of Macrovision
("Representatives"), if any, have such business or financial experience so that
CAC has the capacity to protect its own interests in connection with the
purchase of Shares hereunder.
(d) RISKS. CAC understands that an investment in Macrovision is
speculative, that any possible profits therefrom are uncertain, and that CAC
must bear the economic risks of the investment in Macrovision for an indefinite
period of time. CAC is able to bear these economic risks and to hold the Shares
for an indefinite period. CAC understands that there may never become effective
an underwritten registration of the offering of the Common Stock of Macrovision
pursuant to the 1933 Act.
(e) INFORMATION. CAC and its Representatives, if any, have received
all information and data with respect to Macrovision which CAC or its
Representatives have requested and have deemed relevant in connection with an
evaluation of the merits and risks of this investment in Macrovision, and do not
desire any further information or data with respect to Macrovision prior to the
purchase of the Shares.
(f) DOMICILE. CAC has its principal place of business in the State
of California, and does not have any present intention of moving its principal
place of business from California.
(g) SECURITIES LAWS. CAC understands that the Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), in
reliance on certain exemptions from registration provided by the Securities and
Exchange Commission; and that the Shares have not been registered under the
"blue sky" laws of any state, including that the Shares have not been qualified
or a permit obtained for issuance of securities from the California Department
of Corporations or any other agency of the State of California.
(h) TRANSFERS. CAC understands that the Shares may have to be held
indefinitely unless they are subsequently registered under the 1933 Act and
qualified or registered under other applicable securities laws, rules and
regulations, or unless an exemption from such qualification or registration is
available.
(i) LEGENDS. CAC understands and agrees that (i) the legends set
forth in Section 9 will be placed on certificate(s) evidencing the Shares and on
certificate(s) issued to permitted transferees; (ii) the stock records of
Macrovision will be noted with respect to such restrictions; (iii) Macrovision
will not be under any obligation to register the Shares or to comply with any
exemption available for sale of the Shares without registration; and (iv) the
information or conditions necessary to permit routine sales of securities of
Macrovision under Rule 144 of the 1933 Act are not now available and it is
possible that they never will become available.
(j) FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
CAC's representations set forth above, CAC further agrees that it shall in no
event make any disposition of all or any portion of the Shares, unless and
until:
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(i) (A) There is then in effect a Registration Statement under
the 1933 Act covering such proposed disposition and such disposition is made in
accordance with said Registration Statement; or (B) (1) CAC shall have notified
Macrovision of the proposed disposition and shall have furnished Macrovision
with a detailed statement of the circumstances surrounding the proposed
disposition, (2) CAC shall have furnished Macrovision with an opinion of CAC's
counsel to the effect that such disposition will not require registration of
such Shares under the 1933 Act, and (3) such opinion of CAC's counsel shall have
been reasonably concurred in by counsel for Macrovision and Macrovision shall
have advised CAC of such concurrence;
(ii) The Shares proposed to be transferred are Vested Shares; and
(iii) Macrovision has declined to exercise its right of first
refusal as set forth in Section 11 below.
11. RIGHT OF FIRST REFUSAL FOR VESTED SHARES.
(a) GRANT. Macrovision is hereby granted the right of first refusal
with respect to any proposed sale or other transfer of any Vested Shares. For
purposes of this Section 11, the term "transfer" shall include any assignment,
pledge, encumbrance or other disposition of the Vested Shares.
(b) NOTICE OF INTENDED DISPOSITION. In the event CAC desires to
accept a bona fide third-party offer to purchase or otherwise acquire any or all
of the Vested Shares (the shares subject to such offer to be hereinafter called
the "Target Shares"), CAC shall promptly (i) deliver to Macrovision written
notice of the offer and the basic terms and conditions thereof, including the
proposed purchase price, and (ii) provide satisfactory proof that the
disposition of the Target Shares to the third-party offeror would not be in
contravention of the representations made by CAC in Section 10 above.
(c) EXERCISE OF RIGHT. Macrovision (or its assignees) shall, for a
period of twenty (20) days following receipt of the notice of intended
disposition under Section 11(b) above, have the right to repurchase any or all
of the Target Shares specified in the notice of intended disposition, at
Macrovision's election either (i) for a cash purchase price of Eight Dollars and
Fifty-Seven Cents ($8.57) per Share (which amount shall be appropriately
adjusted if any event described in Section 8 occurs) or (ii) upon substantially
the same terms and conditions specified in such notice. Such right shall be
exercisable by written notice given to CAC prior to the expiration of the twenty
(20) day exercise period. If such right is exercised with respect to all the
Target Shares specified in the notice of intended disposition, Macrovision (or
its assignees) shall effect the repurchase of the Target Shares, including
payment of the purchase price, not more than five (5) business days thereafter,
except as provided below; and at such time CAC shall deliver to Macrovision the
certificates representing the Target Shares to be repurchased, each certificate
to be properly endorsed for transfer. To the extent any of the Target Shares
are at any time held in escrow under Section 7 above, the certificates for such
shares shall automatically be released from escrow and surrendered to
Macrovision for cancellation. The
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Target Shares so purchased shall thereupon be canceled and cease to be issued
and outstanding shares of Macrovision's Common Stock. However, should the
purchase price specified in the notice of intended disposition be payable in
property other than cash or evidences of indebtedness, Macrovision (or its
assignees) shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If CAC and Macrovision (or its
assignees) cannot agree on such cash value within ten (10) days after
Macrovision's receipt of the notice of intended disposition, the valuation shall
be made by an appraiser of recognized standing selected by CAC and Macrovision
(or its assignees) or, if they cannot agree on an appraiser within twenty (20)
days after Macrovision's receipt of such notice, each shall select an appraiser
of recognized standing and the two appraisers shall designate a third appraiser
of recognized standing, whose appraisal shall be determinative of such value.
The closing of Macrovision's purchase of stock under this Section 11 shall be
held on the LATER of (i) the fifth business day following Macrovision's (or its
assignees') exercise of its repurchase rights hereunder or (ii) if a valuation
of any property is required, the fifteenth day after such valuation is made.
(d) NON-EXERCISE OF RIGHT. In the event Macrovision does not give
CAC written notice of its intent to exercise its right of first refusal within
twenty (20) days following the date of Macrovision's receipt of the notice of
intended disposition under Section 11(b), CAC shall, for a period of thirty (30)
days thereafter, have the right to sell or otherwise dispose of the Target
Shares upon terms and conditions (including the purchase price) no more
favorable to the third party purchaser than those specified in the notice of
intended disposition given to Macrovision; PROVIDED, HOWEVER, that any such sale
or disposition must not be effected in contravention of the representations made
by CAC in Section 10 above. To the extent any of the Target Shares are at the
time held in escrow under Section 7 above, the certificates for such shares
shall automatically be released from escrow and surrendered to CAC. The third-
party purchaser shall acquire the Target Shares free and clear of all the terms
and provisions of this Agreement. In the event CAC does not sell or otherwise
dispose of the Target Shares within the specified thirty (30) day period,
Macrovision's right of first refusal shall continue to be applicable to any
subsequent disposition of the Target Shares by CAC.
(e) RESTRICTIVE LEGEND. Until such time as Macrovision's right of
first refusal lapses and ceases to have effect pursuant to the provisions of
this Section 11, the stock certificate(s) for the Shares shall be endorsed with
the following additional legend:
"The shares represented by this certificate may not be sold,
assigned, transferred, pledged or encumbered, except in conformity with the
terms of the Restricted Stock Acquisition Agreement between Macrovision and the
registered holder of the shares (or his predecessor in interest). Such
agreement grants certain rights of first refusal to Macrovision (or its assigns)
upon the sale, assignment, transfer, pledge or encumbrance of the shares. A
copy of such agreement is on file at the principal office of Macrovision."
12. VOID TRANSFERS. CAC, as a condition to purchasing the Shares, agrees
not to sell, transfer or pledge any Shares subject to the restriction on
transfer described in Section 6, other than in the manner expressly permitted in
this Agreement, and any such sale, transfer or pledge of the Shares in violation
of this Agreement shall be void. Macrovision shall not be required
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(a) to transfer on its books any Shares which shall have been sold or
transferred in violation of this Agreement, or (b) to treat as the owner of such
Shares, or to accord the right to vote as such owner or to pay dividends to any
transferee to whom such Shares shall have been so transferred.
13. "MARKET STAND-OFF". In connection with the first underwritten
registration of the offering of the Common Stock of Macrovision, Macrovision (or
a representative of the underwriters) may require that CAC not sell or otherwise
transfer or dispose of any Shares not registered under the 1933 Act during a
period (not to exceed one hundred eighty (180) days) following the effective
date of the registration statement of Macrovision filed under the 1933 Act,
provided that the principal shareholders, or the officers and directors, of
Macrovision enter into similar agreements. Additionally, for a period of one
(1) year following the expiration of any such "market stand-off" period (or if
no such "market stand-off" period is required, for a period of one (1) year
following the effective date of the registration statement for the Macrovision's
first underwritten offering of Common Stock), CAC shall not sell in any calendar
week Common Stock representing more than the greater of (a) one-quarter of one
percent (1/4%) of the Macrovision's outstanding Common Stock and (b) one-quarter
of the average weekly reported trading volume for the Macrovision's Common Stock
during the four calendar weeks immediately preceding the week in which the CAC's
sale is to occur.
14. ATTORNEYS' FEES. In the event either party shall commence any action
or proceeding against the other party by reason of any breach or claimed breach
in the performance of any of the terms or conditions of this Agreement or to
seek a judicial declaration of rights under this Agreement, the prevailing party
in such action shall be entitled to recover reasonable attorneys' fees and costs
from the non-prevailing party.
15. CONTROLLING LAW. This Agreement is entered into and to be performed
in California, and it shall be interpreted and enforced under, and all questions
relating thereto shall be determined in accordance with the laws of the State of
California.
16. WAIVER. No waiver of any provision of this Agreement shall be deemed
or shall constitute a waiver of any other provision, whether or not similar, nor
shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
17. PARTIAL INVALIDITY. The illegality, invalidity or unenforceability of
any provision of this Agreement under the law of any jurisdiction shall not
affect its legality, validity or enforceability under the law of any other
jurisdiction nor the legality, validity or enforceability of any other
provision.
18. ENTIRE AGREEMENT. This Agreement, together with its Attachments and
Exhibits, is intended by the parties as a final expression of their agreement
and as a complete and exclusive statement of the terms of their agreement with
respect to its subject matter. This Agreement may not be contradicted by
evidence of any prior or contemporaneous agreement, oral or written, and this
Agreement may not be explained or supplemented by evidence of consistent
additional terms. This Agreement supersedes, merges, and voids all prior
representations, statements,
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negotiations, understandings, proposed agreements, and other agreements, written
or oral, relating to its subject matter.
19. AMENDMENTS. This Agreement may not be amended, modified or
supplemented except by a writing executed by both parties.
20. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each an original but all one and the same instrument.
21. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
the successors and assigns of Macrovision and any successors and permitted
assigns of CAC, and shall be binding upon the successors and assigns of
Macrovision and of CAC.
22. NOTICES. Any notice or other communication required or permitted
under this Agreement shall be in writing and either personally delivered or
deposited in the first class United States mail, prepaid, certified or
registered, return receipt requested, addressed as follows:
(a) If to Macrovision:
Macrovision Corporation
1341 Orleans Drive
Sunnyvale, California 94089
Attn: President
with a copy to:
Wise & Shepard LLP
3030 Hansen Way, Suite 100
Palo Alto, California 94304
Attn: David W. Herbst, Esq.
(b) If to CAC:
Command Audio Corporation
1341 Orleans Drive
Sunnyvale, California 94089
Attn: President
Notice shall be deemed to have been given upon receipt. Either party may
change its address by giving written notice of such change to the other party in
the manner provided in this Section.
23. PLEDGE OF VESTED SHARES. Notwithstanding the provisions of Sections 7
and 11(a) above, CAC shall have the right to pledge Vested Shares for the sole
purpose of securing a loan; provided, however, that any pledgee of such Vested
Shares must first agree in writing (i) to be
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bound by the provisions of Section 11 above with respect to any attempt by the
pledgee to sell or otherwise transfer the ownership of any of the Vested Shares,
and (ii) that no registration rights with respect to any of the Vested Shares
shall be deemed transferred to or exercisable by the pledgee as a result of the
pledge of such Vested Shares. Upon receipt by Macrovision of such written
agreement from the intended pledgee, Macrovision shall instruct the Escrow Agent
to release Vested Shares to CAC for the sole purpose of facilitating a pledge of
such Vested Shares as set forth in this Section 23, and then only for so long as
such Vested Shares are required for such pledge.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
COMMAND AUDIO CORPORATION: MACROVISION CORPORATION
By: By:
---------------------------- ----------------------------
Title: Title:
------------------------- -------------------------
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EXHIBITS TO THIS AGREEMENT:
Exhibit A - List of Significant Patents and Patent Applications
Exhibit B - Assignments Separate from Certificate
Exhibit C - Joint Escrow Instructions
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EXHIBIT A
List of Significant Patents and Patent Applications
<PAGE>
EXHIBIT B
Assignments Separate From Certificate
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
_____________________ _____________________ (________) shares of the Common
Stock of MACROVISION CORPORATION, a California corporation, standing in the
undersigned's name on the books of said corporation represented by Certificate
No. ____ herewith, and does hereby irrevocably constitute and appoint
____________________________, as attorney-in-fact, to transfer the said stock on
the books of the said corporation with full power of substitution in the
premises.
Dated:
------------ --------------------------------
(signature)
Name:
---------------------------
(print)
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
___________________ _________________ (_________) shares of the Common Stock of
MACROVISION CORPORATION, a California corporation, standing in the undersigned's
name on the books of said corporation represented by Certificate No. ____
herewith, and does hereby irrevocably constitute and appoint
_________________________, as attorney-in-fact, to transfer the said stock on
the books of the said corporation with full power of substitution in the
premises.
Dated:
------------ --------------------------------
(signature)
Name:
---------------------------
(print)
<PAGE>
EXHIBIT C
Joint Escrow Instructions
<PAGE>
JOINT ESCROW INSTRUCTIONS
These Joint Escrow Instructions are entered into as of July 31, 1996.
RECITALS
MACROVISION CORPORATION, a California corporation ("Macrovision"), and the
undersigned purchaser of stock ("CAC") desire to appoint Wise & Shepard LLP, a
Limited Liability Partnership including a Professional Corporation, or any such
other person so designated by Macrovision as their agent ("Agent") with respect
to certain certificate(s) evidencing shares of Macrovision's common stock
purchased by CAC pursuant to the Restricted Stock Acquisition Agreement (the
"Agreement"), between Macrovision and CAC dated the date hereof, to which a copy
of these Joint Escrow Instructions is attached as EXHIBIT C.
ESCROW INSTRUCTIONS
Macrovision and CAC hereby authorize and direct Agent to hold the
documents and certificate(s) delivered to Agent pursuant to these Escrow
Instructions and to take the following actions with respect thereto, and
Macrovision and CAC hereby agree as follows:
1. CAC hereby delivers and/or agrees to deliver to Agent CAC's
certificate(s) evidencing the stock purchased under the Agreement ("Stock") and
two (2) Assignments Separate from Certificate executed in blank. CAC
irrevocably authorizes Macrovision to deposit with Agent any certificates
evidencing shares of Macrovision's stock acquired by CAC pursuant to the
Agreement.
2. The provisions of these Escrow Instructions shall apply for so long
as the Stock is "Unvested Shares" as defined in the Agreement, and thereafter
until the right of first refusal set forth in Section 11 of the Agreement
lapses. This escrow shall terminate as to all or any portion of the Stock when
it has become "Vested Shares" as defined in the Agreement and the right of first
refusal set forth in Section 11 of the Agreement no longer applies to it.
3. In the event that a "Surrender Event" as defined in the Agreement
shall occur, Macrovision shall give to CAC and Agent a written notice (the
"Surrender Notice") which states (a) the number of Unvested Shares remaining,
and (b) specifies the Surrender Event that has occurred. CAC and Macrovision
hereby irrevocably authorize and direct Agent to transfer and deliver the
Unvested Shares as specified in the Surrender Notice, and upon Agent's receipt
of the Surrender Notice, Agent shall deliver to Macrovision the certificate(s)
evidencing the shares of Stock to be transferred to Macrovision.
4. Macrovision may at any time release some or all of the Stock from the
provisions of these Escrow Instructions by giving written notice to CAC and
Agent directing delivery to CAC of the shares of Stock to be released.
<PAGE>
5. To facilitate the exercise of Macrovision's rights upon any Surrender
Event and the performance of these instructions, CAC does hereby constitute and
appoint Agent as CAC's attorney-in-fact and agent for the term of this escrow to
execute with respect to such securities all stock certificates, stock
assignments or other instruments which shall be necessary or appropriate to make
such securities negotiable and complete any transaction herein contemplated,
including Macrovision's exercise of its right of first refusal. CAC understands
that such appointment is coupled with an interest and is irrevocable. Subject
to the provisions of these Escrow Instructions and the restrictions of Sections
5 and 6 of the Agreement, CAC shall exercise all rights and privileges of a
stockholder of Macrovision while the Stock is held by Agent; provided, however,
CAC may not sell, transfer, dispose of or in any manner encumber any shares of
the Stock while such shares of Stock are held by Agent hereunder.
6. If at the time of termination of this escrow, Agent shall have in its
possession any documents, securities, or other property belonging to CAC Agent
shall deliver all of same to CAC and shall be discharged of all further
obligations hereunder.
7. Agent's duties hereunder may be altered, amended, modified or revoked
only by a writing signed by Macrovision and CAC, and approved by Agent.
8. Agent shall not be personally liable for any act Agent may do or omit
to do hereunder as escrow agent, agent for Macrovision, or attorney-in-fact for
CAC while acting in good faith and in the exercise of Agent's own good judgment,
and any act done or omitted by Agent pursuant to the advice of Agent's own
attorneys shall be conclusive evidence of such good faith.
9. Agent is hereby expressly authorized to disregard any and all
warnings by any of the parties hereto or by any other person, firm, corporation,
or other entity, excepting only orders or process of courts of law, and is
hereby expressly authorized to comply with and obey orders, judgments or decrees
of any court. In the event Agent obeys or complies with any such order, judgment
or decree of any court, Agent shall not be liable to any of the parties hereto
or to any other person, firm, corporation, or other entity by reason of such
compliance notwithstanding that any such order, judgment or decree shall be
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
10. Agent shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver any agreements or documents called for by the Agreement or
any documents or papers deposited or called for hereunder.
11. Agent shall not be liable for the barring of any rights under the
Statute of Limitations with respect to these Escrow Instructions or any
documents deposited with Agent.
12. Agent may resign from its duties hereunder at any time upon written
notice to Macrovision and CAC and delivery of all documents and certificates
held in this escrow to the successor escrow agent. If a successor escrow agent
has not been appointed within thirty (30)
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days, Agent may deliver all such documents and certificates to Macrovision, at
which time, all further responsibilities and duties of Agent shall cease.
13. If prior to the termination of these Escrow Instructions Agent shall
resign or otherwise cease to operate as escrow agent, a successor escrow agent
shall be designated by the Board of Directors of Macrovision. The Board of
Directors of Macrovision may, at any time, substitute another party in Agent's
place as escrow agent hereunder, and CAC hereby expressly accepts such
substitution.
14. Any notices required or permitted hereunder shall be in writing and
shall be deemed effectively given if delivered personally upon receipt, if
mailed by registered or certified mail (return receipt requested), first-class
postage prepaid, or transferred via telex or facsimile, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Macrovision, to:
MACROVISION CORPORATION
1341 Orleans Drive
Sunnyvale, CA 94089
Attn: President
(b) if to CAC, to:
COMMAND AUDIO CORPORATION
1341 Orleans Drive
Sunnyvale, CA 94089
Attn: President
(c) if to Agent, to:
Wise & Shepard LLP
3030 Hansen Way, Suite 100
Palo Alto, California 94304
Attn: David W. Herbst
15. The provisions of these Escrow Instructions shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
16. This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without giving effect to the conflict of
law principles thereof.
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17. By signing these Escrow Instructions, Agent becomes a party hereby
only for the purpose of said Escrow Instructions; Agent does not become a party
to the Agreement.
18. Agent shall be entitled to reimbursement by Macrovision for
reasonable costs and expenses incurred in connection with the performance of the
services provided for herein.
19. These Escrow Instructions contain the entire understanding of
Macrovision and CAC, and there are no other contracts, agreements,
understandings, representations, warranties, or covenants with respect to the
subject matter contained herein.
IN WITNESS WHEREOF, Macrovision and CAC have executed these Escrow
Instructions as of the date first above written.
COMPANY:
MACROVISION CORPORATION
By:
-----------------------------
William A. Krepick, President
PURCHASER:
COMMAND AUDIO CORPORATION
By:
-----------------------------
Donald F. Bogue, President
ESCROW AGENT:
WISE & SHEPARD LLP
By:
-----------------------------
David W. Herbst, Partner
C4
<PAGE>
Exhibit B
PROMISSORY NOTE
$355,000.00 July 31, 1996
Sunnyvale, California
FOR VALUE RECEIVED, MACROVISION CORPORATION ("Promisor") promises to pay to
Command Audio Corporation ("Promisee") or order, at 1341 Orleans Drive,
Sunnyvale, California 94089 or such other place as Promisee or holder hereof may
from time to time designate, the principal sum of Three Hundred Fifty-Five
Thousand Dollars ($355,000.00).
1. INTEREST RATE. Interest shall accrue on the unpaid principal portion
of this Note at the rate of four percent (4%) per annum, simple interest.
2. PAYMENT SCHEDULE. Principal and accrued interest shall be due and
payable on September 30, 1996.
3. PREPAYMENT. Promisor shall have the right to prepay all or any part
of the unpaid balance hereof at any time, without penalty.
4. SECURITY AGREEMENT. Promisor has entered into a Security Agreement of
even date herewith to secure the payment of all amounts due hereunder.
5. WAIVERS. Promisor waives any right of demand, presentment, notice of
nonpayment, protest or notice of dishonor.
6. AMENDMENT OF NOTE. This Note may be terminated or amended only by
prior written consent of Promisee.
7. SEVERABILITY. If for any reason any of the provisions of this Note
shall be determined to be inoperative or invalid, the validity and effect of the
other provisions hereof shall not be affected thereby and such other provisions
shall remain in full force and effect.
8. ATTORNEYS FEES. In the event an action is brought by Promisee to
enforce or to interpret the terms of this Note, the prevailing party in such
action shall be entitled to its reasonable attorney's fees in addition to any
other relief to which that party may be entitled.
9. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
the conflict of law principles thereof.
MACROVISION CORPORATION
By:
---------------------------
------------------------------
(Printed Name)
------------------------------
(Printed Title)
<PAGE>
Exhibit C
SECURITY AGREEMENT
This Security Agreement is made as of July 31, 1996, by and between
Macrovision Corporation, a California corporation ("Macrovision"), and Command
Audio Corporation, a California corporation ("CAC").
1. SECURITY INTEREST GRANTED BY MACROVISION. Macrovision hereby creates
and grants to CAC a present and continuing security interest in the collateral
defined in Section 2 below (the "Collateral") to secure the payment of all of
all amounts due to CAC under the Promissory Note (the "Note") issued by CAC as
of even date herewith (the "Obligations").
2. COLLATERAL. The Collateral subject to the security interest created
and granted by this Security Agreement consists of the following: all inventory,
chattel paper, accounts receivable, contract rights, equipment, general
intangibles, and fixtures, whether now existing or hereafter acquired.
3. PRIORITY. To the extent that CAC has duly perfected its security
interest hereunder, Macrovision will not hereafter create or permit the creation
of any security interest in the Collateral, in whole or in part, prior to the
security interest created hereby, except a purchase money security interest in
replacements or accessions to the Collateral.
4. RIGHT OF POSSESSION. Subject to the terms and conditions of this
Agreement, unless and until an Event of Default (as defined in Section 6 hereof)
occurs, Macrovision will be entitled to the use, possession and enjoyment of the
Collateral.
5. COVENANTS WITH RESPECT TO THE COLLATERAL. During the term of this
Agreement:
(a) PRESERVATION. Macrovision will take all reasonable steps to
preserve and protect the Collateral and the value of the same.
(b) TAXES. Macrovision will pay all taxes on the Collateral as they
become due.
(c) FILINGS. Macrovision at its own expense will execute and deliver
such instruments and documents, and cooperate fully in the filing thereof, as
CAC reasonably requests, to evidence, perfect or preserve CAC's interest
hereunder, including without limitation this Agreement, financing statements and
similar documents; provided CAC will prepare and furnish such instruments and at
CAC's expense.
6. EVENTS OF DEFAULT. An Event of Default, as used, herein, will occur if
any or all of the following remain uncured after fifteen (15) days' written
notice thereof to Macrovision:
(a) If Macrovision fails to make any payment under the Note when due;
or
<PAGE>
(b) If Macrovision is in breach of any warranty, statement, promise,
term or condition contained herein or attempts to transfer any of its rights in
the Collateral, in whole or in part, whether voluntarily or by operation of law,
in violation of this Security Agreement.
7. REMEDIES ON DEFAULT. Upon the occurrence of any Event of Default that
is not waived in writing by CAC, CAC will be entitled to proceed to enforce its
rights, including but not limited to all of the rights and remedies available to
a secured party upon default under the California Commercial Code with respect
to the collateral, including the right to possess, own, sell, lease and
otherwise dispose of the Collateral or any portion thereof at public or private
sale on commercially reasonable terms and upon twenty (20) days' prior written
notice to Macrovision or such longer period as may be required by law. CAC
also will have the right, at any time upon the occurrence and during the
continuance of an Event of Default, and upon written notice to Macrovision of
its intention to do so, to notify the account debtors under any accounts
receivable with respect to the Collateral ("Accounts Receivable") of the
assignment of such Accounts Receivable to CAC and to direct such account debtors
to make payment of all amounts due or to become due directly to CAC and, upon
such notification and at the expense of Macrovision, to enforce collection of
any such Accounts Receivable, and to adjust, settle or compromise the amount
or, payment thereof, in the same manner and to the same extent as Macrovision
might have done. Except as provided above, Macrovision may continue to collect
at its own expense, all amounts due or to become due to it, and in connection
with such collections, at its own expense may take such action as it reasonably
may deem necessary or advisable to enforce such collection. CAC will have all
other rights and remedies provided herein and all other rights and remedies
available at law or in equity.
8. TERMINATION. This Security Agreement and the security interest
created hereby will terminate only upon termination of the Note or on
Macrovision's discharge in full of the Obligations. Promptly upon termination
of this Security Agreement, CAC will execute and cooperate fully in the filing
of any termination statements reasonably requested by Macrovision.
9. WAIVER. Time and each of the terms, conditions and covenants of this
Security Agreement are declared to be of the essence, and acceptance by CAC of
any payment or performance after it is due will not constitute a waiver by CAC
of any provision of this Security Agreement or of the Note. No waiver of any
existing default will be a waiver of any subsequent default, and all of CAC's
rights under this Agreement are cumulative and not alternative and are in
addition to those otherwise available hereunder, at law or in equity.
10. ASSIGNMENT AND DELEGATION. No party may assign its rights, delegate
its duties or transfer the Collateral in its possession hereunder, except as
explicitly permitted hereby, without the prior written consent of the other
party, and any attempt to do so without that consent will be void.
Macrovision will not unreasonably withhold its consent to such assignment,
delegation or transfer by CAC at any time after the occurrence of an Event
Default.
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<PAGE>
11. GOVERNING LAW. This Security Agreement will be governed by and
construed in accordance with the laws of the State of California.
12. SEVERABILITY. If any provision of this Security Agreement or the
application of any such provision to either party is held by a court of
competent jurisdiction to be unenforceable or contrary to law, such provision
will be enforced to the maximum extent possible, and the other provisions of
this Security Agreement will remain in full force and effect.
13. AMENDMENT. No amendment of any provision of this Security Agreement
will be effective unless evidenced by a writing signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this Security
Agreement as of the date first above written.
MACROVISION CORPORATION
By:
----------------------
- -------------------------
(Printed Name)
- -------------------------
(Printed Title)
COMMAND AUDIO CORPORATION
By:
----------------------
- -------------------------
(Printed Name)
- -------------------------
(Printed Title)
3
<PAGE>
Exhibit 10.10
MACROVISION CORPORATION
RESTRICTED STOCK ACQUISITION AGREEMENT
This Restricted Stock Acquisition Agreement ("Agreement") is made as of
this 31st day of July, 1996 by and between Macrovision Corporation, a California
corporation ("Macrovision"), and Command Audio Corporation, a California
corporation ("CAC").
WHEREAS, Macrovision desires to issue and transfer shares of its Common
Stock to CAC, and CAC desires to acquire such shares upon the terms and
conditions set forth herein.
NOW, THEREFORE, the parties agree as follows:
1. ACQUISITION OF COMMON STOCK.
1.1 ACQUISITION. Subject to the terms and conditions of this
Agreement, Macrovision hereby agrees to issue and transfer to CAC, and CAC
agrees to acquire from Macrovision upon the execution of this Agreement, three
hundred fifty thousand (350,000) shares of Common Stock of Macrovision
(individually a "Share" or collectively the "Shares") in partial consideration
for common stock and Series B preferred stock of CAC to be received by
Macrovision pursuant to the Recapitalization and Stock Purchase Agreement
entered into between CAC and Macrovision to which the form of this Agreement is
attached as EXHIBIT A.
1.2 DELIVERY OF SHARES. The certificates representing the Shares
shall be held in escrow by Wise & Shepard LLP, attorneys for Macrovision, as
provided below.
2. UNVESTED SHARES. For purposes of this Agreement, the term "Unvested
Shares" initially shall mean all three hundred fifty thousand (350,000) of the
Shares being issued by Macrovision to CAC pursuant to this Agreement. Subject
to Section 3 below, the Shares shall become "Vested Shares", upon the later of
(a) the effective date of a first underwritten registration of an offering of
the Common Stock of Macrovision pursuant to the Securities Act of 1933, as
amended (the "1933 Act"), and (b) the occurrence of the following:
2.1 RECEIVER PROTOTYPE. As to one hundred thousand (100,000) Shares,
if and when CAC completes the development of a working prototype receiver having
the following characteristics and functionality:
(a) Tunable to an FM radio signal.
(b) Receives a digitized stream of voice-coded and ASCII text
program material (collectively, "files") from a subcarrier frequency of a
broadcast FM radio signal.
(c) Stores files in random access "Flash" memory.
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(d) Recalls files from memory based on user commands issued by
either keypad or voice.
(e) Converts voice-coded files to audible form and demonstrates
acceptable audio quality at not more than 4.8 kilobytes per second.
(f) Converts ASCII text files to audible form (synthesized
speech).
(g) Presents converted files through an imbedded speaker, a
headphone jack or a separate radio (using a built-in FM transmitter).
(h) Has basic data base navigation functions, such as pause,
continue, skip, return to beginning, go to end, and save.
2.2 MANUFACTURING ALLIANCE. As to an additional one hundred fifty
thousand (150,000) Shares, if and when the conditions of Section 2.1 have been
met and CAC enters into a written agreement or agreements with one or more
leading consumer electronics manufacturer(s) and distributor(s), which
agreements are approved by CAC's Board of Directors and satisfy CAC's current
business plan requirements for a manufacturing and distribution alliance,
providing to such manufacturer(s) and distributor(s) the right and obligation to
manufacture and sell receivers under one or more nationally-recognized consumer
electronics brand name(s).
2.3 CONTENT ALLIANCE. As to an additional one hundred thousand
(100,000) Shares, if and when the conditions of Section 2.1 have been met and
CAC enters into written agreements, approved by CAC's Board of Directors, with
four (4) nationally-recognized providers of audio programming under which
program content is made available to CAC for broadcast to customers.
3. SURRENDER OF UNVESTED SHARES. Notwithstanding any provision contained
in this Agreement to the contrary, CAC shall surrender and transfer the Unvested
Shares to Macrovision if any of the following circumstances occurs ("Surrender
Events"):
3.1 NOT VESTED BY DATE SPECIFIED. Such Shares, for any reason,
continue to be Unvested Shares on December 31, 1998; or such Shares, for any
reason, continue to be Unvested Shares on November 30, 1996, and a first
underwritten registration of the offering of the Common Stock of Macrovision
pursuant to the 1933 Act has not become effective on or before November 30,
1996.
3.2 ADDITIONAL EVENTS. Any one or more of the following specified
events occurs:
(a) The United States Patent Office determines that no patent is
issuable to CAC with respect to any one or more of the patent applications
listed on EXHIBIT A attached hereto, or the United States Patent Office or a
court of competent jurisdiction
2
<PAGE>
determines that any one or more of the patents listed on EXHIBIT A attached
hereto or that issue with respect the patent applications listed on EXHIBIT A
attached hereto is invalid.
(b) A major change occurs which presents a clear, material, near
term threat to the continued viability of CAC's business, as evidenced by
actions of CAC's Board of Directors indicating a significant departure from
CAC's current business plan.
4. NO EFFECT ON OTHER TRANSACTIONS. The surrender of Unvested Shares
pursuant to Section 3 above shall not affect in any way the rights and
obligations of Macrovision and CAC under the Recapitalization and Stock Purchase
Agreement and/or under any other agreement or agreements between the parties
hereto.
5. SHAREHOLDER RIGHTS; PROXY FOR UNVESTED SHARES. Until such time as
Macrovision actually exercises its Repurchase Option under this Agreement, CAC
shall have all the rights of a shareholder of Macrovision with respect to the
Shares, except as set forth in Section 6 and except that CAC shall provide
Macrovision an irrevocable proxy with respect to Unvested Shares and CAC shall
have no rights to receive any dividend distributions whether in cash or property
(other than any dividend paid in shares of Macrovision stock) with respect to
any Unvested Shares. CAC hereby assigns to Macrovision any and all rights that
CAC otherwise might have to receive such dividend distributions with respect to
Unvested Shares. CAC hereby grants to, and executes in favor of, Macrovision's
corporate secretary an irrevocable proxy to vote or give written consent with
respect to, or to abstain from voting or consenting, the Unvested Shares, which
irrevocable proxy is coupled with an interest in such Unvested Shares as
specified in this Agreement.
6. RESTRICTION ON TRANSFER. CAC shall not sell, transfer, pledge,
hypothecate or otherwise dispose of any Unvested Shares.
7. ESCROW. As security for the faithful performance of the terms of this
Agreement and to ensure the availability for delivery of CAC's Shares upon
exercise of the Repurchase Option herein provided for, CAC agrees to deliver to
and deposit with Wise & Shepard LLP, attorneys for Macrovision, or such other
person designated by Macrovision, as escrow agent in this transaction ("Escrow
Agent"), two stock assignments duly endorsed (with date and number of Shares
left blank) in the form attached hereto as EXHIBIT B, together with the
certificate or certificates evidencing the Shares. Said documents are to be
held by the Escrow Agent and delivered by the Escrow Agent pursuant to the Joint
Escrow Instructions of Macrovision and CAC set forth in EXHIBIT C attached
hereto and incorporated by this reference; said instructions shall also be
delivered to the Escrow Agent upon the execution hereof.
8. STOCK SPLITS, ETC. If, from time to time during the term of this
Agreement:
(a) there is any stock dividend or liquidating dividend of cash
and/or property, stock split or other change in the character or amount of or on
any of the Shares; or
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<PAGE>
(b) there is any consolidation, merger or sale of all, or
substantially all, of the assets of Macrovision;
then, in such event, any and all new, substituted or additional securities or
other property, if any, to which CAC is entitled by reason of his ownership of
the Shares shall be immediately subject to this Agreement and be included in the
term the "Shares" for all purposes with the same force and effect as the Shares
presently subject to the vesting provisions and other terms of this Agreement.
9. LEGENDS ON SHARES. Each certificate representing the Shares shall
have conspicuously printed on it the following legends, among other legends:
THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF THE VARIOUS STATES, AND HAS BEEN ISSUED AND SOLD PURSUANT TO AN
EXEMPTION FROM THE ACT, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED BY THE HOLDER THEREOF AT ANY TIME, EXCEPT (1) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT, FILED UNDER THE ACT COVERING THE
SECURITY, OR (2) UPON DELIVERY TO COMPANY OF AN OPINION OF COUNSEL
SATISFACTORY TO COMPANY THAT THIS SECURITY MAY BE TRANSFERRED WITHOUT
REGISTRATION.
SALE, TRANSFER, OR HYPOTHECATION OF THIS SECURITY IS RESTRICTED BY THE
PROVISIONS OF A RESTRICTED STOCK ACQUISITION AGREEMENT ENTERED INTO BY
COMPANY AND THIS SHAREHOLDER (INCLUDING RIGHTS OF FIRST REFUSAL), A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF COMPANY, AND ALL OF THE
PROVISIONS OF WHICH ARE INCORPORATED HEREIN.
10. INVESTMENT REPRESENTATIONS. As an inducement to Macrovision to issue
the Shares to CAC, and in order to establish the suitability for CAC of such an
investment, CAC hereby makes the following representations and warranties, and
authorizes Macrovision to rely upon the same:
(a) INVESTMENT INTENT. CAC is aware of and familiar with
Macrovision's business affairs and financial condition and has acquired
sufficient information about Macrovision to reach a knowledgeable and informed
decision to acquire the Shares. CAC is acquiring the Shares for its own account
and not with a view to or for sale in connection with any distribution of the
Shares.
(b) RELATIONSHIP. CAC has either a preexisting personal or business
relationship with Macrovision or its partners, officers, directors or
controlling persons.
4
<PAGE>
(c) EXPERIENCE. CAC and/or its professional advisors who are not
compensated by or affiliated with Macrovision or a selling agent of Macrovision
("Representatives"), if any, have such business or financial experience so that
CAC has the capacity to protect its own interests in connection with the
purchase of Shares hereunder.
(d) RISKS. CAC understands that an investment in Macrovision is
speculative, that any possible profits therefrom are uncertain, and that CAC
must bear the economic risks of the investment in Macrovision for an indefinite
period of time. CAC is able to bear these economic risks and to hold the Shares
for an indefinite period. CAC understands that there may never become effective
an underwritten registration of the offering of the Common Stock of Macrovision
pursuant to the 1933 Act.
(e) INFORMATION. CAC and its Representatives, if any, have received
all information and data with respect to Macrovision which CAC or its
Representatives have requested and have deemed relevant in connection with an
evaluation of the merits and risks of this investment in Macrovision, and do not
desire any further information or data with respect to Macrovision prior to the
purchase of the Shares.
(f) DOMICILE. CAC has its principal place of business in the State
of California, and does not have any present intention of moving its principal
place of business from California.
(g) SECURITIES LAWS. CAC understands that the Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), in
reliance on certain exemptions from registration provided by the Securities and
Exchange Commission; and that the Shares have not been registered under the
"blue sky" laws of any state, including that the Shares have not been qualified
or a permit obtained for issuance of securities from the California Department
of Corporations or any other agency of the State of California.
(h) TRANSFERS. CAC understands that the Shares may have to be held
indefinitely unless they are subsequently registered under the 1933 Act and
qualified or registered under other applicable securities laws, rules and
regulations, or unless an exemption from such qualification or registration is
available.
(i) LEGENDS. CAC understands and agrees that (i) the legends set
forth in Section 9 will be placed on certificate(s) evidencing the Shares and on
certificate(s) issued to permitted transferees; (ii) the stock records of
Macrovision will be noted with respect to such restrictions; (iii) Macrovision
will not be under any obligation to register the Shares or to comply with any
exemption available for sale of the Shares without registration; and (iv) the
information or conditions necessary to permit routine sales of securities of
Macrovision under Rule 144 of the 1933 Act are not now available and it is
possible that they never will become available.
(j) FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
CAC's representations set forth above, CAC further agrees that it shall in no
event make any disposition of all or any portion of the Shares, unless and
until:
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(i) (A) There is then in effect a Registration Statement under
the 1933 Act covering such proposed disposition and such disposition is made in
accordance with said Registration Statement; or (B) (1) CAC shall have notified
Macrovision of the proposed disposition and shall have furnished Macrovision
with a detailed statement of the circumstances surrounding the proposed
disposition, (2) CAC shall have furnished Macrovision with an opinion of CAC's
counsel to the effect that such disposition will not require registration of
such Shares under the 1933 Act, and (3) such opinion of CAC's counsel shall have
been reasonably concurred in by counsel for Macrovision and Macrovision shall
have advised CAC of such concurrence;
(ii) The Shares proposed to be transferred are Vested Shares; and
(iii) Macrovision has declined to exercise its right of first
refusal as set forth in Section 11 below.
11. RIGHT OF FIRST REFUSAL FOR VESTED SHARES.
(a) GRANT. Macrovision is hereby granted the right of first refusal
with respect to any proposed sale or other transfer of any Vested Shares. For
purposes of this Section 11, the term "transfer" shall include any assignment,
pledge, encumbrance or other disposition of the Vested Shares.
(b) NOTICE OF INTENDED DISPOSITION. In the event CAC desires to
accept a bona fide third-party offer to purchase or otherwise acquire any or all
of the Vested Shares (the shares subject to such offer to be hereinafter called
the "Target Shares"), CAC shall promptly (i) deliver to Macrovision written
notice of the offer and the basic terms and conditions thereof, including the
proposed purchase price, and (ii) provide satisfactory proof that the
disposition of the Target Shares to the third-party offeror would not be in
contravention of the representations made by CAC in Section 10 above.
(c) EXERCISE OF RIGHT. Macrovision (or its assignees) shall, for a
period of twenty (20) days following receipt of the notice of intended
disposition under Section 11(b) above, have the right to repurchase any or all
of the Target Shares specified in the notice of intended disposition, at
Macrovision's election either (i) for a cash purchase price of Eight Dollars and
Fifty-Seven Cents ($8.57) per Share (which amount shall be appropriately
adjusted if any event described in Section 8 occurs) or (ii) upon substantially
the same terms and conditions specified in such notice. Such right shall be
exercisable by written notice given to CAC prior to the expiration of the twenty
(20) day exercise period. If such right is exercised with respect to all the
Target Shares specified in the notice of intended disposition, Macrovision (or
its assignees) shall effect the repurchase of the Target Shares, including
payment of the purchase price, not more than five (5) business days thereafter,
except as provided below; and at such time CAC shall deliver to Macrovision the
certificates representing the Target Shares to be repurchased, each certificate
to be properly endorsed for transfer. To the extent any of the Target Shares
are at any time held in escrow under Section 7 above, the certificates for such
shares shall automatically be released from escrow and surrendered to
Macrovision for cancellation. The
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Target Shares so purchased shall thereupon be canceled and cease to be issued
and outstanding shares of Macrovision's Common Stock. However, should the
purchase price specified in the notice of intended disposition be payable in
property other than cash or evidences of indebtedness, Macrovision (or its
assignees) shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If CAC and Macrovision (or its
assignees) cannot agree on such cash value within ten (10) days after
Macrovision's receipt of the notice of intended disposition, the valuation shall
be made by an appraiser of recognized standing selected by CAC and Macrovision
(or its assignees) or, if they cannot agree on an appraiser within twenty (20)
days after Macrovision's receipt of such notice, each shall select an appraiser
of recognized standing and the two appraisers shall designate a third appraiser
of recognized standing, whose appraisal shall be determinative of such value.
The closing of Macrovision's purchase of stock under this Section 11 shall be
held on the LATER of (i) the fifth business day following Macrovision's (or its
assignees') exercise of its repurchase rights hereunder or (ii) if a valuation
of any property is required, the fifteenth day after such valuation is made.
(d) NON-EXERCISE OF RIGHT. In the event Macrovision does not give
CAC written notice of its intent to exercise its right of first refusal within
twenty (20) days following the date of Macrovision's receipt of the notice of
intended disposition under Section 11(b), CAC shall, for a period of thirty (30)
days thereafter, have the right to sell or otherwise dispose of the Target
Shares upon terms and conditions (including the purchase price) no more
favorable to the third party purchaser than those specified in the notice of
intended disposition given to Macrovision; PROVIDED, HOWEVER, that any such sale
or disposition must not be effected in contravention of the representations made
by CAC in Section 10 above. To the extent any of the Target Shares are at the
time held in escrow under Section 7 above, the certificates for such shares
shall automatically be released from escrow and surrendered to CAC. The
third-party purchaser shall acquire the Target Shares free and clear of all the
terms and provisions of this Agreement. In the event CAC does not sell or
otherwise dispose of the Target Shares within the specified thirty (30) day
period, Macrovision's right of first refusal shall continue to be applicable to
any subsequent disposition of the Target Shares by CAC.
(e) RESTRICTIVE LEGEND. Until such time as Macrovision's right of
first refusal lapses and ceases to have effect pursuant to the provisions of
this Section 11, the stock certificate(s) for the Shares shall be endorsed with
the following additional legend:
"The shares represented by this certificate may not be sold,
assigned, transferred, pledged or encumbered, except in conformity with the
terms of the Restricted Stock Acquisition Agreement between Macrovision and the
registered holder of the shares (or his predecessor in interest). Such
agreement grants certain rights of first refusal to Macrovision (or its assigns)
upon the sale, assignment, transfer, pledge or encumbrance of the shares. A
copy of such agreement is on file at the principal office of Macrovision."
12. VOID TRANSFERS. CAC, as a condition to purchasing the Shares, agrees
not to sell, transfer or pledge any Shares subject to the restriction on
transfer described in Section 6, other than in the manner expressly permitted in
this Agreement, and any such sale, transfer or pledge of the Shares in violation
of this Agreement shall be void. Macrovision shall not be required
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(a) to transfer on its books any Shares which shall have been sold or
transferred in violation of this Agreement, or (b) to treat as the owner of such
Shares, or to accord the right to vote as such owner or to pay dividends to any
transferee to whom such Shares shall have been so transferred.
13. "MARKET STAND-OFF". In connection with the first underwritten
registration of the offering of the Common Stock of Macrovision, Macrovision (or
a representative of the underwriters) may require that CAC not sell or otherwise
transfer or dispose of any Shares not registered under the 1933 Act during a
period (not to exceed one hundred eighty (180) days) following the effective
date of the registration statement of Macrovision filed under the 1933 Act,
provided that the principal shareholders, or the officers and directors, of
Macrovision enter into similar agreements. Additionally, for a period of one
(1) year following the expiration of any such "market stand-off" period (or if
no such "market stand-off" period is required, for a period of one (1) year
following the effective date of the registration statement for the Macrovision's
first underwritten offering of Common Stock), CAC shall not sell in any calendar
week Common Stock representing more than the greater of (a) one-quarter of one
percent (1/4%) of the Macrovision's outstanding Common Stock and (b) one-quarter
of the average weekly reported trading volume for the Macrovision's Common Stock
during the four calendar weeks immediately preceding the week in which the CAC's
sale is to occur.
14. ATTORNEYS' FEES. In the event either party shall commence any action
or proceeding against the other party by reason of any breach or claimed breach
in the performance of any of the terms or conditions of this Agreement or to
seek a judicial declaration of rights under this Agreement, the prevailing party
in such action shall be entitled to recover reasonable attorneys' fees and costs
from the non-prevailing party.
15. CONTROLLING LAW. This Agreement is entered into and to be performed
in California, and it shall be interpreted and enforced under, and all questions
relating thereto shall be determined in accordance with the laws of the State of
California.
16. WAIVER. No waiver of any provision of this Agreement shall be deemed
or shall constitute a waiver of any other provision, whether or not similar, nor
shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
17. PARTIAL INVALIDITY. The illegality, invalidity or unenforceability of
any provision of this Agreement under the law of any jurisdiction shall not
affect its legality, validity or enforceability under the law of any other
jurisdiction nor the legality, validity or enforceability of any other
provision.
18. ENTIRE AGREEMENT. This Agreement, together with its Attachments and
Exhibits, is intended by the parties as a final expression of their agreement
and as a complete and exclusive statement of the terms of their agreement with
respect to its subject matter. This Agreement may not be contradicted by
evidence of any prior or contemporaneous agreement, oral or written, and this
Agreement may not be explained or supplemented by evidence of consistent
additional terms. This Agreement supersedes, merges, and voids all prior
representations, statements,
8
<PAGE>
negotiations, understandings, proposed agreements, and other agreements, written
or oral, relating to its subject matter.
19. AMENDMENTS. This Agreement may not be amended, modified or
supplemented except by a writing executed by both parties.
20. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each an original but all one and the same instrument.
21. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
the successors and assigns of Macrovision and any successors and permitted
assigns of CAC, and shall be binding upon the successors and assigns of
Macrovision and of CAC.
22. NOTICES. Any notice or other communication required or permitted
under this Agreement shall be in writing and either personally delivered or
deposited in the first class United States mail, prepaid, certified or
registered, return receipt requested, addressed as follows:
(a) If to Macrovision:
Macrovision Corporation
1341 Orleans Drive
Sunnyvale, California 94089
Attn: President
with a copy to:
Wise & Shepard LLP
3030 Hansen Way, Suite 100
Palo Alto, California 94304
Attn: David W. Herbst, Esq.
(b) If to CAC:
Command Audio Corporation
1341 Orleans Drive
Sunnyvale, California 94089
Attn: President
Notice shall be deemed to have been given upon receipt. Either party may
change its address by giving written notice of such change to the other party in
the manner provided in this Section.
23. PLEDGE OF VESTED SHARES. Notwithstanding the provisions of Sections 7
and 11(a) above, CAC shall have the right to pledge Vested Shares for the sole
purpose of securing a loan; provided, however, that any pledgee of such Vested
Shares must first agree in writing (i) to be
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<PAGE>
bound by the provisions of Section 11 above with respect to any attempt by the
pledgee to sell or otherwise transfer the ownership of any of the Vested Shares,
and (ii) that no registration rights with respect to any of the Vested Shares
shall be deemed transferred to or exercisable by the pledgee as a result of the
pledge of such Vested Shares. Upon receipt by Macrovision of such written
agreement from the intended pledgee, Macrovision shall instruct the Escrow Agent
to release Vested Shares to CAC for the sole purpose of facilitating a pledge of
such Vested Shares as set forth in this Section 23, and then only for so long as
such Vested Shares are required for such pledge.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
COMMAND AUDIO CORPORATION: MACROVISION CORPORATION
By: /s/ Donald F. Bogue By: /s/ William A. Krepick
-------------------------- --------------------------
Title: President Title: President
------------------------ ------------------------
10
<PAGE>
EXHIBITS TO THIS AGREEMENT:
Exhibit A - List of Significant Patents and Patent Applications
Exhibit B - Assignments Separate from Certificate
Exhibit C - Joint Escrow Instructions
11
<PAGE>
EXHIBIT A
List of Significant Patents and Patent Applications
U.S. Patent Number 5,406,626, RADIO RECEIVER FOR INFORMATION DISSEMINATION
USING SUBCARRIER, April 11, 1995.
U.S. Patent Number 5,524,051, METHOD AND SYSTEM FOR AUDIO INFORMATION
DISSEMINATION USING VARIOUS MODES OF TRANSMISSION, June 4, 1996.
U.S. Patent Application, A METHOD AND SYSTEM FOR AUDIO INFORMATION
DISSEMINATION USING VARIOUS MODES OF TRANSMISSION, January, 1994.
<PAGE>
EXHIBIT B
Assignments Separate From Certificate
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
_____________________ _____________________ (________) shares of the Common
Stock of MACROVISION CORPORATION, a California corporation, standing in the
undersigned's name on the books of said corporation represented by Certificate
No. ____ herewith, and does hereby irrevocably constitute and appoint
____________________________, as attorney-in-fact, to transfer the said stock on
the books of the said corporation with full power of substitution in the
premises.
Dated: 8/2/96 /s/ Donald F. Bogue
------------ --------------------------------
(signature)
Name: Donald F. Bogue
---------------------------
(print)
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
___________________ _________________ (_________) shares of the Common Stock of
MACROVISION CORPORATION, a California corporation, standing in the undersigned's
name on the books of said corporation represented by Certificate No. ____
herewith, and does hereby irrevocably constitute and appoint
_________________________, as attorney-in-fact, to transfer the said stock on
the books of the said corporation with full power of substitution in the
premises.
Dated: 8/2/96 /S/ Donald F. Bogue
------------ --------------------------------
(signature)
Name: Donald F. Bogue
---------------------------
(print)
<PAGE>
EXHIBIT C
Joint Escrow Instructions
<PAGE>
JOINT ESCROW INSTRUCTIONS
These Joint Escrow Instructions are entered into as of July 31, 1996.
RECITALS
MACROVISION CORPORATION, a California corporation ("Macrovision"), and the
undersigned purchaser of stock ("CAC") desire to appoint Wise & Shepard LLP, a
Limited Liability Partnership including a Professional Corporation, or any such
other person so designated by Macrovision as their agent ("Agent") with respect
to certain certificate(s) evidencing shares of Macrovision's common stock
purchased by CAC pursuant to the Restricted Stock Acquisition Agreement (the
"Agreement"), between Macrovision and CAC dated the date hereof, to which a copy
of these Joint Escrow Instructions is attached as EXHIBIT C.
ESCROW INSTRUCTIONS
Macrovision and CAC hereby authorize and direct Agent to hold the documents
and certificate(s) delivered to Agent pursuant to these Escrow Instructions and
to take the following actions with respect thereto, and Macrovision and CAC
hereby agree as follows:
1. CAC hereby delivers and/or agrees to deliver to Agent CAC's
certificate(s) evidencing the stock purchased under the Agreement ("Stock") and
two (2) Assignments Separate from Certificate executed in blank. CAC
irrevocably authorizes Macrovision to deposit with Agent any certificates
evidencing shares of Macrovision's stock acquired by CAC pursuant to the
Agreement.
2. The provisions of these Escrow Instructions shall apply for so long as
the Stock is "Unvested Shares" as defined in the Agreement, and thereafter until
the right of first refusal set forth in Section 11 of the Agreement lapses.
This escrow shall terminate as to all or any portion of the Stock when it has
become "Vested Shares" as defined in the Agreement and the right of first
refusal set forth in Section 11 of the Agreement no longer applies to it.
3. In the event that a "Surrender Event" as defined in the Agreement
shall occur, Macrovision shall give to CAC and Agent a written notice (the
"Surrender Notice") which states (a) the number of Unvested Shares remaining,
and (b) specifies the Surrender Event that has occurred. CAC and Macrovision
hereby irrevocably authorize and direct Agent to transfer and deliver the
Unvested Shares as specified in the Surrender Notice, and upon Agent's receipt
of the Surrender Notice, Agent shall deliver to Macrovision the certificate(s)
evidencing the shares of Stock to be transferred to Macrovision.
4. Macrovision may at any time release some or all of the Stock from the
provisions of these Escrow Instructions by giving written notice to CAC and
Agent directing delivery to CAC of the shares of Stock to be released.
<PAGE>
5. To facilitate the exercise of Macrovision's rights upon any Surrender
Event and the performance of these instructions, CAC does hereby constitute and
appoint Agent as CAC's attorney-in-fact and agent for the term of this escrow to
execute with respect to such securities all stock certificates, stock
assignments or other instruments which shall be necessary or appropriate to make
such securities negotiable and complete any transaction herein contemplated,
including Macrovision's exercise of its right of first refusal. CAC understands
that such appointment is coupled with an interest and is irrevocable. Subject
to the provisions of these Escrow Instructions and the restrictions of Sections
5 and 6 of the Agreement, CAC shall exercise all rights and privileges of a
stockholder of Macrovision while the Stock is held by Agent; provided, however,
CAC may not sell, transfer, dispose of or in any manner encumber any shares of
the Stock while such shares of Stock are held by Agent hereunder.
6. If at the time of termination of this escrow, Agent shall have in its
possession any documents, securities, or other property belonging to CAC Agent
shall deliver all of same to CAC and shall be discharged of all further
obligations hereunder.
7. Agent's duties hereunder may be altered, amended, modified or revoked
only by a writing signed by Macrovision and CAC, and approved by Agent.
8. Agent shall not be personally liable for any act Agent may do or omit
to do hereunder as escrow agent, agent for Macrovision, or attorney-in-fact for
CAC while acting in good faith and in the exercise of Agent's own good judgment,
and any act done or omitted by Agent pursuant to the advice of Agent's own
attorneys shall be conclusive evidence of such good faith.
9. Agent is hereby expressly authorized to disregard any and all warnings
by any of the parties hereto or by any other person, firm, corporation, or other
entity, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In the event Agent obeys or complies with any such order, judgment or
decree of any court, Agent shall not be liable to any of the parties hereto or
to any other person, firm, corporation, or other entity by reason of such
compliance notwithstanding that any such order, judgment or decree shall be
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
10. Agent shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver any agreements or documents called for by the Agreement or
any documents or papers deposited or called for hereunder.
11. Agent shall not be liable for the barring of any rights under the
Statute of Limitations with respect to these Escrow Instructions or any
documents deposited with Agent.
12. Agent may resign from its duties hereunder at any time upon written
notice to Macrovision and CAC and delivery of all documents and certificates
held in this escrow to the successor escrow agent. If a successor escrow agent
has not been appointed within thirty (30)
C2
<PAGE>
days, Agent may deliver all such documents and certificates to Macrovision, at
which time, all further responsibilities and duties of Agent shall cease.
13. If prior to the termination of these Escrow Instructions Agent shall
resign or otherwise cease to operate as escrow agent, a successor escrow agent
shall be designated by the Board of Directors of Macrovision. The Board of
Directors of Macrovision may, at any time, substitute another party in Agent's
place as escrow agent hereunder, and CAC hereby expressly accepts such
substitution.
14. Any notices required or permitted hereunder shall be in writing and
shall be deemed effectively given if delivered personally upon receipt, if
mailed by registered or certified mail (return receipt requested), first-class
postage prepaid, or transferred via telex or facsimile, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Macrovision, to:
MACROVISION CORPORATION
1341 Orleans Drive
Sunnyvale, CA 94089
Attn: President
(b) if to CAC, to:
COMMAND AUDIO CORPORATION
1341 Orleans Drive
Sunnyvale, CA 94089
Attn: President
(c) if to Agent, to:
Wise & Shepard LLP
3030 Hansen Way, Suite 100
Palo Alto, California 94304
Attn: David W. Herbst
15. The provisions of these Escrow Instructions shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
16. This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without giving effect to the conflict of
law principles thereof.
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<PAGE>
17. By signing these Escrow Instructions, Agent becomes a party hereby
only for the purpose of said Escrow Instructions; Agent does not become a party
to the Agreement.
18. Agent shall be entitled to reimbursement by Macrovision for reasonable
costs and expenses incurred in connection with the performance of the services
provided for herein.
19. These Escrow Instructions contain the entire understanding of
Macrovision and CAC, and there are no other contracts, agreements,
understandings, representations, warranties, or covenants with respect to the
subject matter contained herein.
IN WITNESS WHEREOF, Macrovision and CAC have executed these Escrow
Instructions as of the date first above written.
COMPANY:
MACROVISION CORPORATION
By: /S/ William A. Krepick
---------------------------
William A. Krepick, President
PURCHASER:
COMMAND AUDIO CORPORATION
By: /S/ Donald F. Bogue
---------------------------
Donald F. Bogue, President
ESCROW AGENT:
WISE & SHEPARD LLP
By: /S/ David W. Herbst
---------------------------
David W. Herbst, Partner
C4
<PAGE>
FIRST AMENDMENT
TO
RESTRICTED STOCK ACQUISITION AGREEMENT
This First Amendment to Restricted Stock Acquisition Agreement
(this "Amendment") is made as of November 29, 1996 by and between Macrovision
Corporation, a California corporation, and Command Audio Corporation, a
California corporation ("CAC").
RECITALS
A. The parties entered into a Restricted Stock Acquisition
Agreement dated as of July 31, 1996 (the "Agreement").
B. The parties now wish to amend the Agreement as set forth
herein.
AGREEMENT
The parties agree as follows:
1. AMENDMENT OF SECTION 2 OF THE AGREEMENT. The
introductory paragraph of Section 2 of the Agreement is amended to read as
follows:
"UNVESTED SHARES. For purposes of this Agreement, the term
'Unvested Shares' initially shall mean all three hundred fifty
thousand (350,000) of the Shares being issued by Macrovision
to CAC pursuant to this Agreement. Subject to Section 3
below, the Shares shall become 'Vested Shares', upon the
occurrence of the following:"
2. AMENDMENT OF SECTION 3.1 OF THE AGREEMENT. Section 3.1
of the Agreement is amended to read in its entirety as follows:
"NOT VESTED BY DATE SPECIFIED. Such Shares, for any reason,
continue to be Unvested Shares on December 31, 1998."
3. AMENDMENT OF SUBSECTION 11(c) OF THE AGREEMENT. Clause
(i) of the first sentence of Subsection (c) of Section 11 of the Agreement is
amended to read as follows:
"(i) for a cash purchase price of Twelve Dollars ($12.00) per
Share (which amount shall be appropriately adjusted if any
event described in Section 8 occurs) or"
4. NO OTHER PROVISIONS AFFECTED. Except as set forth
herein, the provisions, terms and conditions of the Agreement shall remain in
full force and effect.
<PAGE>
5. SHARES VESTED. The parties acknowledge that CAC has
completed the development of a working prototype receiver meeting the
requirements of Section 2.1 of the Agreement, and that, consequently, one
hundred thousand (100,000) Shares (as defined in the Agreement) have become
"Vested Shares".
IN WITNESS WHEREOF, the parties have executed this Amendment
effective as of the date first above written.
COMMAND AUDIO CORPORATION MACROVISION CORPORATION
By: /s/ Donald F. Bogue By: /s/ John O. Ryan
------------------------- --------------------------
Title: Chairman & CEO Title: Chairman / CEO
--------------------- ----------------------
C2
<PAGE>
Exhibit 10.11
TECHNOLOGY TRANSFER AND ROYALTY AGREEMENT
This Technology Transfer and Royalty Agreement (this "Agreement") is
entered into by and between Macrovision Corporation, a California corporation
("Macrovision") and Command Audio Corporation, a California corporation ("CAC")
effective as of July 31, 1996.
A. Macrovision desires to waive and release certain rights of reversion
it has pursuant to a certain Assignment of Inventions dated as of November 17,
1995, and to transfer to CAC all rights in certain technology.
B. In consideration for the foregoing, CAC is willing to pay Macrovision
certain royalties, all as set forth more fully herein.
NOW THEREFORE, the parties agree as follows:
1. CERTAIN DEFINITIONS.
(a) "Assignment" means that certain Assignment of Inventions dated as of
November 17, 1995.
(b) "Gross Revenues" means one hundred percent (100%) of all amounts
accrued by CAC, its subsidiaries and its affiliates, as revenues, under
generally accepted accounting principles consistently applied, from all sources
whatsoever worldwide, including without limitation revenues from sales of
property, whether real, personal, tangible or intangible, from sales of
services, and from leases and licenses of property rights of every kind, but
shall not include any amounts received for sales, use or other transaction
taxes, duties or shipping costs.
(c) "Reversion Rights" means those rights of reversion provided to
Macrovision in the Assignment.
(d) "Royalty Term" means the forty-eight (48) consecutive calendar
quarters, commencing with the first calendar quarter after the date of this
Agreement in which CAC has operating revenues from commercial subscriptions,
advertising sales and/or consumer product royalties or, at the election of
Macrovision, any calendar quarter prior thereto.
(e) "Technology" means all technology developed by Macrovision during the
period beginning on the date of the Assignment and ending on the date hereof,
which relates directly to the inventions assigned by Macrovision pursuant to the
Assignment.
2. RELEASE, WAIVER AND TRANSFER. In consideration of the payment of
royalties by CAC as set forth in Section 3 below, Macrovision hereby releases
and waives the Reversion Rights, and transfers to CAC all of its rights in and
to the Technology.
<PAGE>
3. PAYMENT OF ROYALTIES. In consideration of the release, waiver and transfer
made by Macrovision pursuant to the provision of Section 2 above, CAC hereby
agrees to pay to Macrovision royalties equal to two percent (2%) of CAC's Gross
Revenues for each calendar quarter in the Royalty Term. CAC shall make the
payments due to Macrovision hereunder with respect to Gross Revenues for each of
the first four (4) calendar quarters in the Royalty Term not later than seven
hundred fifty (750) days after the end of such calendar quarter. CAC shall make
the payments due to Macrovision hereunder with respect to Gross Revenues for
each of the second four (4) calendar quarters in the Royalty Term (i.e., the
fifth through eighth calendar quarters in the Royalty Term) not later than three
hundred eighty-five (385) days after the end of such calendar quarter. CAC
shall make the payment due to Macrovision hereunder with respect to Gross
Revenue for each calendar quarter in the Royalty Term thereafter not later than
twenty (20) days after the end of such calendar quarter. Each quarterly payment
shall be accompanied by a report stating the amount of Gross Revenue received by
CAC during the quarter.
4. AUDITED FINANCIALS, RECORDKEEPING AND INSPECTION. CAC hereby agrees to
provide to Macrovision unaudited financial statements for each calendar quarter
in the Royalty Term within thirty (30) days following the end of such calendar
quarter. CAC hereby agrees to provide to Macrovision financial statements
audited by a "Big Six" accounting firm for each calendar year including any
calendar quarter in the Royalty Term within ninety (90) days following the end
of such calendar year. If the Gross Revenues reported on such audited financial
statements differs from the cumulative amounts shown on the quarterly reports
for such calendar year, CAC shall make an adjustment payment to Macrovision if
the amounts shown on the quarterly reports were too low, or Macrovision shall
make an adjustment payment to CAC if the amounts shown on the quarterly reports
were too high, within twenty (20) days following delivery of the applicable
audited financial statement. CAC shall keep at its usual place or places of
business complete records of its Gross Revenues for each calendar quarter, for a
period of not less than three (3) years following the end of such calendar
quarter, and to regularly make entries in such records at its earliest business
convenience for the purpose of showing the amounts payable to Macrovision
hereunder. On not less than ten (10) days written notice, Macrovision shall
have the right, not more than once during any twelve (12) month period at
mutually agreed upon times during normal business hours at Macrovision's
expense, to examine any and all of CAC's records reflecting Gross Revenues for
the sole purpose of verifying the accuracy of CAC's reports of Gross Revenues
and the performance of CAC's obligations to make payments hereunder. In the
event that any such examination by Macrovision discloses an error in the
determination of any amounts due hereunder that is confirmed by CAC's
independent auditors, CAC shall make an adjustment payment to Macrovision if the
amount previously paid was too low, or Macrovision shall make an adjustment
payment to CAC if the amount previously paid was too high, within twenty (20)
days following such independent auditor's confirmation of the error. In the
event that any such examination by Macrovision discloses an error in the
determination of any amounts due hereunder, that is confirmed by CAC's
independent auditors, such that amount previously paid to Macrovision was too
low, Macrovision thereafter shall be entitled to examine CAC's books and records
on a quarterly basis.
5. NOVATION. If a first underwritten registration of the offering of the
common stock of Macrovision does not become effective on or before November 30,
1996, then effective
2
<PAGE>
December 1, 1996 this Agreement shall be extinguished, and all rights and
obligations created hereby shall terminate.
6. ATTORNEYS' FEES. In the event either party shall commence any action or
proceeding against the other party by reason of any breach or claimed breach in
the performance of any of the terms or conditions of this Agreement or to seek a
judicial declaration of rights under this Agreement, the prevailing party in
such action shall be entitled to recover reasonable attorneys' fees and costs
from the non-prevailing party.
7. CONTROLLING LAW. This Agreement is entered into and to be performed in
California, and it shall be interpreted and enforced under, and all questions
relating thereto shall be determined in accordance with the laws of the State of
California.
8. WAIVER. No waiver of any provision of this Agreement shall be deemed or
shall constitute a waiver of any other provision, whether or not similar, nor
shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
9. PARTIAL INVALIDITY. The illegality, invalidity or unenforceability of any
provision of this Agreement under the law of any jurisdiction shall not affect
its legality, validity or enforceability under the law of any other jurisdiction
nor the legality, validity or enforceability of any other provision.
10. ENTIRE AGREEMENT. This Agreement is intended by the parties as a final
expression of their agreement and as a complete and exclusive statement of the
terms of their agreement with respect to its subject matter. This Agreement may
not be contradicted by evidence of any prior or contemporaneous agreement, oral
or written, and this Agreement may not be explained or supplemented by evidence
of consistent additional terms. This Agreement supersedes, merges, and voids
all prior representations, statements, negotiations, understandings, proposed
agreements, and other agreements, written or oral, relating to its subject
matter.
11. AMENDMENTS. This Agreement may not be amended, modified or supplemented
except by a writing executed by both parties.
12. COUNTERPARTS. This Agreement may be signed in counterparts, each an
original but all one and the same instrument.
13. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of the
successors and assigns of Company and any successors and permitted assigns of
CAC, and shall be binding upon the successors and assigns of Company and of CAC.
14. FURTHER ASSURANCES. The parties hereto shall do and perform or cause to be
done and performed all such further acts and things and shall execute and
deliver all such other documents as any other party may reasonably request from
time to time in order to carry out the intent and purpose of this Agreement
contemplated hereby. Neither Macrovision nor CAC shall voluntarily
3
<PAGE>
undertake any course of action inconsistent with satisfaction of the
requirements applicable to them set forth in this Agreement and each shall
promptly do all such acts and take all such measures as may be appropriate to
enable them to perform as early as practicable the obligations herein required
to be performed by them.
15. NOTICES. Any notice or other communication required or permitted under
this Agreement shall be in writing and either personally delivered or deposited
in the first class United States mail, prepaid, certified or registered, return
receipt requested, addressed as follows:
(a) If to Macrovision:
Macrovision Corporation
1341 Orleans Drive
Sunnyvale, California 94089
Attn: President
with a copy to:
Wise & Shepard LLP
3030 Hansen Way, Suite 100
Palo Alto, California 94304
Attn: David W. Herbst, Esq.
(b) If to CAC:
Command Audio Corporation
1341 Orleans Drive
Sunnyvale, California 94089
Attn: President
Notice shall be deemed to have been given upon receipt. Either party may
change its address by giving written notice of such change to the other party in
the manner provided in this Section.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
COMMAND AUDIO CORPORATION MACROVISION CORPORATION
By: /s/ Donald F. Bogue By: /s/ W.A. Krepick
---------------------- --------------------------------
Title: President Title: President
------------------- -----------------------------
4
<PAGE>
FIRST AMENDMENT
TO
TECHNOLOGY TRANSFER AND ROYALTY AGREEMENT
This First Amendment to Technology Transfer and Royalty Agreement (this
"Amendment") is made as of November 29, 1996 by and between Macrovision
Corporation, a California corporation, and Command Audio Corporation, a
California corporation.
RECITALS
A. The parties entered into a Technology Transfer and Royalty
Agreement dated as of July 31, 1996 (the "Agreement").
B. The parties now wish to amend the Agreement as set forth herein.
The parties agree as follows:
1. DELETION OF SECTION 5 FROM THE AGREEMENT. Section 5 of the
Agreement is deleted in its entirety from the Agreement.
2. AGREEMENT CONTINUES IN EFFECT. The Agreement has not terminated,
and, except as expressly set forth herein, the provisions, terms and
conditions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment effective
as of the date first above written.
COMMAND AUDIO CORPORATION MACROVISION CORPORATION
By: /s/Donald F. Bogue By: /s/John O. Ryan
------------------------- --------------------------
Title: Chairman & CEO Title: Chairman/CEO
--------------------- ----------------------
<PAGE>
EXHIBIT 10.12
[MACROVISION LETTERHEAD]
December 6, 1996
Command Audio Corporation
805 Veterans Blvd.
Redwood City, CA 94063
Attn: Manny Krakaris, Chief Financial Officer
Re: Offer to Repurchase 100,000 Shares of Macrovision Common Stock
Gentlemen:
Pursuant to the Restricted Stock Acquisition Agreement between Command
Audio Corporation ("CAC") and Macrovision Corporation ("Macrovision"), dated as
of July 31, 1996, and amended as of November 29, 1996 (the "Agreement"), you
now hold 100,000 shares of Macrovision common stock that are vested shares
under the Agreement.
Macrovision hereby offers to repurchase all, but not less than all, of
such 100,000 shares at the price of $5.00 per share (with such number of shares
and per share price to be adjusted proportionately in the event of any stock
split of Macrovision common stock occurring between the date hereof and the
date of repurchase). This offer shall remain in effect, and may not be
modified or withdrawn by Macrovision without the prior written approval of CAC,
for a period of ninety (90) days from the date hereof. This offer
automatically shall terminate and shall be null and void if it is not accepted
by written notice of acceptance delivered to the Chief Financial Officer of
Macrovision on or before 5:00 p.m. Pacific Standard Time on March 4, 1997.
Repurchase of the shares shall be concluded within five business days
following acceptance of the offer. CAC may assign its right to receive any
payment for shares of Macrovision common stock that may become due as a result
of the acceptance of this offer.
Very truly yours,
/s/ Victor Viegas
Victor Viegas
Chief Financial Officer
<PAGE>
EXHIBIT 10.13
LICENSE AGREEMENT
This Agreement, made and entered into this 26th day of September, 1995,
by and between Macrovision, Inc., a corporation organized and existing under
the laws of California, with its principal place of business located at 1341
Orleans Drive, Sunnyvale, California, 94089, U.S.A. ("Macrovision"), Victor
Technobrain Co., Ltd., a juridical person organized and existing under the
laws of Japan, with its principal place of business located at 804 Futowo-cho,
Kohoku-ku, Yokohama-shi, Kanagawa-ken 222, Japan ("Technology Licensee") and
Kabushiki-Kaisha, Video Bunka Kenkyu-sho (Video Cultural Institute,
Inc.)(VCII), a juridical person organized and existing under the laws of
Japan, with its principal place of business located at 2-13-7 Minami-Aoyama,
Minato-ku, Tokyo, Japan ("User Licensee").
W I T N E S S E T H
WHEREAS, Macrovision is the owner of all rights, title and interest in and
to certain technology and inventions relating to certain video and audio
scrambling processes, used to protect video material from unauthorized access
in connection with program transmission, and certain anti-copying technology,
used to protect video material from unauthorized copying in connection with
pay-per-view transmissions; and
WHEREAS, User Licensee wishes to establish a movie distribution service
known as EMDES, as hereinafter specified.
WHEREAS, Technology Licensee wishes to acquire from Macrovision a license
to use certain Macrovision Technology, as hereinafter defined, to design,
develop, manufacture, sell and license certain products for Electronic Movie
Distribution and Exhibition System (EMDES) applications, as hereinafter
specified, in Japan; and
WHEREAS, User Licensee wishes to acquire from Macrovision a license to use
certain Macrovision Technology, as hereinafter defined, to distribute, lease
and license certain products and to
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sell services for EMDES applications, as hereinafter specified, in Japan; and
WHEREAS, Macrovision is willing to grant a license to Technology Licensee
to use the Macrovision Technology in the design, development, manufacture,
distribution, sale and license of certain products in Japan in accordance
with the terms and conditions of, and subject to the limitations of, this
Agreement; and
WHEREAS, Macrovision is willing to grant a license to User Licensee to use
the Macrovision Technology in the distribution and license of certain
products in Japan in accordance with the terms and conditions of, and subject
to the limitations of, this Agreement; and
WHEREAS, Macrovision wishes to acquire a license to utilize Technology
Licensee's Resulting Technology, as hereinafter defined, and Technology
Licensee is willing to grant to Macrovision a license to such Resulting
Technology, in accordance with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing, and the mutual
covenants and conditions set forth in this Agreement, the parties hereto
do agree as follows:
Article 1: Definitions
For purposes of this Agreement, the following terms shall have the
following meanings:
1.1 The "Products" shall mean those products, including, but not limited
to, the encoder, the decoder, software control system and card authorization
system, set forth on Appendix 1 hereto, to be developed hereunder by
Technology Licensee, utilizing the Macrovision Technology and the Resulting
Technology, as defined herein, for decoding EMDES video signals that have
been scrambled using the Macrovision Technology.
1.2 The "Resulting Technology" shall mean and include all designs,
drawings, blueprints, computer programs in source code and object code form,
technical specifications, manufacturing equipment requirements, performance
standards, quality control
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standards and requirements, and all other information and technical data
relating to the design, development, manufacture, production and/or use of
the Products, and all Intellectual Property Rights therein. Excluded from
Resulting Technology is any technology developed by Technology Licensee
independent of this Agreement and technology obtained from a non-party to
this agreement.
1.3 "PhaseKrypt" shall mean Macrovision's proprietary video and audio
scrambling technology used to scramble and protect video and audio signals
from unauthorized access, which technology has been granted United States
Patent No. 5,058,175, and 5,438,620 pending United States Patent Application
No. 08-145066.
1.4 The "Anti-Copying Process" ("ACP") shall mean Macrovision's
proprietary process of modifying a video signal by (i) the addition of a
plurality of unipolar pulses and bipolar pulse pairs in and around the
vertical blanking interval; and (ii) by pseudo randomly phase modulating the
color bursts, which process is protected by the United States Patents Nos.
4,631,603, 4,577,216 and 4,819,098. Japanese Patent number 1,925,090 is the
Japanese equivalent of US Patent no. 4,631,603.
1.5 The "Macrovision Technology" shall mean and include (i) PhaseKrypt, as
defined in Article 1.3 hereof; (ii) the Anti-Copying Process, as defined in
Article 1.4 hereof; and (iii) any and all Intellectual Property Rights
embodied therein or related thereto.
1.6 "User Licensee's Authorized EMDES Applications" shall mean specific
market applications that the parties mutually agree in writing prior to start
of businesses related to each specific market application. Market application
that the parties mutually agree shall include following two types of
systematic application of Macrovision Technology.
a) services operated by User Licensee that provide the delivery of
scrambled real time video programming via cable, satellite, and/or
terrestrial transmission with subsequent direct recording on VCRs and
decoding said recorded material at a
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customer site employing a card-based access authorization system for which
the recipient pays a fee on a pay-per view basis;
b) distribution of scrambled video cassettes by User Licensee for
subsequent decoding and play back at a customer site employing a card-based
access authorization system for which the recipient pays a fee on a
pay-per-view basis.
1.7 "Pay-Per-View" shall mean video programming for which the direct
recipient pays for each viewing of each program received.
1.8 "Intellectual Property Rights" shall mean and include any and all
patents, copyrights, semiconductor design rights, trademarks, service marks,
trade names and other, similar proprietary rights, and all applications
therefor and all registrations thereof.
1.9 "Confidential Information" shall mean and include any and all trade
secrets, data and other information, not in the public domain, which are
embodied in, relate to, or are associated with any of (i) the Macrovision
Technology; (ii) the Products; (iii) the Resulting Technology; or (iv) the
business or affairs of Macrovision, Technology Licensee or User Licensee, as
the case may be. Any information furnished, disclosed or revealed by one
party hereto another party shall be deemed "Confidential Information" for
purposes of this Agreement if (i) it is in tangible form and has been marked
"confidential" by one of the parties; (ii) the party receiving such
information has been advised in writing of its confidential nature; or (iii)
due to its character or nature, a reasonable person in a like position and
under like circumstances would treat such information as confidential.
1.10 "Application Master Sublicensee" shall mean a licensee to which User
Licensee shall sublicense the technology and application identified in the
Technical Specification dated January 20, 1995 (Appendix 5) on a specific
market application basis.
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1.11 "Retail Level Sublicensee" shall mean a licensee who is granted
either by User Licensee or by Application Master Sublicensee the right to
provide the PhaseKrypt and/or ACP encoded programs with retail level end
users.
1.12 "Gross Revenues" shall mean all revenues of either User Licensee or
Application Master Sublicensee derived from the distribution, lease or
license of the Products and of the sale of PhaseKrypt and/or ACP encoded
programs for customers of either User Licensee or Application Master
Sublicensee within Japan as reflected on User Licensee's or Application
Master Sublicensee's invoices, provided that such invoices include all the
revenues that Right Holders, Technology Licensee, and all other vendors to
either User Licensee or Application Master Sublicensee ought to receive from
either User Licensee or from Application Master Sublicensees due to EMDES
business. If any revenues that Right Holders, Technology licensee, and all
other vendors to either User Licensee or Application Master Sublicensee ought
to receive due to EMDES business are excluded from the invoices of either
User Licensee or Application Master Sublicensee to customers and Retail Level
Sublicensees by any means, such revenues which are excluded from the invoices
should be added back to the nominal amount on the invoices to constitute the
definition of the "Gross Revenue" made in the section 1.12.
1.13 "Retail Transaction Value" shall mean all revenues that User
Licensee's customers or User Licensee's Retail Level Sublicensees receive
from retail level customers for the sale of PhaseKrypt and/or ACP encoded
programs for User Licensee's Application Master Sublicensees EMDES
Applications within Japan.
1.14 The "Effective Date" of this Agreement shall be the date on which all
applicable approvals (if required) of the United States and Japanese
Governments of this Agreement shall have been obtained by the parties hereto,
including, but not limited to, the approval of the United States Department
of State, in accordance with the provisions of Article 11 hereof.
1.15 "Rights Holders" shall mean such persons, corporations, partnerships
or other entities holding ownership of copyrights
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and other intellectual property rights in the movies or other video material
to be distributed or exhibited.
1.16 "MPAA Rights Holders" shall mean any of the seven studios and their
Japanese video or pay-per-view distributors.
Article 2: Grant and Scope of License
2.1 Subject to the terms and conditions of this Agreement, including the
attached agreed Technical Specification dated January 20, 1995 (Appendix 5)
Macrovision hereby grants to Technology Licensee, and Technology Licensee
hereby accepts from Macrovision, a limited non-transferable, non-exclusive
license to utilize the Macrovision Technology and all Intellectual Property
Rights related thereto for the design, development, manufacture and sale to
User Licensee of the Products for User Licensee's Authorized EMDES
Applications, solely in Japan.
2.2 Macrovision shall provide to Technology Licensee such documents and
other materials that contain, embody and/or disclose the Macrovision
Technology and such other Macrovision Confidential Information as
Macrovision, in its reasonable discretion, determines to be necessary or
appropriate for Technology Licensee's design, development, manufacture and
distribution of the Products hereunder. Technology Licensee hereby
acknowledges and agrees that, except as specifically provided in this
Agreement, Technology Licensee shall not acquire any rights, title or
interests in or to any of the Macrovision Technology or other Macrovision
Confidential Information contained, embodied or disclosed by any of the
documents or other materials furnished by Macrovision to Licensee under this
Article 2.2.
2.3 Subject to the terms and conditions of this Agreement, Macrovision
hereby grants to Technology Licensee, and Technology Licensee hereby accepts
from Macrovision, a right to sub-license its rights to the Macrovision
Technology to ShibaSoku Co. Ltd. (SSC) to utilize the Macrovision Technology
and all Intellectual Property Rights related thereto for the design,
development, manufacture of the Products for Technology Licensee
6
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for User Licensee's Authorized EMDES Applications, solely in Japan.
2.4 Technology Licensee also hereby acknowledges and agrees to the
limited scope of the license granted to Technology Licensee by Macrovision
hereunder. Technology Licensee shall not utilize any of the Macrovision
Technology for any purpose outside the scope of User Licensee's Authorized
EMDES Applications or outside of Japan.
2.5 Subject to the terms and conditions of this Agreement, including the
attached agreed Technical Specification dated January 20, 1995 (Appendix 5),
Macrovision hereby grants to User Licensee, and User Licensee hereby accepts
from Macrovision, a limited non-transferable, exclusive license to utilize
the Macrovision Technology and all Intellectual Property Rights related
thereto to solely distribute, lease or license Products and to solely sell
services for User Licensee's Authorized EMDES Applications, solely in Japan.
User Licensee is authorized to start each specific market application as
described in Article 1.6 only after mutual agreement between Macrovision and
User Licensee on the specific market and the related service royalty unique
to each specific market.
2.5.1 The exclusivity as described in Article 2.5 above is limited to
the technology and application identified in the Technical Specification date
January 20 1995 (Appendix 5). This exclusivity does not apply outside of the
Products and Resulting Technology to any individual Macrovision Anti-copy
Protection Technology, PhaseKrypt Technology, CineGuard Technology and / or
other technologies in a EMDES application within Japan.
2.5.2 The exclusivity of this license is dependent upon a signature date
of this contract being no later than September 28, 1995 and the payment of
the first installment provided for in Article 6.1 by October 31, 1995.
2.6 User Licensee also hereby acknowledges and agrees to the limited
scope of the license granted to User Licensee by Macrovision hereunder. User
Licensee shall not utilize any of the Macrovision Technology for any purpose
outside the scope of
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User Licensee's Authorized EMDES Applications or outside of Japan. Any such
use of the Macrovision Technology for any purpose outside the scope of the
User Licensee's Authorized EMDES Application or outside of Japan will be
considered a material breach of this agreement.
2.6.1 User Licensee is hereby granted a right of first refusal for
licensing the Macrovision Technology for User Licensee's Authorized EMDES
Application in the Asian countries listed in Appendix 4.
Article 3: Technology Licensee's Obligations
3.1 Upon delivery of the Macrovision Technology and other Macrovision
Confidential Information to Technology Licensee, in accordance with Article
2.2 of this Agreement, Technology Licensee shall initiate the design and
development of the Products. It is anticipated that the design and
development of the Products hereunder will be completed within 120 days after
the Effective Date of this Agreement, and Technology Licensee shall provide
Macrovision with written notice of completion of the design and development
of the Products within 120 days after the date thereof.
3.2 During the period between the execution date of this agreement and
March 31, 1996, such period to be used for the early establishment of an
EMDES Karaoke Application, Macrovision agrees to grant Technology Licensee
and Technology Licensee accepts all rights and obligations to check the
design of all Products manufactured before March 31, 1996. Any encoder
manufactured before March 31, 1996 will be subject to corrections and/or
modifications by Technology Licensee considered by Macrovision.
3.3 Prior to April 30, 1996, Technology Licensee shall deliver to
Macrovision a data package, which shall include all of the Resulting
Technology relating to the Products, for review and design evaluation by
Macrovision. Macrovision shall use commercially reasonable efforts to
complete its review and design evaluation of the Resulting Technology, and
shall provide
8
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Technology Licensee with written notice of the results of that review and
design evaluation, within 30 days after receipt of Technology Licensee's data
package under this Article 3.3; provided, however, that Technology Licensee
shall not continue manufacture and distribution of any of the Products until
Macrovision has given Technology Licensee written notice that the results of
that review and design evaluation of the Resulting Technology conform to
Macrovision's specifications, standards and requirements and are otherwise
reasonably satisfactory to Macrovision.
3.4 Technology Licensee shall employ or cause to be employed such
design, manufacturing and quality standards to manufacture the Products
capable of using Macrovision Technology. In the event that Macrovision
reasonably determines that the Resulting Technology does not conform to
Macrovision's specifications, standards and requirements, Macrovision shall
provide Technology Licensee with a detailed list of all deficiencies in the
Resulting Technology. Technology Licensee shall utilize its best efforts to
correct all such deficiencies in the Resulting Technology within 60 days
after receipt of Macrovision's written notice under this Article 3.4. Upon
correction of all such deficiencies in the Resulting Technology, Licensee
shall provide Macrovision with a revised data package, in order to permit
Macrovision to confirm that all such deficiencies have been corrected, and
that the Resulting Technology conforms to the requirements of Article 3.2
hereof.
3.5 Upon receipt of Macrovision's written confirmation that the
Resulting Technology conforms to the requirements of Article 3.3 of this
Agreement, Technology Licensee shall commence manufacture of the Products.
3.6 All Products manufactured by Technology Licensee hereunder shall
bear a plaque or label, in a form specified by Macrovision, indicating that
such Products were manufactured under license from Macrovision, and including
all other markings, proprietary rights notices and other information as
reasonably required by Macrovision to protect Macrovision's rights in the
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Macrovision Technology and all Intellectual Property Rights relating thereto.
3.7 Technology Licensee shall use its best efforts to maximize the use
and license of the Products for User Licensee's Authorized EMDES Applications
within Japan. In furtherance of Licensee's "best efforts" obligation
hereunder, Technology Licensee shall not sell or license any of the Products
(i) for use outside of User Licensee's Authorized EMDES Applications; to any
party other than VCII; or (iii) for use outside of Japan, without the prior
written authorization of Macrovision.
3.8 Technology Licensee hereby acknowledges and agrees that, in order to
protect Macrovision's Intellectual Property Rights in and to the Macrovision
Technology, all Products shall be sold only to User Licensee.
3.9 Technology Licensee shall provide Macrovision with monthly reports
of Technology Licensee's activities in manufacturing and distributing the
Products hereunder. Each such monthly report shall be substantially in the
form of Appendix 2 hereto, shall be provided within thirty (30) days after
the end of each month to which it corresponds, and shall include, inter alia:
(a) a statement of the number and description of the Products
manufactured and distributed by Technology Licensee during each month; and
(b) a description of all technical and functional problems with any of
the Products reported to Technology Licensee by any of Technology Licensee's
customers during each month, together with the steps taken by Technology
Licensee to correct such technical and functional problems.
3.10 Upon reasonable written notice from Macrovision, Technology
Licensee shall permit Macrovision's representatives to inspect Technology
Licensee's facilities and records, during normal business hours, in order to
permit Macrovision to confirm Technology Licensee's compliance with its
obligations under this Agreement. Without limiting the generality of this
Article 3.10, Macrovision shall have the right, at its own expense, to audit
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Technology Licensee's books and records of account, in order to confirm the
accuracy of the reports submitted by Technology Licensee under Article 3.9
hereof.
3.11 Technology Licensee shall use its best efforts to obtain patent
protection for the Resulting Technology within Japan. Technology Licensee
shall apply for patent protection in the European Patent Office, the United
States and any other country that Macrovision and the Technology Licensee
mutually agree. Technology shall assign these non-Japanese patent
applications to Macrovision. Macrovision at its sole discretion shall
prosecute the patent applications to allowance and pay all maintenance or
annuity fees.
3.12 Technology Licensee hereby grants to Macrovision, and Macrovision
hereby accepts from Technology Licensee, an exclusive, fully transferable,
royalty-free license to utilize all of the Resulting Technology in the
design, manufacture, distribution, sale and use of such products as
Macrovision, in its sole discretion, shall deem appropriate, throughout
the world, except Japan.
3.13 Technology Licensee shall furnish User Licensee with such other
technical assistance with respect to the Macrovision Technology and/or use of
the Products within User Licensee's Authorized EMDES Applications in Japan,
as User Licensee shall reasonably request. User Licensee shall pay Technology
Licensee's then-prevailing standard technical assistance fee for all such
technical assistance furnished by Technology Licensee under this Article
3.10. Upon receipt of any request by Technology Licensee for any technical
assistance under this Article 3.13, Technology Licensee shall provide User
Licensee with written notice of Technology Licensee's then-prevailing
technical assistance fee. User Licensee shall pay all technical assistance
fees payable under this Article 3.10 within 45 days after the date of
Technology Licensee's invoice therefor.
Article 4: User Licensee's Obligations
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4.1 User Licensee shall use its best efforts to maximize the use of the
Products for User Licensee's Authorized EMDES Applications within Japan. In
furtherance of User Licensee's "best efforts" obligation here, User Licensee
shall not sell or license any of the Products for use outside of (i) User
Licensee's Authorized EMDES Applications; or (ii) Japan, without the prior
written authorization of Macrovision.
4.2 User Licensee shall coordinate contacts and negotiations with MPAA
Rights Holders with Macrovision. No contract or agreement will be concluded
with a MPAA Rights Holder without Macrovision's approval or consent, such
approval or consent not being unreasonably withheld.
4.3 User Licensee hereby acknowledges and agrees that, in order to
protect Macrovision's Intellectual Property Rights in and to the Macrovision
Technology, all Products shall be licensed to and not sold to customers using
the decoders for commercial purposes within Japan. User Licensee shall cause
each such commercial customer to enter into a license agreement, in a form
reasonably satisfactory to Macrovision, which prohibits the unauthorized
appropriation, use, disclosure or infringement of any of Macrovision's
Technology. User Licensee shall provide Macrovision with copies of all such
license agreements relating to the Products upon reasonable written request
by Macrovision. Decoders may be sold to consumers for non-commercial home use
only. All Products will contain a patent notice/license satisfactory to
Macrovision.
4.4 In connection with the marketing and distribution of the Products
within User Licensee's Authorized EMDES Applications in Japan, User Licensee
may, at its own expense, develop promotional and marketing materials relating
to the Products as User Licensee determines to be necessary or appropriate;
provided, however, that all such promotional and marketing materials
developed by User Licensee hereunder shall be submitted to, and shall be
reviewed in writing by, Macrovision prior to their release or distribution by
User Licensee to potential customers of the Products.
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4.5 User Licensee shall maintain adequate service and support
facilities for the Products within Japan, and shall provide its customers
with such support services relating to User Licensee's Authorized EMDES
Applications in accordance with the Resulting Technology and such other
standards as User Licensee and Macrovision shall establish by mutual
agreement. User Licensee hereby acknowledges and agrees that it shall be
solely responsible for the service and support of all Products distributed by
User Licensee hereunder.
4.6 User Licensee shall provide Macrovision with monthly reports of
User Licensee's activities in licensing and distributing the Products
hereunder. Each such monthly report shall be substantially in the form of
Appendix 2 hereto, shall be provided within thirty (30) days after the end of
each month to which it corresponds, and shall include, inter alia:
(a) a statement of the number and description of the Products licensed
and distributed by User Licensee during each month;
(b) a statement, certified by an authorized officer of User Licensee,
(1) User Licensee's Gross Revenue of the products and of the sale of
PhaseKrypt and/or ACP encoded programs for User Licensee's customers and
Retail Level Sublicensees and of (2) User Licensee's and Retail Level
Sublicensee's Retail Transaction Value during the month, together with the
amount of royalties payable thereon to Macrovision, in accordance with 6.3,
hereof;
(c) a description of all technical and functional problems with any of
the Products reported to User Licensee by any of User Licensee's customers,
user sublicensees or MPAA Rights Holders, during the month, together with the
steps taken by User Licensee to correct such technical and functional
problems; and
(d) income statement and balance sheets with sufficient level of
detail, only if negotiated service royalties of any EMDES market application
are either below ten (10) percent of User Licensee's Gross Revenue from the
sale of PhaseKrypt and/or ACP encoded programs to user Sublicensee's or below
five (5) percent of "Retail Transaction Value".
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4.7 Upon reasonable written notice from Macrovision, User Licensee
shall permit Macrovision's representatives to inspect User Licensee's
facilities and records, during normal business hours, in order to permit
Macrovision to confirm User Licensee's compliance with its obligations under
this Agreement. Without limiting the generality of this Article 4.7,
Macrovision shall have the right, at its own expense, to audit User
Licensee's books and records of account, in order to confirm the accuracy of
the reports submitted by User Licensee under Article 4.6 hereof, and the
amounts of royalties paid by User Licensee to Macrovision pursuant to Article
6.3 hereof; provided, however, that User Licensee shall reimburse Macrovision
for all costs and expenses incurred by Macrovision in connection with any
such audit which reveals an underpayment by User Licensee of royalties of
more than ten (10%) percent of the total royalties actually payable by User
Licensee hereunder during any calendar quarter.
4.8 User Licensee hereby grants to Macrovision, and Macrovision hereby
accepts from User Licensee, a non-exclusive, fully transferable, royalty-free
license to utilize all of the Resulting Technology in distribution, sale and
use of such products as Macrovision, in its sole discretion, shall deem
appropriate, throughout the world, except Japan.
Article 5: Macrovision's Obligations
5.1 Macrovision shall provide a two week training course in the
Macrovision Technology for not more than four (4) of Technology Licensee's
engineers, at Macrovision's facility in the United States. All such training
of Technology Licensee's engineers under this Article 5.1 shall be provided
by Macrovision at no additional charge to Technology Licensee; provided,
however, that Technology Licensee shall bear all travel, accommodation, meal,
employee per diem and other expenses incurred in connection with sending its
engineers to Macrovision's facility for training in accordance with this
Article 5.1.
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5.2 Upon completion of prototypes of the Products manufactured by
Technology Licensee in accordance with Article 3.3 hereof, Macrovision shall
provide Technology Licensee with such technical assistance in the
integration, system verification and testing of the Products as Technology
Licensee shall reasonably request. All such technical assistance under this
Article 5.2 shall be provided by Macrovision at no additional charge to
Technology Licensee; provided, however, that Macrovision shall have the right
to utilize the results of such integration, system, verification and testing,
in connection with the license of the Resulting Technology granted by
Technology Licensee to Macrovision pursuant to Article 3.12 of this
Agreement, for such purposes as Macrovision shall determine to be necessary
or appropriate for the exercise of its rights and the performance of its
obligations under that license to the Resulting Technology.
5.3 Macrovision shall assist User Licensee with contacts, negotiations
and agreements with MPAA Rights Holders to obtain permission to use movies or
other video material for use in User Licensee's Authorized EMDES Applications.
Article 6: Financial Considerations
6.1 In consideration for the rights and licenses granted by Macrovision
to User Licensee under this Agreement, User Licensee shall pay to Macrovision
an initial technology transfer fee in the amount of Five Hundred Thousand
United States Dollars (US$500,000.00). This technology transfer fee shall be
paid in two (2) installments, each in the amount of Two Hundred and Fifty
Thousand United States Dollars (US$250,000.00), the first of which shall be
paid no later than October 31, 1995, and the second of which shall be
paid within 30 days after Technology Licensee's commencement of manufacture
of the Products, pursuant to Article 3.2 hereof.
6.2 In consideration for Technology Licensee providing the design and
development of the Products, in addition to any payments by User Licensee to
Technology Licensee, Macrovision
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shall pay Technology Licensee a fee of One Hundred Thousand United States
Dollars (US$100,000.00). The fee shall be paid in two (2) installments, each
in the amount of Fifty Thousand Dollars (US$50,000), the first shall be within
30 days after Macrovision's receipt of the first installment of the initial
technology fee from User Licensee (as described in Article 6.1) and the
second which shall be paid within 30 days after Macrovision's receipt of the
second installment of the initial technology fee from User Licensee (as
described in Article 6.1).
6.3 As additional consideration for the rights and licenses granted by
Macrovision to User Licensee under this Agreement, User Licensee shall pay
to Macrovision the following royalties:
(a) Four (4) percent of User Licensee's Gross Revenues from the
distribution, lease or use of decoder Products; provided, however, that the
royalty payable under this Article 6.2(a) per each unit of the decoder
Products shall not be less than Three United States Dollars (US$3.00); and
(b) As service royalties a certain percent of User Licensee's Gross
Revenues from the sale of PhaseKrypt and/or ACP encoded programs to User
Licensee's customers or Retail Level Sublicensees or a certain percent of
"Retail Transaction Value", whichever is larger. These percents should be
mutually agreed by the parties prior to start of business of each specific
market application that the parties are to mutually agree.
(c) Under Article 2.5 User Licensee is authorized to start each
specific new market application as described in Article 1.6 only after mutual
agreement between Macrovision and User Licensee on the specific market and
the related service royalty unique to each specific market.
(d) As part of the exclusive license granted to User Licensee, User
Licensee may sub-license the technology and application identified in the
Technical Specification date January 20, 1995 (Appendix 5) to a new
Application Master Sublicensee on each specific new market application
basis. User Licensee agrees to share with Macrovision the initial up-front
technology sublicensing fee received from a new Application
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Master Sublicensee by User Licensee on 75/25 ratio, with Macrovision
receiving the 25% portion. No new application master sublicense will be
granted by Macrovision to said new Application Master Sublicensee without
such an up front fee paid in full by a new Application Master Sublicensee or
User Licensee. New Application Master Sublicensee is not authorized to start
each specific new market application as described in 1.6 unless mutual
agreement between Macrovision and Application Master Sublicensee on the
service royalty unique to each specific market is made as described in 6.3
(b) Additionally, four (4) percent of a new Application Master Sublicensee
gross revenues from the distribution, lease, or use of decoder products
should be paid to Macrovision either by User Licensee or by a new
Application Master Sublicensee provided that the royalty payable under this
Article 6.3(a) per each unit of the decoder products shall not be less than
Three United States Dollars (US$3.00).
(e) In the case of sublicensing from User Licensee to a new Application
Master Sublicensee on a particular market application basis, such a new
Application Master Sublicensee shall have to fulfill the same obligations as
the User Licensee, described in through 4.1 to 4.8.
(f) In the case of sublicensing from User License to a new Application
Master Sublicensee; Macrovision, User Licensee and Application Master
Sublicensee shall enter into a new three party agreement which defines the
obligations, and financial considerations of each party in line with this
agreement for the said new application.
6.4 All royalties payable by User Licensee or by Application Master
Sublicensee to Macrovision pursuant to Article 6.3 shall be paid on a monthly
basis, within ninety (90) days after the close of the calendar month to which
such royalties correspond. Unless otherwise specified by Macrovision in
writing, all such royalties, and all other payments hereunder, shall be paid
in United States Dollars. For purposes of determining the United
States Dollar amount of all royalties payable by User Licensee to Macrovision
hereunder during any month, Japanese Yen shall be
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converted into United States Dollars at the Bank of Tokyo's published rate of
exchange between the Japanese Yen and the United States Dollar in effect on
the last day of that calendar month.
6.5 At Macrovision's option and sole discretion, Macrovision shall have
the right to waive its right to receive the royalties provided for in Article
6.3 of this Agreement. In consideration for Macrovision's waiver of such
royalties under this Article 6.5, User Licensee shall issue to Macrovision
that number of shares of User Licensee's common stock that represents ten
(10) percent of the total number of shares of User Licensee's common stock
outstanding after issuance of shares to Macrovision under this Article 6.5
In the event Macrovision elects its option under this Article 6.5,
Macrovision shall provide written notice thereof to User Licensee within 60
days after receiving a written report describing the results of a six month
trial of EMDES in the Karaoke room public exhibition. Macrovision shall have
the additional option of electing to waive its right to receive royalties
provided for in Article 6.3, within 60 days of the anniversary of receiving
the written report. This additional option shall be available annually
throughout the term of the agreement.
6.6 In the event that User Licensee or Application Master Sublicensee
is required to withhold any taxes on royalties payable to Macrovision
hereunder, in accordance with the laws and regulations of Japan, User
Licensee or Application Master Sublicensee shall furnish to Macrovision
official tax receipts or other evidence of payment of such withholding taxes,
on a timely basis, sufficient to permit Macrovision to demonstrate payment of
such taxes, in order to establish Macrovision's right to a credit for such
taxes against Macrovision's United States income tax liability. User Licensee
or Application Master Sublicensee shall provide Macrovision with all
assistance reasonably requested by Macrovision, in connection with any
application by Macrovision to qualify for the benefit of a reduced rate of
withholding
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taxation, under the terms of Article 14 of the United States-Japan Income Tax
Treaty.
6.7 In the event that User Licensee or Application Master Sublicensee
shall fail to pay any amount payable to Macrovision under this Agreement
within 30 days of the date on which such payment is due, User Licensee or
Application Master Sublicensee shall pay interests to Macrovision on such
overdue amount at a rate of one and one-half (1-1/2) percent per month, or
the maximum rate permitted by law, whichever is less, until the overdue amount
has been paid in full by User Licensee or by Application Master Sublicensee.
Article 7: Warranties and Limitations of Liability
7.1 Macrovision hereby warrants to Technology Licensee and User Licensee
that Macrovision is the owner, or authorized licensee, of all rights, title
and interests in and to the Macrovision Technology, and all Intellectual
Property Rights related thereto. Macrovision further warrants that it has the
right to grant to Technology Licensee and User Licensee the rights and
licenses provided for in this Agreement.
7.2 Macrovision hereby warrants that the documents and materials
furnished to Technology Licensee pursuant to Article 2.2 hereof include all
of the Macrovision Technology and other Macrovision Confidential Information
that Technology Licensee should require for the design, development,
manufacture and distribution by Technology Licensee of the Products.
Macrovision makes no representation or warranty whatsoever, however, that
Technology Licensee will realize any benefit from such Macrovision Technology
or other Macrovision Confidential Information furnished to Technology
Licensee hereunder. In the event that Technology Licensee reasonably believes
that the documents and materials furnished by Macrovision to Technology
Licensee under Article 2.2 hereof are defective or incomplete, Technology
Licensee shall give written notice thereof to Macrovision, and Macrovision
shall correct any such defect or furnish any missing documents or materials
within 45 days after
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receipt of Technology Licensee's written notice hereunder. Technology
Licensee acknowledges and agrees that the remedy provided for in this Article
7.2 shall constitute Technology Licensee's sole remedy in the event that any
of the documents and materials furnished by Macrovision under Article 2.2
hereof fail to conform to Macrovision's warranty, as set forth in this
Article 6.2.
7.3 THE OBLIGATIONS OF MACROVISION UNDER ARTICLES 7.1 AND 7.2 OF THIS
AGREEMENT ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES BY
MACROVISION WITH RESPECT TO THE MACROVISION TECHNOLOGY AND MACROVISION
CONFIDENTIAL INFORMATION FURNISHED BY MACROVISION TO TECHNOLOGY LICENSEE AND
USER LICENSEE HEREUNDER. EXCEPT AS SPECIFICALLY PROVIDED IN ARTICLES 7.1 AND
7.2 HEREOF, ALL SUCH MACROVISION TECHNOLOGY AND MACROVISION CONFIDENTIAL
INFORMATION ARE LICENSED TO TECHNOLOGY LICENSEE AND USER LICENSEE "AS IS", AND
ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ALL WARRANTIES WITH
RESPECT TO THE CONDITION OF PHASEKRYPT, THE DECODING PROCESS AND THE ENCODING
PROCESS, AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE ARE HEREBY DISCLAIMED AND EXCLUDED. UNDER NO CIRCUMSTANCES
SHALL MACROVISION BE LIABLE TO TECHNOLOGY LICENSEE OR USER LICENSEE OR ANY
OTHER PERSON, FIRM OR ENTITY FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR
INCIDENTAL DAMAGES ARISING FROM, OR ATTRIBUTABLE TO, THIS AGREEMENT AND/OR
MACROVISION'S PERFORMANCE HEREUNDER, EVEN IF MACROVISION IS ON NOTICE OF THE
POSSIBILITY OF SUCH DAMAGES.
7.4 Technology Licensee shall extend to its customers such warranties
with respect to the Products as Technology Licensee and shall determine to be
necessary or appropriate for the effective marketing and distribution of the
Products within User Licensee's Authorized EMDES Applications in Japan. Any
and all such warranties shall be solely in the name of, and shall constitute
the obligation solely of, Technology Licensee, and Technology Licensee shall
defend, indemnify and hold Macrovision harmless against any and all claims,
losses, damages and liabilities attributable to any misrepresentation by
Technology
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Licensee of, or any breach by Technology Licensee of any Warrant with respect
to, any of the Products.
7.5 User Licensee shall extend to its customers such warranties with
respect to the Products as User Licensee and shall determine to be necessary
or appropriate for the effective marketing and distribution of the Products
within User Licensee's Authorized EMDES Applications in Japan. Any and all
such warranties shall be solely in the name of, and shall constitute the
obligation solely of, User Licensee, and User Licensee shall defend,
indemnify and hold Macrovision harmless against any and all claims, losses,
damages and liabilities attributable to any misrepresentation by User
Licensee of, or any breach by User Licensee of any warrant with respect to,
any of the Products.
Article 8: Confidential Information
8.1 No party hereto shall disclose to any other person, firm or entity
any other party's Confidential Information which is furnished, disclosed or
revealed to such party (the "receiving party") pursuant to this Agreement. Any
such Confidential Information shall be used by the receiving party solely in
connection with its performance of its obligations under this Agreement, and
for no other purpose whatsoever. Each party shall take all appropriate steps,
and implement all appropriate procedures, to prevent the unauthorized use
and/or disclosure of any other party's Confidential Information, and each of
the receiving party's employees to whom any such Confidential Information is
made available hereunder shall have entered into a non-disclosure agreement
which prohibits the unauthorized use and/or disclosure of such Confidential
Information.
8.2 The receiving party's duty under Article 8.1 of this Agreement shall
not apply to the extent, but only to the extent, that the other party's
Confidential Information:
(a) passes into the public domain through no fault of the receiving party;
(b) is disclosed to the receiving party by a third party that is under
no obligation of non-disclosure to the other party;
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(c) was known to the receiving party at the time of disclosure by the
other party; or
(d) is required to be disclosed under the laws, regulations or
governmental orders of the United States or Japan.
8.3 The parties' respective obligations under Article 8.1 hereof shall
survive the termination of this Agreement for any reason whatsoever. Within
30 days after the termination of this Agreement for any reason whatsoever,
Technology Licensee and User Licensee shall return to Macrovision all
documents and other materials in Technology Licensee's and User Licensee's
possession that contain, embody and/or disclose any of the Macrovision
Technology or any of Macrovision's Confidential Information; provided,
however, that nothing in this Article 8 shall affect Macrovision's rights
with respect to the Resulting Technology following the termination of this
Agreement.
Article 9: Macrovision's Intellectual Property Rights
9.1 Technology Licensee hereby acknowledges that Macrovision is the
owner of all rights, title and interests in and to all of the Macrovision
Technology, including all Intellectual Property Rights therein, and
Technology Licensee shall acquire no rights whatsoever with respect to any of
the Macrovision Technology or any such Intellectual Property Rights, except
as specifically provided in this Agreement. During the continuance of this
Agreement and thereafter, Technology Licensee shall take no action which, in
the reasonable opinion of Macrovision, may adversely affect or impair any of
Macrovision's rights, title or interests in and to the Macrovision
Technology or any Intellectual Property Rights therein.
9.2 Technology Licensee shall take all such action, and shall provide
Macrovision with all such assistance, as Macrovision shall reasonably
request, in order to perfect and protect Macrovision's rights, title and
interests in and to the Macrovision Technology and all Intellectual Property
Rights related thereto within Japan.
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9.3 Technology Licensee shall immediately notify Macrovision of any and
all infringements of any of the Macrovision Technology, or any of the
Intellectual Property Rights related thereto, within Japan that come to the
attention of Technology License. Macrovision, as the owner of the Macrovision
Technology and those Intellectual Property Rights, shall be responsible for
taking any action, in the courts, administrative agencies or otherwise, to
prevent any such infringement, and Technology Licensee shall provide
Macrovision with such assistance as Macrovision shall reasonably request in
connection with any such action.
9.4 User Licensee hereby acknowledges that Macrovision is the owner of
all rights, title and interests in and to all of the Macrovision Technology,
including all Intellectual Property Rights therein, and User Licensee shall
acquire no rights whatsoever with respect to any of the Macrovision
Technology or any such Intellectual Property Rights, except as specifically
provided in this Agreement. During the continuance of this Agreement and
thereafter, User Licensee shall take no action which, in the reasonable
opinion of Macrovision, may adversely affect or impair any of Macrovision's
rights, title or interests in and to the Macrovision Technology or any
Intellectual Property Rights therein.
9.5 User Licensee shall take all such action, and shall provide
Macrovision with all such assistance, as Macrovision shall reasonably
request, in order to perfect and protect Macrovision's rights, title and
interests in and to the Macrovision Technology and all Intellectual Property
Rights related thereto within Japan.
9.6 User Licensee shall immediately notify Macrovision of any and all
infringements of any of the Macrovision Technology, or any of the
Intellectual Property Rights related thereto, within Japan that come to the
attention of License. Macrovision, as the owner of the Macrovision Technology
and those Intellectual Property Rights, shall be responsible for taking any
action, in the courts, administrative agencies or otherwise, to prevent any
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such infringement, and User Licensee shall provide Macrovision with such
assistance as Macrovision shall reasonably request in connection with any
such action.
Article 10 Indemnification
10.1 Mutual Indemnification
(a) Macrovision's Indemnification of Technology Licensee.
Macrovision will indemnify and hold harmless Technology Licensee from
and against any and all damages, claims, costs or other liabilities,
including costs and reasonable attorney's fees that arise from or out of or
are in connection with:
(i) any third party claims that the Macrovision Technology infringes any
patents, copyright or other proprietary rights (which claims, the parties
understand and agree, shall not constitute incidental or consequential
damages for purposes of this Agreement). Notwithstanding the foregoing,
Macrovision shall not be obligated to indemnify Technology Licensee for any
claim described in this Section 10.1(a)(i) due to any modification of the
Macrovision Technology or the combination of the Macrovision Technology with
any other equipment, software or hardware if Macrovision can demonstrate that
such claim would have been avoided in the absence of such modification or
combination; or
(ii) a breach of any of its obligations thereunder, including without
limitation, Macrovision's representations and warranties of ownership and
technology operation set forth in Section 7.1 and 7.2
(b) Macrovision's Indemnification of User Licensee.
Macrovision will indemnify and hold harmless User Licensee from and
against any and all damages, claims, costs or other liabilities, including
costs and reasonable attorney's fees that arise from or out of or are in
connection with:
(i) any third party claims that the Macrovision Technology infringes any
patents, copyright or other proprietary rights (which claims, the parties
understand and agree, shall not
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constitute incidental or consequential damages for purposes of this
Agreement). Notwithstanding the foregoing, Macrovision shall not be obligated
to indemnify User Licensee for any claim described in this Section 10.1(b)(i)
due to any modification of the Macrovision Technology or the combination of
the Macrovision Technology with any other equipment, software or hardware if
Macrovision can demonstrate that such claim would have been avoided in the
absence of such modification or combination; or
(ii) a breach of any of its obligations thereunder, including without
limitation, Macrovision's representations and warranties of ownership and
technology operation set forth in Section 7.1 and 7.2.
(c) Technology Licensee's Indemnification of Macrovision.
Technology Licensee will indemnify and hold harmless Macrovision and its
Affiliates from and against any and all damages that arise from or out of or
are in connection with a breach of any of its obligations thereunder.
(d) User Licensee's Indemnification of Macrovision.
User Licensee will indemnify and hold harmless Macrovision and its
Affiliates from and against any and all damages that arise from or out of or
are in connection with a breach of any of its obligations thereunder.
(e) Notification. If any claim for indemnification arises under this
Section 10.1, the indemnified party shall notify the indemnifying party and
shall consult with and keep the indemnifying party reasonably informed with
respect to the defense, compromise, settlement, resolution or other
disposition of any such claim. Upon the indemnifying party's request, which
requests may be subject to a reservation of rights, which must be in writing
and received by indemnified party within 30 days of the notification, the
indemnifying party shall be entitled to control the defense of such claim by
counsel of the indemnifying party's choosing and at the indemnifying party's
sole expense. In this case, the indemnified party shall reasonably cooperate
with the indemnifying party in connection with the defense of any
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such claim, provided that such cooperation is not adverse to the indemnified
party's legal or business interest, as reasonably determined by the
indemnified party and promptly communicated to the indemnifying party upon
such determination. In turn, the indemnifying party shall promptly inform the
indemnified party of all material aspects of such defense, compromise, any
proposed settlement, resolution or other disposition of any such claim. Upon
the indemnified party's reasonable request, the indemnifying party shall be
entitled to participate fully and cooperatively in the defense of any such
claim at its own expense and with counsel of its choosing. No party shall
admit any liability with respect to, or settle, compromise, resolve or
discharge any such claim without the other party's prior written consent,
which consent shall not be unreasonably withheld in the case of any
settlement, resolution, compromise or discharge involving only the payment of
money.
10.2 Alleged Infringement: Discontinuance of Use.
(a) If any legal action alleging patent, copyright or other
proprietary rights infringement is commenced, or any threat thereof is made,
against Macrovision or Technology Licensee with respect to the use of the
Macrovision Technology, Macrovision shall have the right, but not the
obligation, to (i) procure for the benefit of Technology Licensee, at
Macrovision's expense, the right or license to any technology alleged to have
been infringed and/or (ii) modify the Macrovision Technology (at
Macrovision's sole cost and expense) such that the Macrovision Technology (as
modified) is no longer subject to such legal action or threat of legal action
(but all of Macrovision's obligations set forth in this Agreement as to the
Macrovision Technology shall apply to such modified Macrovision Technology);
and
(b) If any legal action alleging patent, copyright or other
proprietary rights infringement is commenced against Macrovision or
Technology Licensee with respect to the use of the Macrovision Technology
then Macrovision shall have the right to request in writing that Technology
Licensee cease the use of the Macrovision Technology. As of a specified date,
which date shall
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be no earlier than 60 days after the date on which Technology Licensee
receives the notice in response, Technology Licensee shall have the option to
continue use, after the cessation date, of the Macrovision Technology and be
indemnified by Macrovision pursuant to Section 10.1 (a) of this Agreement;
provided, however, such indemnification shall be applicable only for damages
arising from or out of or in connection with events occurring on or before
the cessation date.
(c) If any legal action alleging patent, copyright or other
proprietary rights infringement is commenced, or any threat thereof is made,
against Macrovision or User Licensee with respect to the use of the
Macrovision Technology, Macrovision shall have the right, but not the
obligation, to (i) procure for the benefit of User Licensee, at Macrovision's
expense, the right or license to any technology alleged to have been
infringed and/or (ii) modify the Macrovision Technology (at Macrovision's
sole cost and expense) such that the Macrovision Technology (as modified) is
no longer subject to such legal action or threat of legal action (but all of
Macrovision's obligations set forth in this Agreement as to the Macrovision
Technology shall apply to such modified Macrovision Technology); and
(d) If any legal action alleging patent, copyright or other
proprietary rights infringement is commenced against Macrovision or User
Licensee with respect to the use of the Macrovision Technology then
Macrovision shall have the right to request in writing that User Licensee
cease the use of the Macrovision Technology. As of a specified date, which
date shall be no earlier than 60 days after the date on which Technology
Licensee receives the notice in response, Technology Licensee shall have the
option to continue use, after the cessation date, of the Macrovision
Technology and be indemnified by Macrovision pursuant to Section 10.1 (a) of
this Agreement; provided, however, such indemnification shall be applicable
only for damages arising from or out of or in connection with events
occurring on or before the cessation date.
10.3 Cap on Macrovision Damages.
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(a) Notwithstanding anything to the contrary in this Agreement, in no
event shall Macrovision be liable for monetary damages in connection with any
breach of this Agreement (other than willful misconduct or breaches arising
from fraud, for which misconduct or breaches there shall be no limitation on
damages) in excess of the aggregate amount of all money received by
Macrovision from Technology Licensee in connection with this Agreement.
(b) Notwithstanding anything to the contrary in this Agreement, in no
event shall Macrovision be liable for monetary damages in connection with any
breach of this Agreement (other than willful misconduct or breaches arising
from fraud, for which misconduct or breaches there shall be no limitation on
damages) in excess of the aggregate amount of all money received by
Macrovision from User Licensee in connection with this Agreement.
Article 11: Security and Export Control
11.1 The parties hereby acknowledge and agree that this Agreement is
subject to the Export Regulations of the United States Department of State.
Article 12: Duration and Termination
12.1 This Agreement shall enter in full force and effect on the
Effective Date hereof, and shall remain in force for a period of 5 years from
the Effective Date, unless terminated earlier in accordance with the terms
and conditions of this Article 12. The parties agree to negotiate a renewal
of the present agreement during the six month period prior to the expected
termination date.
12.2 In the event that any party hereto (the "breaching party") shall
commit any breach or default of any of its obligations under this Agreement,
the non-breaching party shall give to the breaching party written notice of
such breach or default, and shall request that such breach or default be
cured immediately. In the event that the breaching party fails to cure such
breach or default within thirty (30) days after the date of
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notice of such breach or default, the non-breaching party may terminate this
Agreement by giving written notice of termination to the breaching party.
Termination of this Agreement pursuant to this Article 12.2 shall not affect
or impair the non-breaching party's right to pursue any legal remedy,
including, but not limited to, the right to recover damages, for any harm
suffered or incurred as a result of such breach.
12.3 In addition to the rights of termination provided in Articles 8.3
and 12.2 hereof, Macrovision shall have the right to terminate this Agreement
upon giving written notice of termination to Technology Licensee, upon the
occurrence of any of the following events:
(a) Technology Licensee enters into bankruptcy (hasan), composition
(wagi), reorganization (Kosei), liquidation (seison), or arrangement (seiri)
proceedings, is declared insolvent, makes an assignment for the benefit of
creditors, or suffers the appointment of a receiver or trustee over all or
substantially all of its assets;
(b) The United States Government fails to issue, or revokes, any export
license or other approval required for the performance of this Agreement;
(c) Any law, regulation or governmental order is enacted or issued in
Japan which has a materially adverse effect on Macrovision's rights, title
and interests in and to the Macrovision Technology and/or the Intellectual
Property Rights related thereto; or
(d) Technology Licensee breaches its obligations under Article 7
hereof, relating to the nondisclosure of Macrovision's Confidential
Information, or under Article 8 hereof, relating Macrovision's Intellectual
Property Rights.
12.4 Upon the expiration or termination of this Agreement, Technology
Licensee shall immediately cease all use of the Macrovision Technology and
all Macrovision Confidential Information, and shall immediately cease all
manufacture and distribution of the Products. The expiration or termination
of this Agreement for any reason whatsoever shall not relieve
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Technology Licensee of its obligations (i) of non-disclosure with respect to
Macrovision's Confidential Information under Article 7 hereof; (ii) with
respect to Macrovision's Intellectual Property Rights, under Article 8
hereof; (iii) to indemnify an hold Macrovision harmless under Articles 9.2
and 9.3 hereof; and (iv) with respect to United States export control
requirements.
12.5 The expiration or termination this Agreement shall not affect any
of Macrovision's rights or obligations with respect to the Resulting
Technology, licensed to Macrovision under Article 3.09 hereof. Except as
provided in this Article 12.5, upon expiration or termination of this
Agreement, Macrovision shall have no further obligations whatsoever hereunder
to Technology Licensee.
12.6 In addition to the rights of termination provided in Articles 9.2
and 12.2 hereof, Macrovision shall have the right to terminate this Agreement
upon giving written notice of termination to User Licensee, upon the
occurrence of any of the following events:
(a) User Licensee enters into bankruptcy (hasan), composition (wagi),
reorganization (kosei), liquidation (seison), or arrangement (seiri)
proceedings, is declared insolvent, makes an assignment for the benefit of
creditors, or suffers the appointment of a receiver or trustee over all or
substantially all of its assets;
(b) The United States Government fails to issue, or revokes, any export
license or other approval required for the performance of this Agreement;
(c) Any law, regulation or governmental order is enacted or issued in
Japan which has a materially adverse effect on Macrovision's rights, title
and interests in and to the Macrovision Technology and/or the Intellectual
Property Rights related thereto; or
(d) User Licensee breaches its obligations under Article 7 hereof,
relating to the nondisclosure of Macrovision's Confidential Information, or
under Article 8 hereof, relating Macrovision's Intellectual Property Rights.
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(e) User Licensee repeatedly fails to make payments due Macrovision, as
per Article 6, on a timely basis.
12.7 Upon the expiration or termination of this Agreement, User
Licensee shall immediately cease all use of the Macrovision User and all
Macrovision Confidential Information, and shall immediately cease all
manufacture and distribution of the Products. The expiration or termination
of this Agreement for any reason whatsoever shall not relieve User Licensee
of its obligations (i) to pay any and all royalties which have accrued under
Article 5.2 hereof, but which remain unpaid as of the date of expiration or
termination; (ii) of non-disclosure with respect to Macrovision's
Confidential Information under Article 7 hereof; (iii) with respect to
Macrovision's Intellectual Property Rights, under Article 8 hereof; (iv) to
indemnify and hold Macrovision harmless under Articles 9.4 and 9.5 hereof;
and (v) with respect to United States export control requirements.
12.8 The expiration or termination this Agreement shall not affect any
of Macrovision's rights or obligations with respect to the Resulting User,
licensed to Macrovision under Article 3.11 hereof. Except as provided in this
Article 11.5, upon expiration or termination of this Agreement, Macrovision
shall have no further obligations whatsoever hereunder to User Licensee.
Article 13: Compliance with Applicable Laws
13.1 In the exercise of their respective rights, and the performance of
their respective obligations under this Agreement, each party shall comply
with all applicable laws, regulations and governmental orders of the United
States and Japan. Each party hereby acknowledges and agrees that the
Macrovision Technology, and all Macrovision Confidential Information directly
related thereto, are subject to United States export controls, as provided in
Article 10 hereof. In conformance with such United States export controls,
Macrovision will make all commercially reasonable efforts to obtain all
required United States export licenses and other governmental approvals
necessary or appropriate for the delivery of the Macrovision Technology and
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such Macrovision Confidential Information to Technology Licensee, or User
Licensee, but Macrovision shall have no liability or responsibility hereunder
to Technology Licensee or User Licensee in the event that, despite
Macrovision's commercially reasonable efforts, the United States Government
declines to issue any or all such United States export licenses and other
approvals.
13.2 Technology Licensee shall, at its own expense, obtain and maintain
in full force and effect at all times during the continuance of this
Agreement, all licenses, permits, authorizations and government approvals,
and shall make all registrations, notifications, filings and reports to all
governmental agencies, required under any applicable law, regulation or
governmental order of Japan for Technology Licensee to exercise its rights
and perform its obligations under this Agreement. In the event that any such
license, permit, authorization or approval, or the approval of any such
registration, notification, filing or report, is conditioned upon an
amendment or modification to this Agreement which is unacceptable to
Macrovision, Macrovision shall have the right to terminate this Agreement
without any further obligations hereunder to Technology Licensee, by giving
written notice of termination to Technology Licensee. Macrovision shall have
the right to participate in the procedures for obtaining any such licenses,
permits, authorizations or approvals in Japan, and shall have the right to
inspect any document to be submitted to any governmental authority in
connection with any such registration, notification, filing or report, or any
application for any such license, permit, authorization or approval, prior to
its submission to the competent Japanese Government agency.
13.3 User Licensee shall, at its own expense, obtain and maintain in
full force and effect at all times during the continuance of this Agreement,
all licenses, permits, authorizations and government approvals, and shall
make all registrations, notifications, filings and reports to all
governmental agencies, required under any applicable law, regulation or
governmental order of Japan for User Licensee to
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exercise its rights and perform its obligations under this Agreement. In the
event that any such license, permit, authorization or approval, or the
approval of any such registration, notification, filing or report, is
conditioned upon an amendment or modification to this Agreement which is
unacceptable to Macrovision, Macrovision shall have the right to terminate
this Agreement without any further obligations hereunder to User Licensee, by
giving written notice of termination to User Licensee. Macrovision shall have
the right to participate in the procedures for obtaining any such licenses,
permits, authorizations or approvals in Japan, and shall have the right to
inspect any document to be submitted to any governmental authority in
connection with any such registration, notification, filing or report, or any
application for any such license, permit, authorization or approval, prior to
its submission to the competent Japanese Government agency.
13.4 Each party hereto shall execute such documents, and shall provide
such assistance as is reasonably requested by the other party, in connection
with the performance by such other party of its obligations under Article
13.1, Article 13.2, or Article 13.3, as the case may be.
Article 14: General Provisions
14.1 Assignment: Technology Licensee and User Licensee shall not have
the right or the power to assign or sublicense any of its rights, or
delegate or subcontract the performance of any of its obligations, under this
Agreement without the prior written authorization of Macrovision.
14.2 Independent Contractors: In the exercise of their respective
rights, and the performance of their respective obligations, the parties are,
and shall remain, independent contractors. Nothing in this Agreement shall be
construed to constitute either party as the agent of the other party for any
purpose whatsoever, and neither party shall bind, or attempt to bind, the
other party to any contract or the performance of any obligation, or
represent to any third party that it is authorized
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to enter into any contract or binding obligation on behalf of the other party
hereto.
14.3 Notices: All notices, reports and other communications between
the parties hereunder shall be sent by registered mail, postage prepaid and
return receipt requested, or by facsimile, with a confirmation copy sent by
registered mail within two (2) days after the date of facsimile transmission,
addressed as follows:
Macrovision: Macrovision Corporation
1341 Orleans Drive
Sunnyvale, CA 94089
U.S.A.
Attention: Vice President Finance and CFO
Fax: (408) 743-8610
Technology Licensee: Victor Technobrain Co., Ltd.
804 Futowo-cho, Kohoku-ku, Yokohama-shi
Kanagawa-ken 222, Japan
Attention: President
Fax: 045-546-5940
User Licensee: Kabushiki-Kaisha, Video Bunka Kenkyu-sho
2-13-7 Minami-Aoyama
Minato-ku, Tokyo, Japan
Attention: President
Fax: 03-5474-2634
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All notices, reports and other communications shall be deemed received:
(i) if sent by registered airmail, 10 days after the date of mailing; and
(ii) if sent by facsimile, twenty-four (24) hours after the date and time of
transmission.
14.4 Governing Law: This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of California, U.S.A.,
excluding conflicts of laws rules.
14.5 Arbitration: Any dispute between the parties arising out of, or
relating to, the validity, construction, interpretation or performance of
this Agreement that cannot be resolved amicably shall be submitted to binding
arbitration, to be held in San Francisco, California, U.S.A., in accordance
with the rules of the American Arbitration Association. Any such arbitration
proceeding shall be conducted before an arbitration panel composed of three
(3) arbitrators, one (1) member of which shall be designated by each of the
parties and the third of which shall be designated by the other two (2)
arbitrators. In any arbitration proceeding under this Article 13.5, the
decision and award of the arbitrators shall (i) be in writing; (ii) state the
reasons therefor; (iii) be based solely on the terms and conditions of this
Agreement, as interpreted under the laws of the State of California, U.S.A.;
and (iv) shall be final and binding upon the parties. The decision and award
of the arbitrators in any such arbitration proceeding may be enforced in any
court of competent jurisdiction.
14.6 Injunctive Relief: Notwithstanding the provisions of Article
14.15 hereof, Macrovision may seek relief in any court of competent
jurisdiction, including, but not limited to, the courts of Japan, in order to
prevent the misappropriation or unauthorized use, disclosure or infringement
of any of Macrovision's Intellectual Property Rights and/or Macrovision's
Confidential Information.
14.7 Entire Agreement and Amendments: This Agreement constitutes the
entire agreement between the parties, and supersedes all prior agreements,
understandings and other
35
<PAGE>
communications between the parties with respect to the subject matter hereof.
No modification or amendment to this Agreement shall be binding upon the
parties unless in writing and executed by the duly authorized representatives
of the parties.
14.8 Waivers: The failure of either party to assert any of its rights
hereunder, including, but not limited to, the right to terminate this
Agreement in the event of a breach or default by the other party hereto,
shall not be deemed to constitute a waiver by that party thereafter to
enforce each and every provision of this Agreement in accordance with its
terms.
14.9 Governing Language: This Agreement is made in the English
language. In the event that a translation of this Agreement into any other
language is made, that translation shall be for convenience only, and in the
event of any conflict between the English language version of this Agreement
and any translation hereof, the English language version shall be the
controlling document.
14.10 Counterparts: This Agreement may be executed in several
duplicate originals, each of which shall be deemed to constitute an original,
but all of which shall constitute one and the same instrument.
14.11 Headings: The subject headings of this Agreement are included
for purposes of convenience only, and shall not affect the construction or
interpretation of any provision hereof.
36
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives, this day of September,
1995.
Victor Technobrain Co., Ltd. Kabushiki-Kaisha,
Video Bunka Kenkyu-sho
by /s/ illegible by /s/ illegible
--------------------------------- ---------------------------------
Macrovision Corporation
by /s/ John O. Ryan
---------------------------------
37
<PAGE>
AMENDMENT NUMBER ONE TO
LICENSE AGREEMENT
This amendment to the license agreement ("agreement") dated June 30th, 1996,
between MACROVISION CORPORATION ("MACROVISION"), VICTOR TECHNOBRAIN CO., LTD.
("Technology Licensee") and KABUSHIKI-KAISHA VIDEO BUNKA KENKYU-SHO ("User
Licnesee") amends the agreement and amendment number one as follows:
1. Article 6.1 is hereby deleted in its entirety, and replaced as follows:
"In consideration of the rights and licenses granted by Macrovision to
User Licensee under this agreement, User Licenseee shall pay to
Macrovision an initial technology transfer fee in the amount of Five
Hundred Thousand United States Dollars (US$500,000.00) as follows:
1.1 First installment of Two Hundred and Fifty Thousand United States
Dollars (US$250,000.00) shall be paid no later than October 31,
1995, (this amount has been paid).
1.2 Second installment of Fifty Thousand United States Dollars
(US$50,000.00) shall be paid no later than July 24, 1996.
1.3 Third installment of Fifty Thousand United States Dollars
(US$50,000.00) shall be paid no later than September 24, 1996.
1.4 Fourth installment of Fifty Thousand United States Dollars
(US$50,000.00) shall be paid no later than November 24, 1996.
1.5 Fifth installment of Fifty Thousand United States Dollars
(US$50,000.00) shall be paid no later than January 24, 1997.
1.6 Sixth installment of Fifty Thousand United States Dollars
(US$50,000.00) shall be paid no later than March 24, 1997."
2. Article 6.2 is hereby deleted in its entirety, and replaced as follows:
"In consideration of Technology Licensee providing the design and
development of the Products, in addition to any payments by User Licensee
to Technology Licensee, Macrovision shall pay Technology Licensee a fee
of One Hundred Thousand United States Dollars (US$100,000.00). This fee
shall be paid in two (2) installments each in the amount of Fifty
Thousand United States Dollars (US$50,000.00), the first within thirty
(30) days after Macrovision's receipt of the first installment of the
initial technology fee from User Licensee (as described in Article 6.1)
and the second within thirty (30) days after Macrovision's receipt of the
last (sixth) installment of the initial technology fee from User Licensee
(as described in Article 6.1)."
3. Article 6.3(a) is hereby deleted in its entirety, and replaced as
follows: "The royalty payable per unit of the decoder Products shall be
Three United States Dollars (US$3.00), only exceptionally limited to the
units which shall start to be leased from User Licensee to Karaoke
studios for one year from May 25, 1996, through May 24, 1997. However,
after May 24, 1997, the royalty payable per unit of the decoder Products
shall be the
1
<PAGE>
greater of four percent (4%) of User Licensee's Gross Revenues from the
distribution, lease or use of decoder Products or Three United States
Dollars (US$3.00)."
4. Appendix 3 is hereby deleted in its entirety, and replaced as follows:
"SPECIFIC MARKET APPLICATION AGREEMENT"
-Karaoke room public exhibition-
Macrovision, Technology Licensee, and User Licensee mutually agree to
initiate Karaoke room public exhibition application of EMDES, on a full
fledged basis, starting May 25, 1996.
The service royalties to be paid from User Licensee to Macrovision for
Karaoke room public exhibition application shall be as follows:
(I) If the sale of PhaseKrypt encoded programs to User Licensee's customers
(individual Karaoke studios where licensed decoder Products are
installed) is not earlier than the home video window, the service
royalties will be calculated as follows:
(a) When the installed decoder Product base is less than 1,000 units,
3.3% of wholesale minimum guarantee price of PhaseKrypt encoded
cassettes charged to Karaoke studios and 3.3% of each wholesale
Pay-Per-View transaction price of the PhaseKrypt encoded cassette
charged to Karaoke studios;
(b) When the installed decoder Product bases is greater than 1,000
units and less than 2,000 units, 4.5% of wholesale minimum
guarantee price of PhaseKrypt encoded cassettes charged to Karaoke
studios and 4.5% of each wholesale Pay-Per-View transaction price
of the PhaseKrypt encoded cassettes charged to Karaoke studios;
(c) When the installed decoder Product base is greater than 2,000 units
and less than 4,000 units, 5.5% of wholesale minimum guarantee
price of PhaseKrypt encoded cassettes charged to Karaoke studios
and 5.5% of each wholesale Pay-Per-View transaction price of the
PhaseKrypt encoded cassettes charged to Karaoke studios;
(d) When the installed decoder Product base is greater than 4,000 units
and less than 8,000 units, 6.2% of wholesale minimum guarantee
price of PhaseKrypt encoded cassettes charged to Karaoke studios
and 6.2% of each wholesale Pay-Per-View transaction price of the
PhaseKrypt encoded cassettes charged to Karaoke studios;
(e) When the installed decoder Product base is greater than 8,000
units, 6.6% of wholesale minimum guarantee price of PhaseKrypt
encoded cassettes charged to Karaoke studios and 6.6% of
each wholesale Pay-Per-View transaction price of the PhaseKrypt
encoded cassettes charged to Karaoke studios;
(II) If the sale of PhaseKrypt encoded programs to User Licensee's customers
(individual Karaoke studios where licensed decoder Products are
installed) is earlier than the home video window, the service royalties
shall be determined before such earlier than home
2
<PAGE>
video window is made available to Karaoke room public exhibition
application based on good faith negotiation between Macrovision and User
Licensee.
5. All other terms of the agreement not specifically mentioned herein
remain unchanged. Defined terms used herein and not expressly defined in
this amendment have the meaning attributed to them in the agreement.
IN WITNESS WHEREOF, the parties have caused this Amendment Number One to
License Agreement to be executed by their duly authorized representatives,
this 30th day of September, 1996.
VICTOR TECHNOBRAIN CO., LTD. KABUSHIKI-KAISHA
VIDEO BUNKA KENKYU-SHO
By: /s/ Akira Hirota By: /s/ Takaaki Iwamoto
---------------------------------- -------------------------------
(Authorized Signature) (Authorized Signature)
Name: Akira Hirota Name: Takaaki Iwamoto
-------------------------------- -----------------------------
(Print) (Print)
Title: President Title: President
-------------------------------- -----------------------------
(Print) (Print)
MACROVISION CORPORATION
By: /s/ Robert J. Netter, Jr.
----------------------------------
(Authorized Signature)
Name: Robert J. Netter, Jr.
--------------------------------
(Print)
Title: Vice President Finance and CEO
--------------------------------
(Print)
3
<PAGE>
AMENDMENT NUMBER TWO TO
LICENSE AGREEMENT
This amendment to the license agreement ("agreement") dated September 30th,
1996, between MACROVISION CORPORATION ("MACROVISION"), VICTOR TECHNOBRAIN
CO., LTD. ("Technology Licensee") and KABUSHIKI-KAISHA VIDEO BUNKA KENKYU-SHO
("User Licnesee") amends the agreement and amendment number one as follows:
1. Article 1 of Amendment Number One to License Agreement is hereby deleted
in its entirety, and replaced as follows: "In consideration of the rights
and licenses granted by Macrovision to User Licensee under this
agreement, User Licensee shall pay to Macrovision an initial technology
transfer fee in the amount of Five Hundred Thousand United States Dollars
(US$500,000.00) as follows:
1.1 First installment of Two Hundred and Fifty Thousand United States
Dollars (US$250,000.00) shall be paid no later than October 31,
1995, (this amount has been paid).
1.2 Second installment of Fifty Thousand United States Dollars
(US$50,000.00) shall be paid no later than July 24, 1996.
1.3 Third installment of Fifty Thousand United States Dollars
(US$50,000.00) shall be paid no later than November 24, 1996.
1.4 Fourth installment of Fifty Thousand United States Dollars
(US$50,000.00) shall be paid no later than December 24, 1996.
1.5 Fifth installment of Fifty Thousand United States Dollars
(US$50,000.00) shall be paid no later than February 24, 1997.
1.6 Sixth installment of Fifty Thousand United States Dollars
(US$50,000.00) shall be paid no later than April 24, 1997."
2. Articles 12.6 of License Agreement is hereby deleted in its entirety and
replaced as follows:
2.1 User Licensee fails to make any payment due Macrovision as per
Article 6 on a timely basis.
3. All other terms of the agreement not specifically mentioned herein remain
unchanged. Defined terms used herein and not expressly defined in this
amendment have the meaning attributed to them in the agreement.
1
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment Number One to
License Agreement to be executed by their duly authorized representatives,
this 30th day of September, 1996.
VICTOR TECHNOBRAIN CO., LTD. KABUSHIKI-KAISHA
VIDEO BUNKA KENKYU-SHO
By: /s/ Akira Hirota By: /s/ Takaaki Iwamoto
---------------------------------- -------------------------------
(Authorized Signature) (Authorized Signature)
Name: Akira Hirota Name: Takaaki Iwamoto
-------------------------------- -----------------------------
(Print) (Print)
Title: President Title: President
-------------------------------- -----------------------------
(Print) (Print)
MACROVISION CORPORATION
By: /s/ Victor Viegas
----------------------------------
(Authorized Signature)
Name: Victor Viegas
--------------------------------
(Print)
Title: CFO
--------------------------------
(Print)
<PAGE>
DUPLICATOR AGREEMENT
THIS DUPLICATOR AGREEMENT ("Agreement") is made as of the 1st day of June, 1988,
by and between Macrovision Corporation, a corporation organized under the laws
of the State of California ("Macrovision"), having its principal place of
business at 10201 Torre Avenue, Suite 330, Cupertino, California 95014, U.S.A.
and Victor Company of Japan, Limited, a corporation organized under the laws of
Japan, ("Duplicator"), represented by Magnetic Products Division, having its
principal place of business at Mito Plant 1030, Motoyoshida-Cho, Mito-City 310,
Japan.
1. DEFINITIONS. For purposes of this Agreement, the following words and
phrases shall have the following meanings:
1.1 "Macrovision Anticopy Process" shall mean the process of modifying a video
signal by the addition of a plurality of bipolar pulse pairs during selected
lines of the vertical blanking interval, which process has been granted United
States Patent No. 4,631,603 and Japan Patent Application No. 86-087236 filed
April 17, 1986.
1.2 "Processor" shall mean the equipment including and containing the
electrical circuitry required to apply the Macrovision Anticopy Process to the
Cassettes.
1.3 "Cassettes" shall mean prerecorded video cassettes.
1.4 "Rights Owners" shall mean those persons who have the right to manufacture
and sell Cassettes of certain motion pictures and/or certain other videographic
materials ("Pictures") and who have valid agreements with Macrovision
authorizing the application of the Macrovision Anticopy Process to Cassettes of
their Pictures.
<PAGE>
2. SERVICES It is understood by both parties that Duplicator shall render a
service to apply the Macrovision Anticopy Process into Cassettes using the
Processor subject to instruction and order to be made by the Rights Owners.
3. USE OF TECHNOLOGY Macrovision hereby agrees to provide the fully adjusted
Processor to Duplicator and to grant the right to use it to Duplicator during
the term of this Agreement, as far as it is used by Duplicator solely in
connection with the manufacture of Cassettes of Pictures for Rights Owners,
subject to all of the terms, conditions and restrictions of this Agreement.
4. SERVICE FEE In full consideration of the services agreed to be performed
by Duplicator hereunder, Macrovision shall pay to Duplicator the sum of Yen2 per
Cassette manufactured by Duplicator hereunder, payable within forty-five (45)
days following receipt by Macrovision of the statement required by Section 13.2
hereof.
5. INSTALLATION Macrovision shall deliver the necessary number of Processors
to Duplicator upon each Duplicator's request from time to time as soon as
reasonably possible after such Duplicator's request, and shall furnish any
necessary technical assistance to enable Duplicator to install and operate the
Processor, without any charge to Duplicator.
6. OWNERSHIP The processor and all rights therein shall remain the property
of Macrovision at all times, and may be removed from Duplicator's premises by
Macrovision at any time after giving Duplicator reasonable prior notice.
Duplicator shall cause or permit the Processor to be clearly and conspicuously
labeled as the property of Macrovision. Duplicator will not make, or knowingly
authorize third parties to make, directly or indirectly, any modifications,
alterations, improvements, variations, changes and/or logical extensions to the
Processor, nor will Duplicator take any action that is inconsistent with or
challenges the ownership by Macrovision of the Processor, without the prior
consent of Macrovision.
<PAGE>
7. LIMITED USE Duplicator shall utilize the Processor solely in connection
with the application of the Macrovision Anticopy Process by Duplicator in the
manufacture of Cassettes for Rights Owners. Duplicator shall not have the right
to lease, license, or otherwise to grant to anyone the right to use the
Processor. Duplicator shall not have the right to apply the Macrovision
Anticopy Process, or to cause the Macrovision Anticopy Process to be applied, by
any person or persons other than Duplicator's employees and/or at any location
or locations other than Duplicator's business locations. Duplicator shall not
have the right to use the Processor to manufacture Cassettes of any Picture for
anyone other than the Rights Owners of the Picture.
8. SECURITY Duplicator will use all reasonable efforts to establish adequate
security measures to prevent theft or unauthorized access to or use of the
Processor. Macrovision shall have the right to enter the premises of Duplicator
during Duplicator's normal business hours, after giving Duplicator twenty-four
(24) hours prior notice, to inspect the operation of the Processor and to review
Duplicator's security measures.
9. QUALITY CONTROL Duplicator shall employ such reasonable manufacturing and
quality standards as Macrovision may specify from time to time with respect to
the use of the Processor in applying the Macrovision Anticopy Process to
Cassettes. Duplicator shall follow the instructions of Macrovision in
connection with the maintenance of the Processor and shall immediately report
any operational problems of the Processor to Macrovision.
10. WARRANTIES
10.1 Duplicator makes representations and warranties that subject to the
instructions or orders to be made by the Rights Owners. Duplicator shall be
liable to the Rights Owners and Macrovision the application of the Macrovision
Anticopy Process to any of the Cassettes using the Processor
<PAGE>
Macrovision may specify from time to time under Article 9 hereof.
10.2 Duplicator shall not be liable to Macrovision or others for consequential
damages under any circumstances.
10.3 Duplicator agrees to give Macrovision prompt notice of every complaint,
claim of lawsuit concerning Cassettes to which the Macrovision Anticopy Process
is applied, and thereafter to keep Macrovision fully informed of the status
thereof. Duplicator agrees to keep a record of all complaints received with
respect to Cassettes to which the Macrovision Anticopy Process is applied and to
give Macrovision reasonable access to all such records.
11. TERM AND TERMINATION
11.1 This Agreement shall be effective as of the date set forth in the
introductory paragraph subject to Governmental Approval, if any, and shall
continue in full force and effect until terminated by Macrovision by giving
Duplicator written notice of such termination not less than sixty (60) days
prior to the termination date.
11.2 In the event of a material default by either party in the performance of
its duties, obligations or undertakings under this Agreement, the other party
shall have the right to give written notice to the defaulting party advising
such party of the specific default involved. If the defaulting party shall not
have remedied such default within ten (10) days after such notice (or, if the
default cannot reasonably be remedied within ten (10) days, within thirty (30)
days after such notice), the other party shall have the right, in addition to
any other rights and remedies it may have, to terminate this Agreement
immediately upon written notice to the defaulting party. In the event of a
termination due to a material default by Duplicator, Macrovision shall have no
obligation to pay any amounts that would otherwise be due pursuant to Section 4
hereof for Cassettes manufactured after Macrovision provides written notice of
such default to Duplicator.
<PAGE>
11.3 Upon any termination of this Agreement, all rights in or to the Processor
that Duplicator may have under this Agreement immediately shall terminate and
shall revert to Macrovision; duplicator shall immediately cease the use of the
Processor; and Duplicator shall return immediately to Macrovision the Processor
and any and all documents and other materials furnished Duplicator or otherwise
obtained from Macrovision under this Agreement, together with all copies or
reproductions thereof.
11.4 No termination of this Agreement shall in any manner whatsoever release, or
be construed as releasing, any party from any liability to the other arising out
of or in connection with a party's breach of, or failure to perform, any
covenant, agreement, duty or obligation contained herein.
12. CONFIDENTIALITY
12.1 Any confidential or proprietary information, whether in writing, orally
transmitted, or communicated through audio-visual media or other means,
communicated under or in connection with this Agreement (the "Confidential
Information"), shall be treated by the recipient as confidential and shall,
subject to Section 12.3 below, not be revealed or disclosed to any third person
or used except as contemplated hereunder.
12.2 Recipient hereby agrees not to use the Confidential Information for its own
benefit except for the purposes of and as provided in this Agreement.
12.3 Recipient hereby agrees not to disclose the Confidential Information to any
third party or to use the Confidential Information for the benefit of any third
party without the express written permission of the other party, except that
recipient shall not be prevented from using or disclosing information:
<PAGE>
(a) which recipient can demonstrate by written records was known to
recipient prior to the date of disclosure by the other party, provided such
information was not obtained by recipient through disclosure by a third party
receiving such information in confidence from the other party;
(b) which is now public knowledge, or becomes public knowledge in the
future, other than by breach of this Agreement by recipient;
(c) which is independently developed by recipient without benefit of
Confidential Information received from the other party; or
(d) which is disclosed to recipient after the date of disclosure by the
other party by a third party having a right to make such disclosure.
12.4 Recipient further agrees to use best efforts, and at least the same degree
of care that it uses to protect its own confidential and proprietary
information, to prevent the unauthorized disclosure to any third party of the
Confidential Information.
12.5 The confidentiality obligation set forth herein shall survive termination
of this Agreement, but in no way shall last for five (5) years after the receipt
of such Confidential Information.
12.6 Any information communicated to any party hereunder may be disclosed, when
reasonably appropriate or necessary to the performance of a party's obligations
hereunder, by that party to: such of its employees who reasonably require the
same for the purpose of this Agreement (who are bound to the party by an
obligation as to confidentiality like that between the parties hereunder).
<PAGE>
13. MAINTENANCE AND INSPECTION OF BOOKS AND RECORDS
13.1 Duplicator shall maintain books and records reflecting the number of all
Cassettes and the names of the Rights Owners of the Pictures on such Cassettes
to which the Macrovision Anticopy Process is applied, and such other information
as Macrovision may from time to time reasonably request with respect to the use
of the Processor.
13.2 Subject to the approval of the Rights Owners, Duplicator shall furnish to
Macrovision monthly reports setting forth the number of all Cassettes to which
the Macrovision Anticopy Process is applied with respect to each Rights Owner,
as well as the name of the Rights Owner. Duplicator shall permit Macrovision to
inspect review and audit any and of Duplicator's books and records which contain
entries pertaining to the use of the Processor, on reasonable prior notice
during normal business hours.
14. MISCELLANEOUS PROVISIONS
14.1 GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California.
14.2 ARBITRATION Any controversy or claim arising out of or relating to this
Agreement or the breach thereof should be settled by mutual agreement of the
parties. If such mutual agreement should not be reached within a reasonable
period of time, all disputes arising from or in connection with this Agreement
shall be finally settled under the Commercial Arbitration Rules of the American
Arbitration Association by three arbitrators appointed in accordance with the
said Rules. The place of arbitration shall be New York, NY, U.S.A.
<PAGE>
14.3 RIGHTS CUMULATIVE. Each and all of the various rights, powers and remedies
of the parties shall be considered to be cumulative with and in addition to any
other rights, powers and remedies which such parties may have at law or in
equity in the event of breach of any of the terms of this Agreement. The
exercise or partial exercise of any right, power or remedy shall neither
constitute the exclusive election thereof nor the waiver of any other right,
power or remedy available to such party.
14.4 NOTICES. All notices, consents or demands of any kind which either party
to this Agreement may be required or may desire to serve on the other party in
connection with this Agreement shall be in writing and may be delivered by
personal service or by registered or certified airmail, return receipt
requested, deposited in the mail with postage thereon fully prepaid, or by telex
or telefax which is to be immediately confirmed by air mail, addressed to the
party as follows:
If to Macrovision:
Macrovision Corporation
10201 Torre Avenue, Suite 330
Cupertoin, California 95014
Attention: Chief Operation Officer
Phone: 408-252-9600
Telefax:408-973-0847
cc: David, W. Herbst, Esq.
Holtzmann, Wise & Shepard
600 Hansen Way, Suite 200
Palo Alto, California 94306
-8-
<PAGE>
If to Duplicator:
Victor Company of Japan, Limited
Mito Plant 1030, Motoyoshida-Cho
Mito-City 310
Japan
Attention: General Manager
Magnetic Recording Division
Telex: No:. 3632289
Answer Back: VICTOR J
cc: Victor Company of Japan, Limited
8-14, Nihonbashi-honcho 4-chome
Chuo-ku, Tokyo 103
Japan
Attention: General Manager, Patent Department
Telex:No. J26222 Answer Back:VICTOR A
Telefax:Japan 3-246-1547
Service of any such notice or demand so made by mail shall be deemed complete on
the date of actual delivery as shown by the addressee's registry or
certification receipt or at the expiration of the tenth (10th) business day
after the date of mailing, whichever is earlier in time. Either party hereto may
from time to time, by notice in writing served upon the other as aforesaid,
designate a different mailing address or a different person to which such
notices or demands are thereafter to be addressed or delivered.
14.5 SEVERABILITY. If any of the provisions of this Agreement are held to be
void or unenforceable, the parties agree that such determination shall not
result in the nullity or unenforceability of the remaining portions of this
Agreement. The parties further agree to replace such void or unenforceable
provisions of this Agreement with valid and enforceable provisions which will
achieve, to the extent possible, the economic, business and other purposes of
the void or unenforceable provisions.
-9-
<PAGE>
14.6 COUNTERPARTS. This Agreement may be executed in separate counterparts,
each of which shall be deemed as an original and when executed, separately or
together, shall constitute a single original instrument, effective in the same
manner as if the parties had executed one and the same instrument.
14.7 WAIVER. No waiver of any term, provision or condition of this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or be construed as, a further or continuing waiver of any such term,
provision or condition or as a waiver of any other term, provision or condition
of this Agreement.
14.8 ENTIRE AGREEMENT. This Agreement and any terms and conditions agreed to
pursuant to this Agreement are intended by the parties to be the final
expression of their agreement and constitute and embody the entire agreement and
understanding between the parties hereto and constitute a complete and exclusive
statement of the terms and conditions thereof, and shall supersede any and all
prior correspondence, conversations, negotiations, agreements or understandings
relating to the same subject matter.
14.9 AMENDMENTS. No change in, modification of or addition to the terms and
conditions contained herein shall be valid as between the parties unless set
forth in a writing which is signed by authorized representatives of both the
parties and which specifically states that it constitutes an amendment to this
Agreement.
14.10 ASSIGNMENT. Neither party shall assign its rights or obligations under
this Agreement to any other person without the prior written approval of the
other party which approval will not be unreasonably withheld. Any attempt at
assignment without such prior written approval shall be void.
-10-
<PAGE>
14.11 BINDING ON SUCCESSORS AND ASSIGNS. Subject to the restrictions of
Section 14.10, this Agreement and all or its terms, conditions and covenants are
intended to be fully effective an binding, to the extent permitted by law, on
the successors and permitted assigns of the parties hereto.
14.12 FORCE MAJEURE. Neither party shall be held responsible or liable for
any failure to perform any obligation assumed hereunder during the period
when such failure is due to strike, lockout, riot, war, natural disaster,
acts of God., fire, Governmental order or regulation or any other cause
beyond the control of either party.
14.13 CAPTIONS. Captions are provided herein for convenience only and
they form no part of this Agreement and are not to serve as a basis for
interpretation or construction of this Agreement, nor as evidence of the
intention of the parties hereto.
14.14 DISCLAIMER OF AGENCY. Nothing contained in this Agreement is intended or
shall be construed so as to constitute Macrovision and Duplicator as partners or
joint venturers or as agents of each other. Neither party shall have any express
or implied right or authority to assume or create any obligations on behalf of
or in the name of the other party or to bind the other party in any contract,
agreement or undertaking with any third party.
-11-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the day and year first above written.
MACROVISION CORPORATION
By /s/ Eugene Eidenberg 6/1/88
----------------------------------
Eugene Eidenberg, President
VICTOR COMPANY OF JAPAN, LIMITED
By /s/ Satoru Tomita
------------------------------------
SATORU TOMITA
MANAGING DIRECTOR
GENERAL MANAGER JUN 20, 1988
MAGNETIC PRODUCTS DIVISION
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<PAGE>
TECHNOLOGY APPLICATION AGREEMENT
THIS TECHNOLOGY APPLICATION AGREEMENT ("Agreement") is made the 29th day
of November, 1988, by and between MACROVISION CORPORATION, a California
Corporation ("Macrovision"), having its principal place of business at 10201
Torre Avenue, Suite 330, Cupertino, California 95014, and VICTOR COMPANY OF
JAPAN, LIMITED, ("Rights Owner"), having its principal place of business at
8-14, Nihonbashi-Honcho 4-Chome, Chuo-ku, Tokyo 103, Japan.
RECITALS
A. Macrovision has all right, title and interest in and to certain patent
applications and inventions relating to a certain video signal protection
process which is defined as the "Macrovision Anticopy Process" in Section 1.1
hereof.
B. Rights Owner has the exclusive right to manufacture and sell
prerecorded video cassettes of certain motion pictures and/or certain other
videographic materials which are defined as the "Pictures" in Section 1.3
hereof.
C. The parties desire to enter into this Agreement for the application of
the Macrovision Anticopy Process to prerecorded video cassettes of the
Pictures manufactured and distributed within the Territory (as defined in
Section 1.5 hereof).
1
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
convenants hereinafter set forth, the parties agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following words and phrases shall
have the following meanings:
1.1 "Macrovision Anticopy Process" shall mean the process of modifying a
video signal by the addition of a plurality of bipolar pulse pairs during
selected lines of the vertical blanking interval, which process has been
granted United States Patent Number 4,631,603 and is the subject of Japan
Patent Application Number 86-087236 filed April 17, 1986.
1.2 "Processor" shall mean the equipment including and containing the
electrical circuitry required to apply the Macrovision Anticopy Process to
the Cassettes.
1.3 "Pictures" shall mean motion pictures and other videographic materials
with respect to which Rights Owner holds the rights to manufacture and sell
prerecorded video cassettes and/or video discs within the Territory.
1.4 "Cassettes" shall mean prerecorded video cassettes of the Pictures.
1.5 "Territory" shall mean the Country of Japan
1.6 "Subsidiary" shall mean Victor Musical Industries, Inc., and/or any
other company or companies which "Rights Owner"
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owns outright or which owns more than 50% of the shares or other equity
representing a right to elect or designate directors.
2. APPLICATION OF MACROVISION ANTICOPY PROCESS
Subject to the terms and conditions of this Agreement, Macrovision
hereby agrees to cause the Macrovision Anticopy Process to be applied (on a
non-exclusive basis) within the Territory to Cassettes to be manufactured and
sold by Rights Owner within the Territory. Rights Owner agrees to have the
Macrovision Anticopy Process applied at its discretion to the prerecorded VHS
and Beta video cassettes Rights Owner manufactures and distributes (or causes
to be manufactured and distributed) within the Territory during the term of
this Agreement. Application of the Macrovision Anticopy Process to the
Cassettes shall be effected by one or more third party duplicators selected
by Rights Owner to manufacture the Cassettes, provided that any such
duplicator must have executed a Duplicator Agreement with Macrovision in form
and substance satisfactory to Macrovision. Rights Owner shall not have any
right to grant to anyone any rights in or to the Macrovision Anticopy
Process. In the event that any legal action relating to the Macrovision
Anticopy Process is brought against Macrovision or any threat thereof is
made, Macrovision shall have the right to discontinue the application of the
Macrovision Anticopy Process to Cassetts hereunder until such action or
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threatened action is resolved to Macrovision's reasonable satisfaction.
3. MACROVISION ANTICOPY PROCESS APPLICATION FEE AND PAYMENT TERMS
3.1 Rights Owner shall pay to Macrovision an amount of Twenty cents ($.20)
per Cassette for the application of the Macrovision Anticopy Process. Such
amount will be due and payable in legal United States currency. Rights Owner
agrees to remit payment to Macrovision's principal place of business or its'
designated U.S. banking agent within 30 days of the end of each calendar
month. Any amount which is not timely paid, shall be increased by a late
charge imposed at the rate of 18% per annum, from the due date of such
payment until the date of actual payment. The Rights Owner shall provide
Macrovision with an executed copy of Relief from Japanese Income Tax on
Royalties as evidence that Macrovision Corporation has fulfilled its 10% tax
obligation to the Government of Japan.
3.2 In case Macrovision shall enter into an agreement with any third party
or adjust the rate of Macrovision Anticopy Process Application Fee in an
existing agreement in any way which will authorize such party to have the
Macrovision Anticopy Process applied to the prerecorded VHS and Beta video
cassettes under the same scope of the authorization as permitted herein at
rates of Macrovision Anticopy Process Application Fee lower than those
provided for in Article 3 hereof. Macrovision will
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promptly notify Rights Owner in writing of the permittance of such
authorization or the adjustment of such rate of Macrovision Anticopy Process
Fee and Rights Owner shall have the option, at any time within sixty (60)
days after such notification, to enter into such a similar agreement with
Macrovision, and to substitute the same in place of this Agreement.
4. PROTECTION NOTICE
Rights Owner may place or cause to be placed in a prominent position on
each Cassette, or on the packaging for each Cassette, to which the
Macrovision Anticopy Process is applied a notice in form and substance agreed
to by Macrovision stating that the Cassette is protected by an anticopying
process and including a trademark or tradename applicable to such process.
Rights Owner shall place or cause to be placed the patent number(s) for the
Macrovision Anticopy Process on each Cassette, or on the packaging for each
Cassette, to which the Macrovision Anticopy Process is applied.
5. QUALITY CONTROL
Macrovision shall advise each third party duplicator to employ
reasonable manufacturing and quality standards with respect to the
application of the Macrovision Anticopy Process to the Cassettes. Rights
Owner shall authorize the duplicator to perform regular quality control
checks of Cassettes to determine the adequacy of the recorded signal and the
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playability of the Cassettes. In addition, as and when reasonably requested
by Macrovision, Rights Owner shall furnish to Macrovision random samples of
the Cassettes being manufactured and sold by Rights Owner at any given time.
6. WARRANTY AND DISCLAIMER OF WARRANTIES AND LIABILITY
6.1 (A) Cassettes to which the Macrovision Anticopy Process is applied
will not produce any significant distortion resulting from the application of
the Macrovision Anticopy Process when played on substantially all
combinations of makes and models of video cassette recorders and television
sets.
(B) Macrovision will, at its expense, replace any defective
cassette in which the defect is shown to have been caused by the Macrovision
Anticopy Process and is not the result of faulty manufacture or an effect
caused by improperly maintained consumer VCR/TV equipment.
(C) A duplicated copy made from a Cassette to which the Macrovision
Anticopy Process has been applied will cause significant distortion when the
copy is played on most combinations of consumer video cassette recorders and
consumer television sets. However, there may be certain combinations of
consumer video cassette recorders (on which the Cassette to which the
Macrovision Anticopy Process has been applied is played, on which the copy
is recorded, and on which the copy is played) and consumer television sets
with respect to which the copy will not cause significant distortion when
played.
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Additionally, Rights Owner understands that technological changes in video
cassette recorders or television sets could adversely affect the
effectiveness of the Macrovision Anticopy Process.
(D) Macrovision shall not be responsible for correcting
playability problems or any Cassettes unless Rights Owner notifies Macrovision
in writing of such playability problems not later than ten (10) days after
Rights Owner is first informed of the possibility of a playability problem
for such Cassette.
(E) Macrovision indemnifies the Rights Owner against all liability
arising from any and all patent infringement claims made against Rights Owner
resulting from the use of the Macrovision Anticopy Process which was applied
during the term of this Agreement.
THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHERS, EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OR MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
6.2 Except as expressly provided in this Section 6, Macrovision shall
not be liable for damages arising out of or resulting from the application of
the Macrovision Anticopy Process to Cassettes, nor shall it be liable to
Rights Owner for consequential damages under any circumstances. Rights Owner
agrees to assume all financial obligations for Cassettes manufactured and
sold by it and to indemnify and hold
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Macrovision harmless from and against any and all liabilities, costs, damages
(including reasonable attorneys' fees and litigation costs, regardless of
outcome) arising out of or relating to the manufacture, sale and use of
Cassettes to which the Macrovision Anticopy Process is applied.
6.3 Rights Owner agrees to give Macrovision prompt notice of every
complaint, claim or lawsuit concerning Cassettes to which the Macrovision
Anticopy Process is applied, and thereafter to keep Macrovision fully
informed of the status thereof. Rights Owner agrees to keep a record of all
complaints received with respect to Cassettes to which the Macrovision
Anticopy Process is applied and to give Macrovision reasonable access to all
such records.
7. TERM AND TERMINATION
7.1 The Term of this Agreement commenced on NOVEMBER 29, 1988 and,
subject to earlier termination as provided in this Section 7, this Agreement
shall continue in full force and effect for a period of one (1) year from
such date, and automatically renewed for one year unless there is a
three-month prior notice in writing from either party for the termination or
revision to the other.
7.2 In the event of a material default by either party in the
performance of its duties, obligations or undertakings under this Agreement,
the other party shall have the right to give written notice to the defaulting
party advising such party of
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the specific default involved and if within ten (10) days after such notice
(or, if the default cannot reasonably be remedied within ten (10) days,
within thirty (30) days after such notice), the defaulting party shall not
have remedied such default, the other party shall have the right, in addition
to any other rights and remedies it may have, to terminate this Agreement
immediately upon written notice to the defaulting party.
7.3 Upon any termination of this Agreement:
(a) All rights granted to Rights Owner under this Agreement
immediately shall revert to, and vest in, Macrovision and absolutely no
interest whatsoever in any of such rights shall thereafter remain in Rights
Owner or any of its successors; and
(b) The Macrovision Anticopy Process shall not be applied to any
Cassettes after such termination. (However, Rights Owner shall have the right
to sell any units of the Cassettes to which the Macrovision Anticopy Process
is applied prior to termination of this Agreement and which are unsold at the
time of such termination.)
7.4 No termination of this Agreement shall in any manner whatsoever
release, or be construed as releasing, Rights Owner from its obligations to
make payments for application of the Macrovision Anticopy Process to
Cassettes prior to such termination, or either party from any liability to
the other arising out of or in connection with a party's breach of, or
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failure to perform, any covenant, agreement, duty or obligation contained
herein.
8. MAINTENANCE AND INSPECTION OF BOOKS AND RECORDS
8.1 Rights Owner shall maintain books and records reflecting the number
of Cassettes to which the Macrovision Anticopy Process is applied, the
amounts paid and payable under this Agreement with respect to the Cassettes,
and such other information as Macrovision may from time-to-time reasonably
request with respect to the use of the Macrovision Anticopy Process.
8.2 During normal business hours, Rights Owner shall make available to
Macrovision for inspection, review, audit and copying any and all of its
books and records which contain entries pertaining to the use of the
Macrovision Anticopy Process, including such information as is required to be
maintained pursuant to Section 8.1 hereof.
8.3 If requested by Macrovision, Rights Owner shall require any third
party duplicator to maintain books and records reflecting the number of
Cassettes to which the Macrovision Anticopy Process is applied and such other
information as Macrovision may from time-to-time reasonably request with
respect to the use of the Macrovision Anticopy Process. Rights Owner shall
authorize and direct duplicator to furnish to Macrovision monthly reports
setting forth the number of Cassettes manufactured with respect to each
Picture. Rights
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Owner agrees to authorize and direct each duplicator to permit Macrovision to
inspect, review, audit, and copy any and all of the duplicator's books and
records which contain entries pertaining to the use of the Macrovision
Anticopy Process, on reasonable prior notice during normal business hours.
8.4 Macrovision shall use all reasonable efforts to hold confidential
all information obtained pursuant to this Section 8 and to confine knowledge
and use of such information to the employees, consultants and agents of
Macrovision who require knowledge and use thereof in the ordinary course and
scope of their employment by Macrovision, except to the extent that broader
disclosure of such information is necessary to the exercise and/or protection
of any right or interest of Macrovision under this Agreement.
9. SUBSIDIARY
Any Subsidiary shall be deemed to be a party hereof on condition
that Rights Owner is held responsible for the performance by respective
Subsidiary of each and every provision of this Agreement, mutatis mutandis."
10. MISCELLANEOUS PROVISIONS
10.1 GOVERNING LAW This Agreement shall be governed by and interpreted
in accordance with the laws of the United States and particularly the State
of California, without regard to
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California's or any other jurisdiction's choice of law principles.
10.2 ARBITRATION Any controversy or claim arising out of or relating to
this Agreement or the breach thereof should be settled by mutual agreement of
the parties. If such mutual agreement should not be reached within a
reasonable period of time, all disputes arising from or in connection with
this Agreement shall be finally settled under the Commercial Arbitration
Rules of the American Arbitration Association by three arbitrators appointed
in accordance with the said rules. The place of arbitration shall be New
York, New York, U.S.A.
10.3 RIGHTS CUMULATIVE Each and all of the various rights, powers and
remedies of the parties shall be considered to be cumulative with and in
addition to any other rights, powers and remedies which such parties may have
at law or in equity in the event of breach of any of the terms of this
Agreement. The exercise or partial exercise of any right, power or remedy
shall neither constitute the exclusive election thereof nor the waiver of any
other right, power or remedy available to such party.
10.4 NOTICES All notices, consents or demands of any kind which either
party to this Agreement may be required or may desire to serve on the other
party in connection with this Agreement shall be in writing and may be
delivered by personal service or by registered or certified mail, return
receipt requested, deposited in the United States mail with postage thereon
fully prepaid, addressed to the party as follows:
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If to Macrovision:
Macrovision Corporation
10201 Torre Ave., Suite 330
Cupertino, California 95014
Attention: Chief Operating Officer
cc: David W. Herbst, Esq.
Holtzmann, Wise & Shepard
600 Hansen Way, Suite 200
Palo Alto, California
If to Rights Owner:
Victor Company of Japan, Ltd.
Patent Department
8-14, Nihonbashi-Honcho 4-Chome
Chuo-Ku, Tokyo 103, Japan
Attention: Mr. Hideo Suzuki, General Manager
Service of any such notice or demand so made by mail shall be deemed
complete on the date of actual delivery as shown by the addressee's registry
or certification receipt or at the expiration of the third (3rd) business day
after the date of mailing, whichever is earlier in time. Either party hereto
may from time-to-time, by notice in writing served upon the other as
aforesaid, designate a different mailing address or a different person to
which such notices or demands are thereafter to be addressed or delivered.
10.5 SEVERABILITY
If any of the provisions of this Agreement are held to be void or
unenforceable, the parties agree that such determination shall not result in
the nullity or unenforceability of the remaining portions of this Agreement.
The parties further agree to replace such void or unenforceable provisions of
this Agreement with valid and enforceable provisions which will achieve, to
the extent possible, the economic, business and other purposes of the void or
unenforceable provisions.
10.6 COUNTERPARTS
This Agreement may be executed in separate counterparts, each of
which shall be deemed as an original, and
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when executed, separately or together, shall constitute a single original
instrument, effective in the same manner as if the parties had executed one
and the same instrument.
10.7 WAIVER
No waiver of any term, provision or condition of this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be
deemed to be, or be construed as, a further or continuing waiver of any such
term, provision or condition or as a waiver of any other term, provision or
condition of this Agreement.
10.8 ENTIRE AGREEMENT
This agreement, and any terms and conditions agreed to pursuant to
this agreement, is intended by parties to be the final expression of their
agreement and constitutes and embodies the entire agreement and understanding
between the parties hereto and constitutes a complete and exclusive statement
of the terms and conditions thereof, and shall supersede any and all prior
correspondence, conversations, negotiations, agreements or understanding
relating to the same subject matter.
10.9 AMENDMENTS
No change in, modification of or addition to the terms and
conditions contained herein shall be valid as between the parties unless set
forth in a writing which is signed by authorized representatives of both the
parties and which specifically states that it constitutes an amendment to
this Agreement.
10.10 ASSIGNMENT
Rights Owner shall not assign its rights or obligations under this
Agreement to any other person without the prior written approval of
Macrovision, and any such attempt at assignment without such prior written
approval shall be void.
10.11 BINDING ON SUCCESSORS AND ASSIGNS
Subject to the restrictions of Section 9.9, this Agreement and all
of its terms, conditions and covenants are intended to be fully effective and
binding, to the extent
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permitted by law, on the successors and permitted assigns of the parties
hereto.
10.12 CAPTIONS
Captions are provided herein for convenience only and they form no
part of this Agreement and are not to serve as a basis for interpretation of
construction of this Agreement, nor as evidence of the intention of the
parties hereto.
10.13 DISCLAIMER OF AGENCY
Nothing contained in this Agreement is intended or shall be
construed so as to constitute Macrovision and Rights Owner as partners or
joint ventures or as agents of each other. Neither party shall have any
express or implied right or authority to assume or create any obligations on
behalf or or in the name of the other party or to bind the other party in any
contract, agreement or undertaking with any third party.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto as of the day and year first above written.
MACROVISION CORPORATION
By /s/ Eugene Eidenberg Date 12/8/88
----------------------------------------- ----------------------
Eugene Eidenberg, President
VICTOR COMPANY OF JAPAN, LIMITED
By /s/ Kunio Kakigi Date DEC. 27, 1988
----------------------------------------- ----------------------
Kunio Kakigi
President
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Exhibit 10.17
COPY PROTECTION TECHNOLOGY AGREEMENT
This Copy Protection Technology Agreement (this "Agreement") is made as
of January ___, 1997 (the "Effective Date"), by and between MACROVISION
CORPORATION, a California corporation ("Macrovision"), having its principal
place of business at 1341 Orleans Drive, Sunnyvale, California 94089
[fax #: (408) 743-8610], and VICTOR COMPANY OF JAPAN, LIMITED, a Japanese
corporation ("JVC"), having its principal place of business at 12, Moriya-cho
3-chome, Kanagawa-ku, Yokohama, Kanagawa 221, Japan
[fax # 011-81-45-450-1599].
RECITALS
A. Macrovision is the owner of all right, title and interest in and to
certain anticopying technology which may be used to protect video material
from unauthorized copying.
B. JVC desires that Macrovision continue to make available its anticopy
technology for licensing on a nondiscriminatory basis.
C. Macrovision and JVC have entered into a Duplicator Agreement dated
June 1, 1988, and a Technology Application Agreement dated November 29, 1988,
pursuant to which JVC has manufactured and distributed Videocassettes (as
defined below) which have been encoded with the Process (as defined below).
JVC desires that it continue to have access to the Technology (as defined
below) for such purposes, for purposes of DVD (as defined below) and DVC (as
defined below) replication, and for purposes of manufacturing Digital
Hardware (as defined below).
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants set forth below,
the parties agree as follows:
1. DEFINITIONS
(a) "DVC" means a digital video cassette or digital versatile
cassette, or any similar digital media developed in the future, containing a
prerecorded motion picture or other videographic material.
(b) "DVD" means a digital video disk or digital versatile disk, or
any similar digital media developed in the future, containing a prerecorded
motion picture or other videographic material.
(c) "DIGITAL HARDWARE" means integrated receiver decoders or other
video decoders used in connection with cable and satellite television systems
and DVD and DVC players, each of
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which incorporates an integrated circuit which contains an apparatus for
implementing the Process on Pay-Per-View Transmissions (expressly excluding
less-than-real-time transmissions (i.e., the transmission of videographic
materials in a fraction of the time required for normal speed exhibition of
such materials to a recording device for subsequent playback at normal
speed), because Macrovision has an exclusive agreement with Emc3
International Inc. for such use) or the analog playback of a DVD or DVC
(expressly excluding DVDs and DVCs containing conditional access encryption
(i.e., codes permitting each playback of the DVD or DVC to be separately
authorized), because Macrovision expects to enter into an exclusive agreement
with Zoom Television Incorporated for such use).
(d) "PATENTS" means U.S. Patent Nos. 4,631,603, 4,577,216,
4,819,098, 4,907,093 and 5,583,936, and foreign counterpart patents
disclosing and claiming the same inventions as recited in the U.S. patents
enumerated above, together with future derivatives and extensions of all such
U.S. and foreign patents, and any other patents pertaining to the
modification of a video signal by means of the Process (but not pertaining to
the elimination or defeat of the effects of the modified video signal).
(e) "PAY-PER-VIEW TRANSMISSION" means transmission of a video
program to video consumers for reception in the form of an electromagnetic
wave, electrical signal or optical wave, whether by means of cable or
satellite transmission or otherwise, for which the recipient video consumer
pays an additional or separate fee to receive transmission of the specific
program.
(f) "PROCESS" means Macrovision's process of modifying a video
signal by (a) the addition of a plurality of unipolar pulses and bipolar
pulse pairs in and around the vertical blanking interval ("AGC Pulse") and
(b) by pseudorandomly phase modulating the color bursts ("Colorstripe-TM-"),
as specified in the Specifications of the Macrovision Antitaping Process for
Digital Platforms, Revision 7.01 dated September 6, 1996, a copy of which has
been provided to JVC (the "Specifications").
(g) "TECHNOLOGY" means the proprietary Macrovision technology based
upon the Patents that is reasonably necessary for application of the Process
to Videocassettes, DVDs, DVCs, and Pay-Per-View Transmissions, or for
application of the Process to a video signal by means of Digital Hardware,
including but not limited to the technology specified in the Specifications,
and any such technology enhanced by Macrovision in the future.
(h) "VIDEOCASSETTE" means a video cassette containing a prerecorded
motion picture or other videographic material.
2. NONDISCRIMINATORY AVAILABILITY
(A) NONDISCRIMINATORY AVAILABILITY OF TECHNOLOGY. Macrovision agrees
that it will continue to license the Technology, the Process and the Patents,
on terms that are commercially reasonable to Macrovision, to financially
qualified (i) cable and satellite television system operators and
manufacturers of television set top decoders/receivers for their use in
connection with Pay-Per-View Transmissions; (ii) Videocassette, DVD, DVC and
Digital Hardware manufacturers; and (iii) motion picture studios and other
content providers that hold the rights to motion pictures and other
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videographic materials that are displayed by means of Videocassette, DVD,
DVC, and/or Pay-Per-View Transmission. Such licensing shall be made on a
nondiscriminatory basis as among similarly situated parties. Without limiting
the generality of the foregoing, Macrovision also agrees that if it is
acquired (as defined below) by a company other than JVC and/or any of its
affiliates, Macrovision will not refuse to license, on the terms described in
this Section 2(a), companies that are competitors of the acquiring company,
if the effect of such a refusal would be to favor the product or technology
approach of the acquiring company or its affiliates over alternative
approaches of other companies. For purposes of this agreement, "licensing"
includes entering into agreements not to assert infringement of the Patents.
For purposes of this Agreement, "acquired" means the acquisition of ownership
of, or the exclusive rights to, a majority of the U.S. patents specifically
listed in the definition of "Patents"; the acquisition of all or
substantially all of the assets of Macrovision pertaining to its video copy
protection business; the acquisition of voting securities of Macrovision
having a majority of the voting power attributable to all outstanding
securities entitled to vote in the election of directors to Macrovision's
Board of Directors; or any merger or consolidation involving Macrovision
after which the shareholders of Macrovision immediately before the
transaction own voting securities of the surviving or successor corporation
having less than a majority of the voting power attributable to all
outstanding securities entitled to vote in the election of directors of such
corporation.
(b) NO OBLIGATION TO LICENSE TO CERTAIN PARTIES. Notwithstanding the
provisions of Section 2(a) above, Macrovision shall have no obligation to
license or to continue to license the Technology, the Process or the Patents
to any party that is materially breaching or has materially breached any
agreement with Macrovision or that is infringing or has infringed or is or
has been alleged to have infringed any Macrovision patent or any other
intellectual property right of Macrovision, provided that Macrovision has
given such party written notice of the breach or infringement, the other
party has not cured such breach or infringement, and any applicable cure
period has expired.
(c) NO REQUIREMENT THAT TERMS BE THE SAME AMONG GROUPS OF QUALIFIED
PERSONS OR WITHIN A PARTICULAR GROUP. Macrovision may offer different terms
and conditions with respect to the use of the Technology, the Process and the
Patents to different parties for legitimate business reasons, which business
reasons may include, but are not limited to, the specific use of the
Technology, the Process or the Patents; geographic region; volume of
business; length of business relationship; time of commencement of business
relationship; or presence or absence of other business relationships with the
same party. The terms offered to any particular prospective licensee shall
not be materially less favorable to the licensee, or materially more
favorable to Macrovision or any successor, in the aggregate, than the terms
agreed upon with similarly situated licensees.
(d) LIMITED LICENSE WITH SUBLICENSING RIGHTS ONLY. Macrovision
hereby grants to JVC a nonexclusive, nontransferable license only to grant
sublicenses to other parties described in Section 2(a) above (and that are
not described in Section 2(b) above) to use the Technology, the Process and
the Patents solely for the purposes described in Section 2(a) above. JVC
shall utilize such license only if Macrovision is acquired by a company other
than JVC and/or any of its affiliates, only as and to the extent necessary to
fulfill Macrovision's obligations under Section 2(a) above, and only if and
so long as Macrovision breaches, and continues to breach its obligations
thereunder; provided, however, that all sublicenses granted by JVC pursuant
to this Agreement during any such
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period of breach shall continue in force in accordance with their terms. JVC
shall grant any and all such sublicenses on such terms and conditions,
including royalty and payment terms, as Macrovision shall have granted
licenses to similarly situated parties most recently prior to the event or
events constituting the breach of Macrovision's obligations, or, if the
aggregate terms of such most recently granted licenses are then contained in
less than ten percent (10%) of Macrovision's licenses with similarly situated
parties and are materially less favorable to the licensees, or materially
more favorable to Macrovision or any successor, than licenses granted prior
to the commencement of discussions between Macrovision and the acquiring
company regarding the acquisition, then on such terms and conditions as
Macrovision shall have granted licenses to similarly situated parties most
recently prior to the commencement of such discussions. JVC shall pay
Macrovision ninety-five percent (95%) of any and all amounts collected from
its sublicensees with respect to any such subleases granted by JVC. Prior to
exercising any rights under this license, JVC shall give Macrovision written
notice specifying the alleged breach of Macrovision's obligations under the
penultimate sentence of Section 2(a) above and specifying reasonable and
appropriate corrective measures that JVC proposes to cure such breach. JVC
shall not exercise any rights under this license unless Macrovision fails to
implement the corrective measures proposed by JVC (or subsequently agreed
upon by JVC and Macrovision pursuant to the procedure described below) within
sixty (60) days following receipt of such notice, or, if such measures are
not capable of being implemented within sixty (60) days, Macrovision fails to
commence implementation of such corrective measures within such sixty (60)
day period, to proceed with such implementation in good faith, reasonably and
expeditiously, thereafter, or to complete such implementation within ninety
(90) days following receipt of such notice (or such longer period as JVC may
approve, with such approval not to be unreasonably withheld). After
expiration of the time period set forth in the preceding sentence without
Macrovision implementing the corrective measures, Macrovision promptly will
take all such actions as JVC reasonably may request in order to permit JVC to
fully exercise and enforce JVC's rights under the license set forth in this
Section 2(d). Macrovision may dispute either or both of the alleged breach
and the proposed corrective measures by giving JVC written notice of such
dispute within thirty (30) days following Macrovision's receipt of the
notice from JVC. Following Macrovision's notice of any such dispute,
Macrovision and JVC shall work together in good faith to agree upon what, if
any, corrective measures are necessary for Macrovision to undertake to cure
any alleged breach; provided, however, that any lack of agreement between JVC
and Macrovision regarding such matters will not affect JVC's rights to grant
sublicenses pursuant to this Section 2(d), if the conditions incident thereto
have occurred, immediately following the expiration of the time period set
forth in the third preceding sentence. JVC may exercise its rights under this
Section 2(d) without any obligation first to seek of obtain any court order
or ruling. Without limiting the foregoing, if any dispute referred to above
regarding an alleged breach or proposed corrective measures is not resolved
within sixty (60) days following Macrovision's receipt of the initial notice
from JVC, then JVC may seek specific performance of its right to exercise
this license and/or Macrovision may seek an injunction against the
unauthorized exercise of rights under this license, by filing an appropriate
action in the Superior Court for Santa Clara County, California.
3. SPECIFIC AGREEMENTS
(a) DUPLICATION, REPLICATION, TECHNOLOGY APPLICATION AND
MANUFACTURING AGREEMENTS. Macrovision agrees that it will license the
Technology, the Process and the Patents, on a nonexclusive basis, to JVC
and/or one or more majority-owned (directly or indirectly) subsidiary
4
<PAGE>
corporations of JVC, on terms that are commercially reasonable to
Macrovision, for the application of the Process to Videocassettes, DVDs and
DVCs manufactured by JVC and/or such a subsidiary corporation for
distribution in Japan and/or in any other territory or territories in which
Macrovision currently licenses the Technology, the Process and the Patents to
third parties for such uses on a nonexclusive basis. Additionally,
Macrovision agrees that it will license the Technology, the Process and the
Patents, on a nonexclusive basis, to JVC and/or one or more majority-owned
(directly or indirectly) subsidiary corporations of JVC, on terms that are
commercially reasonable to Macrovision, for the manufacture of Digital
Hardware in territories in which Macrovision holds patents relating to video
copy protection in Digital Hardware. Such licenses shall be made on terms and
conditions comparable (but not necessarily identical) to those generally
provided by Macrovision to similarly situated parties; provided, however,
that the terms offered to JVC and/or such a subsidiary corporation shall not
be materially less favorable to the licensee, or materially more favorable to
Macrovision or any successor, in the aggregate, than the terms agreed upon
with similarly situated licensee.
(b) NO OBLIGATION TO LICENSE IF JVC AND/OR ANY SUBSIDIARY
CORPORATION BREACHES AGREEMENT. Notwithstanding the provisions of Section
3(a) above, so long as Macrovision is then not in material breach or default
under this Agreement or any of the specific agreements described in Section
3(a) above, Macrovision shall have no obligation to license the Technology,
the Process or the Patents to JVC and/or any subsidiary corporation if it or
any of them fails to make any payment that may be required by, or otherwise
materially breaches the provisions of, this Agreement or any of the specific
agreements described in Section 3(a) above; provided that Macrovision
asserted the breach in writing, the breach has not been cured, any time for
cure permitted under the applicable agreement has expired, and Macrovision
has lawfully terminated the applicable agreement.
(c) NO OBLIGAITON TO PROVIDE IF NOT PROVIDING TO SIMILARLY
SITUATED PARTIES. Notwithstanding the provisions of Section 3(a) above,
Macrovision shall have no obligation to license the Technology, the Process
or the Patents to JVC and/or any subsidiary corporation if Macrovision is not
licensing the Technology, the Process or the Patents to similarly situated
parties for similar purposes; provided that, in the event that Macrovision is
acquired (as defined in Section 2(a) above) by any company other than JVC
and/or any of its affiliates, this provision shall apply only if Macrovision
was not licensing the Technology, the Process or the Patents to similarly
situated parties immediately prior to the commencement of discussions between
Macrovision and the acquiring company regarding the acquisition.
4. PROPRIETARY RIGHTS
JVC acknowledges that Macrovision claims the Process, the Patents
and the Technology are the proprietary property of Macrovision, and JVC
agrees that, except as expressly provided in Section 2(d) above, JVC has no
right to sublicense the Process, the Patents or the Technology to any party,
and has only such limited rights as are expressly provided by Macrovision to
JVC hereunder or in other agreements between the parties hereto.
5. TERM AND TERMINATION
5
<PAGE>
This Agreement will commence on the Effective Date and will
continue until expiration of the last of the Patents, unless earlier
terminated as provided herein. Either party may terminate this Agreement upon
the material breach hereof by the other party, if after written notice the
other party fails to cure such breach with sixty (60) days.
6. CONFIDENTIAL INFORMATION
(a) Macrovision and JVC (on behalf of themselves and their
respective officers, employees and agents) will use all reasonable efforts to
keep secret and confidential, and not to use or permit the use of for any
purpose whatsoever, during the term of this Agreement and for a period of
five (5) years thereafter, any and all written confidential information
(including the terms of this Agreement) acquired from the other party,
whether prior to or during the term of this Agreement, except as disclosure
or use of such information is permitted by this Agreement or by a writing
signed by the parties hereto. Without limiting the generality of the
foregoing provision, the Specifications and other technical information
provided by Macrovision regarding the Technology, the Process and the Patents
is deemed confidential for the purpose of this Section 6. The parties will
promptly confirm any oral disclosure of confidential information in writing,
and the delivering party will cause all written materials and other documents
containing confidential information designated by that party to be
confidential to be plainly marked to indicate the secret and confidential
nature thereof. The obligations imposed upon Macrovision by this Section 6
will not apply with respect to the disclosure of information in connection
with the public offering of any stock or other securities of Macrovision. JVC
may disclose Macrovision information the disclosure of which is restricted
under this Section 6 to majority-owned subsidiaries of JVC and to any actual
or prospective minority owners of such subsidiaries so long as such parties
are bound by confidentiality obligations to Macrovision with respect to such
information comparable to those set forth herein. The obligations imposed
upon each party hereto by this Section 6 will not apply with respect to any
information which (i) is or becomes published or otherwise is generally
available to the public other than through the fault of the receiving party,
or by the disclosing party; or (ii) is lawfully obtained from a third party
without a duty of confidentiality; or (iii) is disclosed by the disclosing
party to a third party without a duty of confidentiality, or (iv) is known to
the receiving party prior to such disclosure and was not improperly obtained;
or (v) is, at any time, developed by the receiving party independently of any
such disclosure from the disclosing party.
(b) SURVIVAL OF OBLIGATIONS. The obligations of the parties under
this Section 6 will survive the termination of this Agreement and will remain
in full force and effect regardless of the cause of termination.
7. EQUITABLE REMEDIES
Each party acknowledges that if it breaches any provision of this
Agreement, the other party will be irreparably harmed and will suffer
significant injury which would be difficult to ascertain and which would not
be compensable by damages alone. Accordingly, the parties agree that each
party will have the right to enforce this Agreement and any of its provisions
by injunction, specific performance or other equitable relief without
prejudice to any other rights and remedies that such party may have for a
breach of this Agreement, and without being required to post any bond or
other security.
6
<PAGE>
8. DISCLAIMER OF WARRANTIES
The Process, the Patents and the Technology are licensed under this
Agreement by Macrovision to JVC "as is". Nothing in this Agreement shall be
construed as a warranty or representation that JVC or any of its subsidiaries
or sublicensees will be able to make, use, offer to sell, sell or import any
Videocassette, DVD, DVC, or Digital Hardware without infringing the patent or
other intellectual property rights of third parties. Macrovision and its
successors shall have no obligation to license the Process, the Patents or
the Technology to any person if Macrovision or any successor has received
written notice of a claim that Macrovision or such successor is infringing
upon a third party's patent or other proprietary rights and, in the
reasonable, good faith judgment of Macrovision or such successor, Macrovision
or such successor would likely be liable for substantial damages to such
third party if it were to continue such licensing activity.
9. MISCELLANEOUS PROVISIONS
(a) GOVERNING LAW. This Agreement will be governed by and interpreted
in accordance with the laws of the State of California, without reference to
its laws on the conflict of laws.
(b) RIGHTS CUMULATIVE. Each and all of the various rights, powers and
remedies of the parties will be considered to be cumulative with and in
addition to any other rights, powers and remedies which such parties may have
at law or in equity in the event of breach of any of the terms of this
Agreement. The exercise or partial exercise of any right, power or remedy
will neither constitute the exclusive election thereof nor the waiver of any
other right, power or remedy available to such party.
(c) NOTICES. All notices which either party is required or desires to
send hereunder shall be in writing sent to the address specified in the first
paragraph of this agreement (in the case of JVC to the attention of "Legal
Department") and will be deemed to have been given, delivered and received:
(i) if sent by first-class, registered pre-paid mail, five (5) days after
mailing; (ii) if sent by commercially receipted courier, upon actual
delivery; or (iii) if sent by facsimile, upon receipt by the sender of
acknowledgment of delivery from the recipient. Each party will promptly
acknowledge by return facsimile transmission such party's receipt of each
facsimile transmission received from the other party. Each party may
designate a different address or facsimile number by providing notice in
accordance with this Subsection.
(d) SEVERABILITY. If any of the provisions of this Agreement are held
to be void or unenforceable, such determination will not result in the
nullity or unenforceability of the remaining portions of this Agreement. The
parties further agree to replace such void or unenforceable provisions of
this Agreement with valid and enforceable provisions which will achieve, to
the extent legally permissible, the economic, business and other purposes of
the void or unenforceable provisions.
(e) COUNTERPARTS. This Agreement may be executed in separate
counterparts, and by facsimile, each of which will be deemed an original, and
when executed, separately or together, will
7
<PAGE>
constitute a single original instrument, effective in the same manner as if
the parties had executed one and the same instrument.
(f) ENTIRE AGREEMENT. This Agreement is intended by the parties to be
the final expression of their agreement and constitutes the entire agreement
and understanding between the parties hereto and constitutes a complete and
exclusive statement of the terms and conditions thereof, and supersedes all
prior correspondence, conversations, negotiations, agreements or
understandings relating to the same subject matter; provided, however, that
this Agreement is not intended to amend, supersede, revoke or otherwise
modify either of the agreements referred to in Recital C above or the Stock
and Convertible Note Purchase Agreement dated May 24, 1991, between
Macrovision and an affiliate of JVC.
(g) AMENDMENTS. No change in, modification of, addition to, or waiver
of the terms and conditions contained herein will be valid as between the
parties unless set forth in a writing which is signed by authorized
representatives of both parties and which specifically states that it
constitutes an amendment to this Agreement.
(h) WAIVER. No waiver of any term, provision, or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances,
will be deemed to be, or be construed as, a further or continuing waiver of
any other term, provision or condition of this Agreement.
(i) ASSIGNMENT. JVC will not assign or delegate this Agreement or any
rights or obligations hereunder to any party without Macrovision's prior
written consent, and any attempt to do so without such consent shall be void.
Macrovision may assign its rights and delegate its obligations under this
Agreement to any party that acquires (as defined in Section 2(a) above)
Macrovision, and upon such acquiring party's written acknowledgement, in form
reasonably satisfactory to JVC, that the acquiring party has accepted all of
Macrovision's obligations hereunder, Macrovision shall have no further
responsibility hereunder.
(j) BINDING ON SUCCESSORS AND ASSIGNS. Subject to the restrictions of
Section 9(i), this Agreement and all of its terms, conditions and covenants
are intended to be fully effective and binding, to the extent permitted by
law, on the successors and permitted assigns of the parties hereto.
(k) ATTORNEY'S FEES. In any dispute between the parties arising out of
this Agreement, the prevailing party therein shall be entitled to have its
attorney's fees, reasonable expenses and related litigation or arbitration
costs (if any) paid by the other party.
(l) CAPTIONS. Captions are provided in this Agreement for convenience
only and they form no part of this Agreement and are not to serve as a basis
for interpretation or construction of this Agreement, nor as evidence of the
intention of the parties hereto.
(m) DISCLAIMER OF AGENCY. Nothing contained in this Agreement is
intended or will be construed so as to constitute the parties to this
Agreement as partners or joint venturers or as agents of each other. Neither
party will have any express or implied right or authority to assume or create
any obligations on behalf of or in the name of the other party or to bind the
other party in any contract, agreement or undertaking with any third party.
8
<PAGE>
(n) NO THIRD-PARTY BENEFICIARIES. Nothing in this Agreement shall be
deemed or interpreted to create any third party beneficiaries, or confer any
rights in any third parties.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto as of the Effective Date.
MACROVISION CORPORATION VICTOR COMPANY OF JAPAN, LIMITED
By: /s/ Victor Viegas By: /s/ Tokio Nohara
------------------------- --------------------------
(Signature) (Signature)
Name: Victor Viegas Name: Tokio Nohara
------------------------ -------------------------
(Print) (Print)
Name: CFO Name: Associate Director
------------------------ -------------------------
(Print) (Print)
General Manager of
Intellectual Property Dept.
9
<PAGE>
EXHIBIT 10.18
WAIVER AGREEMENT
This Waiver Agreement (this "Agreement") is entered into as of January
6, 1997 (the "Effective Date") by and between Macrovision Corporation, a
California corporation ("Macrovision") and Pacific Media Development, Inc., a
California corporation ("PMD").
A. Macrovision and University National Bank & Trust Company, (the
"Trustee") as trustee under a Trust Agreement dated May 21, 1991 (the
"Trust") were parties to a certain Stock and Convertible Note Purchase
Agreement dated as of May 24, 1991 (the "Purchase Agreement").
B. Pursuant to the Purchase Agreement, certain shareholders and
optionholders of Macrovision (collectively, the "Grantors"), pursuant to
certain Shareholder Option Agreements and Optionholder Option Agreements,
respectively (collectively, the "Option Agreements") granted the Trustee as
trustee under the Trust certain rights upon certain events (collectively, the
"Options") to acquire certain shares of Macrovision Common Stock held by such
Grantors.
C. On or about December 3, 1996, all shares of Macrovision Common and
Preferred Stock that had been held in the Trust were delivered by the Trustee
for reissuance in the name of PMD as record holder of such shares. All of the
rights and obligations of the Trustee with respect to such shares, the
Purchase Agreement and the Option Agreements have been assigned and
delegated, respectively, to PMD pursuant to an Assignment Agreement and
Consent.
D. Pursuant to the Option Agreements, the Options become exercisable
upon the filing of a registration statement by Macrovision under the
Securities Act of 1933, as amended (the "Securities Act") in connection with
the initial public offering of Macrovision securities, so long as certain
other conditions are met.
E. Macrovision now contemplates filing, in January 1997, a registration
statement under the Securities Act for an initial public offering of its
securities, and desires that PMD waive any and all rights it has to exercise
the Options in connection with that filing.
F. PMD is willing to so waive its rights to exercise the Options on the
terms and conditions set forth herein.
The parties hereto agree as follows:
1. REGISTRATION STATEMENT. For the purposes of this Agreement, the
"Registration Statement" means a registration statement filed by Macrovision,
not later than January 13, 1997, under the Securities Act in connection with
the initial public offering of its securities, including all pre-effective
amendments thereto, with Macrovision selling not more than three million five
hundred thousand (3,500,000) shares of its common stock (with such number of
shares determined prior and without regard to any reverse stock split) in
such offering, including underwriters' overallotment options, but excluding
shares being sold by persons other than Macrovision.
<PAGE>
2. WAIVER. In consideration of the performance by Macrovision of its
obligations hereunder, PMD hereby waives any and all rights it has to
exercise the Options, under the Option Agreements or under Section 8.4 of the
Purchase Agreement, in connection with the filing of the Registration
Statement or the decision of Macrovision's board of directors to file the
Registration Statement. PMD represents and warrants to Macrovision that it
has received by assignment all rights that University Bank as Trustee under
the Trust held pursuant to the Purchase Agreement and the Option Agreements
and that no person other than PMD has any right to exercise the Options.
3. SALE OF SHARES BY PMD. In consideration of the waiver made by PMD
in Section 2 above, Macrovision agrees to cause PMD to be permitted to sell,
pursuant to the Registration Statement, not less than one million (1,000,000)
shares of Macrovision stock (with such number of shares determined prior and
without regard to any reverse stock split).
4. CLOSING OF INITIAL PUBLIC OFFERING. Macrovision agrees that if the
initial public offering pursuant to the Registration Statement has not closed
on or before March 31, 1997, then PMD will have the right to exercise the
Options as the result of the filing of either any further pre-effective
amendment to the Registration Statement filed after such date or any new
registration statement filed by Macrovision after such date under the
Securities Act in connection with the initial public offering of its
securities.
5. THIRD PARTY BENEFICIARIES. The parties hereto agree that the
Grantors are named, intended third party beneficiaries of this Agreement.
6. NOTICE TO GRANTORS. After the execution hereof, Macrovision may
notify each Grantor, in writing, of the waiver granted by PMD hereby. Such
notices shall be made in accordance with each Grantor's respective Option
Agreement, and in form reasonably satisfactory to PMD.
7. ASSIGNMENT; BINDING EFFECT. The benefits and burdens of each party
under this Agreement will not be assignable without the prior written consent
of the other party hereto, and any attempt to assign them without that
consent will be void. Notwithstanding the foregoing, any party may assign
this Agreement to the surviving corporation in a merger or consolidation to
which it is a party or to any person that acquires all or substantially all
of its capital stock or assets. This Agreement shall inure to the benefit of
and shall be binding upon the successors and permitted assigns of the parties
hereto.
8. CHOICE OF LAW; SEVERABILITY. This Agreement will be governed by and
construed in accordance with the laws of the State of California, excluding
that body of law pertaining to choice of law. If any provision of this
Agreement is found invalid or unenforceable, it will be enforced to the
maximum extent permissible, and the legality and enforceability of the other
provisions of this Agreement will not be affected.
2
<PAGE>
9. ENTIRE AGREEMENT; MODIFICATION. This Agreement sets forth the
entire agreement between the parties with respect to the subject matter
hereof, and all prior discussions, representations, proposals, offers and
oral written communications of any nature, including without limitation the
provisions of the Memorandum of Understanding dated as of July 12, 1996,
relating to such subject matter, are entirely superseded hereby and
extinguished by the execution hereof. No modification hereof or waiver of any
right hereunder will be effective unless it is evidenced in a writing
executed by an authorized representative of the party to be charged therewith.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
MACROVISION CORPORATION
By: /s/ Victor Viegas
-----------------------------------
Victor Viegas
--------------------------------------
(Printed Name)
CFO
--------------------------------------
(Printed Title)
PACIFIC MEDIA DEVELOPMENT, INC.
By: /s/ Nobuo Watanabe
-----------------------------------
Nobuo Watanabe
--------------------------------------
(Printed Name)
President & Secretary
--------------------------------------
(Printed Title)
3
<PAGE>
Exhibit 10.20
----------------------------------------------------
04/21/95
----------------------------
1341 ORLEANS DRIVE LEASE AGREEMENT
by and between
CARIBBEAN GENEVA INVESTORS
----------------------------
("LANDLORD")
and
MACROVISION CORPORATION
----------------------------
("TENANT")
<PAGE>
TABLE OF CONTENTS
BASIC LEASE INFORMATION 1
LEASE AGREEMENT
PARAGRAPH DESCRIPTION PAGE
- -----------------------------------------------------------------------------
1. OCCUPANCY AND USE 1
2. TERMS AND POSSESSION 1
3. RENT; RENT ADJUSTMENTS; ADDITIONAL CHARGES 2
4. RESTRICTIONS ON USE 5
5. COMPLIANCE WITH LAWS 5
6. ADDITIONAL ALTERATIONS 5
7. REPAIR AND MAINTENANCE 5
8. LIENS 6
9. ASSIGNMENT AND SUBLETTING 6
10. INSURANCE AND INDEMNIFICATION 7
11. WAIVER OF SUBROGATION 8
12. SERVICES AND UTILITIES 8
13. TENANT'S CERTIFICATES 9
14. HOLDING OVER 9
15. SUBORDINATION 9
16. RULES AND REGULATIONS 10
17. RE-ENTRY BY LANDLORD 10
18. INSOLVENCY OR BANKRUPTCY 10
19. DEFAULT 10
20. DAMAGE BY FIRE, ETC. 11
21. EMINENT DOMAIN 12
22. SALE BY LANDLORD 12
23. RIGHT OF LANDLORD TO PERFORM 12
24. SURRENDER OF PREMISES 12
25. WAIVER 13
26. NOTICES 13
27. TAXES PAYABLE BY TENANT 14
28. ABANDONMENT 14
(a)
<PAGE>
PARAGRAPH DESCRIPTION PAGE
- -----------------------------------------------------------------------------
29. SUCCESSORS AND ASSIGNS 14
30. ATTORNEY'S FEES 14
31. LIGHT AND AIR 14
32. SECURITY DEPOSIT 14
33. CORPORATE AUTHORITY; FINANCIAL INFORMATION 14
34. PARKING 15
35. MISCELLANEOUS 15
36. TENANT'S REMEDIES 15
37. REAL ESTATE BROKERS 15
38. LEASE EFFECTIVE DATE 16
EXHIBIT "A" PREMISES
EXHIBIT "B" WORK LETTER
EXHIBIT "B-1" MINIMUM INFORMATION REQUIRED
EXHIBIT "C" RULES AND REGULATIONS
EXHIBIT "D" FORM OF TENANT ESTOPPEL CERTIFICATE
(b)
<PAGE>
<TABLE>
<CAPTION>
BASIC LEASE INFORMATION
- ------------------------------------------------------------------------------------------------------
<S> <C>
LEASE DATE: APRIL 21, 1995
----------------------------------------------------------------------
LANDLORD: CARIBBEAN/GENEVA INVESTORS
----------------------------------------------------------------------
A CALIFORNIA PARTNERSHIP
MANAGING AGENT: THE MOZART DEVELOPMENT COMPANY
LANDLORD'S AND MANAGING AGENT'S ADDRESS:
C/O THE MOZART DEVELOPMENT COMPANY
1068 EAST MEADOW CIRCLE
PALO ALTO, CA 94303
TENANT: MACROVISION CORPORATION
----------------------------------------------------------------------
TENANT'S ADDRESS: FOR NOTICE & BILLING PRIOR TO COMMENCEMENT DATE
----------------------------------------------------------------------
1341 ORLEANS DRIVE 700 EL CAMINO REAL EAST, SUITE 200
----------------------------------------------------------------------
SUNNYVALE, CA 94089 MOUNTAIN VIEW, CA 94040
----------------------------------------------------------------------
BUILDING: 1341 ORLEANS DRIVE, SUNNYVALE
----------------------------------------------------------------------
PROJECT: 1327 & 1341 ORLEANS DRIVE, SUNNYVALE
----------------------------------------------------------------------
SUITE: ENTIRE BUILDING
----------------------------------------------------------------------
LAND: APPROXIMATELY 2.89 ACRES
----------------------------------------------------------------------
RENTABLE AREA OF THE PREMISES: 43,960 SQUARE FEET
----------------------------------------------------------------------
RENTABLE AREA OF THE BUILDING: 43,960 SQUARE FEET
----------------------------------------------------------------------
PARKING SPACES: APPROXIMATELY 158 SPACES
----------------------------------------------------------------------
TENANT'S USE OF THE PREMISES: ADMINISTRATION, SALES & MARKETING, RESEARCH & DEVELOPMENT,
----------------------------------------------------------------------
ELECTRONICS ASSEMBLY, TESTING AND RELATED SERVICE, DISTRIBUTION,
----------------------------------------------------------------------
WAREHOUSING AND OTHER RELATED LEGAL USES.
------------------------------------------
LEASE TERM: SEVEN(7) YEARS, COMMENCING ON JULY 1, 1995 AND ENDING ON JUNE 30, 2002.
-------------- ------------ -------------
TENANT ALLOWANCE: $175,840 ($4 PER SQUARE FOOT) - SEE EXHIBIT B FOR CLARIFICATION.
----------------------------------------------------------------------
TENANT'S PLAN DELIVERY DATE: MARCH 20, 1995
----------------------------------------------------------------------
RENT:
MONTHLY BASE RENT: $29,892.80 ($.68 PER SQUARE FOOT NNN)
----------------------------------------------------------------------
ANNUAL BASE RENT: $358,713.60
----------------------------------------------------------------------
BASE RENT ADJUSTMENT SEE PARAGRAPH 3(b) FOR CHANGES AT BEGINNING OF MONTHS 37 AND 73.
----------------------------------------------------------------------
TENANT'S SHARE OF EXPENSES AND TAXES ("ADDITIONAL CHARGES"): 100.00%
-----------------------------------------
SECURITY DEPOSIT: $29,892,80
----------------------------------------------------------------------
GUARANTOR OF LEASE: NA
----------------------------------------------------------------------
BROKER: COLLIERS PARRISH INTERNATIONAL INC.- JEFFRY NOCHIMSON/CYNTHIA ROTWEIN
----------------------------------------------------------------------
BROKER'S FEE OR COMMISSION, IF ANY, PAID BY: LANDLORD
------------------------------------------------------------
</TABLE>
The foregoing Basic Lease Information is hereby incorporated into and made a
part of this Lease. Each reference in this Lease to any of the Basic Lease
Information shall mean the respective information hereinabove set forth and
shall be construed to incorporate all of the terms provided under the
particular paragraph pertaining to such information. In the event of any
conflict between any Basic Lease Information and the Lease, the latter shall
control.
BASIC LEASE INFORMATION - Page i
<PAGE>
LANDLORD:
---------
CARIBBEAN/GENEVA INVESTORS
A CALIFORNIA PARTNERSHIP
BY: [ILLEGIBLE]
---------------------------------
ITS: [ILLEGIBLE]
---------------------------------
TENANT:
-------
MACROVISION CORPORATION
---------------------------------------
A CALIFORNIA CORPORATION
---------------------------------------
BY: /s/Robert J. Netter, Jr.
---------------------------------
ITS: VICE PRESIDENT OF FINANCE
---------------------------------
BASIC LEASE INFORMATION - Page ii
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into this 21st day of April, 1995,
by and between CARIBBEAN/GENEVA INVESTORS, a California partnership, (herein
called, "Landlord"), and MACROVISION CORPORATION, a CALIFORNIA CORPORATION
(herein called "Tenant").
Upon and subject to the terms, convenants and conditions hereinafter set
forth, Landlord hereby leases to Tenant and Tenant hereby hires from Landlord
those premises (the "Premises") comprising the area substantially as outlined in
red on attached EXHIBIT "A", in the building (hereinafter referred to as the
"Building") specified in the Basic Lease Information attached hereto. The
Building, together with the associated land, park, etc., may be more broadly
referred to as "Project."
1. OCCUPANCY AND USE. Tenant shall use and occupy the Premises for
the purpose specified in the Basic Lease Information and for no other use or
purpose without the prior written consent of Landlord. Landlord shall have the
right to grant or withhold consent to a proposed change of use in its sole
discretion.
2. TERMS AND POSSESSION.
(a) The term of this Lease (the "Term") shall be for the period
specified in the Basic Lease Information (or until sooner terminated as herein
provided). If Landlord, for any reason whatsoever, cannot deliver possession of
the Premises to Tenant on the date specified in the Basic Lease Information for
the commencement of the Term, this Lease shall not be void or voidable, nor
shall Landlord be liable to Tenant for any loss or damage resulting therefrom.
In that event, however, Tenant shall not be liable for any Rent or Additional
Charges (as hereinafter defined) until Landlord delivers possession of the
Premises to Tenant. If Landlord tenders possession of the Premises to Tenant
prior to the commencement of the Term, then the Term and Tenant's obligations
hereunder shall commence on the date that it accepts such possession. If
substantial completion of the Premises is delayed beyond the scheduled
commencement of the Term for any reason other than a delay of Tenant or its
agents, representatives or contractors, the Term, scheduled commencement date
and scheduled expiration date shall be extended by the amount of such delay.
Notwithstanding the above, in the event that substantial completion is delayed
beyond June 30, 1995, then Tenant shall not be obligated to accept the Premises
(and have the Term commence) until August 1, 1995. In the event that the delay
in substantial completion beyond June 30, 1995 is related to the existing
tenant, Lockheed, holding over in the Premises after April 30, 1995 and Tenant
elects to accept the Premises prior to August 1, 1995, then Landlord shall
credit toward Tenant's rent an amount equal to one day's rent and holdover
penalties paid by Lockheed for the Premises during May of 1995 (estimated at
$1,482 per day) for each day during July of 1995 for which Tenant is paying rent
in both the Premises and its current premises at 700 El Camino Real East in
Mountain View. Notwithstanding the above, in the event that substantial
completion of the Premises has not occurred on or before September 30, 1995,
then Tenant shall have the right to terminate this lease by providing written
notice to Landlord of its decision to terminate the lease no later than October
15, 1995. The preceding three provisions shall be subject to Force Majeure
delays (as defined below) and Tenant delays, including, but not limited to,
changes in the plans for Tenant's improvements. Force Majeure Delays shall mean
and refer to a period of delay or delays encountered by Landlord because of:
fire, earthquake, flooding or other acts of God; acts of the public enemy, riot,
or insurrection; governmental regulations enacted after this Lease is executed
and beyond the control of Landlord; strikes or boycotts, shortages of unique
materials or any other industry or area-wide cause beyond the control of
Landlord. The dates upon which the Term shall commence and terminate pursuant to
this Paragraph 2(a) are herein called the "Commencement Date" and the
"Expiration Date," respectively.
(b) Completion of the improvements to the Premises shall be
governed by the terms and conditions of the separate work letter ("Work
Letter"), attached hereto as EXHIBIT "B".
(c) The Premises shall be deemed completed and possession
delivered when Landlord has substantially completed the work to be constructed
or installed by Landlord ("Landlord's Work") pursuant to the provisions of the
Work Letter subject only to the completion of items on Landlord's architect's
punch list (and exclusive of the installation of all telephone and other
communications facilities and equipment and other finish work or decorating work
to be performed by or for Tenant). Tenant shall accept the Premises upon notice
from Landlord that Landlord's Work has been so substantially completed (and
provided that Tenant has had a reasonable opportunity to verify the same) and
Tenant's obligation to pay rent hereunder shall commence on the earlier to
occur of: (i) the date on which Landlord's Work is substantially completed; or
(ii) the date on which Tenant takes possession of, or commences the operation
of its business in, any or all of the Premises. However, in no event shall
Tenant be required to accept the Premises prior to July 1, 1995. By occupying
the Premises, Tenant shall be deemed to have accepted the same as suitable for
the purpose herein intended and to have acknowledged that the same comply fully
with Landlord's obligations, notwithstanding that certain "punch list" type
items may not have been completed. However, acceptance of the space by, Tenant
shall not relieve Landlord of its obligation to complete outstanding punch-list
items which are Landlord's responsibility. Within five (5) days after written
request of Landlord, Tenant agrees to
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give Landlord a letter confirming the Commencement Date and certifying that
Tenant has accepted delivery of the Premises (latent defects expected) and that
the condition of the Premises complies with Landlord's obligations hereunder, or
in the event the condition of the Premises does not comply, stating how it does
not comply. The Premises shall be substantially completed when (i) Tenant has
safe and direct access to the Premises from the sidewalk and parking area
adjacent to the Building, (ii) the work to be completed by Landlord, pursuant to
the Work Letter, is completed subject only to completion of items on Landlord's
Architect's punch list, which do not materially interfere with Tenant's use of
the Premises, and (iii) a Certificate of Occupancy or its equivalent has been
issued by the City or other applicable governmental agency for the Premises.
Landlord shall use its best efforts to advise Tenant of the anticipated date of
completion at least fifteen (15) days prior to such date, but the failure to
give such notice shall not constitute a default hereunder by Landlord.
Notwithstanding the above, at no cost to Tenant, in the event that substantial
completion of the Premises occurs prior to June 26, 1996, Landlord shall provide
Tenant with access to the space one (1) week prior to the commencement date to
install partition systems, install phone and data cabling and otherwise set up
the office. However, as much as is possible, Tenant's cabling contractors will
work with Landlord's contractor to install cabling prior to this period if
requested by Landlord.
(d) Tenant shall, no later than thirty (30) days after the date of
issuance by the appropriate governmental agency of a Certificate of Occupancy or
its equivalent concerning the Improvements, go into actual physical occupancy of
the Premises and open the Premises for business in accordance with the uses
specified in Paragraph 4 below. Time is of essence. In the event Tenant fails to
perform its obligations pursuant to this Section 2(d), Tenant shall indemnify
and hold Landlord harmless from any loss or liability arising from Tenant's
failure to occupy the Premises and open the Premises for business.
3. RENT; RENT ADJUSTMENTS; ADDITIONAL CHARGES FOR EXPENSES AND TAXES.
(a) MONTHLY BASE RENT. Tenant shall pay to Landlord
throughout the Term the annual rental specified in the Basic Lease
Information ("Rent"), which sum shall be payable by Tenant in equal monthly
installments on or before the first day of each month, in advance, with the
first month's rent due upon execution of this Lease Agreement, in lawful
money of the United States, without any prior demand therefor and without
deduction or offset whatsoever, to Landlord or its managing agent at the
address specified in the Basic Lease Information or to such other firm or to
such other place as Landlord or its Managing Agent may from time to time
designate in writing. Tenant shall pay to Landlord all charges and other
amounts whatsoever as provided in this Lease ("Additional Charges") at the
place where the Rent is payable and Landlord shall have the same remedies for
a default in the payment of Additional Charges as for a default in the
payment of Rent. If the Commencement Date should occur on a day other than
the first day of a calendar month, or the Expiration Date should occur on a
day other than first day of a calendar month, or the Expiration Date should
occur on a day other than the last day of a calendar month, then the Rent and
Additional Charges for such fractional month shall be prorated on a daily
basis.
(b) ADJUSTMENTS IN RENT. The monthly base rent under Paragraph
3(a) shall be adjusted at the beginning of months 37 and 73 of the Term reflect
any increase in the cost of living. The amount of such increase in the monthly
base rent, if any, shall be determined by multiplying $29,892.80 by a fraction,
the denominator of which shall be the most recent Consumer Price Index (as
hereinafter defined) figure published prior to the Commencement Date, and the
numerator of which shall be the most recent Consumer Price Index figure
published prior to the date of such adjustment; provided, however, in no event
shall the increase in Rent over the Rent in place immediately before the
increase be less than ten percent (10%) nor greater than fifteen percent (15%).
As used herein, the term "Consumer Price Index" shall mean the United States
Department of Labor, Bureau of Labor Statistics, Consumer Price Index, All
Urban Consumers, All Items, San Francisco-Oakland, California (1982-84 equals
100). If, during the Term, the aforesaid Index is no longer published,
Landlord shall, for the purposes of computation of any adjustments in Rent,
substitute such other Index as is then generally recognized as most
comparable to the aforementioned Index and accepted for similar
determinations. Should Landlord lack sufficient data to make the
determination specified in this Paragraph 3(b) on the date of any such
adjustment, Tenant shall continue to pay the monthly Rent payable immediately
prior to such adjustment date. As soon as Landlord obtains the necessary
data, it shall determine the Rent payable from and after such adjustment date
and notify Tenant of the adjustment in writing. If the monthly Rent for the
period following such adjustment date exceeds the amount previously paid by
Tenant for such period, Tenant shall forthwith pay the difference to Landlord.
(c) ADDITIONAL CHARGES FOR EXPENSES AND TAXES.
(1) For purposes of this Paragraph 3(c), the following terms shall
have the meanings hereinafter set forth:
(A) "Tax Year" shall mean each twelve (12) consecutive
month period commencing January 1st of the calendar year during which the
Commencement Date of this Lease occurs, provided that Landlord, upon notice
to Tenant, may change the Tax Year from time to time to any other twelve
(12) consecutive month period and, in the event of any such change,
Tenant's Share of
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Real Estate Taxes (as hereinafter defined) shall be equitably adjusted for
the Tax Years involved in any such change.
(B) "Tenant's Share" shall mean the percentage figure so
specified in the Basic Lease Information.
(C) "Real Estate Taxes" shall mean all taxes, assessments
and charges levied upon or with respect to the Project or any personal
property of Landlord used in the operation of thereof, or Landlord's
interest in the Project or such personal property. Real Estate Taxes shall
include, without limitation, all general real property taxes and general
and special assessments, charges, fees or assessments for transit, housing,
police, fire or other governmental services or purported benefits to the
Building, service payments in lieu of taxes, and any tax, fee or excise on
the act of entering into this Lease, or any other lease of space in the
Building, or on the use or occupancy of the Building or any part thereof,
or on the rent payable under any lease or in connection with the business
of renting space in the Building, that are now or hereafter levied or
assessed against Landlord by the United States of America, the State
of California, or any political subdivision, public corporation, district
or any other political or public entity, and shall also include any other
tax, fee or other excise, however described, that may be levied or assessed
as a substitute for, or as an addition to, in whole or in part, any other
Real Estate Taxes, whether or not now customary or in the contemplation
of the parties on the date of this Lease. Real Estate Taxes shall not
include franchise, transfer, inheritance or capital stock taxes or
income taxes measured by the net income of Landlord from all sources
unless, due to a change in the method of taxation, any of such taxes is
levied or assessed against Landlord as a substitute for, or as an
addition to, in whole or in part, any other tax that would otherwise
constitute a Real Estate Tax. Real Estate Taxes shall also include
reasonable legal fees, costs and disbursements incurred in connection
with proceedings to contest, determine or reduce Real Estate Taxes (such
proceedings to be those from which a reasonable person would anticipate
that savings would actually result and with which Tenant reasonably
agrees). Notwithstanding anything to the contrary set forth above,
Tenant shall not be responsible for increases in Real Estate Taxes which
are related to an increase in the assessed value of the property in
excess of the "Agreed Upon Assessed Value." The Agreed Upon Assessed
Value shall be $4,567,000 for the period from July 1, 1994 through June 30,
1995, and shall increase at a rate of five percent (5%) during each
succeeding twelve (12) month period.
(D) "Expenses" shall mean the total direct costs
and reasonable expenses paid or incurred by Landlord in connection with
the management, operation, maintenance and repair of the Building,
including, without limitation (i) the cost of air conditioning,
electricity, steam, heating, mechanical, ventilating, elevator systems
and all other utilities and the cost of supplies and equipment and
maintenance and service contracts in connection therewith; (ii) the cost
of repairs and general maintenance and cleaning; (iii) the cost of fire,
extended coverage, boiler, sprinkler, public liability, property damage,
rent, earthquake (if available at commercially reasonable rates) and
other insurance; (iv) fees, charges and other costs, including
management fees, consulting fees, legal fees (which are allowed
elsewhere in the Lease) and accounting fees, of all independent
contractors engaged by Landlord directly related to the operation of the
Building or reasonably charged by Landlord if Landlord performs
management services in connection with the Building; (v) the cost of any
membership fees, expenses or charges imposed by any owner's or tenant's
association created to manage and/or maintain the common areas or public
areas of the Project in which the Building is located and the Building's
Share of all costs of such common or public area management and
maintenance; (vi) the cost of any capital improvements made to the
Building after completion of its construction as a labor saving device or
to effect other economies in the operation or maintenance of the Building
(from which a reasonable person would anticipate that savings would
actually result and with which Tenant agrees), or that are made to the
Building after the date of this Lease and are required under any
governmental law or regulation that was not applicable to the Building
at the time that permits for the construction thereof of Tenant's
improvements were obtained, such cost to be amortized over such
reasonable period as defined under generally accepted accounting
principles ("GAAP"), together with interest on the unamortized balance at
the rate of ten percent (10%) per annum or such higher rate as may have
been paid by Landlord on funds borrowed for the purpose of constructing
such capital improvements; and (viii) any other reasonable expenses of
any other kind whatsoever reasonably incurred in managing, operating,
maintaining and repairing the Building.
Notwithstanding anything to the contrary herein contained, Expenses
shall not include (aa) the initial construction cost of the Project or
real property on which the Building is located; (bb) the cost of
providing tenant improvements to Tenant or any other tenant; (cc) debt
service (including, but without limitation, interest, principal and any
impound payments) required to be made on any mortgage or deed of trust
recorded with respect to the Building and/or the real property on which
the Building is located other than debt service and financing charges
imposed pursuant to Paragraph 3(c)(1)(D)(vi) above; (dd) the cost of
special services, goods or materials provided to any tenant, (ff) the
portion of a management fee paid to Landlord or affiliate in excess of
two percent (2%) of Rent and Additional Charges; costs to maintain the
Building's foundations, exterior walls, and structural roof. In no event
shall Landlord be entitled to collect in excess of one hundred percent
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(100%) of the total Expenses from all of the tenants in the Building
including Tenant. All costs and expenses shall be determined in
accordance with generally accepted accounting principles which shall be
consistently applied (with accruals appropriate to Landlord's business).
Expenses shall not include specific costs incurred for the account of,
separately billed to and paid by specific tenants.
(E) "Expense Year" shall mean each twelve (12) consecutive
month period commencing January 1 of the calendar year during which the
Commencement Date of the Lease occurs, provided that Landlord, upon
notice to Tenant, may change the Expense Year from time to time to any
other twelve (12) consecutive month period, and, in the event of any
such change, Tenant's Share of Expenses shall be equitably adjusted for
the Expense Years involved in any such change.
(2) Tenant shall pay to Landlord as Additional Charges one-twelfth
(1/12th) of Tenant's Share of Real Estate Taxes for each Tax Year on or
before the first day of each month during such Tax Year, in advance, in an
amount reasonably estimated by Landlord and billed by Landlord to Tenant, and
Landlord shall have the right initially to determine monthly estimates and to
revise such estimates from time to time. With reasonable promptness after
Landlord has received the tax bills for any Tax Year, Landlord shall furnish
Tenant with a statement (herein called "Landlord's Tax Statement") setting
forth the amount of Real Estate Taxes for such Tax Year, and Tenant's Share
thereof. If the actual Real Estate Taxes for such Tax Year exceed the
estimated Real Estate Taxes paid by Tenant for such Tax Year, Tenant shall
pay to Landlord the difference between the amount paid by Tenant and the
actual Real Estate Taxes within fifteen (15) days after the receipt of
Landlord's Tax Statement, and if the total amount paid by Tenant for any such
Tax Year shall exceed the actual Real Estate Taxes for such Tax Year, such
excess shall be credited against the next installment of Real Estate Taxes
due from Tenant to Landlord hereunder.
(3) Tenant shall pay to Landlord as Additional Charges one-twelfth
(1/12th) of Tenant's Share of the Expenses for each Expense Year on or before
the first day of each month of such Expense Year, in advance, in an amount
reasonably estimated by Landlord and billed by Landlord to Tenant, and
Landlord shall have the right initially to determine monthly estimates and to
revise such estimates from time to time. With reasonable promptness after the
expiration of each Expense Year, Landlord shall furnish Tenant with a
statement (herein called "Landlord's Expense Statement"), setting forth in
reasonable detail the Expenses for such Expense Year and Tenant's Share
thereof. If the actual Expenses for such Expense Year exceed the estimated
Expenses paid by Tenant for such Expense Year, Tenant shall pay to Landlord
the difference between the amount paid by Tenant and the actual Expenses
within fifteen (15) days after the receipt of Landlord's Expense Statement,
and if the total amount paid by Tenant for any such Expense Year shall exceed
the actual Expenses for such Expense Year, such excess shall be credited
against the next installment of the estimated Expenses due from Tenant to
Landlord hereunder returned to Tenant within thirty (30) days, unless Tenant
is delinquent on its rent.
(4) To the extent any item of Real Estate Taxes or Expenses is
payable by Landlord in advance of the period to which it is applicable (e.g.
insurance), Landlord may (i) include Tenant's share of such items in
Landlord's estimate for periods prior to the date such item is payable by
Landlord and (ii) to the extent Landlord has not collected the full amount of
such item prior to the date such item is payable by Landlord, Landlord may
include Tenant's Share of the balance of such full amount in a revised
monthly estimate for additional charges. If the Commencement Date or
Expiration Date shall occur on a date other than the first day of a Tax Year
and/or Expense Year, Tenant's share of Real Estate Taxes and Expenses, for
the Tax Year and/or Expense Year in which the Commencement Date occurs shall
be prorated.
(5) Within ninety (90) days after receipt of any Expense Statement
or Tax Statement from Landlord, Tenant shall have the right to examine
Landlord's books and records relating to such Expense Statements and Tax
Statements, or cause an independent audit thereof to be conducted by an
accounting firm to be selected by Tenant and subject to the reasonable
approval of Landlord.
(d) LATE CHARGES. Tenant recognizes that late payment of any Rent or
Additional Charges will result in administrative expenses to Landlord, the
extent of which additional expense is extremely difficult and economically
impractical to ascertain. Tenant therefore agrees that if any Rent or
Additional Charges remain unpaid ten (10) days after the amount is due and
written notice has been given, the amount of such unpaid Rent or Additional
Charges shall be increased by a late charge to be paid to Landlord by Tenant
in an amount equal to four percent (4%) of the amount of the delinquent Rent
or Additional Charges. After the initial late charge is imposed for Rent,
Additional Charges and other outstanding amounts for any specific month, late
charges on the Rent, Additional Charges and other outstanding amounts for
that specific month shall accrue interest during future months at an
annualized rate of Prime rate (as set by the Bank of America) plus five
percent (5%) until paid to Landlord. Tenant agrees that such amount is a
reasonable estimate of the loss and expense to be suffered by Landlord as a
result of such late payment by Tenant and may be charged by Landlord to
defray such loss and expense. The provisions of this Paragraph 3(d) in no way
relieve Tenant of the obligation to pay Rent or Additional Charges on or
before the date on which they
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are due, nor do the terms of this Paragraph 3(d) in any way affect Landlord's
remedies pursuant to Paragraph 19 in the event any Rent or Additional Charges
are unpaid after the date due.
4. RESTRICTIONS ON USE. Tenant shall not do or permit anything to be
done in or about the Premises which will obstruct or interfere with the
rights of other tenants or occupants of the Building or the Project or injure
or annoy them, nor use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose, nor shall Tenant cause or
maintain or permit any nuisance in, on or about the Premises. Tenant shall
not commit or suffer the commission of any waste in, on or about the Premises.
5. COMPLIANCE WITH LAWS. Tenant shall not use the Premises or permit
anything to be done in or about the Premises which will in any way conflict
with any law, statute, ordinance or governmental rule or regulation,
including all Environmental Laws as hereinafter defined in Paragraph 42,
relating to the use of the Premises now in force or which may hereafter be
enacted or promulgated. Tenant shall not do or permit anything to be done in
or about the Premises or bring or keep anything therein which will in any way
increase the rate of any insurance upon the Project (unless Tenant agrees to
pay for such increases) or any of its contents or cause a cancellation of
such insurance or otherwise affect such insurance in any manner, and Tenant
shall at its sole cost and expense promptly comply with all laws, statutes,
ordinances and governmental rules, regulations or requirements now in force
or which may hereafter be in force including, without limitation, all
Environmental Laws and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted relating to
or affecting the condition, use or occupancy of the Premises, excluding
structural changes not related to or affected by Tenant's unique use of the
Premises or alterations or improvements made by or for Tenant or Tenant's
acts. The judgment of any court of competent jurisdiction or the admission of
Tenant in an action against Tenant, whether Landlord be a party thereto or not,
that Tenant has so violated any such law, statute, ordinance, rule,
regulation or requirement, shall be conclusive of such violation as between
Landlord and Tenant.
6. ADDITIONAL ALTERATIONS. After completion of the improvements
described in or contemplated by the Work Letter, Tenant shall not make or
suffer to be made any additional alterations, additions or improvements
("Alterations") in, on or to the Premises or any part thereof without the
prior written consent of Landlord (excepting painting, carpeting,
wallcovering, light fixtures, electrical outlets, other communications ports
and computer wiring, cabinets and bookshelves, and warehouse racks which are
consistent with improvements and finishes previously approved by Landlord);
and any Alterations in, on or to the Premises, except for Tenant's movable
furniture and equipment (including equipment such as shelving, antennas,
satellite dishes or other similar equipment typically bolted down for safety
purposes), shall immediately become Landlord's property and, at the end of
the Term, shall remain on the Premises without compensation to Tenant.
Landlord shall not unreasonably withhold its consent to Alterations that (i)
do not affect the structure of the Building or its electrical, plumbing,
HVAC, security or other systems, (ii) are not visible from the exterior of
the Premises, and (iii) are consistent with Tenant's permitted use hereunder.
In the event Landlord consents to the making of any Alterations by Tenant,
the same shall be made by Tenant, at Tenant's sole cost and expense, in
accordance with plans and specifications reasonably approved by Landlord, and
any contractor or person selected by Tenant to make the same must first be
reasonably approved in writing by Landlord or, at Landlord's option, the
Alterations shall be made by Landlord for Tenant's account and Tenant shall
reimburse Landlord for the competitively bid cost thereof (including a
reasonable charge for Landlord's overhead) within twenty (20) days after
receipt of a statement from Landlord therefor. Upon the expiration or sooner
termination of the Term, Tenant shall upon demand by Landlord, at Tenant's
sole cost and expense, forthwith and with all due diligence remove any
Alterations made by or for the account of Tenant, designated by Landlord to
be removed (provided, however, that upon the written request of Tenant prior
to installation of such Alterations, Landlord shall advise Tenant at that
time whether or not such Alterations must be removed upon the expiration or
sooner termination of this Lease), and Tenant shall forthwith and with all
due diligence, at its sole cost and expense, repair and restore the Premises
to its original condition, subject to normal wear and tear and the rights and
obligations of Tenant concerning casualty damage pursuant to Paragraph 20.
7. REPAIR AND MAINTENANCE.
(a) Landlord shall be responsible for the following repair and
maintenance obligations: (i) maintenance and repair of the exterior, roof and
structural portions of the Building, (ii) repairs and maintenance of the
Building systems for electrical, mechanical, HVAC or plumbing and all
controls appurtenant thereto, and (iii) parking areas, courtyards, sidewalks,
entry ways, lawns, landscaping and other similar facilities of the Project.
In the event that Tenant desires to directly manage the maintenance of the
mechanical and HVAC systems or the plumbing and all controls appurtenant
thereto, then Landlord agrees to not unreasonably withhold its approval so
long as Tenant adequately maintains such equipment, as
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reasonably determined by Landlord. Tenant shall have the authority to
communicate directly with Landlord's roof maintenance company. In emergency
situations, Tenant shall have the authority to contact directly any venders
approved by Landlord and order repairs. In the event that Landlord fails to
pursue its duties as noted above within thirty (30) days of written request
from Tenant, excepting structural changes, then Tenant shall have the right
to contact any venders approved by Landlord and directly contract for said
repairs and maintenance provided that Tenant agrees to pay for the cost of
said repairs and maintenance.
(b) Tenant shall maintain and repair the interior portion of the
Premises and any additional tenant improvements, alterations or additions
installed by or on behalf of Tenant within the Premises, however, excluding
any portions thereof which are structural in nature or which are a part of
the electrical, mechanical, HVAC or plumbing systems of the Premises. Tenant
shall be responsible for the expense of installation, operation, and
maintenance of its telephone and other communications cabling from the point
of entry into the Building to the Premises and throughout the Premises;
though Landlord shall have the right to perform such work on behalf of Tenant
in Building Common Areas. Tenant hereby waives and releases its right to make
repairs at Landlord's expense under Sections 1941 and 1942 of the California
Civil Code or under any similar law, statute or ordinance now or hereafter in
effect. In addition, Tenant hereby waives and releases its right to terminate
this Lease under Section 1932(1) of the California Civil Code or under any
similar law, statute or ordinance now or hereafter in effect. If Tenant fails
after ten (10) days' written notice by Landlord to proceed with due diligence
to make repairs required to be made by Tenant, the same may be made by
Landlord at the expense of Tenant and the expenses thereof incurred by
Landlord shall be reimbursed immediately as Additional Rent within thirty
(30) days after submission of a bill or statement therefor.
(c) The purpose of Section 7(a) and 7(b) is to define the
obligations of Landlord and Tenant to perform various repair and maintenance
functions; the allocation of the costs therefore are covered under this
Section 7(c) and Section 3. Tenant shall bear the full cost of repairs or
maintenance interior or exterior, excluding structural changes, to preserve
the Premises and the Building in good working order and condition, arising
out of (i) the performance or existence of any alteration or modification to
the Premises made by Tenant; (ii) the installation, use or operation of
Tenant's property or fixtures; (iii) the moving of Tenant's property or
fixtures in or out of the Building or in and about the Premises; or (iv) the
acts, omissions or negligence of Tenant or any person claiming or acting
through or under Tenant, or any of its servants, employees, contractors,
agents, visitors, or licensees, or the use or occupancy or manner of use or
occupancy of the Premises by Tenant or any such person.
(d) Except as provided in Paragraph 20, there shall be no abatement
of Rent with respect to, and except for Landlord's gross negligence or
willful misconduct, Landlord shall not be liable for any injury to or
interference with Tenant's business arising from, any repairs, maintenance,
alteration or improvement in or to any portion of the Building, including the
Premises, or in or to the fixtures, appurtenances and equipment therein.
8. LIENS. Tenant shall keep the Premises free from any liens arising out
of any work performed, material furnished or obligations incurred by Tenant.
In the event that Tenant shall not, within ten (10) days following the
imposition of any such lien, cause the same to be released of record by
payment or posting of a proper bond, Landlord shall have, in addition to all
other remedies provided herein and by law, the right, but not the obligation,
to cause the same to be released by such means as it shall deem proper,
including payment of the claim giving rise to such lien. All such sums paid
by Landlord and all expenses incurred by it in connection therewith shall be
considered Additional Charges and shall be payable to it by Tenant on demand
with interest at the maximum rate permitted by law. Landlord shall have the
right at all times to post and keep posted on the Premises any notices
permitted or required by law, or which Landlord shall deem proper, for the
protection of Landlord, the Premises, the Building and any other party
having an interest therein, from mechanics' and materialsmen's liens, and
Tenant shall give notice to Landlord at least five (5) business days' prior
notice of commencement of any construction on the Premises.
9. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not directly or indirectly, voluntarily or by
operation of law, sell, assign, encumber, pledge or otherwise transfer or
hypothecate all or any part of the Premises or Tenant's leasehold estate
hereunder (collectively, "Assignment"), or permit the Premises to be occupied
by anyone other than the Tenant or sublet the Premises (collectively,
"Sublease") or any portion thereof without Landlord's prior written consent
in each instance, which consent shall not be unreasonably withheld by
Landlord. Without otherwise limiting the criteria upon which Landlord may
withhold its consent to any proposed Sublease or Assignment, if Landlord
withholds its consent where either (i) the proposed Subleasee's or Assignee's
net
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worth (according to generally accepted accounting principles) is less than
the net worth of Tenant at the time this Lease is executed, or (ii) the
proposed Sublessee's or Assignee's use of the Premises is not in compliance
with the allowed Tenant's Use of the Premises as described in the Basic Lease
Information, such withholding of consent shall be presumptively reasonable.
If Landlord consents to the Sublease or Assignment, Tenant may thereafter
enter into a valid Sublease or Assignment upon the terms and condition set
forth in this Section 9.
(b) If Tenant desires at any time to enter into an Assignment of
this Lease or a Sublease of the Premises or any portion thereof, it shall
first give written notice to Landlord of its desire to do so, which notice
shall contain (i) the name of the proposed assignee, subtenant or occupant;
(ii) the name of the proposed assignee's, subtenant, or occupant's business
to be carried on in the Premises; (iii) the terms and provisions of the
proposed Assignment or Sublease; and (iv) such financial information as
Landlord may request concerning the proposed assignee, subtenant or occupant.
(c) At any time within fifteen (15) days after Landlord's receipt
of the notice specified in Paragraph 9(b), Landlord shall by written notice
to Tenant elect to (i) sublease itself the portion of the Premises specified
in Tenant's notice of intended Sublease; (ii) take an Assignment of Tenant's
leasehold estate specified in Tenant's notice hereunder; (iii) terminate this
Lease as to the portion (including all) of the Premises that is specified in
Tenant's notice of intended Assignment, with a proportionate abatement in
Rent and Additional Charges; (iv) consent to the Sublease or Assignment; or
(v) disapprove the Sublease or Assignment. In the event Landlord elects to
Sublease or take an Assignment from Tenant as described in clauses (i) and
(ii) above, the rent payable by Landlord shall be the lower of that set forth
in Tenant's notice or the Rent payable by Tenant under this Lease at the time
of the Assignment of Sublease (or a proportionate amount thereof representing
the portion of the Premises subject to the Assignment or Sublease if less
than the entire Premises is subject to the Assignment or Sublease). In the
event Landlord elects any of the options set forth in clauses (i), (ii), or
(iii) above, with respect to a portion of the Premises, Tenant shall at all
times provide reasonable and appropriate access to such portion of the
Premises and use of any common facilities, and Landlord shall have the right
to use such portion of the Premises for any legal purpose in its sole
discretion and the right to further assign or sublease the portion of the
Premises subject to Landlord's election without the consent of Tenant. If
Landlord consents to the Sublease or Assignment within said fifteen (15) day
period, Tenant may thereafter within thirty (30) days after Landlord's
consent, but not later than the expiration of said thirty (30) days, enter
into such Assignment or Sublease of the Premises or portion thereof, upon the
terms and conditions set forth in the notice furnished by Tenant to Landlord
pursuant to Paragraph 9(b). Failure by Landlord to either consent or refuse
such consent to a proposed assignment, encumbrance or sublease within the
fifteen (15) day time period specified above shall be deemed to be Landlord's
consent thereto.
(d) No consent by Landlord to any Assignment or Sublease by Tenant
shall relieve Tenant of any obligation to be performed by Tenant under this
Lease, whether arising before or after the Assignment or Sublease. The
consent by Landlord to any Assignment or Sublease shall not relieve Tenant
from the obligation to obtain Landlord's express written consent to any other
Assignment or Sublease. Any Assignment or Sublease that is not in compliance
with this Paragraph 9 shall be void and, at the option of Landlord, shall
constitute a material default by Tenant under this Lease. The acceptance of
Rent or Additional Charges by Landlord from a proposed assignee or sublessee
shall not constitute the consent to such Assignment or Sublease by Landlord.
(e) The following shall be deemed a voluntary assignment of
Tenant's interest in this Lease: (i) any dissolution, merger, consolidation,
or other reorganization of Tenant; and (ii) if the capital stock of Tenant is
not publicly traded, the sale or transfer to one person or entity stock
possessing more than fifty percent (50%) of the total combined voting power
of all classes of Tenant's capital stock issued, outstanding and entitled to
vote for the election of directors. Notwithstanding anything to the contrary
contained in this paragraph 9, Tenant may enter into any of the following
transfers (a "Permitted Transfer") without Landlord's prior written consent:
(1) Tenant may assign its interest in the Lease to a
corporation which results from a merger, consolidation or other
reorganization, so long as the surviving corporation has a net worth
immediately following such transaction that is equal to or greater than the
net worth of Tenant immediately prior to such transaction; and
(2) Tenant may assign this Lease to a corporation which
purchases or otherwise acquires all or substantially all of the assets of
Tenant, so long as such acquiring corporation has a net worth immediately
following such transaction that is equal to or greater than the net worth of
Tenant immediately prior to such transaction.
(f) Each assignee, sublessee or other transferee, other than
Landlord, shall assume, as provided in this Paragraph 9(f), all obligations
of Tenant under this Lease and shall be and remain liable jointly and
severally with Tenant for the payment of Rent and Additional Charges, and for
the performance of all the terms, covenants, conditions and agreements herein
contained on Tenant's part to be performed for
Lease Agreement - Page 7
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the Term; provided, however, that the assignee, sublessee, mortgagee, pledgee
or other transferee shall be liable to Landlord for rent only in the amount
set forth in the Assignment or Sublease. No Assignment shall be binding on
Landlord unless the assignee or Tenant shall deliver to Landlord a
counterpart of the Assignment and an instrument in recordable form that
contains a covenant of assumption by the assignee satisfactory in substance
and form to Landlord, consistent with the requirements of this Paragraph
9(f), but the failure or refusal of the assignee to execute such instrument
of assumption shall not release or discharge the assignee from its liability
as set forth above.
(g) Landlord will approve within ten (10) days of receipt of
written notice the assignment of Tenant's interest in the lease or sublease
of the Premises by Tenant to an affiliate provided that (i) the affiliate
delivers to the Landlord concurrent with such assignment a written notice of
the assignment and an assumption agreement whereby the affiliate assumes to
perform, observe and abide by the terms, conditions, obligations, and
provisions of this lease, and (ii) the entity remains an affiliate. No
subletting or assignment by Tenant made pursuant to this Section shall
relieve Tenant of Tenant's obligations under this Lease. As used herein, the
term "affiliate" shall mean and collectively refer to a corporation or other
entity in which Tenant, (the "parent") owns directly or indirectly at least a
51 percent ownership interest.
10. INSURANCE AND INDEMNIFICATIONS.
(a) Landlord shall indemnify and hold Tenant harmless from and
against any and all claims or liability for any injury or damage to any
person or property (but excluding any consequential damages or loss of
business) occurring in, on, or about the Building to the extent such injury or
damage is caused by the negligence or willful misconduct of Landlord, its
agents, servants, or employees ("Landlord Parties").
(b) Landlord shall not be liable to Tenant, and Tenant hereby
waives all claims against Landlord Parties for any injury or damage to any
person or property in or about the Premises by or from any cause whatsoever
(other than the negligence or willful misconduct of Landlord Parties,
including Landlord's negligence or willful misconduct as related to
construction or property management), and without limiting the generality of
the foregoing, whether caused by water leakage of any character from the
roof, walls, basement, or other portion of the Premises or the Building, or
caused by gas, fire, oil, electricity, or any cause whatsoever, in, on, or
about the Premises, the Building or any part thereof (other than that caused
by the negligence or willful misconduct of Landlord parties). Tenant
acknowledges that any casualty insurance carried by Landlord will not cover
loss of income to Tenant or damage to the alterations in the Premises
installed by Tenant or Tenant's personal property located within the
Premises. Tenant shall be required to maintain the insurance described in
subparagraph (d) below during the Term.
(c) Tenant shall indemnify and hold Landlord harmless from and
defend Landlord against any and all claims or liability for any injury or
damage to any person or property whatsoever: (i) occurring in, on, or about
the Premises; or (ii) occurring in, on, or about any other portion of the
Project when such injury or damage shall be caused in whole or in part by the
negligence or willful misconduct by Tenant, its agents, servants, employees,
or invitees ("Tenant Parties"), except to the extent caused by negligence or
willful misconduct of Landlord Parties. Tenant further agrees to indemnify
and hold Landlord harmless from, and defend Landlord against, any and all
claims, losses, or liabilities (including damage to Landlord's property)
arising from (x) any breach of this Lease by Tenant and/or (y) the conduct of
any work or business of Tenant Parties in or about the Project, including,
but not limited to any release, discharge, storage or use of any hazardous
substance, hazardous waste, toxic substance, oil, explosives, asbestos, or
similar material.
(d) Tenant shall procure at its cost and expense and keep in effect
during the Term the following insurance: (i) commercial general liability
insurance including contractual liability with a minimum combined single
limit of liability of Two Million Dollars ($2,000,000). Such insurance shall
name Landlord as an additional insured, shall specifically include the
liability assumed hereunder by Tenant, and shall provide that it is primary
insurance, and not excess over or contributory with any other valid, existing
and applicable insurance in force for or on behalf of Landlord, and shall
provide that Landlord shall receive thirty (30) days' written notice from the
insurer prior to any cancellation or change of coverage; (ii) "all risk"
property insurance (including without limitation, boiler and machinery (if
applicable); sprinkler damage, vandalism and malicious mischief) on all
leasehold improvements installed in the Premises by Tenant at its expense (if
any), and on all Tenant's personal property. Such insurance shall be an
amount equal to full replacement cost of the aggregate of the foregoing and
shall provide coverage comparable to the coverage in the standard ISO All
Risk form, when such form is supplemented with the coverages required above;
(iii) worker's compensation insurance; and (iv) such other insurance as may
be required by the law. Tenant shall deliver policies of such insurance or
certificates thereof to Landlord on or before the Commencement Date, and
thereafter at least thirty (30) days before the expiration dates of expiring
policies; and, in the event Tenant shall fail to procure such insurance, or
to deliver such policies or certificates, Landlord may, at its option,
procure same for the account of Tenant, and the cost thereof shall be paid to
Landlord as Additional Charges within five (5) days after delivery to Tenant
of bills therefor.
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(e) The provisions of this paragraph 10 shall survive the
expiration or termination of this Lease with respect to any claims or
liability occurring prior to such expiration or termination.
11. WAIVER OF SUBROGATION. Landlord and Tenant ("Claiming Party") each
waive (i) their right against the other party ("Other Party") and any party
who would have a claim against the Other Party, and (ii) any subrogation
right of their insurance company, to recover for any damages in respect of
injury to persons or property, or for loss of rents or business interruption,
to the extent of receipt by the Claiming Party of proceeds of insurance in
respect of such damages. Landlord and Tenant shall each obtain from their
respective insurers under all policies of fire, theft, and other property
insurance maintained by either of them at any time during the Term insuring
or covering the Building or any portion thereof of its contents therein, a
waiver of all rights of subrogation which the insurer of one party might
otherwise, if at all, have against the other party, and Landlord and Tenant
shall each indemnify the other against any loss or expense, including
reasonable attorney's fees, resulting from the failure to obtain such waiver.
12. SERVICES AND UTILITIES.
(a) Landlord shall provide the maintenance and repairs described in
paragraph 7(a), except for damage occasioned by the act of Tenant, which
damage shall be repaired by Landlord at Tenant's expense.
(b) Subject to the provisions elsewhere herein contained and to the
rules and regulations of the Building, Tenant shall be responsible for
arranging for, and direct payment of the cost of, garbage pickup, janitorial,
water, electricity, gas, telephone and any and all other utilities and
services; and, Landlord shall cooperate with Tenant's efforts to arrange such
services. Tenant agrees at all times to cooperate fully with Landlord and to
abide by all the reasonable regulations and requirements which Landlord may
prescribe for the proper functioning and protection of the heating,
ventilating and air conditioning system.
(c) Tenant will not without the written consent of Landlord, which
consent shall not be unreasonably withheld or delayed, use any apparatus or
device in the Premises which, when used, puts an excessive load on the
Building or its structure or systems.
(d) Landlord shall not be in default hereunder or be liable for any
damages directly or indirectly resulting from, nor shall the rental herein
reserved be abated by reason of (i) the installation, use or interruption of
use of any equipment in connection with the foregoing utilities and services;
(ii) failure to furnish or delay in furnishing any services to be provided by
Landlord when such failure or delay is caused by Acts of God or the elements,
labor disturbances of any character, any other accidents or other conditions
beyond the reasonable control of Landlord, or by the making of repairs or
improvements to the Premises or to the Building; or (iii) the limitation,
curtailment, rationing or restriction on use of water or electricity, gas or
any other form of energy or any other service or utility whatsoever serving
the Premises or the Building. Furthermore, Landlord shall be entitled to
cooperate voluntarily in a reasonable manner with the efforts of national,
state or local governmental agencies or utilities suppliers in reducing
energy or other resources consumption.
13. TENANTS CERTIFICATES. Tenant, at any time and from time to time,
within ten (10) days from receipt of written notice from Landlord, will
execute, acknowledge and deliver to Landlord and, at Landlord's request, to
any prospective tenant, purchaser, ground or underlying lessor or mortgagee
of any part of the Building or the land upon which the Building is located or
any other party acquiring an interest in Landlord, a certificate of Tenant in
the form attached as EXHIBIT "D" and also containing any other information
that may reasonably be required by any of such persons. It is intended that
any such certificate of Tenant delivered pursuant to this Paragraph 13 may be
relied upon by Landlord and any prospective tenant, purchaser, ground or
underlying lessor or mortgage of any part of the Building or the land upon
which the Building is located, or such other party.
14. HOLDING OVER. Any holding over after the expiration of the Term with
the consent of Landlord shall be construed to be a tenancy from month to
month at one hundred twenty-five percent (125%) of the Rent herein specified
unless Landlord shall specify a different rent in its sole discretion,
together with an amount estimated by Landlord for the monthly Rent and
Additional Charges payable under this Lease, and shall otherwise be on the
terms and conditions herein specified so far as applicable. Any holding over
without Landlord's consent shall constitute a default by Tenant and entitle
Landlord to re-enter the Premises as provided in Paragraph 19.
15. SUBORDINATION. Without the necessity of any additional document
being executed by Tenant for the purpose of effecting a subordination, this
Lease shall be subject and subordinate at all times to: (i) all ground leases
or underlying leases which may now exist or hereafter be executed affecting
the Building or the land upon which the Building is situated or both; and
(ii) the lien of any mortgage or deed of trust which may now exist or
hereafter be executed in any amount for which the Building, land, ground
leases or underlying leases, or Landlord's interest or estate in any of said
items, is specified as security. Notwithstanding the foregoing, Landlord
shall have the right to subordinate or cause to be subordinated any such
ground leases or underlying leases or any such liens to this Lease. In the
event that any ground lease or underlying lease terminates for any reason or
any mortgage or deed of trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
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subordination, attorn to and become the Tenant of the successor in interest
to Landlord at the option of such successor in interest, and Tenant shall be
entitled to continue in possession of the Premises on the terms and
conditions of this Lease if and for so long as Tenant fully performs all of
its obligations hereunder. Tenant covenants and agrees to execute and deliver
upon demand by Landlord and in the form requested by Landlord, any additional
documents evidencing the priority or subordination of this Lease with respect
to any such ground leases or underlying leases or the lien of any such
mortgage or deed of trust so long as Tenant is provided with a reasonable
non-disturbance provision. Tenant hereby irrevocably appoints Landlord as
attorney-in-fact of Tenant to execute, deliver and record any such documents
in the name of and on behalf of Tenant if Tenant has not executed the same
within twenty (20) days after Landlord's written request.
16. RULES AND REGULATIONS. Tenant shall faithfully observe and comply
with the rules and regulations attached to this Lease as EXHIBIT "C" and all
reasonable modifications thereof and additions thereto from time to time put
into effect by Landlord. Landlord shall not be responsible for the
nonperformance by any other Tenant or occupant of the Building or the Project
of any said rules and regulations. In the event of an express and direct
conflict between the terms, covenants, agreements and conditions of this
Lease and those set forth in the rules and regulations, as modified and
amended from time to time by Landlord, this Lease shall control.
17. RE-ENTRY BY LANDLORD. Except in the case of emergency and upon
reasonable advance notice to Tenant, Landlord reserves and shall at all times
have the right to re-enter the Premises to inspect the same, to supply
janitor service and any other service to be provided by Landlord to Tenant
hereunder, to show the Premises to prospective purchasers, mortgagees or
tenants, to post notices of nonresponsibility or as otherwise required or
allowed by this Lease or by law, and to alter, improve or repair the Premises
and any portion of the Building and may for that purpose erect, use, and
maintain scaffolding, pipes, conduits, and other necessary structures in and
through the Premises where reasonably required by the character of the work
to be performed. Landlord shall not be liable in any manner for any
inconvenience, disturbance, loss of business, nuisance or other damage
arising from Landlord's entry and reasonable acts pursuant to this Paragraph
and Tenant shall not be entitled to an abatement or reduction of rent or
Additional Charges if Landlord exercises any rights reserved in this
paragraph. Tenant hereby waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of
occupancy or quiet enjoyment of the Premises, and any other loss occasioned
thereby, except for Landlord's gross negligence or willful misconduct. For
each of the aforesaid purposes, Landlord shall at all times have and retain a
key with which to un-lock all of the doors, in upon and about the Premises,
excluding Tenant's vaults and safes, or special security areas (designated in
advance), and Landlord shall have the right to use any and all means which
Landlord may deem necessary or proper to open said doors in an emergency, in
order to obtain entry to any portion of the Premises, and any entry to the
Premises, or portion thereof obtained by Landlord by any of said means, or
otherwise, shall not under any emergency circumstances be construed or deemed
to be a forcible or unlawful entry into, or a detainer of, the Premises, or
an eviction, actual or constructive, of Tenant from the Premises or any
portions thereof.
18. INSOLVENCY OR BANKRUPTCY. The appointment of a receiver to take
possession of all or substantially all of the assets of Tenant, or an
assignment of Tenant for the benefit of creditors, or any action taken or
suffered by Tenant under any insolvency, bankruptcy, reorganization or other
debtor relief proceedings, whether now existing or hereafter amended or
enacted, shall at Landlord's option constitute a breach of this Lease by
Tenant. Upon the happening of any such event or at any time thereafter, this
Lease shall terminate five (5) days after written notice of termination from
Landlord to Tenant. In no event shall this Lease be assigned or assignable
by operation of law or by voluntary or involuntary bankruptcy proceedings or
otherwise and in no event shall this Lease or any rights or privileges
hereunder be an asset of Tenant under any bankruptcy, insolvency,
reorganization or other debtor relief proceedings.
19. DEFAULT. The failure to perform or honor any covenant, condition
or representation made under this Lease shall constitute a default hereunder
by Tenant upon expiration of the appropriate grace period hereinafter
provided. Tenant shall have a period of three (3) business days from the date
of written notice from Landlord within which to cure any default in the
payment of Rent or Additional Charges. Tenant shall have a period of thirty
(30) days from the date of written notice from Landlord within which to cure
any other default under this Lease; provided, however, that with respect to
any default other than the payment of Rent or Additional Charges that cannot
reasonably be cured within thirty (30) days, the default shall not be deemed
to be uncured if Tenant commences to cure within thirty (30) days from
Landlord's notice and continues to prosecute diligently the curing thereof.
Upon an uncured default of this Lease by Tenant, Landlord shall have the
following rights and remedies in addition to any other rights or remedies
available to Landlord at law or in equity:
(a) The rights and remedies provided by California Civil Code, Section
1951.2, including but not limited to, recovery of the worth at the time of
award of the amount by which the unpaid Rent and Additional Charges for the
balance of the Term after the time of award exceeds the amount of rental loss
for the same period that the Tenant proves could be reasonably avoided, as
computed pursuant to subsection (b) of said Section 1951.2;
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(b) The rights and remedies provided by California Civil Code, Section
1951.4, that allows Landlord to continue this Lease in effect and to enforce
all of its rights and remedies under this Lease, including the right to
recover Rent and Additional Charges as they become due, for so long as
Landlord does not terminate Tenant's right to possession; provided, however,
if Landlord elects to exercise its remedies described in this Paragraph 19(b)
and Landlord does not terminate this Lease, and if Tenant requests Landlord's
consent to an assignment of this Lease or a sublease of the Premises at such
time as Tenant is in default, Landlord shall not unreasonably withhold its
consent to such assignment or sublease. Acts of maintenance or preservation,
efforts to relet the Premises or the appointment of a receiver upon
Landlord's initiative to protect its interest under this Lease shall not
constitute a termination of Tenant's rights to possession;
(c) The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law;
(d) The right and power, as attorney-in-fact for Tenant, to enter
the Premises and remove therefrom all persons and property and, to store such
property in a public warehouse or elsewhere at the cost of and for the
account of Tenant, and to sell such property and apply such proceeds
therefrom pursuant to applicable California law. Landlord, as
attorney-in-fact for Tenant, may from time to time sublet the Premises or any
part thereof for such term or terms (which may extend beyond the Term) and at
such rent and such other terms as Landlord in its sole discretion may deem
advisable, with the right to make alterations and repairs to the Premises.
Upon each such subletting, (i) Tenant shall be immediately liable to pay to
Landlord, in addition to indebtedness other than Rent and Additional Charges
due hereunder, the cost of such subletting and such reasonable alterations
and repairs incurred by Landlord and the amount, if any, by which the Rent
and Additional Charges due hereunder for the period of such subletting (to
the extent such period does not exceed the Term) exceeds the amount to be
paid as Rent and Additional Charges for the Premises for such period; or (ii) at
the option of Landlord, rents received from such subletting shall be applied
first, to payment of any indebtedness other than Rent and Additional Charges
due hereunder from Tenant to Landlord, second, to the payment of any costs of
such subletting and of such alterations and repairs, third, to payment of
Rent and Additional Charges due, and unpaid hereunder; and the residue, if
any, shall be held by Landlord and applied in payment of future Rent and
Additional Charges as the same becomes due hereunder. If Tenant has been
credited with any rentals to be received by such subletting under option (i) and
such rentals shall not be promptly paid to Landlord by the subtenant(s),
or if such rentals received from such subletting under option (ii) during any
month be less than that to be paid during that month by Tenant hereunder,
Tenant shall pay any such deficiency to Landlord. Such deficiency shall be
calculated and paid monthly. For all purposes set forth in this paragraph
(d), Landlord is hereby irrevocably appointed attorney-in-fact for Tenant,
with power of substitution. The taking possession of the Premises by
Landlord, as attorney-in-fact for Tenant, shall not be construed as an
election on its part to terminate this Lease unless a written notice of such
intention be given to Tenant. Notwithstanding any such subletting without
termination, Landlord may at any time thereafter elect to terminate this
Lease for such previous breach; and,
(e) The right to have receiver appointed for Tenant, upon
application by Landlord, to take possession of the Premises and to apply any
rental collected from the Premises and to exercise all other rights and
remedies granted to Landlord as attorney-in-fact for Tenant pursuant to
subparagraph (d) above.
Landlord shall have a period of thirty (30) days from the date of written
notice from Tenant within which to cure any default under this Lease;
provided, however, that with respect to any default that cannot reasonably be
cured within thirty (30) days, the default shall not be deemed to be uncured
if Landlord commences to cure within thirty (30) days from Tenant's notice
and continues to prosecute diligently the curing thereof. Tenant agrees to
give any Mortgagee and/or Trust Deed Holders ("Mortgagee"), by Registered
Mail, a copy of any Notice of Default served upon the Landlord, provided that
prior to such notice Tenant has been notified in writing, (by way of Notice
of Assignment of Rents and Leases, or otherwise) of the address of such
Mortgagee. Tenant further agrees that if Landlord shall have failed to cure
such default within the time provided for in this Lease, then the Mortgagee
shall have an additional thirty (30) days within which to cure such default
or if such default cannot be cured within that time, then such additional
time as may be necessary to cure such default shall be granted if within such
thirty (30) days Mortgagee has commenced and is diligently pursuing the
remedies necessary to cure such default (including, but not limited to,
commencement of foreclosure proceedings, if necessary to effect such cure),
in which event the Lease shall not be terminated while such remedies are
being diligently pursued.
20. DAMAGE BY FIRE, ETC. If the Premises or the Building are damaged
by fire or other casualty, Landlord shall forthwith repair the same, provided
that such repairs can be made within one hundred eighty (180) days after the
date of such damage under the laws and regulations of the federal, state and
local governmental authorities having jurisdiction thereof. In such event,
this Lease shall remain in full force and effect except that Tenant shall be
entitled to a proportionate reduction of Rent and Additional Charges while
such repairs to be made hereunder by Landlord are being made. Such reduction
of rent, if any, shall be based upon the proportion that the area of the
Premises rendered untenantable by such damage bears to the total area of the
Premises. Within twenty (20) days after the date of such damage, Landlord
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shall notify Tenant whether or not such repairs can be made within one
hundred eighty (180) days after the date of such damage and Landlord's
determination thereof shall be binding on Tenant. If such repairs cannot be
made within one hundred eighty (180) days from the date of such damage,
Landlord shall have the option within thirty (30) days after the date of such
damage either to: (i) notify Tenant of Landlord's intention to repair such
damage and diligently prosecute such repairs, in which event this Lease shall
continue in full force and effect and the Rent and Additional Charges shall
be reduced as provided herein; or (ii) notify Tenant of Landlord's election
to terminate this Lease as of a date specified in such notice, which date
shall not be less than thirty (30) days nor more that sixty (60)days after
notice is given. In the event that such notice to terminate is given by
Landlord, this Lease shall terminate on the date specified in such notice. If
Landlord cannot make such repairs within one hundred eighty (180) days, then
Tenant shall have the right to terminate the lease by providing written notice
to Landlord of such termination within the later of thirty (30) days following
Tenant's receipt of Landlord's notice of the time to repair or five (5) days
after Landlord's notice of its intent to repair, or not to repair, the
Premises. Such notice of intent to repair may be conditional upon Tenant's
agreement not to terminate the lease. In case of termination by either event,
the Rent and Additional Charges shall be reduced by a proportionate amount
based upon the extent to which such damage interfered with the business
carried on by Tenant in the Premises, and Tenant shall pay such reduced Rent
and Additional Charges up to the date of termination. Landlord agrees to
refund to Tenant any Rent and Additional Charges previously paid for any
period of time subsequent to such date of termination. The repairs to be made
hereunder by Landlord shall not include, and Landlord shall not be
required to repair, any damage by fire or other cause to the property of
Tenant or any repairs or replacements of any paneling, decorations, railings,
floor coverings or any alterations, additions, fixtures or improvements
installed on the Premises by or at the expense of Tenant. Tenant hereby
waives the provisions of Section 1932.2, and Section 1933.4, of the Civil
Code of California. Notwithstanding anything contained herein to the
contrary, if a Major Casualty occurs with respect to any portion of the
Building, and the net insurance proceeds obtained as a result of such casualty
are ninety percent (90%) or a lesser percentage of the cost of restoration,
rebuilding or replacement, then Landlord shall not be obligated to undertake
such restoration, rebuilding or replacement unless Landlord elects to do so
in writing. For the purpose of this Lease, a "Major Casualty" shall mean a
casualty that renders unusable twenty percent (20%) or more of the Net
Rentable Area of the Building or which materially adversely affects the use
of such Building.
21. EMINENT DOMAIN. If any part over 15% of the Premises shall be
taken or appropriated under the power of eminent domain or conveyed in lieu
thereof, either party shall have the right to terminate this Lease at its
option. If any part of the Building shall be taken or appropriated under
power of eminent domain or conveyed in lieu thereof, Landlord may terminate
this Lease at its option. In either of such events, Landlord shall receive
(and Tenant shall assign to Landlord upon demand from Landlord) any income,
rent, award or any interest therein which may be paid in connection with the
exercise of such power of eminent domain, and Tenant shall have no claim
against Landlord for any part of sum paid by virtue of such proceedings,
whether or not attributable to the value of the unexpired term of this Lease,
except that Tenant shall be entitled to petition the condemning authority for
the following: (i) the unamortized cost of any tenant improvements paid for
by Tenant (and not reimbursed by Landlord); (ii) the value of Tenant's trade
fixtures; and, (iii) Tenant's relocation costs. If a part of the Premises
shall be so taken or appropriated or conveyed and neither party hereto shall
elect to terminate this Lease and the Premises have been damaged as a
consequence of such partial taking or appropriation or conveyance, Landlord
shall restore the Premises continuing under this Lease at Landlord's cost and
expense; provided, however, that Landlord shall not be required to repair or
restore any injury or damage to the property of Tenant or to make any repairs
or restoration of any Alterations installed on the Premises by or at the
expense of Tenant. Thereafter, the Rent and Additional Charges to be paid
under this Lease for the remainder of the Term shall be proportionately
reduced, such that thereafter the amounts to be paid by Tenant shall be in
the ratio that they are of the portion of the Premises not so taken bears to
the total area of the Premises prior to such taking. Notwithstanding anything
to the contrary contained in this Paragraph 21, if the temporary use or
occupancy of any part of the Premises shall be taken or appropriated under
power of eminent domain during the Term, this Lease shall be and remain
unaffected by such taking or appropriation and Tenant shall continue to pay
in full all Rent and Additional Charges payable hereunder by Tenant during
the term; in the event of any such temporary appropriation or taking. Tenant
shall be entitled to receive that portion of any award which represents
compensation for the use of or occupancy of the Premises during the Term, and
Landlord shall be entitled to receive that portion of any award which
represents the cost of restoration of the Premises and the use and occupancy
of the Premises after the end of the Term.
22. SALE BY LANDLORD. In the event of a sale or conveyance by
Landlord of the Building, any such sale or conveyance shall operate to
release Landlord from any future liability upon any of the covenants or
conditions, express or implied, herein contained in favor of Tenant, and in
such event Tenant agrees to look solely to the successor in interest of
Landlord in and to this Lease. This Lease shall not be affected by any such
sale, and Tenant agrees to attorn to the purchaser or assignee.
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23. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements to be
performed by Tenant under any of the terms of this Lease shall be performed
by Tenant at Tenant's sole cost and expense and without any abatement of rent
or additional charges. If Tenant shall fail to pay any sum of money, other
than rent or additional charges, required to be paid by it hereunder or shall
fail to perform any other act on its part to be performed hereunder, and such
failure shall continue for thirty (30) days after notice thereof by Landlord,
Landlord may, but shall not be obligated so to do, and without waiving or
releasing Tenant from any obligations of Tenant, make any such payment or
perform any such act on Tenant's part to be made or performed as provided in
this Lease. All sums so paid by Landlord and all necessary incidental costs
together with interest thereon at the maximum rate permitted by law, from the
date of such payment by Landlord shall be payable as additional charges to
Landlord on demand.
24. SURRENDER OF PREMISES.
(a) At the end of the Term or any renewal thereof or other sooner
termination of this Lease, Tenant will peaceably deliver to Landlord
possession of the Premises, together with all improvements or additions upon
or belonging to the same, by whomsoever made, in the same condition as
received, or first installed, subject to normal wear and tear and the rights
and obligation of Tenant concerning casualty damage pursuant to Paragraph
20, damage by fire, earthquake, Act of God, or the elements alone excepted.
Tenant may, upon the termination of this Lease, remove all movable furniture
and equipment belonging to Tenant, at Tenant's sole cost, title to which
shall be in Tenant until such termination, provided that Tenant repairs any
damage caused by such removal. Property not so removed shall be deemed
abandoned by Tenant, and title to the same shall thereupon pass to Landlord.
Upon request by Landlord, and unless otherwise agreed to in writing by
Landlord, Tenant shall remove, at Tenant's sole cost, any or all Alterations
to the Premises installed by or at the expense of Tenant and all movable
furniture and equipment belonging to Tenant which may be left by Tenant and
repair any damage resulting from such removal.
(b) The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, shall not work a merger, and shall, at the
option of Landlord, terminate all or any existing subleases or subtenancies,
or may, at the option of Landlord, operate as an assignment to it of any or
all such subleases or subtenancies.
25. WAIVER. If either Landlord or Tenant waives the performance of any
term, covenant or condition contained in this Lease, such waiver shall not be
deemed to be a waiver of any subsequent breach of the same or any other term,
covenant or condition contained herein. Furthermore, the acceptance of Rent
or Additional Charges by Landlord shall not constitute a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease,
regardless of Landlord's knowledge of such preceding breach at the time
Landlord accepted such Rent or Additional Charges. Failure by Landlord to
enforce any of the terms, covenants or conditions of this Lease for any
length of time shall not be deemed to waive or to decrease the right of
Landlord to insist thereafter upon strict performance by Tenant. Waiver by
Landlord or any term, covenant or condition contained in this Lease may only
be made by a written document signed by Landlord.
26. NOTICES. Except as otherwise expressly provided in this Lease, any
bills, statements, notices, demands, requests or other communications given or
required to be given under this Lease shall be effective only if rendered or
given in writing, sent by registered or certified mail or delivered
personally, (i) to Tenant (A) at Tenant's address set forth in the Basic
Lease Information, if sent prior to Tenant's taking possession of the
Premises, or (B) at the Premises if sent subsequent to Tenant's taking
possession of the Premises, or (C) at any place where Tenant may be found if
sent subsequent to Tenant's vacating, deserting, abandoning or surrendering
the Premises; or (ii) to Landlord at Landlord's address set forth in the
Basic Lease Information; or (iii) to such other address as either Landlord or
Tenant may designate as its new address for such purpose by notice given to
the other in accordance with the provisions of this Paragraph 27. Any such
bill, statement, notice, demand, request or other communication shall be
deemed to have been rendered or given two (2) days after the date when it
shall have been mailed as provided in this Paragraph 27 if sent by registered
or certified mail, or upon the date personal delivery is made. If Tenant is
notified of the identity and address of Landlord's mortgagee or ground or
underlying lessor, Tenant shall give to such mortgagee or ground or
underlying lessor notice of any default by Landlord under the terms of this
Lease in writing sent by registered or certified mail, and such mortgagee or
ground or underlying lessor shall be given a reasonable opportunity to cure
such default prior to Tenant exercising any remedy available to it.
27. TAXES PAYABLE BY TENANT.
At lease ten (10) days prior to delinquency Tenant shall pay all taxes
levied or assessed upon Tenant's equipment, furniture, fixtures and other
personal property located in or about the Premises. If the assessed value of
Landlord's property is increased by the inclusion therein of a value placed
upon Tenant's equipment, furniture, fixtures or other personal property,
Tenant shall pay to Landlord, upon written demand, the taxes so levied
against Landlord, or the proportion thereof resulting from said increase in
assessment.
28. ABANDONMENT. Tenant shall not abandon the Premises at any time
during the Term, and if Tenant shall abandon or surrender the Premises or be
dispossessed by process of law, or otherwise, any personal property belonging
to Tenant and left on the Premises shall, at the option of
Lease Agreement - Page 13
<PAGE>
Landlord, be deemed to be abandoned and title thereto shall thereupon pass to
Landlord, except such property as may be mortgaged to Landlord.
Notwithstanding anything to the contrary contained herein, Tenant shall not
be allowed to vacate the Premises is such would result in a termination of
Landlord's insurance. Upon receiving Tenants request for such, Landlord shall
request that its insurer notify Tenant whether vacating the Premises will
result in a cancellation of the Building's insurance for the current policy
year.
29. SUCCESSORS AND ASSIGNS. Subject to the provisions of Paragraph 9,
the terms, covenants and conditions contained herein shall be binding upon
and insure to the benefit of the parties hereto and their respective legal
and personal representatives, successors and assigns.
30. ATTORNEY'S FEES. If Tenant or Landlord brings any action for any
relief against the other, declaratory or otherwise, arising out of this
Lease, including any suit by Landlord for the recovery of Rent or Additional
Charges or possession of the Premises, the losing party shall pay to the
prevailing party a reasonable sum for attorney's fees, which shall be deemed
to have accrued on the commencement of such action and shall be paid whether
or not the action is prosecuted to judgment.
31. LIGHT AND AIR. Tenant covenants and agrees that no diminution of
light, air or view by any structure which may hereafter be erected (whether
or not by Landlord) shall entitle Tenant to any reduction of rent under this
Lease, result in any liability of Landlord to Tenant, or in any other way
affect this Lease or Tenant's obligations hereunder.
32. SECURITY DEPOSIT. Concurrently with Tenant's execution of this
Lease, Tenant shall deposit with Landlord the sum specified in the Basic
Lease Information, which sum shall be held by Landlord as a security deposit
for the faithful performance by Tenant of all the terms, covenants and
conditions of this Lease to be kept and performed by Tenant. Tenant agrees
that Landlord may apply the security deposit to remedy any failure by Tenant
to repair or maintain the Premises or to perform any other terms, covenants
and conditions contained herein. If Tenant is in compliance with all terms,
covenants and conditions of this lease at the expiration of the Term,
Landlord will, within thirty (30) days after the termination hereof, promptly
return the security deposit to Tenant or the last permitted assignee of
Tenant's interest hereunder at the expiration of the Term. Should Landlord
use any portion of the security deposit to cure any default by Tenant
hereunder, Tenant shall within ten (10) days replenish the security deposit
to the original amount; Tenant's failure to do so shall be a material breach
of this Lease. Landlord shall not be required to keep the security deposit
separate from its general funds, and Tenant shall not be entitled to interest
on any such deposit. Upon the occurrence of any events of default described
in Paragraph 19 of this Lease the security deposit may be applied by Landlord
to the extent required to compensate Landlord for damages incurred, or to
reimburse Landlord as provided herein, in connection with any such event of
default.
33. CORPORATE AUTHORITY: FINANCIAL INFORMATION. If Tenant signs as a
corporation each of the persons executing this Lease on behalf of Tenant does
hereby covenant and warrant that Tenant is a duly authorized and existing
corporation, that Tenant has and is qualified to do business in California,
that the corporation has full right and authority to enter into this Lease,
and that each and both of the persons signing on behalf of the corporation
were authorized to do so. Upon Landlord's request, Tenant shall provide
Landlord with evidence reasonably satisfactory to Landlord confirming the
foregoing covenants and warranties. Tenant hereby further covenants and
warrants to Landlord that all financial information and other descriptive
information regarding Tenant's business, which has been or shall be furnished
to Landlord, is and shall be accurate and complete.
34. PARKING. Tenant shall have the right to use the number of the
Building's parking spaces as noted in the Basic Lease Information. These
spaces shall be used in common with other tenants or occupants of the
Building, if any, subject to the rules and regulations of Landlord for such
parking facilities which may be established or altered by Landlord at any
time or from time to time during the term.
35. MISCELLANEOUS.
(a) The term "Premises" wherever it appears herein includes and
shall be deemed or taken to include (except where such meaning would be
clearly repugnant to the context) the office space demised and improvements
now or at any time hereafter comprising or built in the space hereby demised.
The paragraph headings herein are for convenience of reference and shall in
no way define, increase, limit or describe the scope or intent of any
provision of this Lease. The term "Landlord" shall include Landlord and its
successors and assigns. In any case where this Lease is signed by more than
one person, the obligations hereunder shall be joint and several. The term
"Tenant" or any pronoun used in place thereof shall indicate and include the
masculine or feminine, the singular or plural number, individuals, firms or
corporations, and their and each of their respective successors, executors,
administrators, and permitted assigns, according to the context hereof.
(b) Time is of the essence of this Lease and all of its provisions.
This Lease shall in all respects be governed by he laws of the State of
California. This Lease, together with its exhibits, contains all the
agreements to the parties hereto and supersedes and previous negotiations.
There have been no representations made by the Landlord or understandings
made between the parties other than those set forth
Lease Agreement - Page 14
<PAGE>
in this Lease and its exhibits. This Lease may not be modified except by a
written instrument by the parties hereto.
(c) If for any reason whatsoever any of the provisions hereof shall be
unenforceable or ineffective, all of the other provisions shall be and remain
in full force and effect.
(d) Upon Tenant paying the Rent and Additional Charges and performing
all of the Tenant's obligations under this Lease, Tenant may peacefully and
quietly enjoy the Premises during the Term as against all persons or entities
lawfully claiming by or through Landlord; subject, however, to the provisions
of this Lease.
36. TENANT'S REMEDIES. Tenant shall look solely to Landlord's interest
in the Building for the recovery of any judgment from Landlord. Landlord, or
if Landlord is a partnership, its partners whether general or limited, or if
Landlord is a corporation, its directors, officers or shareholders, shall
never be personally liable for any such judgment. Any lien obtained to
enforce any such judgment and any levy of execution thereon shall be subject
and subordinate to any lien, mortgage or deed of trust.
37. REAL ESTATE BROKERS. Each party represents that it has not had
dealings with any real estate broker, finder or other person with respect to
this Lease in any manner, except for any broker named in the Basic Lease
Information, whose fees or commission, if earned, shall be paid as provided
in the Basic Lease Information. Each party shall hold harmless the other
party from all damages resulting from any claims that may be asserted against
the other party by any other broker, finder or other person with whom the
other party has or purportedly has dealt.
38. LEASE EFFECTIVE DATE. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or option for
lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.
39. SIGNAGE. Tenant shall be allowed to place a company sign(s) in a
manner similar to current tenants (Formtek and Lockheed). Any sign must
conform to all applicable codes, ordinances, and C,C&R's and be approved by
Landlord (size, color, placement, style, etc.) prior to installation.
40. OPTION TO RENEW. Upon the condition that Tenant is not then in
default under the Lease beyond any applicable grace period, Tenant shall have
two (2) options to renew the Lease for a period of five (5) years each
("Extension Terms"). The exercise of said options shall require not less than
twelve (12) months prior written notice from Tenant to Landlord prior to the
expiration of the term preceding said Extension Term. In such written notice,
Tenant must unconditionally elect to extend the Term. The Monthly Base Rent
for the Extension Term shall be the greater of (i) the Fair Market Rental
Value or (ii) the rental rate in effect during the last month of the Term
immediately preceding the Extension Term. The Fair Market Rental Value shall
be determined as noted below:
41. FAIR MARKET RENTAL VALUE. For the purposes of the Lease, the term
"Fair Market Rental Value" shall mean the annual amount per rentable square
foot that Landlord has accepted in current transactions between
non-affiliated parties from new, non-expansion, non-renewal and non-equity
tenants of comparable credit-worthiness, for comparable space, for a
comparable use for a comparable period of time ("Comparable Transactions") in
the Building, of if there are not a sufficient number of Comparable
Transactions in the Building, what a comparable landlord of a comparable
building in the vicinity of the Building in Moffett Park area of Sunnyvale
would accept in Comparable Transactions. In any determination of Comparable
Transactions appropriate consideration shall be given to the annual rental
rates per rentable square foot, the standard of measurement by which the
rentable square footage is measured, the ratio of rentable square footage to
useable square footage, the type of escalation clause, the efficiency of the
space (i.e. whether increases in additional rent are determined on a net or
gross basis, and if gross, whether such increases are determined according to
a base year or base dollar expense stop), the extent of Tenant's liability
under the Lease, abatement provisions reflecting free rent, length of the
lease term, size and location of the premises being leased, level and
suitability of tenant improvements (and reflecting the restoration allowance
provided for in Paragraph 5), extent of service provided, and other generally
applicable conditions of tenancy for such Comparable Transactions. The intent
is that Tenant will pay the same rent that would otherwise be paid in
Comparable Transactions.
Landlord shall provide written notice of Tenant of Landlord's opinion of Fair
Market Rental Value within thirty (30) days after Tenant provides the notice
to Landlord exercising Tenant's option rights which require a calculation of
the Fair Market Rental Value; provided, however, Landlord shall not be
obligated to provide such notice more than twelve (12) months before the date
when the Fair Market Rental Value is to become effective. Tenant shall have
fifteen (15) days ("Tenant's Review Period") after receipt of Landlord's
notice of the new rental within which to accept such rental. In the event
Tenant fails to accept in writing such rental proposed by Landlord then such
proposal shall be deemed rejected, and Landlord and Tenant shall attempt to
agree upon such Fair Market Rental Value, using their best good faith
efforts. If Landlord and Tenant fail to reach agreement within fifteen (15)
days following Tenant's Review Period ("Outside Agreement Date"), then each
party shall place in a separate sealed envelope their final proposal as to
Fair Market Rental Value and such determination shall be submitted to
arbitration in accordance with subsections (a) through (e) below.
Lease Agreement - Page 15
<PAGE>
In the event that Landlord fails to timely generate the initial written
notice of Landlord's opinion of the Fair Market Rental Value which triggers
the negotiation period of this Paragraph, then Tenant may commence such
negotiations by providing the initial notice, in which event Landlord shall
have fifteen (15) days ("Landlord's Review Period") after receipt of Tenant's
notice of the new rental within which to accept such rental. In the event
Landlord fails to accept in writing such rental proposed by Tenant, then such
proposal shall be deemed rejected, and Landlord and Tenant shall attempt in
good faith to agree upon such Fair Market Rental Value, using their best good
faith efforts. If Landlord and Tenant fail to reach agreement within fifteen
(15) days following Landlord's Review Period (which shall be, in such event,
the "Outside Agreement Date" in lieu of the above definition of such date),
then each party shall place in a separate sealed envelope their final
proposal as to Fair Market Rental Value and such determination shall be
submitted to arbitration in accordance with subsections (a) through (e) below.
(a) Landlord and Tenant shall meet with each other within five (5)
business days of the Outside Agreement Date and exchange the sealed envelopes
and then open such envelopes in each other's presence. If Landlord and Tenant
do not mutually agree upon the Fair Market Rental Value within one (1)
business day of the exchange and opening of envelopes, then, within ten (10)
business days of the exchange and opening of the envelopes Landlord and
Tenant shall agree upon and jointly appoint a single arbitrator who shall by
profession be a real estate lawyer or broker who shall have been active over
the five (5) year period ending on the date of such appointment in the
leasing of commercial office properties in the vicinity of the Building.
Neither Landlord nor Tenant shall consult with such broker or lawyer as to
his or her opinion as to Fair Market Rental Value prior to the appointment.
The determination of the arbitrator shall be limited solely to the issue of
whether Landlord's or Tenant's submitted Fair Market Rental Value for the
Leased Premises is the closest to the actual Fair Market Value for the Leased
Premises as determined by the arbitrator, taking into account the
requirements of this Paragraph. Such arbitrator may hold such hearings and
require such briefs as the arbitrator, in his or her sole discretion, determines
is necessary. In addition, Landlord or Tenant may submit to the arbitrator
with a copy to the other party within five (5) business days after the
appointment of the arbitrator any market data and additional information that
such party deems relevant to the determination of Fair Market Rental Value
("FMRV Data") and the other party may submit a reply in writing within five
(5) business days after receipt of such FMRV Data.
(b) The arbitrator shall, within thirty (30) days of his or her
appointment, reach a decision as to whether the parties shall use Landlord's
or Tenant's submitted Fair Market Rental Value, and shall notify Landlord and
Tenant of such determination.
(c) The decision of the arbitrator shall be binding upon Landlord and
Tenant.
(d) If Landlord and Tenant fail to agree upon and appoint an arbitrator,
then the appointment of the arbitrator shall be made by the Presiding Judge
of the Santa Clara Superior Court, or, if he or she refuses to act, by any
state or federal judge in whose court venue would be proper to adjudicate a
dispute over this Lease.
(e) Landlord and Tenant shall each pay any and all costs incurred by
either Landlord or Tenant, respectively, in connection with this arbitration;
provided, however, that the cost of the arbitrator shall be paid by Landlord
and Tenant equally.
From and after the commencement of the Extension Term, all of the other
terms, covenants and conditions of the Lease shall also apply; provided,
however, that (i) Rent shall be revised as herein provided; and (ii) Tenant
shall have no further rights to extend the Term.
42. HAZARDOUS SUBSTANCE LIABILITY: Landlord has delivered to Tenant the
following reports which were prepared by Harding Lawson Associates concerning
the Building and the adjacent properties: (i) Report - Phase I Environmental
Site Assessment Amendment for 1327 Orleans Drive, Sunnyvale, California,
dated March 16, 1995, (ii) Phase I Environmental Site Assessment for 1327
Orleans Drive, Sunnyvale, California, dated December 16, 1994, and (iii)
Report - Phase I Preliminary Hazardous Materials, Site Assessment for Orleans
Drive and Crossman Avenue Properties, Sunnyvale, California, dated May 7,
1990. The Landlord represents and warrants that to its actual knowledge,
except as set forth in the reports noted in the preceding sentence, the
Premises and Project are presently free of underground storage tanks and
Hazardous Substances, the presence of which would require remediation under
any applicable Environmental Laws (as hereinafter defined). Landlord's actual
knowledge is limited to the knowledge as included in the reports listed
above, without any duty of inquiry or investigation. Except as set forth in
this Paragraph 42, Landlord has made absolutely no representations or
warranties to Tenant regarding Hazardous Substances. Landlord represents that
it has received no written notice of any violation or claimed violation with
respect to the presence of toxic or Hazardous Substances on, in or under the
Project or of any pending or contemplated investigation or other action
relating thereto.
(a) DEFINITIONS.
DEFINITION OF HAZARDOUS SUBSTANCES. For the purpose of this Lease,
"Hazardous Substances" shall be defined, collectively, as oil, flammable
explosives, asbestos, radioactive materials, hazardous wastes, toxic or
contaminated substances or similar materials, including, without limitations,
any substances which are "hazardous substances," "hazardous wastes,"
"hazardous materials" or "toxic substances" or words of similar import under
applicable Environmental Laws.
Lease Agreement - Page 16
<PAGE>
DEFINITION OF ENVIRONMENTAL LAWS. For purposes of this Lease,
"Environmental Laws" shall be defined as any and all present and future
federal, state or local statutes, laws, regulations, rules, ordinances, codes,
licenses, permits, orders, approvals, plans, consent decrees, authorizations,
injunctions, duties under the common law, and similar items, of all
governmental agencies, departments, commissions, boards, bureaus or
instrumentalities of governing jurisdictions relating to protection of human
health and safety (including health and safety in the workplace) and the
indoor or outdoor environment, including without limitation, all requirements
relating to emissions, discharges or Releases (as defined under the
Environmental Laws) or threatened Releases of Hazardous Substances into the
environment, including without limitation, ambient air, surface water,
groundwater, or land or otherwise relating to Hazardous Substance activities,
or the clean-up or other remediation thereof.
(b) TENANT INDEMNITY. Tenant hereby releases Landlord from any liability
for, waives all claims against Landlord and hereby agrees to indemnify,
defend and hold harmless Landlord, its employees, partners, agents, lenders,
subsidiaries and affiliate organizations, and the respective directors,
officers, agents, attorneys and employees of each of the foregoing, against
any and all claims, suits, loss, costs (including costs of investigation,
clean up, monitoring, restoration and reasonable attorney fees), damage or
liability, whether foreseeable or unforeseeable, by reason of property damage
(including diminution in the value of the property of Landlord), personal
injury or death directly arising from or related to Hazardous Substances
released, manufactured, discharged, disposed, used or stored on, in, or under
the Property or Premises during the initial Term and any extensions of this
Lease, regardless of who caused the same, except for Hazardous Substance (i)
(A) originating on property which is not leased, owned or otherwise used or
controlled by Tenant and (B) which migrates through the air, groundwater or
otherwise to the Premises, or (ii) which was present on the Premises prior to
Tenant's first occupancy of the Premises and was not caused by Tenant, its
employees, contractors, invitees, guests, sublessees, agents, assignees,
licensees or servants. The provisions of this Tenant Indemnity regarding
Hazardous Substances shall survive the termination of the Lease. In the event
that Tenant is required to undertake remediation of Hazardous Substances in,
on or under the Premises or Property, then Landlord shall have the right to
reasonably approve of any and all contractors hired by Tenant to perform such
remedial work. All such remedial work shall be performed in compliance with
all applicable laws, ordinances and regulations and to the reasonable
satisfaction of Landlord. Appearance of a Hazardous Substance in, on or under
the Premise or Property as a result of Tenant's or its employees,
contractors, guests, invitees, sublessees, agents, assignees, licenses or
servants acts or omissions shall not be deemed an occurrence of damage or
destruction subject to the terms of the Lease.
(c) LANDLORD INDEMNITY. Landlord hereby releases Tenant from any
liability for, waives all claims against Tenant and hereby agrees to
indemnify, defend and hold harmless Tenant, its officers, employees, and
agents to the extent of Landlord's interest in the Project, against any and
all actions by any governmental agency for clean up of Hazardous Substances
on or under the Premises or Property, including costs of legal proceedings,
investigation, clean up, monitoring, and restoration associated therewith,
including reasonable attorney fees, if, and to the extent, the Hazardous
Substances occur on the Property or Premises under the following
circumstances: (i) the contamination of the Premises or Property was caused
by the migration of Hazardous Substances from any off-site property during
the Term of this Lease and in violation of any Environmental Laws; provided,
however, that this subparagraph (i) and subparagraph (ii) below shall not
apply to require any lender acquiring the Landlord's interest in the Premises
or Property through foreclosure or deed in lieu of foreclosure to indemnify,
defend or hold harmless Tenant, its officers, employees, and agents (but such
a lender would continue to release Tenant from any liability for and would
waive all such claims relating to this subparagraph (i) against Tenant);
(ii) Hazardous Substances were released or disposed of on, in, or under the
Premises or Property prior to Tenant's first occupancy unless caused by
Tenant, its employees, contractors, guests, invitees, sublessees, agents,
assignees, licensees or servants, or; (iii) the contamination of the Premises
or Property was caused by the release, disposal, use or storage of Hazardous
Substances in, on or about the Premises by Landlord, its employees,
contractors, invitees, guests, agents, licensees or servants. The provisions
of this Landlord Indemnity regarding Hazardous Substances shall survive the
termination of the Lease.
(d) OBLIGATION TO INFORM. If either party shall receive written notice
or other written communication concerning any actual, alleged, suspected, or
threatened violation of contamination or site response in connection with the
Premises, Building and/or Project or past or present activities of any person
thereon, including, without limitation, notice or other written communication
concerning any actual or threatened investigation, inquiry, lawsuit, claim,
citation, directive, summons, proceeding, complaint, notice, order, writ or
injunction, relating to the same, then such party shall deliver to the other
party, as soon as reasonably possible, but in any event within ten days of
the receipt of such written notice, copies of any documents evidencing the
same.
(e) Tenant shall not use, without Landlord's reasonable approval, any
Hazardous Substances within the Building, except for very immaterial amounts
of Hazardous Substances incidental to its office use, including, but not
limited to, copier toner, cleaning fluids, and ink. To the extent that Tenant
uses Hazardous Substances incidental to its office use, it shall comply with
any Environmental Laws.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the date first above written.
LANDLORD
Lease Agreement - Page 17
<PAGE>
CARIBBEAN/GENEVA INVESTORS
a California partnership
By: [ILLEGIBLE]
-----------------------------------
Its:[ILLEGIBLE]
-----------------------------------
TENANT
MACROVISION CORPORATION
a California corporation
By: /s/ Robert J. Netter, Jr.
-----------------------------------
Its: Vice President of Finance/CFO
-----------------------------------
Lease Agreement - Page 18
<PAGE>
EXHIBIT "A"
- -------------------------------------------------------------------------------
[MAP]
<PAGE>
EXHIBIT "B"
- -------------------------------------------------------------------------------
WORK LETTER
1. Landlord shall furnish and install the Base Building provided for in
Paragraph 2 at Landlord's expense and, at Tenant's expense, the additional
work to complete the Premises ("Tenant Improvements") normally performed by
the construction trades, required by the plans and specifications approved by
Landlord and Tenant pursuant to this Work Letter. The quantities, character
and manner of installation of all of the foregoing work shall be subject to
the limitations imposed by any applicable regulations, laws, ordinance, codes
and rules.
2. The Landlord shall present, and the tenant shall accept, the Building
on an "as-is" basis except with regard to Landlord's obligations concerning
code related upgrades, as described in Paragraph 10 hereof, and as otherwise
provided in the Lease.
3. Tenant shall provide Landlord's architect and engineers with
sufficient instructions (see Exhibit B-1) to enable Landlord's architect and
engineers to prepare complete plans and specifications for the Tenant
Improvements. The cost of space planning and preparing the working drawings
for Tenant Improvements or any change to the original instruction and/or plans
and specifications shall be paid by Tenant.
4. Subject to the terms of Paragraph 10 hereof, Tenant shall bear the
cost of Tenant Improvements. Any modifications requested by Tenant to Base
building work shall be at Tenant's expense.
5. Landlord and Tenant shall diligently pursue the preparation of all
plans and specifications for Tenant Improvements. All such plans and
specifications shall be performed by Landlord's architect and be subject to
approval by Landlord.
6. When the plans and specifications are complete and approved by
Landlord and Tenant, which shall be accomplished on or before Tenant's Plan
Delivery Date, as specified on the Basic Lease Information, Landlord shall
obtain a cost estimate for Tenant Improvements from Landlord's contractor, the
costs and quality of which are within industry standards. If the cost
estimate exceeds any allowance given by Landlord to Tenant for Tenant
Improvements and Tenant is obligated to pay for such excess costs, the cost
estimate shall be submitted to Tenant. Tenant shall approve or disapprove
such estimate within three (3) business days. Failure to approve within such
period shall constitute approval. If disapproved, Tenant shall provide new
sufficient instruction within such three (3) business days for the revision of
plans and cost estimates for approval by Tenant. Failure to provide such
instruction within such period shall entitle Landlord to terminate this
Lease. Tenant shall be obligated to approve the cost estimate if the cost is
within any allowance provide by Landlord or any greater budget approved by
Tenant. If the cost estimate is in excess of the allowance or such greater
budget, Tenant shall provide new sufficient instruction which will reduce the
cost estimate for Tenant Improvements to a level acceptable to Tenant and
within any allowance provided by Landlord within ten (10) days after receipt
of the cost estimate (or one revision thereof, if Tenant requests a change in
plans and specifications to reduce costs).
7. After receipt and approval of Tenant's plans, specifications and cost
estimate, Landlord shall administer the construction of Tenant Improvements
in accordance with the plans and specifications; provided, however, that
Landlord shall not be required to install any Tenant Improvements which do
not conform to the plans and specifications for the Building, or do not
conform to any applicable regulations, laws, ordinances, codes and rules;
such conformity shall be the obligation of Tenant. All Tenant Improvements
shall be constructed by Landlord's contractor except telephone equipment and
wiring, security systems, communications cabling and office equipment wiring,
which shall be installed by Tenant and shall conform with Landlord's
contractor's schedule and work of installation and shall be handled in such a
manner as to maintain harmonious labor relations and as not to interfere with
or delay the work of Landlord's contractors. All such Tenant Improvements
furnished and installed by Tenant shall not cause Landlord's contractor to be
dependent upon Tenant's work in order for Landlord's contractor to complete
his work. Tenant's contractors, subcontractors and labor shall be subject to
approval by Landlord and shall be subject to the administrative supervision
of Landlord's general contractor and rules of the site. Contractors and
subcontractors engaged by Tenant shall employ men and means to insure, so far
as may be possible, the progress of the work without interruption on account
of strikes, work stoppage or similar causes for delay. Landlord shall give
access and entry to the Leased Premises to Tenant; provided, however, that if
such entry such entry is prior to the first day of the Term such entry shall
be subject to all of the terms and conditions of this Lease except payment of
Rent and Additional Charges. All delays or noncompliance to the Landlord's
contractor's schedule shall be the responsibility of Tenant.
8. Subject to Paragraph 2(c) of the Lease, Tenant's obligation
hereunder to pay Rent and Additional Charges shall not commence until
Landlord has substantially completed all work to be performed by Landlord
subject only to the completion or correction of items on Landlord's
architect's punch list (and exclusive of the installation of all telephone
and other communications facilities and equipment and other finish work or
decoration work to be performed by or for Tenant). If Landlord shall be
delayed in
Exhibits - Page 2
<PAGE>
substantial completion as a result of: (a) Tenant's failure to submit
approved plans, specifications and cost estimates on or before the dates or
time periods called for; or (b) Tenant's change(s) in plans and
specifications after said dates; or (c) Tenant's request for materials,
finishes or installations which require a longer time than customary to
complete; or (d) Tenant's failure to comply with Landlord's contractor
schedule or delays caused by Tenant in construction, then Tenant shall pay to
Landlord as Additional Rent (for purpose of reimbursing Landlord for
additional expenses which will be incurred by Landlord because of inability
to proceed with the work as scheduled), one day's Rent and Additional Charges
on the Premises for each day's delay caused by the above actions.
9. Tenant shall pay to Landlord all amounts payable by Tenant within ten
(10) days after billing by Landlord. Bills may be rendered during the
progress of the work so as to enable Landlord to pay its general contractor,
architect or engineers without advancing Landlord's funds for Tenant
Improvements.
10. Landlord shall provide Tenant an allowance of the amount specified on
the Basic Lease Information, for the cost of the following items in respect
of the Tenant Improvements: Architectural and engineering fees, space
planning, building permits or other governmental fees, cost of labor materials
and other charges included in the construction contract for construction of
Tenant Improvements or remodeling of existing improvements, including, but not
limited to partitions, carpeting, bathrooms, lobbies, HVAC, electrical,
permits, signage and architectural drawings. The Tenant Allowance may not be
applied toward Tenant's personal property, communications equipment,
furnishings, computers, etc. Any costs related to Tenant's Improvements and
approved by Tenant in excess of the Tenant Allowance shall be borne by
Tenant. Tenant shall pay such costs within fifteen (15) days of receiving an
invoice for such. Any amounts in excess of the allowance shall be paid by
Tenant in the manner provided in Paragraph 9; provided, however, if (i) Tenant
is in default hereunder or under the Lease, or (ii) Landlord otherwise
reasonably requires, Landlord may require Tenant to deposit with Landlord up
to the full amount of such excess prior to or during construction of the
Tenant Improvements. In addition to the amount noted in the Basic Lease
Information, Landlord shall be obligated to share equally with Tenant in the
cost of upgrades to the existing improvements in the Building required in
order to bring such improvements into compliance with applicable codes and
laws at the time that building permits are obtained for Tenant's Improvements
installed prior to the commencement of the term - Landlord acknowledges that
it may be required to share in costs to bring existing improvements into
compliance as a result of new improvements constructed in the Building.
Additionally, Landlord shall be obligated to indemnify Tenant for its share
of such costs to the extent that Tenant's share of such costs exceed $25,000
(ie. the total costs exceed $50,000). the Building.
11. Tenant shall be entitled to the benefits of warrantees applicable to
the construction of Tenant's Improvements.
Exhibits - Page 3
<PAGE>
EXHIBIT "B-1"
- ------------------------------------------------------------------------------
MINIMUM INFORMATION REQUIRED
FLOOR PLANS INDICATING:
1. Location and type of all partitions;
2. Location and type of all doors. Indicate hardware and provide keying
schedule;
3. Location and type of glass partitions, windows and doors. Indicate
framing if not Building Standard;
4. Location of telephone equipment room, accompanied by an approval of
the telephone company;
5. Indicate critical dimensions necessary for construction;
6. Location of all Building Standard electrical items (outlets, switches,
telephone outlets). Building Standard lighting will be determined by
Landlord's architect;
7. Location and type of all non-Building Standard electrical items,
including lighting.
8. Location and type of equipment that will require special electrical
requirements. Provide manufacturer's specifications for use and
operation;
9. Location, weight per square foot, and description of any exceptionally
heavy equipment or filing system exceeding 50 lbs. psf live load;
10. Requirements for special air conditioning or ventilation;
11. Type and color of floor covering;
12. Location, type, and color of wall covering;
13. Locations, type and color of Building Standard and non-Building
Standard paint or finishes;
14. Location and type of plumbing;
15. Location and type of kitchen equipment.
DETAILS SHOWING:
1. All millwork with verified dimensions and dimensions of all equipment
to be built in;
2. Corridor entrance;
3. Bracing or support of special walls, glass partitions, etc., if
desired. If not included with the space plan, the Landlord's architect
will design all support or bracing required at Tenant's expense.
Exhibits - Page 4
<PAGE>
EXHIBIT "C"
RULES AND REGULATIONS
- ------------------------------------------------------------------------------
LANDLORD ACKNOWLEDGES THAT THE FOLLOWING RULES AND REGULATIONS ARE WRITTEN TO
APPLY TO A BROAD RANGE OF BUILDINGS. WHERE A RULE IS SPECIFICALLY INTENDED
TO APPLY TO A MULTI-TENANT OR FULL-SERVICE BUILDING, LANDLORD AGREES TO
REASONABLY RE-INTERPRET THE RULE TO APPLY TO A SINGLE TENANT, NNN TYPE
BUILDING.
1. Sidewalks, halls, passages, exits, entrances, elevators, escalators
and stairways shall not be obstructed by Tenant or used by Tenant for any
purpose other than for ingress to and egress from the Premises. Except to
make emergency repairs and service antennas as previously agreed to by
Landlord, Tenant, and Tenant's employees or invitees, shall not go upon the
roof of the Building, except as authorized by Landlord.
2. No sign, placard, picture, name, advertisement or notice visible
from the exterior of the Premises shall be inscribed, painted, affixed,
installed or otherwise displayed by Tenant either on the Premises or any
part of the Building without the prior written consent of Landlord, and
Landlord shall have the right to remove any such sign, placard, picture,
name, advertisement or notice without notice to and at the expenses of Tenant.
In the case of signage on the interior of the Building, Landlord shall not
unreasonably withhold its consent to such signage.
If Landlord shall have given such consent to Tenant at any time, whether
before or after the execution of the Lease, such consent shall not in any way
operate as a waiver or release of any of the provisions hereof or of the
Lease, and shall be deemed to relate only to the particular sign, placard,
picture, name, advertisement or notice so consented to by Landlord and shall
not be construed as dispensing with the necessity of obtaining the specific
written consent of Landlord with respect to any other such sign, placard,
picture, name, advertisement or notice. All approved signs or lettering on
doors and walls shall be printed, painted, affixed or inscribed at the
expense of Tenant by a person reasonably approved by Landlord.
3. [Intentionally Deleted]
4. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, awnings, hangings or decorations visible from the exterior of the
Premises shall be attached to, hung or placed in, or used in connection with,
any window, door or patio on the Premises without the prior written consent
of the Landlord which consent shall not be unreasonably withheld or delayed.
In any event with the prior written consent of Landlord, all such items shall
be installed inboard of Landlord's window coverings and shall not in any way
be visible from the exterior of the Building. No articles shall be placed or
kept on the window sills so as to be visible from the exterior of the
Building. No articles shall be placed against glass partitions or doors
which appear unsightly from outside the Building.
5. During the continuance of any invasion, mob, riot, public excitement
or other similar circumstance rendering such action advisable in Landlord's
reasonable opinion, Landlord reserves the right in cooperation with Tenant to
prevent access to the Building by closing the doors, or otherwise, for the
safety of tenants and protection of the Building and property in the Building.
6. Landlord shall not in any way be responsible to Tenant for any loss
of property on the Premises, however occurring, or for any damage done to the
effects of Tenant by the janitor or any other employee or any other person
except to the extent caused by the negligence or willful misconduct of
Landlord, its agents or its employees.
7. Tenant may have a Lunchroom/Breakroom in the Premises that has a
refrigerator and microwave and other such appliances as is customary.
8. Tenant shall see that the exterior doors of the Premises are closed
and securely locked and must observe strict care and caution that all water
faucets or water apparatus are entirely shut off before Tenant or its
employees leave such Premises, and that all utilities shall likewise be
carefully shut off, so as to prevent waste or damage, and of any default or
carelessness the Tenant shall make good all injuries sustained by other
tenants or occupants of the Building or Landlord. On multiple-tenancy
floors, all tenants shall keep the door or doors to the Building corridors
closed at all times except for ingress and egress.
9. [Intentionally Deleted].
10. [Intentionally Deleted]
11. Tenant shall not alter any lock or access device or install a new
or additional lock or access device or any bolt on any exterior door of the
Premises without the prior written consent of Landlord which consent shall
not be unreasonably withheld or delayed. If Landlord shall give its consent,
Tenant shall in each case furnish Landlord with a key for any such lock.
Exhibits - Page 5
<PAGE>
12. Tenant, upon the termination of the tenancy, shall deliver to
Landlord all the keys or access devices for the Building, offices, rooms and
toilet rooms which shall have been furnished to Tenant or which Tenant shall
have had made. In the event of the loss of any keys or access devices so
furnished by Landlord, Tenant shall pay Landlord therefor.
13. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein, and the expense of any breakage, stoppage or damage resulting from
the violation of this rule by Tenant or Tenant's employees or invitees shall
be borne by Tenant.
14. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material other than
limited quantities necessary for the operation or maintenance of office or
office equipment. Tenant shall not use any method of heating or air
conditioning other than supplied by Landlord. Tenant shall be allowed to use
small, electric heaters in the Premises which are approved by the
Underwriters Laboratories for personal use.
15. Tenant shall not use, keep or permit to be used or kept in the
Premises any foul or noxious gas or substance or permit or suffer the Premises
to be occupied or used in a manner reasonably offensive or objectionable to
Landlord or other occupants of the Project by reason of noise, odors and/or
vibrations or interfere in any unreasonable way with other tenants or those
having business therein, nor shall any animals or birds be brought or kept in
or about the Premises or the Building.
16. No cooking for the general public shall be done or permitted by
Tenant on the Premises (except that use by the Tenant of Underwriter's
Laboratory approved equipment for the preparation of coffee, tea, hot
chocolate and similar beverages for Tenant and its employees shall be
permitted, provided that such equipment and use in relation thereto are in
accordance with all applicable federal, state and city laws, codes,
ordinances, rules and regulations), nor shall Premises be used for lodging.
See Paragraph 7. Notwithstanding the above, Tenant shall be allowed to have
a lunchroom and use a refrigerator, toaster oven, microwave oven, dishwasher,
vending machines, etc. as are customary in lunchrooms for employees.
17. Except with the prior written consent of Landlord, Tenant shall not
sell, or permit the sale, at retail, of newspapers, magazines, periodicals,
theater tickets or any other goods or merchandise in or on the Premises, nor
shall Tenant carry on, or permit or allow any employee or other person to
carry on, the business of stenography, typewriting or any similar business in
or from the Premises for the service or accommodation of occupants of any
other portion of the Building, nor small the Premises be used for the storage
of merchandise or for manufacturing which is in excess of such reasonable
amount incidental to Tenant's Use of the Premises, or the business of a
public barber shop or beauty parlor, nor shall the Premises be used for any
unreasonably objectionable purpose, or any business or activity other than
that specifically provided for in Tenant's Lease.
18. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain and comply with Landlord's reasonable
instructions in their installation.
19. Landlord will direct electricians as to where and how telephone,
telegraph and electrical wires are to be introduced or installed. No boring
or cutting for wires will be allowed without the prior written consent of
Landlord which consent shall not be unreasonably withheld or delayed. The
location of burglar alarms, telephones, call boxes or other office equipment
affixed to the Premises shall be subject to the written approval of Landlord,
which shall not be unreasonably withheld.
20. Tenant shall not install any radio or television antenna,
loudspeaker or any other device on the exterior walls or the roof of the
Building without Landlord's prior written approval. Landlord agrees to
respond promptly to Tenant's request for approval of the placement of
antennas upon the roof and to cooperate with Tenant in obtaining approval
from applicable governing authorities relating thereto. Tenant shall not
interfere with radio or television broadcasting or reception from or in the
Building or elsewhere.
21. Except as allowed in Paragraph 6 of the Lease, Tenant shall not lay
linoleum, tile, carpet or any other floor covering so that the same shall be
affixed to the floor of the Premises in any manner except as approved in
writing by Landlord. The expense of repairing any damage resulting from a
violation of this rule the Tenant or Tenant's contractors, employees or
invitees or the removal of any floor covering shall be borne by Tenant.
Tenant shall use chair pads if needed to avoid excess wear and tear to floor
coverings.
22. Landlord shall have the right to prescribe the weight, size, and
position of all safes, unreasonably heavy furniture or other heavy equipment
brought into the Building. Safes or other heavy objects shall, if considered
reasonably necessary by Landlord, stand on wood strips so such thickness as
determined by Landlord to be reasonably necessary to properly distribute
the weight thereof. Landlord will not be responsible for loss of or damage
to any such safe, equipment or property from any cause, and all damage done
to the Building by moving or maintaining any such safe, equipment or other
property shall be repaired at the expense of Tenant.
Exhibits - Page 6
<PAGE>
Business machines and mechanical equipment belonging to Tenant which
cause noise or vibration that may be transmitted to the structure of the
Building or to any space therein to such a degree as to be unreasonably
objectionable to Landlord or to any tenants in the Project shall be placed
and maintained by Tenant, at Tenant's expense, on vibration eliminators or
other devices sufficient to eliminate noise or vibration. The persons
employed to move such equipment in or out of the Building must be acceptable
to Landlord.
23. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Tenant shall not mark, use double-sided adhesive
tape on, the partitions, woodwork or plaster or in any unreasonable way
deface the Premises or any part thereof unless Tenant agrees to repair such
damage upon termination of the Lease. Tenant may hang pictures on walls in
the Premises. Any damage to the walls caused by molley bolts, or like hanging
materials, will be repaired by Tenant upon expiration or earlier termination
of the Lease.
24. Tenant shall not install, maintain or operate upon the Premises any
vending machine, except for the use of its employees and business invitees,
without the written consent of Landlord.
25. There shall not be used in any space, or in the public areas of the
Building, either by Tenant or others, any hand trucks except those equipped
with rubber tires and side guards or such other material-handling equipment
(e.g. forklift) as Landlord may reasonably approve. No other vehicles of any
kind shall be brought by Tenant into or kept in or about the Premises.
26. Tenant shall store all trash and garbage within the interior of the
Premises or in a customary dumpster located behind the Building. No material
shall be placed in the trash boxes or receptacles if such material is of such
nature that it may not be disposed of in the ordinary and customary manner of
removing and disposing of trash and garbage in the jurisdiction in which the
Premises is located, without violation of any law or ordinance governing such
disposal. All trash, garbage and refuse disposal shall be properly removed
from the Premises and Project
27. [Intentionally Omitted]
28. Landlord shall have the right, exercisable with notice and without
liability to Tenant, to change the name and address of the Building. In the
event the Landlord chooses to change the name or address of the Building (and
is not required to by some governmental authority, etc., Landlord will
reimburse Tenant for the cost of replacement stationery, replacement signage,
mailing notices, etc.
29. [Intentionally Omitted]
30. Without the prior written consent of Landlord, Tenant shall not use
the name of the Building in connection with or in promoting or advertising
the business of Tenant except as Tenant's address. Tenant may use Project's
name on its stationery and business cards.
31. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any appropriate
governmental agency.
32. Tenant assumes any and all responsibility for protecting the Premises
from theft, robbery and pilferage, which includes keeping doors locked and
other means of entry to the Premises closed, unless caused by the negligence
or willful misconduct of Landlord, its agents, servants, or employees
("Landlord Parties").
33. The requirements of Tenant will be attended to only upon application
at the office of the Landlord by an authorized individual. Employees of
Landlord shall not perform any work or do anything outside of their regular
duties unless under special instructions from Landlord, and no employees will
admit any person (Tenant or otherwise) to any office without specific
instructions from Landlord.
34. Landlord may reasonably waive any one or more of these Rules and
Regulations for the benefit of any particular tenant or tenants, but no such
waiver by Landlord shall be construed as a waiver of such Rules and
Regulations in favor of any other tenant or tenants, nor prevent Landlord
from thereafter enforcing any such Rules and Regulations against any or all
tenants of the Building.
35. Landlord reserves the right to make such other reasonable rules and
regulations as in its judgment may from time to time be needed for safety and
security, for care and cleanliness of the Building and for the preservation
of good order therein. Tenant agrees to abide by all such Rules and
Regulations hereinafter stated and any additional rules and regulations which
are adopted. No new Rule or Regulation shall be designed to discriminate
solely against Tenant.
36. Tenant shall be responsible for the observance of all of the
foregoing Rules and Regulations by Tenant's employees, agents, clients,
customers, invitees and guests.
Exhibits - Page 7
<PAGE>
37. Unless otherwise defined, terms used in these Rules and Regulations
shall have the same meaning as in the Lease.
Exhibits - Page 8
<PAGE>
EXHIBIT "D"
- -----------------------------------------------------------------------------
FORM OF TENANT ESTOPPEL CERTIFICATE
TO: _____________________________, or Assignee ("Lendor"), and/or whom else
it may concern:
THIS IS TO CERTIFY THAT:
1. The undersigned in the lessee ("Tenant") under that certain lease dated
__________, 19__, ("Lease"), by and between _____________________________
as lessor ("Landlord") and _________________________________ as Tenant,
covering those certain premises commonly known and designated as
__________________________ ("Premises").
2. The Lease has not been modified, changed, altered, assigned, supplemented
or amended in any respect (except as indicated below; if none, state
"none"). The Lease is not in default and is valid and in full force and
effect on the date hereof. The Lease is the only Lease or agreement
between the Tenant and the Landlord affecting or relating to the Premises.
The Lease represents the entire agreement between the Landlord and the
Tenant with respect to the Premises. ____________.
3. The Tenant is not entitled to, and has made no agreement(s) with the
Landlord or its agents or employees concerning free rent, partial rent,
rebate of rent payments, credit or offset or deduction in rent, or any
other type of rental concession, including, without limitation, lease
support payments or lease buy-outs (except as indicated below; if none,
state "none"). __________________________________________________________
_________________________________________________________________________.
4. The Tenant has accepted and now occupies the Premises, and is and has been
open for business since ________________, 19____. The Lease term began
_________________, 19____. The termination date of the present term of the
Lease, excluding unexercised renewals, is _________________, 19____.
5. The Tenant has paid rent for the Premises for the period up to and
including __________________, 19____. The fixed minimum rent and any
additional rent (including the Tenant's share of tax increases and cost
of living increases) payable by the Tenant presently is $________ per
month. No such rent has been paid more than two (2) months in advance of
its due date, except as indicated below (if none, state "none"). The
Tenant's security deposit is $______________.
_____________________________________________________________
6. No event has occurred and no condition exists which,, with the giving
notice or the lapse of time or both, will constitute a default under the
Lease. The Tenant has no existing defenses or offsets against the
enforcement of this Lease by the Landlord.
7. The Tenant has received or will receive payment or credit for tenant
improvement work in the total amount of $______________________ (or if
other than cash, describe below; if none, state "none"). All conditions
under this Lease to be performed by the Landlord have been satisfied. All
required contributions by the Landlord to the Tenant on account of the
Tenant's tenant improvements have been received by the Tenant. ____________
___________________________________________________________________________.
8. The Lease contains, and the Tenant has, no outstanding options or rights
of first refusal to purchase the Premises or any part thereof or all or
any part of the real property of which the Premises are a part.
9. No actions, whether voluntary or otherwise, are pending against the Tenant
or any general partner of the Tenant under the bankruptcy laws of the
United States or any state thereof.
10. The Tenant has not sublet the Premises to any sublessee and has not
assigned any of its rights under the Lease, except as indicated below (if
none, state "none"). No one except the Tenant and its employees occupies
the Premises. ____________________________________________________________.
11. The address for notices to be sent to the Tenant is as set forth in the
Lease.
12. To the best of Tenant's knowledge, the use, maintenance or operation of
the Premises complies with, and will at all times comply with, all
applicable federal, state, county or local statutes, laws, rules and
regulations of any governmental authorities relating to environmental,
health or safety matters (being hereinafter collectively referred to as
the Environmental Laws).
13. The Premises have not been used and the Tenant does not plan to use the
Premises for any activities which, directly or indirectly, involve the
use, generation, treatment, storage, transportation
Exhibits - Page 9
<PAGE>
or disposal of any petroleum product or any toxic or hazardous chemical,
material, substance, pollutant or waste.
14. Tenant has not received any notices, written or oral, of violation of any
Environmental Law or of any allegation which, if true, would contradict
anything contained herein and there are not writs, injunctions, decrees,
orders or judgements outstanding, no lawsuits, claims, proceedings or
investigations pending or threatened, relating to the use, maintenance or
operation of the Premises, nor is Tenant aware of a basis for any such
proceeding.
15. (INCLUDE THIS PARAGRAPH FOR LOAN TRANSACTIONS.) The Tenant acknowledges
that all the interest of the Landlord in and to the Lease is being duly
assigned to Lendor, and that pursuant to the terms thereof, all rent
payments under the Lease shall continue to be paid to the Landlord in
accordance with the terms of the Lease unless and until the Tenant is
notified otherwise in writing by Lendor or its successors or assigns.
It is particularly noted that:
(a) Under the provisions of this assignment, the Lease cannot be
terminated (either directly or by the exercise of any option which
could lead to termination) or modified in any of its terms, or
consent be given to the release of any party having liability
thereon, without the prior written consent of Lendor or it successors
or assigns, and without such consent, no rent may be collected or
accepted more than two (2) months in advance.
(b) The interest of the Landlord in the Lease has been assigned to Lendor
for the purposes specified in the assignment. Lendor, or its
successors or assigns, assumes no duty, liability or obligation
whatsoever under the Lease or any extension or renewal thereof.
(c) Any notices sent to Lendor or its affiliates should be sent by
registered mail and addressed as follows: ____________________________
_____________________________________________________________________.
16. Tenant agrees to give any Mortgagee and/or Trust Deed Holders
("Mortgagee"), by registered mail, a copy of any notice of default served
upon the Landlord, provided that prior to such notice Tenant has been
notified in writing (by way of Notice of Assignment of Rents and Leases,
or otherwise), of the address of such Mortgagee. Tenant further agrees
that if Landlord shall have failed to cure such default within the time
provided for in this Lease, then the Mortgagee shall have an additional
sixty (60) days within which to cure such default of it such default
cannot be cured within that time, then such additional time as may be
necessary to cure such default shall be granted if within such sixty (60)
days Mortgagee has commenced and is diligently pursuing the remedies
necessary to cure such default (including, but not limited to,
commencement of foreclosure proceedings, if necessary to effect such
cure), in which event the Lease shall not be terminated while such
remedies are being so diligently pursued.
17. This certification is made to induce Lendor to make certain fundings,
knowing that Lendor relies upon the truth of this certification in
disbursing said funds.
18. The undersigned is authorized to execute this Tenant Estoppel Certificate
on behalf of the Tenant.
DATED THIS ____________________ DAY OF ________________, 19 ____.
______________________________________________
(Tenant)
By: ________________________________________
Its: __________________________________
Date: __________________________________
The undersigned hereby certifies that the certifications set forth above are
true as of the date hereof.
______________________________________________
(Owner/Landlord)
By: ________________________________________
Its: __________________________________
Date: __________________________________
Exhibits - Page 10
<PAGE>
[LOGO] Exhibit 10.21
STANDARD SUBLEASE
1. PARTIES. This Sublease, dated, for reference purposes only, September
21, 1995, is made by and between Macrovision Corporation (herein called
"Sublessor") and Deutsch Technology Research, a California corporation
(herein called "Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the
County of Santa Clara, State of California, commonly known as 700 El Camino
Real, Suite 130, Mountain View, California, and described as that
[plus or minus] 4,988 rentable square foot portion of the above referenced
building. Said real property, including the land and all improvements
thereon, is hereinafter called the "Premises".
3. TERM.
3.1 TERM. The term of this Sublease shall be for twenty-five (25) months
commencing on October 1, 1995 and ending on October 31, 1997, unless sooner
terminated pursuant to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if
for any reason Sublessor cannot deliver possession of the Premises to
Sublessee on said date, Sublessor shall not be subject to any liability
therefore, nor shall such failure affect the validity of this Lease or the
obligations of Sublessee hereunder or extend the term hereof, but in such
case Sublessee shall not be obligated to pay rent until possession of the
Premises is tendered to Sublessee, provided, however, that if Sublessor shall
not have delivered possession of the Premises within sixty (60) days form
said commencement date, Sublessee may, at Sublessee's option, by notice in
writing to Sublessor within ten (10) days thereafter, cancel this Sublease,
in which event all deposits shall be returned.
4. RENT. Sublessee shall pay to Sublessor as rent for the Premises equal
monthly payments of, Seven Thousand Nine Hundred Eighty and 80/100 Dollars
($7,980.80) through month 13 and then Eight Thousand Four Hundred
Seventy-Nine and 60/100 Dollars ($8,479.60) for months 14 through 26 (see
Paragraph 12), in advance, on the first (1st) day of each month of the term
hereof. Sublessee shall pay Sublessor upon the execution hereof Seven
Thousand Nine Hundred Eighty and 80/100 Dollars ($7,980.80) as rent for
October. Rent for any period during the term hereof which is for less than
one (1) month shall be a pro-rata portion of the monthly installment. Rent
shall be payable in lawful money of the United States to Sublessor at the
address stated herein or to such other persons or at such other places as
Sublessor may designate in writing.
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5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $7,980.80 as security for Sublessee's faithful performance of
Sublessee's obligations hereunder. If Sublessee fails to pay rent or other
charges due hereunder, or otherwise defaults with respect to any provision of
this Sublease, Sublessor may use, apply or retain all or any portion of said
deposit for the payment of any rent or other charge in default or for the
payment of any other sum to which Sublessor may become obligated by reason of
Sublessee's default, or to compensate Sublessor for any loss or damage which
Sublessor may suffer thereby. If Sublessor so uses or applies all or any
portion of said deposit, Sublessee shall within ten (10) days after written
demand therefore deposit cash with Sublessor in an amount sufficient to
restore said deposit to the full amount hereinabove stated and Sublessee's
failure to do so shall be a material breach of this Sublease. Sublessor shall
hold deposits in trust and shall keep said deposit separate from its general
accounts. If Sublessee performs all of Sublessee's obligations hereunder,
said deposit, or so much thereof as has not therefore been applied by
Sublessor, shall be returned, without payment of interest or other increment
for its use to Sublessee (or at Sublessor's option to the last assignee, if
any, of Sublessee's interest hereunder) at the expiration of the term hereof,
and after Sublessee has vacated the Premises.
6. USE.
6.1 USE. The Premises shall be used and occupied only for sales,
marketing, general office use, and general administration, and for no other
purpose.
6.2 COMPLIANCE WITH LAW.
(a) Sublessor warrants to Sublessee that the Premises, in its
existing state, but without regard to the use for which Sublessee
will use the Premises, does not violate any applicable building
code regulation or ordinance at the time that this Sublease is
executed. In the event that it is determined that this warranty
has been violated, then it shall be the obligation of the
Sublessor, after written notice from Sublessee, to promptly, at
Sublessor's sole cost and expense, rectify any such violation.
In the event that Sublessee does not give to Sublessor
written notice of the violation of this warranty within one (1)
year from the commencement of the term of this Sublease, it shall
be conclusively deemed that such violation did not exist and the
correction of the same shall be the obligation of the Sublessee.
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COLLIERS PARRISH INTERNATIONAL, INC. IS PLEASED TO BE ABLE TO PROVIDE THE
ABOVE INFORMATION AND IN SO DOING BELIEVES ITS VALIDITY. HOWEVER, WE CANNOT
GUARANTEE ITS ACCURACY OR TAKE RESPONSIBILITY FOR ITS USE.
<PAGE>
STANDARD SUBLEASE PAGE 2 OF 4
(b) Except as provided in paragraph 6.2(a), hereof Sublessee shall,
at Sublessee's expense, comply promptly with all applicable
statutes, ordinances, rules, regulations, orders, restrictions
of record, and requirements in effect during the term or any
part of the term hereof regulating the use by Sublessee of the
Premises. Sublessee shall not use or permit the use of the
Premises in any manner that will tend to create waste or a
nuisance or, if there shall be more than one tenant of the
building containing the Premises, which shall tend to disturb
such other tenants.
6.3 CONDITION OF PREMISES. Except as provided in paragraph 6.2(a)
hereof Sublessee hereby accepts the Premises in their condition existing as
of the date of the execution hereof, subject to all applicable zoning,
municipal, county and state laws, ordinances, and regulations governing and
regulating the use of the Premises, and accepts this Sublease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto.
Sublessee acknowledges that neither Sublessor nor Sublessor's agents have
made any representation or warranty as to the suitability of the Premises for
the conduct of Sublessee's business.
7. MASTER LEASE.
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy of which is attached
hereto marked Exhibit 1, dated May 26, 1992, wherein Crossroads Investment
Group is the Lessor, hereinafter referred to as the "Master Lessor".
7.2 This Sublease is and shall be at all times subject and subordinate
to the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions
of the Master Lease except for those provisions of the Master Lease which are
directly contraindicated by this Sublease in which event the terms of this
Sublease document shall control over the Master Lease. Therefore, for the
purposes of this Sublease, wherever in the Master Lease the word "Lessor" is
used it shall be deemed to mean the Sublessor herein and wherever in the
Master Lease the word "Lessee" is used it shall be deemed to mean the
Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with,
for the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease EXCEPT for the following paragraphs which
are excluded therefrom: 1.5, 1.6, 1.7, 1.8, 1.9, 1.10, 3.2, 3.2.2, 4.2, 4.3,
4.3.1, 4.3.2, 4.3.3, 4.3.4, 4.3.5, 5, 6.3, 7, 7.1, 7.2, 7.3, 7.4, 12.2, 12.3,
12.4, 12.5, and 12.6.
7.5 The obligations that Sublessee has assumed under paragraph 7.4
hereof are hereinafter referred to as the "Sublessee's Assumed Obligations".
The obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations".
7.6 Sublessee shall indemnify and hold Sublessor free and harmless of
and from all liability, judgments, costs, damages, claims or demands,
including reasonable attorneys fees, arising out of Sublessee's failure to
comply with or perform Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire term
of this Sublease, subject, however, to any earlier termination of the Master
Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of
and from all liability, judgments, costs, damages, claims or demands arising
out of Sublessor's failure to comply with or perform Sublessor's Remaining
Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party to the
Master Lease.
7.9 Sublessee shall not be liable to Master Lessor or Sublessor for any
damage or wear and tear to the Premises which occurred prior to the
commencement of this Sublease.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease and all rentals and income arising
therefrom, subject however to terms of Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a
default shall occur in the performance of Sublessor's Obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the rents
accruing under this Sublease. However, if Sublessor shall default in the
performance of its obligations to Master Lessor then Master Lessor may, at
its option, receive and collect, directly from Sublessee, all rent owing and
to be owed under this Sublease. Master Lessor shall not, by reason of this
assignment of the Sublease nor by reason of the collection of the rents from
the Sublessee, be deemed liable to Sublessee for any failure of the Sublessor
to perform and comply with Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt of any written notice from the Master Lessor stating that a default
exists in the performance of Sublessor's obligations under the Master Lease,
to pay to Master Lessor the rents due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from the Master Lessor, and that Sublessee shall pay
such rents to Master Lessor without any
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COLLIERS PARRISH INTERNATIONAL, INC. IS PLEASED TO BE ABLE TO PROVIDE THE
ABOVE INFORMATION AND IN SO DOING BELIEVES ITS VALIDITY. HOWEVER, WE CANNOT
GUARANTEE ITS ACCURACY OR TAKE RESPONSIBILITY FOR ITS USE.
<PAGE>
STANDARD SUBLEASE PAGE 3 OF 4
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Sublessor to the contrary and
Sublessor shall have no right or claim against Sublessee for any such rents
to paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease without
the consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within ten (10) days of the date hereof,
Master Lessor signs this Sublease thereby giving its consent to this
Subletting.
9.2 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor or its obligations or
alter the primary liability of Sublessor to pay the rent and perform
and comply with all of the obligations of Sublessor to be performed
under the Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any one
else liable under the Master Lease shall not be deemed a waiver by
Master Lessor of any provisions of the Master Lease.
(c) The consent of this Sublease shall not constitute a consent to
any subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master Lease,
Master Lessor may proceed directly against Sublessor, any guarantors
or any one else liable under the Master Lease or this Sublease
without first exhausting Master Lessor's remedies against any other
person or entity liable thereon to Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and assignments
of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor nor any one else
liable under the Master Lease and without obtaining their consent
and such action shall not relieve such persons from liability.
(f) In the event that Sublessor shall default in its obligations under
the Master Lease, the Master Lessor, at its option and without being
obligated to do so, may require Sublessee to attorn to Master Lessor
in which event Master Lessor shall undertake the obligations of
Sublessor under this Sublease from the time of the exercise of said
option to termination of this Sublease but Master Lessor shall not
be liable for any prepaid rents nor any security deposit paid by
Sublessee, nor shall Master Lessor be liable for any other defaults
of the Sublessor under the Sublease.
9.3 The signatures of the Master Lessor and any Guarantors of Sublessor
at the end of this document shall constitute their consent to the terms of
this Sublease.
9.4 MASTER LESSOR ACKNOWLEDGES THAT, TO THE BEST OF MASTER LESSOR'S
KNOWLEDGE, NO DEFAULT PRESENTLY EXISTS UNDER THE MASTER LEASE OF OBLIGATIONS
TO BE PERFORMED BY SUBLESSOR AND THAT THE MASTER LEASE IS IN FULL FORCE AND
EFFECT.
9.5 In the event Sublessor defaults under its obligations to be performed
under the Master Lease by Sublessor, Sublessor agrees to deliver to Sublessee
a copy of any such notice of default.
10. BROKERS FEE.
10.1 Upon execution hereof by all parties, Sublessor shall pay to
Colliers Parish International, Inc., a licensed real estate broker, (herein
called "Broker"), a fee as set forth in a separate agreement between Sublessor
and Broker.
11. ATTORNEY'S FEES. If any party named herein brings an action to enforce
the terms hereof or to declare rights hereunder, the prevailing party in any
such action, on trial and appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the Court.
12. ADDITIONAL PROVISIONS.
1) This is a Full Service Sublease to include taxes, insurance,
maintenance and utilities.
2) Rent for Months: 01-13: $1.60 per rentable square foot.
14-25: $1.70 per rentable square foot.
3) Neither Sublessee, nor its agents or contractors, are permitted to use
or store hazardous materials in the subject space.
4) In the event that the terms of the Sublease shall conflict with the
Master Lease, especially with regards to rent, the Sublease shall take
precedence.
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COLLIERS PARISH INTERNATIONAL, INC. IS PLEASED TO BE ABLE TO PROVIDE THE
ABOVE INFORMATION AND IN SO DOING BELIEVES ITS VALIDITY. HOWEVER, WE CANNOT
GUARANTEE ITS ACCURACY OR TAKE RESPONSIBILITY FOR ITS USE.
<PAGE>
STANDARD SUBLEASE PAGE 4 OF 4
5) Sublessor shall provide Two Thousand and No/100ths Dollars ($2,000.00)
for the purpose of general painting and carpet as a tenant improvement
allowance.
6) Sublessee shall return the space at the end of the Sublease, in the same
condition as when they first occupied, normal wear and tear excepted.
IF THIS SUBLEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION
OR RECOMMENDATION IS MADE BY COLLIERS PARRISH INTERNATIONAL, INC.
OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE TRANSACTION
RELATING THERETO.
Executed at Macrovision Grp. /s/ Robert J. Netter, Jr.
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on 9-28-95 By Robert J. Netter, Jr VP/CFO
-------------------------------- --------------------------------
address 1341 Orleans Drive By
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Sunnyvale, CA 94089 "SUBLESSOR" (CORPORATE SEAL)
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Executed at Deutsch Research /s/ Jeffrey T. Deutsch
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on 9/26/95 By Jeffrey T. Deutsch
-------------------------------- --------------------------------
address 5150 El Camino Real Ste D-15 By
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Los Altos, CA 95022 "SUBLESSEE" (CORPORATE SEAL)
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Executed at San Jose Crossroads Investment Group
----------------------- -----------------------------------
on 9/30/95 By /s/ [ILLEGIBLE]
-------------------------------- --------------------------------
address 2650 N. First St. By
--------------------------- --------------------------------
95134 "MASTER LESSOR" (CORPORATE SEAL)
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Executed at
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on By
-------------------------------- --------------------------------
address By
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"GUARANTORS"
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COLLIERS PARISH INTERNATIONAL, INC. IS PLEASED TO BE ABLE TO PROVIDE THE
ABOVE INFORMATION AND IN SO DOING BELIEVES ITS VALIDITY. HOWEVER, WE CANNOT
GUARANTEE ITS ACCURACY OR TAKE RESPONSIBILITY FOR ITS USE.
<PAGE>
STANDARD OFFICE LEASE--GROSS
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions")
1.1 PARTIES: This Lease, dated, for reference purposes only, May 26, 1992
is made by and between Crossroads Investment Group, a California general
partnership (herein called "Lessor") and Macrovision Corporation, a California
corporation doing business under the name of _________________________________,
(herein called "Lessee")
1.2 PREMISES: Suite Number(s) 130, ________ floors, consisting of
approximately 4,988 feet, more or less, as defined in paragraph 2 and as
shown on Exhibit "A" hereto (the "Premises").
1.3 BUILDING: Commonly described as being located at 700 E. El Camino Real
in the City of Mountain View
County of Santa Clara
State of California, as more particularly described in Exhibit A hereto, and
as defined in paragraph 2
1.4 USE: general office use, subject to paragraph 6
1.5 TERM: Sixty-four (64) Months commencing July 1, 1992 ("Commencement
Date") and ending October 31, 1997 as defined in paragraph 3
1.6 BASE RENT: Eight Thousand Eight Hundred Twenty-eight & 76/100 Dollars
($8,828.76) per month, payable on the 1st day of each month per paragraph 4.1
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1.7 BASE RENT INCREASE: On see Addendum Section 1 the monthly Base Rent
payable under paragraph 1.6 above shall be adjusted as provided in paragraph
4.3 below.
1.8 RENT PAID UPON EXECUTION: Six thousand Eighty-five and 36/100 Dollars
($6,085.36) for application against first month's rent
1.9 SECURITY DEPOSIT: Eight Thousand Three Hundred Twenty-nine and 96/100
Dollars ($8,329.96)
1.10 LESSEE'S SHARE OF OPERATING EXPENSE INCREASE: 10.06% as defined in
paragraph 4.2.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the
land upon which the same are located, along with all other buildings and
improvements thereon or thereunder, are herein collectively referred to as
the "Office Building Project." Lessor hereby leases to Lessee and Lessee
leases from Lessor for the term, at the rental, and upon all of the
conditions set forth herein, the real property referred to in the Basic Lease
Provisions, paragraph 1.2, as the "Premises," including rights to the Common
Areas as hereinafter specified.
2.2 VEHICLE PARKING: So long as Lessee is not in default, and subject to
the rules and regulations attached hereto, and as established by Lessor from
time to time, Lessee shall be entitled to rent and use * parking spaces in
---
the Office Building Project at the monthly rate applicable from time to time
for monthly parking as set by Lessor and/or its licensee. its prorata share
(10.06% of available parking)
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor
shall have the right, with one prior notice, in addition to such other rights
and remedies that it may have, to remove or tow away the vehicle involved and
charge the cost to Lessee, which cost shall be immediately payable upon
demand by Lessor.
2.3 COMMON AREAS--DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary
line of the Office Building Project that are provided and designated by the
Lessor from time to time for the general non-exclusive use of Lessor, Lessee
and of other lessees of the Office Building Project and their respective
employees, suppliers, shippers, customers and invitees, including but not
limited to common entrances, lobbies, corridors, stairways and stairwells,
public restrooms, elevators, escalators, parking areas to the extent not
otherwise prohibited by this Lease, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, ramps, driveways, landscaped areas
and decorative walls.
2.4 COMMON AREAS--RULES AND REGULATIONS. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with
respect to the Office Building Project and Common Areas, and to cause its
employees, suppliers, shippers, customers, and invitees to so abide and
conform. Lessor or such other person(s) as Lessor may appoint shall have the
exclusive control and management of the Common Areas and shall have the
right, from time to time, to modify, amend and enforce said rules and
regulations. Lessor shall not be responsible to Lessee for the non-compliance
with said rules and regulations by other lessees, their agents, employees and
invitees of the Office Building Project.
2.5 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas,
ingress, egress, direction of traffic, decorative walls, landscaped areas and
walkways; provided, however, Lessor shall at all times provide the parking
facilities and restroom facilities required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries
of the Office Building Project to be a part of the Common Areas, provided
that such other land and improvements have a reasonable and functional
relationship to the Office Building Project;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Office Building Project as
Lessor may, in the exercise of sound business judgment deem to be appropriate.
3. TERM.
3.1 TERM. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 DELAY IN POSSESSION. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease
or the obligations of Lessee hereunder or extend the term hereof; but, in
such case, Lessee shall not be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease, except as may be
otherwise provided in this Lease, until possession of the Premises is
tendered to Lessee, as hereinafter defined; provided, however, that if Lessor
shall not have delivered possession of the Premises within sixty (60) days
following said Commencement Date, as the same may be extended under the terms
of a Work Letter executed by Lessor and Lessee. Lessee may, at Lessee's
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FULL SERVICE--GROSS
PAGE 1 of 10 PAGES
<PAGE>
option, by notice in writing to Lessor within ten (10) days thereafter, cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided, however, that, as to Lessee's obligations, Lessee first
reimburses Lessor for all costs incurred for Non-Standard improvements and, as
to Lessor's obligations, Lessor shall return any money previously deposited by
Lessee (less any offsets due Lessor for Non-Standard improvements); and provided
further, that if such written notice by Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect.
3.2.1 POSSESSION TENDERED -- DEFINED. Possession of the Premises
shall be deemed tendered to Lessee ("Tender of Possession") when (1) the
improvements to be provided by Lessor under this Lease are substantially
completed, (2) the Building utilities are ready for use in the Premises, (3)
Lessee has reasonable access to the Premises, and (4) ten (10) days shall have
expired following advance written notice to Lessee of the occurrence of the
matters described in (1), (2) and (3), above of this paragraph 3.2.1.
3.2.2 DELAYS CAUSED BY LESSEE. There shall be no abatement of
rent, and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be deemed
extended to the extent of any delays caused by acts or omissions of Lessee,
Lessee's agents, employees and contractors.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 UNCERTAIN COMMENCEMENT. In the event commencement of the Lease term
is defined as the completion of the improvements, Lessee and Lessor shall
execute an amendment to this Lease establishing the date of Tender of Possession
(as defined in paragraph 3.2.1) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. RENT
4.1 BASE RENT. Subject to adjustment as hereinafter provided in
paragraph 4.3, and except as may be otherwise expressly provided in this
Lease, Lessee shall pay to Lessor the Base Rent for the Premises set forth in
paragraph 1.6 of the Basic Lease Provisions, without offset or deduction.
Lessee shall pay Lessor upon execution hereof the advance Base Rent described
in paragraph 1.8 of the Basic Lease Provisions. Rent for any period during
the term hereof which is for less than one month shall be prorated based upon
the actual number of days of the calendar month involved. Rent shall be
payable in lawful money of the United States to Lessor at the address stated
herein or to such other persons or at such other places as Lessor may
designate in writing. See Addendum Section 2
4.2 OPERATING EXPENSE INCREASE. Lessee shall pay to Lessor during the
term hereof. In addition to the Base Rent, Lessee's Share, as hereinafter
defined, of the amount by which all Operating Expenses, as hereinafter defined,
for each Comparison Year exceeds the amount of all Operating Expenses for the
Base Year, such excess being hereinafter referred to as the "Operating Expenses
Increase", in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of the
Premises by the total approximate square footage of the rentable space contained
in the Office Building Project. It is understood and agreed that the square
footage figures set forth in the Basic Lease Provisions are approximations which
Lessor and Lessee agree are reasonable and shall not be subject to revision
except in connection with an actual change in the size of the Premises or a
change in the space available for lease in the Office Building Project. Office
Building Project is approximately 49,572 rentable square feet.
(b) "Base year" is defined as the calendar year in which the Lease
term commences.
(c) "Comparison Year" is defined as each calendar year during the
term of this Lease subsequent to the Base Year; provided, however, Lessee shall
have no obligation to pay a share of the Operating Expense increase applicable
to the first twelve (12) months of the Lease Term (other than such as are
mandated by a governmental authority, as to which government mandated expenses
Lessee shall pay Lessee's Share, notwithstanding they occur during the first
twelve (12) months). Lessee's Share of the Operating Expense increase for the
first and last Comparison Years of the Lease Term shall be prorated according to
that portion of such Comparison Year as to which Lessee is responsible for a
share of such increase.
(d) "Operating Expenses" is defined, for purposes of this Lease, to
include all costs, if any, incurred by Lessor in the exercise of its reasonable
discretion, for:
(i) The operation, repair, maintenance, and replacement, in
neat, clean, safe, good order and condition, of the Office Building Project,
including but not limited to, the following:
(aa) The Common Areas, including their surfaces, coverings,
decorative items, carpets, drapes and window coverings, and including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
stairways, parkways, driveways, landscaped areas, striping, bumpers, irrigation
systems, Common Area lighting facilities, building exteriors and roofs, fences,
and gates;
(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or for the benefit of, lessees or occupants of the Office Building
Project, including elevators and escalators, tenant directories, fire detection
systems including sprinkler system maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is elsewhere
in this Lease to be an "Operating Expense";
(iv) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by Lessor
under paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and costs,
materials, supplies and tools, used in maintaining and/or cleaning the Office
Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby amortized
over its useful life according to Federal income tax regulations or guidelines
for depreciation thereof (including interest on the unamortized balance as is
then reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements that have a useful
life for depreciation purposes according to Federal income tax guidelines of
five (5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of replacements of
equipment or improvements that have a useful life for Federal income tax
purposes in excess of five (5) years unless it is of the type described in
paragraph 4.2(d)(viii), in which case their cost shall be included as above
provided.
(f) Operating Expenses shall not include any expenses paid by any
lessee directly to third parties, or as to which Lessor is otherwise reimbursed
by any third party, other tenant, or by insurance proceeds.
(g) Lessee's Share of Operating Expense increase shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time in advance of Lessee's Share
of the Operating Expense increase for any Comparison Year, and the same shall be
payable monthly or quarterly, as Lessor shall designate, during each Comparison
Year of the Lease term, on the same day as the Base Rent is due hereunder. In
the event that Lessee pays Lessor's estimate of Lessee's Share of Operating
Expense increase as aforesaid, Lessor shall deliver to Lessee within sixty (60)
days after the expiration of each Comparison Year a reasonably detailed
statement showing Lessee's Share of the actual Operating Expense increase
incurred during such year. If Lessee's payments under this paragraph 4.2(g)
during said Comparison Year exceed Lessee's Share as indicated on said
statement. Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expense increase next falling due. If
Lessee's payments under this paragraph during said Comparison Year were less
than Lessee's Share as indicated on said statement. Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery by Lessor to
Lessee of said statement. Lessor and Lessee shall forthwith adjust between them
by cash payment any balance determined to exist with respect to that portion of
the last Comparison Year for which Lessee is responsible as to Operating Expense
increases, notwithstanding that the Lease term may have terminated before the
end of such Comparison Year.
4.3 RENT INCREASE. Paragraph 4.3 is not applicable during the initial
term of the lease.
4.3.1 At the times set forth in paragraph 1.7 of the Basic Lease
Provisions, the monthly Base Rent payable under paragraph 4.1 of this Lease
shall be adjusted by the increase, if any, in the Consumer Price index of the
Bureau of Labor Statistics of the Department of Labor for All Urban Consumers.
See Addendum Section 1
4.3.2 The monthly Base Rent payable pursuant to paragraph 4.3.1
shall be calculated as follows: the Base Rent payable for the first month of
the term of this Lease, as set forth in paragraph 4.1 of this Lease, shall be
multiplied by a fraction the numerator of which shall be the C.P.I. of the
calendar month during which the adjustment is to take effect, and the
denominator of which shall be the C.P.I. for the calendar month in which the
original Lease term commences. The sum so calculated shall constitute the new
monthly Base Rent hereunder, but, in no event, shall such new monthly Base Rent
be less than the Base Rent payable for the month immediately preceding the date
for the rent adjustment.
4.3.3 In the event the compilation and/or publication of the
C.P.I. shall be transferred to any other governmental department or bureau or
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agency or shall be discontinued, then the index most nearly the same as the
C.P.I. shall be used to make such calculations. In the event that Lessor and
Lessee cannot agree on such alternative index, then the matter shall be
submitted for decision to the American Arbitration Association in the County in
which the Premises are located, in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon the
parties, notwithstanding one party failing to appear after due notice of the
proceeding. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
4.3.4 Lessee shall continue to pay the rent at the rate previously in
effect until the increase, if any, is determined. Within five (5) days
following the date on which the increase is determined, Lessee shall make such
payments to Lessor as will bring the increased rental current, commencing with
the effective date of such increase through the date of any rental installments
then due. Thereafter the rental shall be paid at the increased rate.
4.3.5 At such time as the amount of any change in rental required by
this Lease is known or determined, Lessor or Lessee shall execute an amendment
to this Lease setting forth such change.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder.
If Lessee fails to pay rent or other charges due hereunder, or otherwise
defaults with respect to any provision of this Lease, Lessor may use, apply or
retain all or any portion of said deposit for the payment of any rent or other
charge in default for the payment of any other sum to which Lessor may become
obligated by reason of Lessee's default, or to compensate Lessor for any loss or
damage which Lessor may suffer thereby. If Lessor so uses or applies all or any
portion of said deposit, Lessee shall within ten (10) days after written demand
therefor deposit cash with Lessor in an amount sufficient to restore said
deposit to the full amount then required of Lessee. Lessor shall not be
required to keep said security deposit separate from its general accounts. If
Lessee performs all of Lessee's obligations hereunder, said deposit, or so much
thereof as has not heretofore been applied by Lessor, shall be returned, without
payment of interest or other increment for its use, to Lessee (or, at Lessor's
option, to the last assignee, if any, of Lessee's interest hereunder) at the
expiration of the term hereof, and after Lessee has vacated the Premises. No
trust relationship is created herein between Lessor and Lessee with respect to
said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the purpose set
forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessee shall, at Lessee's expense, promptly comply with all
applicable statutes, ordinances, rules, regulations, orders, covenants and
restrictions of record, and requirements of any fire insurance underwriters
or rating bureaus, now in effect or which may hereafter come into effect,
whether or not they reflect a change in policy from that now existing, during
the term or any part of the term hereof, relating in any manner to the
Premises and the occupation and use by Lessee of the Premises. Lessee shall
conduct its business in a lawful manner and shall not use or permit the use
of the Premises or the Common Areas in any manner that will tend to create
waste or a nuisance or shall tend to disturb other occupants of the Office
Building Project. (See Addendum, Section 3)
6.3 CONDITION OF PREMISES.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Office Building Project in their condition existing as of
the Lease Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and common areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; providing, however, Lessor shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in paragraph 9.5 there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter
in effect which would otherwise afford Lessee the right to make repairs at
Lessor's expense or to terminate this Lease because of Lessor's failure to keep
the Premises in good order, condition and repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Notwithstanding Lessor's obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as
received, ordinary wear and tear excepted, clean and free of debris. Any damage
or deterioration of the Premises shall not be deemed ordinary wear and tear if
the same could have been prevented by good maintenance practices by Lessee.
Lessee shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Except as otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall panelling,
ceilings and plumbing on the Premises and in good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, Utility Installations or repairs in, on or
about the Premises, or the Office Building Project. As used in this paragraph
7.3 the term "Utility Installation" shall mean carpeting, window and wall
coverings, power panels, electrical distribution systems, lighting fixtures, air
conditioning, plumbing, and telephone and telecommunication wiring and
equipment. At the expiration of the term, Lessor may require the removal of any
or all of said alterations, improvements, additions or Utility Installations,
and the restoration of the Premises and the Office Building Project to their
prior condition, at Lessee's expense. Should Lessor permit Lessee to make its
own alterations, improvements, additions or Utility Installations, Lessee shall
use only such contractor as has been expressly approved by Lessor, and Lessor
may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien
and completion bond in an amount equal to one and one-half times the estimated
cost of such improvements, to insure Lessor against any liability for mechanic's
and materialmen's liens and to insure completion of the work. Should Lessee
make any alterations, improvements, additions or Utility Installations without
the prior approval of Lessor, or use a contractor not expressly approved by
Lessor, Lessor may, at any time during the term of this Lease, require that
Lessee remove any part or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the Office Building Project that Lessee shall desire
to make shall be presented to Lessor in written form, with proposed detailed
plans. If Lessor shall give its consent to Lessee's making such alteration,
improvement, addition or Utility Installation, the consent shall be deemed
conditioned upon Lessee acquiring a permit to do so from the applicable
governmental agencies, furnishing a copy thereof to Lessor prior to the
commencement of the work, and compliance by Lessee with all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises by Lessee, and Lessor
shall have the right to post notices of non-responsibility in or on the Premises
or the Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy
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any such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office
Building Project, upon the condition that if Lessor shall require, Lessee
shall furnish to Lessor a surety bond satisfactory to Lessor in an amount
equal to such contested lien claim or demand indemnifying Lessor against
liability for the same and holding the Premises, the Building and the Office
Building Project free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's reasonable attorneys' fees and
costs in participating in such action if Lessor shall decide it is to
Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of
Lessee), which may be made to the Premises by Lessee, including but not
limited to, floor coverings, panelings, doors, drapes, built-ins, moldings,
sound attenuation, and lighting and telephone or communication systems,
conduit, wiring and outlets, shall be made and done in a good and workmanlike
manner and of good and sufficient quality and materials and shall be the
property of Lessor and remain upon and be surrendered with the Premises at
the expiration of the Lease term, unless Lessor requires their removal
pursuant to paragraph 7.3(a). Provided Lessee is not in default,
notwithstanding the provisions of this paragraph 7.3(e), Lessee's personal
property and equipment, other than that which is affixed to the Premises so
that it cannot be removed without material damage to the Premises or the
Building, and other than Utility Installations, shall remain the property of
Lessee and may be removed by Lessee subject to the provisions of paragraph
7.2.
(f) Lessee shall provide Lessor with as-built plans and specifications
for any alterations, improvements, additions or Utility Installations.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building
Project, including, but not by way of limitation, such utilities as plumbing,
electrical systems, communication systems, and fire protection and detection
systems, so long as such installations do not unreasonably interfere with
Lessee's use of the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE-LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of
Comprehensive General Liability insurance utilizing an Insurance Services
Office standard form with Broad Form General Liability Endorsement (GL0404),
or equivalent, in an amount of not less than $1,000,000 per occurrence of
bodily injury and property damage combined or in a greater amount as
reasonably determined by Lessor and shall insure Lessee with Lessor as an
additional insured against liability arising out of the use, occupancy or
maintenance of the Premises. Compliance with the above requirement shall not,
however, limit the liability of Lessee hereunder.
8.2 LIABILITY INSURANCE-LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other
risks Lessor deems advisable from time to time, insuring Lessor, but not
Lessee, against liability arising out of the ownership, use, occupancy or
maintenance of the Office Building Project in an amount not less than
$5,000,000.00 per occurrence.
8.3 PROPERTY INSURANCE-LESSEE. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 PROPERTY INSURANCE-LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss
or damage to the Office Building Project improvements, but not Lessee's
personal property, fixtures, equipment or tenant improvements, in the amount
of the full replacement cost thereof, as the same may exist from time to
time, utilizing Insurance Services Office standard form, or equivalent,
providing protection against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief, plate glass, and such
other perils as Lessor deems advisable or may be required by a lender having
a lien on the Office Building Project. In addition, Lessor shall obtain and
keep in force, during the term of this Lease, a policy of rental value
insurance covering a period of one year, with loss payable to Lessor, which
insurance shall also cover all Operating Expenses for said period. Lessee
will not be named in any such policies carried by Lessor and shall have no
right to any proceeds therefrom. The policies required by these paragraphs
8.2 and 8.4 shall contain such deductibles as Lessor or the aforesaid lender
may determine. In the event that the Premises shall suffer an insured loss
as defined in paragraph 9.1(f) hereof, the deductible amounts under the
applicable insurance policies shall be deemed an Operating Expense. Lessee
shall not do or permit to be done anything which shall invalidate the
insurance policies carried by Lessor. Lessee shall pay the entirety of any
increase in the property insurance premium for the Office Building Project
over what it was immediately prior to the commencement of the term of this
Lease if the increase is specified by Lessor's insurance carrier as being
caused by the nature of Lessee's occupancy or any act or omission of Lessee.
8.5 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing
the existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be cancellable or
subject to reduction of coverage or other modification except after thirty
(30) days prior written notice to Lessor. Lessee shall, at least thirty
(30) days prior to the expiration of such policies, furnish Lessor with
renewals thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the
other, for direct or consequential loss or damage arising out of or incident
to the perils covered by property insurance carried by such party, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. If necessary all property insurance policies
required under this Lease shall be endorsed to so provide.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and
against any and all claims for damage to the person or property of anyone or
any entity arising from Lessee's use of the Office Building Project, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims, costs and expenses arising from any breach or default in the
performance of any obligation on Lessee's part to be performed under the terms
of this Lease, or arising from any act or omission of Lessee, or any of
Lessee's agents, contractors, employees, or invitees, and from and against all
costs, attorney's fees, expenses and liabilities incurred by Lessor as the
result of any such use, conduct, activity, work, things done, permitted or
suffered, breach, default or negligence, and in dealing reasonably therewith,
including but not limited to the defense or pursuit of any claim or any
action or proceeding involved therein; and in case any action or proceeding
be brought against Lessor by reason of any such matter, Lessee upon notice
from Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such
defense. Lessor need not have first paid any such claim in order to be so
indemnified. Lessee, as a material part of the consideration to Lessor,
hereby assumes all risk of damage to property of Lessee or injury to persons,
in, upon or about the Office Building Project arising from any cause and
Lessee hereby waives all claims in respect thereof against Lessor. *
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other
person in or about the Premises or the Office Building Project, nor shall
Lessor be liable for injury to the person of Lessee, Lessee's employees,
agents or contractors, whether such damage or injury is caused by or results
from theft, fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether said damage or injury results from conditions arising
upon the Premises or upon other portions of the Office Building Project, or
from other sources or places, or from new construction or the repair,
alteration or improvement of any part of the Office Building Project, or of
the equipment, fixtures or appurtenances applicable thereto, and regardless
of whether the cause of such damage or injury or the means of repairing the
same is inaccessible, Lessor shall not be liable for any damages arising from
any act or neglect of any other lessee, occupant or user of the Office
Building Project, not from the failure of Lessor to enforce the provisions of
any other lease of any other lessee of the Office Building Project, unless
caused by active negligence or misconduct of Lessor or its agents,
employees, or contractors.
8.9 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this paragraph
8 are adequate to cover Lessee's property or obligations under this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that
the cost to repair is less than fifty percent (50%) of the then Replacement
Cost of the building.
(c) "Premises Building Total Destruction" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost of
the Building.
(d) "Office Building Project Buildings" shall mean all of the buildings
on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean if
the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or more of the then
Replacement Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused by
an event required to be covered by the insurance described in paragraph 8.
The fact that an Insured Loss has a deductible amount shall not make the loss
an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
* Lessor shall indemnify Lessee for any claims made by a third party for
personal injury or property damage arising out of Landlord's active
negligence.
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9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) INSURED LOSS: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises
Damage or Premises Building Partial Damage, then Lessor shall, as soon as
reasonably possible and to the extent the required materials and labor are
readily available through usual commercial channels, at Lessor's expense,
repair such damage (but not Lessee's fixtures, equipment or tenant
improvements originally paid for by Lessee) to its condition existing at the
time of the damage, and this Lease shall continue in full force and effect.
(b) UNINSURED LOSS: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is
not an Insured Loss and which falls within the classification of Premises
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at
Lessee's expense), which damage prevents Lessee from making any substantial
use of the Premises, Lessor may at Lessor's option either (i) repair such
damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written
notice to Lessee within thirty (30) days after the date of the occurrence of
such damage of Lessor's intention to cancel and terminate this Lease as of
the date of the occurrence of such damage, in which event this Lease shall
terminate as of the date of the occurrence of such damage.
9.3 PREMISES BUILDING TOTAL DESTRUCTION; OFFICE BUILDING PROJECT TOTAL
DESTRUCTION. Subject to the provisions of paragraphs 9.4 and 9.5, if at any
time during the term of this Lease there is damage, whether or not it is an
Insured Loss, which falls into the classifications of either (i) Premises
Building Total Destruction, or (ii) Office Building Project Total
Destruction, then Lessor may at Lessor's option either (i) repair such damage
or destruction as soon as reasonably possible at Lessor's expense (to the
extent the required materials are readily available through usual commercial
channels) to its condition existing at the time of the damage, but not
Lessee's fixtures, equipment or tenant improvements, and this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee
within thirty (30) days after the date of occurrence of such damage of
Lessor's intention to cancel and terminate this Lease, in which case this
Lease shall terminate as of the date of the occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the last
twelve (12) months of the term of this Lease there is substantial damage to
the Premises, Lessor may at Lessor's option cancel and terminate this Lease
as of the date of occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within 30 days after the date of
occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has
an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such
option, if it is to be exercised at all, no later than twenty (20) days after
the occurrence of an Insured Loss falling within the classification of
Premises Damage during the last twelve (12) months of the term of this Lease.
If Lessee duly exercises such option during said twenty (20) day period,
Lessor shall, at Lessor's expense, repair such damage, but not Lessee's
fixtures, equipment or tenant improvements, as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to
exercise such option during said twenty (20) day period, then Lessor may at
Lessor's option terminate and cancel this Lease as of the expiration of said
twenty (20) day period by giving written notice to Lessee of Lessor's
election to do so within ten (10) days after the expiration of said twenty
(20) day period, notwithstanding any term or provision in the grant of option
to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9, and any part of the Premises
are not usable (including loss of use due to loss of access or essential
services), the rent payable hereunder (including Lessee's Share of Operating
Expense Increase) for the period during which such damage, repair or
restoration continues shall be abated, provided (1) the damage was not the
result of the negligence of Lessee, and (2) such abatement shall only be to
the extent the operation and profitability of Lessee's business as operated
from the Premises is adversely affected. Except for said abatement of rent,
if any, Lessee shall have no claim against Lessor for any damage suffered by
reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
or the Building under the provisions of this Paragraph 9 and shall not
commence such repair or restoration within ninety (90) days after such
occurrence, or if Lessor shall not complete the restoration and repair within
six (6) months after such occurrence, Lessee may at Lessee's option cancel
and terminate this Lease by giving Lessor written notice of Lessee's election
to do so at any time prior to the commencement or completion, respectively,
of such repair or restoration. In such event this Lease shall terminate as of
the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any
such restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made
concerning advance rent and any advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's security
deposit as has not theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree
that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Office Building Project subject
to reimbursement by Lessee of Lessee's Share of such taxes in accordance with
the provisions of paragraph 4.2, except as otherwise provided in paragraph
10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Office Building Project or
any portion thereof by any authority having the direct or indirect power to
tax, including any city, county, state or federal government, or any school,
agricultural, sanitary, fire, street, drainage or other improvement district
thereof, as against any legal or equitable interest of Lessor in the Office
Building Project or in any portion thereof, as against Lessor's right to rent
or other income therefrom, and as against Lessor's business of leasing the
Office Building Project. The term "real property tax" shall also include any
tax, fee, levy, assessment or charge (i) in substitution of, partially or
totally, any tax, fee, levy, assessment or charge hereinabove included within
the definition of "real property tax," or (ii) the nature of which was
hereinbefore included within the definition of "real property tax," or (iii)
which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv)
which is imposed as a result of a change in ownership, as defined by
applicable local statutes for property tax purposes, of the Office Building
Project or which is added to a tax or charge hereinbefore included within the
definition of real property tax by reason of such change of ownership, or (v)
which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the improvements or property, the taxes for
which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are
not separately assessed, Lessee's portion of that tax shall be equitably
determined by Lessor from the respective valuations assigned in the
assessor's work sheets or such other information (which may include the cost
of construction) as may be reasonably available. Lessor's reasonable
determination thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property.
11. UTILITIES.
11.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines,
water for reasonable and normal drinking and lavatory use, and replacement
light bulbs and/or fluorescent tubes and ballasts for standard overhead
fixtures, and fire extinguishers as reasonably required.
11.2 SERVICES EXCLUSIVE TO LESSEE. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately
metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's
Share or a reasonable proportion to be determined by Lessor of all charges
jointly metered with other premises in the Building.
11.3 HOURS OF SERVICE. Said services and utilities shall be provided
during generally accepted business days and hours or such other days or hours
as may hereafter be set forth. Utilities and services required at other times
shall be subject to advance request and reimbursement by Lessee to Lessor of
the cost thereof at $25.00 per hour.
Initials: /s/ DB
--------------
/s/ Illegible
--------------
FULL SERVICE--GROSS
PAGE 5 OF 10 PAGES
<PAGE>
11.4 EXCESS USAGE BY LESSEE. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water,
lighting or power, or suffer or permit any act that causes extra burden upon
the utilities or services, including but not limited to security services,
over standard office usage for the Office Building Project. Lessor shall
require Lessee to reimburse Lessor for any excess expenses or costs that may
arise out of a breach of this subparagraph by Lessee. Lessor may, in its sole
discretion, install at Lessee's expense supplemental equipment and/or
separate metering applicable to Lessee's excess usage or loading.
11.5 INTERRUPTIONS. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with government request or directions.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the
Premises, without Lessor's prior written consent, which Lessor shall not
unreasonably withhold. Lessor shall respond to Lessee's request for consent
hereunder in a timely manner and any attempted assignment, transfer,
mortgage, encumbrance or subletting without such consent shall be void and
shall constitute a material default and breach of this Lease without the need
for notice to Lessee under paragraph 13.1. "Transfer" within the meaning of
this paragraph 12 shall include the transfer or transfers aggregating: (a)
if Lessee is a corporation, more than fifty percent (50%) of the voting stock
of such corporation, or (b) if Lessee is a partnership, more than fifty
percent (50%) of the profit and loss participation in such partnership.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from
the merger or consolidation with Lessee, or to any person or entity which
acquires all the assets of Lessee as a going concern of the business that is
being conducted on the Premises, all of which are referred to as "Lessee
Affiliate"; provided that before such assignment shall be effective, (a) said
assignee shall assume, in full, the obligations of Lessee under this Lease
and (b) Lessor shall be given written notice of such assignment and
assumption. Any such assignment shall not, in any way, affect or limit the
liability of Lessee under the terms of this Lease even if after such
assignment or subletting the terms of this Lease are materially changed or
altered without the consent of Lessee, the consent of whom shall not be
necessary.
12.3 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, no assignment or subletting
shall release Lessee of Lessee's obligations hereunder or alter the primary
liability of Lessee to pay the rent and other sums due Lessor hereunder
including Lessee's Share of Operating Expense Increase, and to perform all
other obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such
assignment or subletting, nor the acceptance of rent, shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the breach
of any of the terms or conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed
by third parties, then an assignment or sublease, and Lessor's consent
thereto, shall not be effective unless said guarantors give their written
consent to such sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee
or anyone else liable on the Lease or sublease and without obtaining their
consent and such action shall not relieve such persons from liability under
this Lease or said sublease; however, such persons shall not be responsible
to the extent any such amendment or modification enlarges or increases the
obligations of the Lessee or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or any one else responsible
for the performance of this Lease, including the sublessee, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no default
then exists under this Lease of the obligations to be performed by Lessee nor
shall such consent be deemed a waiver of any then existing default, except
as may be otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied
upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent
null and void.
12.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING.
Regardless of Lessor's consent, the following terms and conditions shall
apply to any subletting by Lessee of all or any part of the Premises and
shall be deemed included in all subleases under this Lease whether or not
expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all* of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and
apply same toward Lessee's obligations under this Lease; provided, however,
that until a default shall occur in the performance of Lessee's obligations
under this Lease, Lessee may receive, collect and enjoy the rents accruing
under such sublease. Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor nor by reason of the collection of the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such
sublessee under such sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor
stating that a default exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor the rents due and to become due under the
sublease. Lessee agrees that such sublessee shall have the right to rely
upon any such statement and request from Lessor, and that such sublessee
shall pay such rents to Lessor without any obligation or right to inquire as
to whether such default exists and notwithstanding any notice from or claim
from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee or Lessor for any such rents so paid by said sublessee to
Lessor.
(b) No sublease entered into by Lessee shall be effective unless
and until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublessee as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublease shall, by
reason of entering into a sublease under this Lease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every obligation herein to be performed by Lessee other than such
obligations as are contrary to or inconsistent with provisions contained in a
sublease to which Lessor has expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event
Lessor shall undertake the obligations of Lessee under such sublease from the
time of the exercise of said option to the termination of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or
security deposit paid by such sublessee to Lessee or for any other prior
defaults of Lessee under such sublease.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset
from and against Lessee for any such defaults cured by the sublessee.
12.5 LESSOR'S EXPENSES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or
if Lessee shall request the consent of Lessor for any act Lessee proposes to
do then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
12.6 CONDITIONS TO CONSENT. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the
proposed assignee or sublessee shall conduct a business on the Premises of a
quality substantially equal to that of Lessee and consistent with the general
character of the other occupants of the Office Building Project and not in
violation of any exclusives or rights then held by other tenants, and (b) the
proposed assignee or sublessee be at least as financially responsible as
Lessee was expected to be at the time of the execution of this Lease or of
such assignment or subletting, whichever is greater.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee.
Vacation of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment
or subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1
(f) (false statement), 16(a) (estoppel certificate), 30(b) (subordination),
33 (auctions), or 41.1 (easements), all of which are hereby deemed to be
material, non-curable defaults without the necessity of any notice by Lessor
to Lessee thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
* Any profits generated from subletting shall be split by Lessor and Lessee
on a 50/50 basis after Lessee has deducted costs incurred for such
sublease, including attorney's fees, real estate leasing commissions and
advertising, if any.
Initials: D.B.
FULL SERVICE - GROSS -----------
[illegible]
-----------
PAGE 6 OF 10 PAGES
<PAGE>
(d) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed
by Lessee other than those referenced in subparagraphs (b) and (c), above,
where such failure shall continue for a period of thirty (30) days after
written notice thereof from Lessor to Lessee; provided, however, that if the
nature of Lessee's noncompliance is such that more than thirty (30) days are
reasonably required for its cure, then Lessee shall not be deemed to be in
default if Lessee commenced such cure within said thirty (30) day period and
thereafter diligently pursues such cure to completion. To the extent
permitted by law, such thirty (30) day notice shall constitute the sole and
exclusive notice required to be given to Lessee under applicable Unlawful
Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within
sixty (60) days; (iii) the appointment of a trustee or receiver to take
possession of substantially all of Lessee's assets located at the Premises or
of Lessee's interest in this Lease, where possession is not restored to
Lessee within thirty (30) days; or (iv) the attachment, execution or other
judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days. In the event that any provision of this
paragraph 13.1(e) is contrary to any applicable law, such provision shall be
of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, or its successor in interest or by any guarantor of
Lessee's obligation hereunder, was materially false.
13.2 REMEDIES. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy
which Lessor may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor.
In such event Lessor shall be entitled to recover from Lessee all damages
incurred by Lessor by reason of Lessee's default including, but not limited
to, the cost of recovering possession of the Premises; expenses of reletting,
including necessary renovation and alteration of the Premises, reasonable
attorneys' fees, and any real estate commission actually paid; the worth at
the time of award by the court having jurisdiction thereof of the amount by
which the unpaid rent for the balance of the term after the time of such
award exceeds the amount of such rental loss for the same period that Lessee
proves could be reasonably avoided; that portion of the leasing commission
paid by Lessor pursuant to paragraph 15 applicable to the unexpired term of
this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce
all of Lessor's rights and remedies under this Lease, including the right to
recover the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but
in no event later than thirty (30) days after written notice by Lessee to
Lessor and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been furnished to
Lessee in writing, specifying wherein Lessor has failed to perform such
obligation; provided, however, that if the nature of Lessor's obligation is
such that more than thirty (30) days are required for performance then Lessor
shall not be in default if Lessor commences performance within such 30-day
period and thereafter diligently pursues the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expense increase
or other sums due hereunder will cause Lessor to incur costs not contemplated
by this Lease, the exact amount of which will be extremely difficult to
ascertain. Such costs include, but are not limited to, processing and
accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Office Building Project.
Accordingly, if any installment of Base Rent, Operating Expense increase, or
any other sum due from Lessee shall not be received by Lessor or Lessor's
designee within ten (10) days after such amount shall be due, then, without
any requirement for notice to Lessee, Lessee shall pay to Lessor a late
charge equal to 6% of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs
Lessor will incur by reason of late payment by Lessee. Acceptance of such
late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof or the Office
Building Project are taken under the power of eminent domain, or sold under
the threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first
occurs; provided that if so much of the Premises or the Office Building
Project are taken by such condemnation as would substantially and adversely
affect the operation and profitability of Lessee's business conducted from
the Premises, Lessee shall have the option, to be exercised only in writing
within thirty (30) days after Lessor shall have given Lessee written notice
of such taking (or in the absence of such notice, within thirty (30) days
after the condemning authority shall have taken possession), to terminate
this Lease as of the date the condemning authority takes such possession. If
Lessee does not terminate this Lease in accordance with the foregoing, this
Lease shall remain in full force and effect as to the portion of the Premises
remaining, except that the rent and Lessee's Share of Operating Expense
increase shall be reduced in the proportion that the floor area of the
Premises taken bears to the total floor area of the Premises. Common Areas
taken shall be excluded from the Common Areas usable by Lessee and no
reduction of rent shall occur with respect thereto or by reason thereof.
Lessor shall have the option in its sole discretion to terminate this Lease
as of the taking of possession by the condemning authority, by giving written
notice to Lessee of such election within thirty (30) days after receipt of
notice of a taking by condemnation of any part of the Premises or the Office
Building Project. Any award for the taking of all or any part of the
Premises or the Office Building Project under the power of eminent domain or
any payment made under threat of the exercise of such power shall be the
property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
separate award for loss of or damage to Lessee's trade fixtures, removable
personal property and unamortized tenant improvements that have been paid for
by Lessee. For that purpose the cost of such improvements shall be amortized
over the original term of this Lease excluding any options. In the event
that this Lease is not terminated by reason of such condemnation, Lessor
shall to the extent of severance damages received by Lessor in connection
with such condemnation, repair any damage to the Premises caused by such
condemnation except to the extent that Lessee has been reimbursed therefor by
the condemning authority. Lessee shall pay any amount in excess of such
severance damages required to complete such repair.
15. BROKER'S FEE.
(a) The brokers involved in this transaction are ______________________
_______________________ as "listing broker" and ____________________________
_______________________ as "cooperating broker," licensed real estate
broker(s). A "cooperating broker" is defined as any broker other than the
listing broker entitled to a share of any commission arising under this
Lease. Upon execution of this Lease by both parties, Lessor shall pay to
said brokers jointly, or in such separate shares as they may mutually
designate in writing, a fee as set forth in a separate agreement between
Lessor.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement
in writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and
the date
Initials: D.B.
FULL SERVICE-GROSS -----------
[illegible]
-----------
PAGE 7 OF 10 PAGES
<PAGE>
to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied
upon by any prospective purchaser or encumbrancer of the Office Building
Project or of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it
shall be conclusive upon such party that (i) this Lease is in full force and
effect, without modification except as may be represented by the requesting
party, (ii) there are no uncured defaults in the requesting party's
performance, and (iii) if Lessor is the requesting party, not more than one
month's rent has been paid in advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender
or purchaser designated by Lessor such financial statements of Lessee as may
be reasonably required by such lender or purchaser. Such statements shall
include the past three (3) years' financial statements of Lessee. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such
title or interest, Lessor herein named (and in case of any subsequent
transfers then the grantor) shall be relieved from and after the date of such
transfer of all liability as respects Lessor's obligations thereafter to be
performed, provided that any funds in the hands of Lessor or the then grantor
at the time of such transfer, in which Lessee has an interest, shall be
delivered to the grantee. The obligations contained in this Lease to be
performed by Lessor shall, subject as aforesaid, be binding on Lessor;s
successors and assigns, only during their respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of
any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the maximum
rate then allowable by law or judgments from the date due. Payment of such
interest shall not excuse or cure any default by Lessee under this Lease;
provided, however, that interest shall not be payable on late charges
incurred by Lessee nor on any amounts upon which late charges are paid by
Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No
prior or contemporaneous agreement or understanding pertaining to any such
matter shall be effective. This Lease may be modified in writing only, signed
by the parties in interest at the time of the modification. Except as
otherwise stated in this Lease, Lessee hereby acknowledges that neither the
real estate broker listed in paragraph 15 hereof nor any cooperating broker
on this transaction nor the Lessor or any employee or agents of any of said
persons has made any oral or written warranties or representations to Lessee
relative to the condition or use by Lessee of the Premises or the Office
Building Project and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use
and adaptability of the Premises and the compliance thereof with all
applicable laws and regulations in effect during the term of this Lease.
23. NOTICES.
Any notice required or permitted to be given hereunder shall be in writing
and may be given by personal delivery or by certified or registered mail, and
shall be deemed sufficiently given if delivered or addressed to Lessee or to
Lessor at the address noted below or adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required, or forty-eight hours following
deposit in the mail, postage prepaid, whichever first occurs. Either party
may by notice to the other specify a different address for notice purposes
except that upon Lessee's taking possession of the Premises, the Premises
shall constitute Lessee's address for notice purposes. A copy of all notices
required or permitted to be given to Lessor hereunder shall be concurrently
transmitted to such party or parties at such addresses as Lessor may from
time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent
to or approval of any subsequent act by Lessee. The acceptance of rent
hereunder by Lessor shall not be a waiver of any preceding breach by Lessee
of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted, regardless of Lessor's knowledge of such
preceding breach at the time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of
this Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof,
such occupancy shall be a tenancy from month to month upon all the provisions
of this Lease pertaining to the obligations of Lessee, except that the rent
payable shall be one hundred fifty percent (150%) of the rent payable
immediately preceding the termination date of this Lease, and all Options, if
any, granted under the terms of this Lease shall be deemed terminated and be
of no further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions
of paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State where the Office Building Project is located and any
litigation concerning this Lease between the parties hereto shall be
initiated in the county in which the Office Building Project is located.
30. SUBORDINATION.
(a) This Lease, and any Option or right of first refusal granted hereby,
at Lessor's option, shall be subordinate to any ground lease, mortgage, deed
of trust, or any other hypothecation or security now ore hereafter placed
upon the Office Building Project and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Lessee's right to quiet possession of the Premises shall not be disturbed if
Lessee is not in default and so long as Lessee shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is
otherwise terminated pursuant to its terms. If any mortgagee, trustee or
ground lessor shall elect to have this Lease and any Options granted hereby
prior to the lien of its mortgage, deed of trust or ground lease, and shall
give written notice thereof to Lessee, this Lease and such Options shall be
deemed prior such mortgage, deed of trust or ground lease, whether this Lease
or such Options are dated prior or subsequent to the date of said mortgage,
deed of trust or ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted
herein prior to the lien of any mortgage, deed of trust or ground lease, as
the case may be. Lessee's failure to execute such documents within ten (10)
days after written demand shall constitute a material default by Lessee
hereunder without further notice to Lessee or, at Lessor's option, Lessor
shall execute such documents on behalf of Lessee as Lessee's
attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint
Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to
execute such documents in accordance with this paragraph 30(b).
31. ATTORNEY'S FEES.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the
same or a separate suit, and whether or not such action is pursued to
decision or judgment. The provisions of this paragraph shall inure to the
benefit of the broker named herein who seeks to enforce a right hereunder.
31.2 The attorney's fee award shall not be computed in accordance with
any court fee schedule, but shall be such as to fully reimburse all
attorneys' fees reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notice of
default and consultations in connection therewith, whether or not a legal
transaction is subsequently commenced in connection with such default.
32. LESSOR'S ACCESS.
32.1 Lessor and Lessor's agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting the same,
performing any services required of Lessor, showing the same to prospective
purchasers, lenders, or lessees, taking such safety measures, erecting such
scaffolding or other necessary structures, making such alterations, repairs,
improvements or additions to the Premises or to the Office Building Project
as Lessor may reasonably deem necessary or desirable and the erecting, using
and maintaining of utilities, services, pipes and conduits through the
Premises and/or other premises as long as there is no material adverse effect
to Lessee's use of the Premises. Lessor may at any time place on or about the
Premises or the Building any ordinary "For Sale" signs and Lessor may at any
time during the last 120 days of the term hereof place on or about the
Premises any ordinary "For Lease" signs.
32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
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32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and
safes, and in the case of emergency to enter the Premises by any reasonably
appropriate means, and any such entry shall not be deemed a forceable or
unlawful entry or detainer of the Premises or an eviction. Lessee waives any
charges for damages or injuries or interference with Lessee's property or
business in connection therewith.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common
Areas without first having obtained Lessor's prior written consent.
Notwithstanding anything to the contrary in this Lease, Lessor shall not be
obligated to exercise any standard of reasonableness in determining whether
to grant such consent. The holding of any auction of the Premises or Common
Areas is in violation of this paragraph and shall constitute a material
default of this Lease.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no
circumstances shall Lessee place a sign on any roof of the Office Building
Project.
35. MERGER. The voluntary or other surrender of this Lease by the Lessee, or
a mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. Consents. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease
or to renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (2) the option of right of first refusal to lease
Premises or the right of first offer to lease the Premises or the right of
first refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within
the Office Building Project or other property of Lessor; (3) the right or
option to purchase the Premises or the Office Building Project, or the
right of first refusal to purchase the Premises or the Office Building
Project or the right of first offer to purchase the Premises or the Office
Building Project, or the right or option to purchase any other property of
Lessor, or the right of first refusal to purchase other property of the
Lessor or the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original
Lessee while occupying the Premises who does so without the intent of
thereafter assigning this Lease or subletting the Premises or any portion
thereof, and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee; provided,
however, that an Option may be exercised by or assigned to any Lessee
Affiliate as defined in paragraph 12.2 of this Lease. The Options, if any,
herein granted to Lessee are not assignable separate and apart from this
Lease, nor may any Option be separated from this Lease in any manner, either
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i)
during the time commencing from the date Lessor gives to Lessee a notice of
default pursuant to paragraph 13.1(c) or 13.1(d) and continuing until the
noncompliance alleged in said notice of default is cured, or (ii) during the
period of time commencing on the day after a monetary obligation to Lessor is
due from Lessee and unpaid (without any necessity for notice thereof to
Lessee) and continuing until the obligation is paid, or (iii) in the event
that Lessor has given to Lessee three or more notices of default under
paragraph 13.1(c), or paragraph 13.1(d), whether or not the defaults are
cured, during the 12 month period of time immediately prior to the time that
Lessee attempts to exercise the subject Option, (iv) if Lessee has committed
any non-curable breach, including without limitation those described in
paragraph 13.1(b), or is otherwise in default of any of the terms, covenants
or conditions of this Lease.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation
of Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessee fails to commence to cure a default specified in paragraph 13.1(d)
within thirty (30) days after the date that Lessor gives notice to Lessee of
such default and/or Lessee fails thereafter to diligently prosecute said cure
to completion, or (iii) Lessor gives to Lessee three or more notices of
default under paragraph 13.1(c), or paragraph 13.1(d), whether or not the
defaults are cured, or (iv) if Lessee has committed any non-curable breach,
including without limitation those described in paragraph 13.1(b), or is
otherwise in default of any of the terms, covenants and conditions of this
Lease.
40. SECURITY MEASURES--LESSOR'S RESERVATIONS.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the
benefit of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole
option, from providing security protection for the Office Building Project or
any part thereof, in which event the cost thereof shall be included within
the definition of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than 90
days prior written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business
as long as such exclusive does not conflict with any rights expressly given
herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Office Building Project or on pole signs in the Common Areas;
40.3 Lessor shall not:
(a) Use a representation (photographic or otherwise) of the Building
or the Office Building Project or their name(s) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the
roof of the Building.
41. Easements.
41.1 Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so
long as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure
to do so shall constitute a material default of this Lease by Lessee without
the need for further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as
to any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment, and there shall survive
the right on the part of said party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said party to pay such sum or any part thereof, said party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
FULL SERVICE--GROSS
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43. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of
such entity represent and warrant that such individual is duly authorized to
execute and deliver this Lease on behalf of said entity. If Lessee is a
corporation, trust or partnership, Lessee shall, within thirty (30) days
after execution of this Lease, deliver to Lessor evidence of such authority
satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions, Exhibits or
Addenda of this Lease and the typewritten or handwritten provisions, if any,
shall be controlled by the typewritten or handwritten provisions.
45. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully
executed by both parties.
46. LENDER MODIFICATION. Lessee agrees to make such reasonable modifications
to this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the
Office Building Project.
47. MULTIPLE PARTIES. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee, respectively.
48. WORK LETTER. This Lease is supplemented by that certain Work Letter of
even date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. ATTACHMENTS. Attached hereto are the following documents which constitute
a part of this Lease:
Exhibit A - Floorplan
Exhibit B - Rules and Regulations
Addendum
Exhibit C - Interior Improvement Responsibilities
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES
AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF
THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES SHALL
RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE
LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
Crossroads Investment Group, a Macrovision Corporation, a California
California general partnership corporation
- ------------------------------ -------------------------------------
By /s/ BERNARD KOTANSKY By /s/ DONNA S. BIRKS
---------------------------- -----------------------------------
Bernard Kotansky Donna S. Birks
Its Managing Partner Its Chief Financial Officer
--------------------- --------------------------
By By
--------------------------- ----------------------------------
Its Its
--------------------- ----------------------------
Executed at San Jose, Ca Executed at Mountain View, California
------------------- -------------------------
on 7/2/92 on June 18, 1992
-------------------------- ---------------------------------
Address Address 700 El Camino Real East
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STANDARD OFFICE LEASE
FLOOR PLAN
CROSSROADS OFFICE BUILDING
[GRAPHIC]
700 E. EL CAMINO REAL EXHIBIT A
MOUNTAIN VIEW, CA
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SUITE #130 FULL SERVICE-GROSS
4,988 RENTABLE SQ. FT.
4,453 USABLE SQ. FT.
<PAGE>
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
Dated MAY 26, 1992
By and Between CROSSROADS INVESTMENT GROUP (LESSOR) AND MACROVISION
CORPORATION (LESSEE)
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of the
Office Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other lessees or persons having business within the Office
Building Project.
4. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring bicycles, motorcycles or other vehicles into areas
not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or
bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet
rooms, plumbing or other utilities. No foreign substances of any kind are to
be inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
premises or Office Building Project.
9. Lessee shall not suffer or permit any thing in or around the Premises
or Building that causes excessive vibration or floor loading in any part of
the Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or
out of the building only with the Lessor's knowledge and consent, and subject
to such reasonable limitations, techniques and timing, as may be designated
by Lessor. Lessee shall be responsible for any damage to the Office Building
Project arising from any such activity.
11. Lessee shall not employ any service or contractor for services or work
to be performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of 6:00 P.M.
and 7:00 A.M. of the following day. If Lessee uses the Premises during such
periods, Lessee shall be responsible for securely locking any doors it may
have opened for entry.
13. Lessee shall return all keys at the termination of its tenancy and
shall be responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used by
Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted
cigars or cigarettes in areas reasonably designated by Lessor or by
applicable governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other
than as provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines
upon the Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing, cooking
or food preparation.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
21. Lessor reserves the right to waive any one of these rules or
regulations, and/or as to any particular Lessee, and any such waiver shall
not constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep
its Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles herein called "Permitted Size Vehicles."
Vehicles other than Permitted Size Vehicles are herein referred to as
"Oversized Vehicles."
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
or invitees to be loaded, unloaded, or parked in areas other than those
designated by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of
Lessor and be returned to Lessor by the holder thereof upon termination of
the holder's parking privileges. Lessee will pay such replacement charge as
is reasonably established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces
from floor to floor, within one floor, and/or to reasonably adjacent offsite
location(s), and to reasonably allocate them between compact and standard
size spaces, as long as the same complies with applicable laws, ordinances
and regulations.
6. Users of the parking area will obey all posted signs and park only in
the areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees,
agents and invitees comply with the applicable parking rules, regulations,
laws and agreements.
11. Lessor reserves the right to modify these rules and/or adopt such
other reasonable and non-discriminatory rules and regulations as it may deem
necessary for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a license
only and no bailment is intended or shall be created hereby.
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EXHIBIT B
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EXHIBIT C
INTERIOR IMPROVEMENT RESPONSIBILITIES
Lessor shall provide the following Tenant Improvements at its sole cost and
expense.
1. Repair HVAC in storage room.
2. Check HVAC and Zone VAV for full operation.
3. Repair and clean carpet. In the event the carpet is stained and the
carpet cleaning does not remove stains, then Lessor shall replace the
carpet in the room(s) that have such stains.
4. Check lights and ballasts.
5. Repair/replace rheostats for can lights.
6. Repair lights to work on double switching.
7. Replace key/code (if required) to lockset.
8. Replace missing base.
9. Change/replace any broken or discolored ceiling tile, as required.
Lessor had made no representations or warranties as to the physical condition
of the Premises or any other matter concerning the Premises and Lessee hereby
accepts the premises in its existing condition. Lessee has inspected the
Premises, is familiar with the conditions of the Premises and is not relying
upon any representations or warranties of the Lessor. Lessor has no obligation
to make alterations or changes to the existing condition of the Premises except
as listed above.
All building permits, health department permits, and additional modifications
shall be the sole obligation of the Lessee. Lessee shall perform following
Tenant Improvements at its sole cost and expense:
1. Repair walls.
2. Paint, as required.
3. All signage.
4. Replace dutch door to lockset and full door.
5. Install deadbolt on alice door.
6. Install deadbolt/lockset as needed.
7. Install and case doorway passage from hall to estimating department.
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ADDENDUM TO STANDARD OFFICE LEASE DATED MAY 16, 1992 BY AND BETWEEN
CROSSROADS INVESTMENT GROUP, A CALIFORNIA GENERAL PARTNERSHIP (LESSOR) AND
MACROVISION CORPORATION, A CALIFORNIA CORPORATION (LESSEE) FOR THE PREMISES
COMMONLY KNOWN AS 700 E. EL CAMINO REAL, SUITE 130, MOUNTAIN VIEW, CA
1. BASE RENT. The Base Rent shall be increased as follows:
November 1, 1994 through October 31, 1995: Nine Thousand Three Hundred
Twenty-seven and 56/100 Dollars ($9,327.56) per month.
November 1, 1995 through October 31, 1996: Nine Thousand Eight Hundred
Twenty-six and 36/100 Dollars ($9,826.36) per month.
November 1, 1996 through October 31, 1997: Ten Thousand Three Hundred
Twenty-five and 16/100 Dollars ($10,325.16) per month.
2. OPERATING EXPENSE INCREASE. Base Year is identified as 1992. Lessee's
share of the Operating Expense Increase shall not exceed ten percent (10%)
per annum for each Comparison Year of the lease term. Payment of increases
in operating expenses shall commence one year after commencement of Lease.
3. BUILDING CODES. Lessor, at Lessor's sole cost and expense shall comply
with all applicable American Disabilities Act regulations and other codes
that affect the Crossroads Office Center during Lessee's lease term or any
extension(s) unless such code is applicable due to Lessee's usage of the
premises or office building project.
Any changes to Lessee Improvements required by regulations of the
American Disabilities Act must be approved by Lessor, which approval will
not be unreasonably withheld.
4. OPTION TO RENEW
A) Provided that Tenant has not assigned this lease or sublet all or
any part of the premises and provided that Tenant is not in default
under this lease at the time of exercise of the hereinafter described
option or at the time of termination of the existing term of this
lease, Tenant shall have one (1) option to extend the term of this
lease for a period of Five (5) years (the "Extended Term"). Tenant
shall notify Landlord, in writing, of its intent to exercise said
option no later than one hundred fifty (150) days prior to the
expiration date of this lease. If Tenant does not notify Landlord in
writing prior to the time frame as stipulated above, this option to
renew shall be null and void. In all respects, the terms, covenants
and conditions of this lease shall remain unchanged during the Extended
Term, except that the Monthly Installment of rent payable at the
commencement of the Extended Term shall be increased in accordance
with subparagraph B below, and except that there shall be no further
option to extend the term of this lease at the end of the Extended
Term. The option to extend hereby granted is personal to the original
Tenant under this lease and is granted so that such original Tenant
can occupy the
1
<PAGE>
Premises for its own use during the Extended Term. Accordingly, if
the original Tenant under this lease assigns this lease or sublets
all or part of the premises, the option hereby granted shall
automatically terminate without notice.
B) Promptly following exercise of the option to extend the parties
shall meet and endeavor to agree upon the Fair Market Rental based
on the highest and best use for the premises as of the first day of
the Extended Term. In determining the Fair Market Rental for the
premises and adjustments in the rental rate, the premises shall be
compared only to office buildings of similar quality and size in the
City of Mountain View, Santa Clara County and all legal uses of the
premises shall be considered. If within fifteen (15) days after
exercise of the option, the parties cannot agree upon the Fair
Market Rental for the premises as of the first day of the Extended
Term this option to renew shall be null and void. In no event shall
the rental amount for the first year of the option period be less
than the previous year.
C) Commencing as of the first day of the thirteenth (13th)
month of the Option Term, and continuing on each Rental Adjustment
date during the remainder of the Option Term, the Monthly
Installment of rent shall be increased in accordance with the
procedures set forth in Paragraph 4.3 of the Lease, except that for
the purpose of adjusting the Monthly Installment of rent during the
Option Term shall have the following meanings:
(1) "Initial Index" shall mean the Index last published prior to
the commencement of the Option Term.
(2) "Initial Monthly Installment" shall mean the Monthly
Installment of rent payable during the first year of the Option Term.
D) For purposes of this Section 4. Tenant is defined as Lessee and
Landlord is defined as Lessor.
5. HAZARDOUS MATERIALS. To the best of Lessor's knowledge, the property
contains no detrimental hazardous materials. Lessee reserves the right at
its sole cost to obtain a third party opinion concerning such information.
A. DEFINITIONS. As used herein, the term "Hazardous Material" shall mean
any substance or material which has been determined by any state,
federal or local governmental authority to be capable of posing a risk
of injury to health, safety or property, including all of those
materials and substances designated as hazardous or toxic by the
Environmental Protection Agency, the California Water Quality Control
Board, the Department of Labor, the California Department of Industrial
Relations, the Department of Transportation, the Department of
Agriculture, the Consumer Product Safety Commission, the Department of
Health and Human Services, the Food and Drug Agency or any other
governmental agency now or hereafter authorized to regulate materials
and substances in the environment. Without limiting the generality of the
foregoing, the term "Hazardous Material" shall include all of those
materials and substances defined as "Toxic Materials" in Sections 66680
through 66685 of Title 22 of the California Administrative Code,
Division 4, Chapter 30, as the same shall be amended from time to time.
B. USE RESTRICTION. Subject to applicable law and the
2
<PAGE>
terms and conditions set forth herein Lessee shall not cause or permit
any Hazardous Material to be used, stored, or disposed of in our about
the Premises, or any other land or improvements in the vicinity of the
Premises. The appearance of any Hazardous Material that is not permitted
by this Lease in or about the Premises shall be deemed an Event of
Default. Without limiting the generality of the foregoing, Lessee, at
its sole cost, shall comply with all laws relating to the storage, use
and disposal of Hazardous Materials. If the presence of Hazardous
Materials on the Premises caused or permitted by Lessee results in damage
to or contamination of the Premises or any plumbing or drainage systems
on the Premises, or any soil in our about the Premises, Lessee, at its
expense, shall promptly take all actions necessary to return the Premises
to the conditions existing prior to the appearance of such Hazardous
Material. Lessee expressly agrees not to pour any Hazardous Materials
into the plumbing or drainage systems on the Premises.
Lessee shall defend, hold harmless, protect and indemnify Lessor and its
agents and employees with respect to all claims, damages and liabilities
arising out of or in connection with any Hazardous Material used, stored,
or disposed of in or about the Premises. Lessee shall not suffer any lien
to be recorded against the Premises as a consequence of a Hazardous
Material, including any so called state, federal or local "super fund"
lien related to the "clean-up" of a Hazardous Material in or about the
Premises.
C. COMPLIANCE. Lessee shall immediately notify Lessor of any inquiry,
test, investigation, enforcement proceeding by or against Lessee or the
Premises concerning a Hazardous Material. Lessee acknowledges that
Lessor, as the owner of the Property, at it election, shall have the sole
right, at Lessee's expense, to negotiate, defend, approve and appeal any
action taken or order issued with regard to a Hazardous Material by an
applicable governmental authority. Lessor shall have the right to appoint
a consultant, at Lessee's expense, to conduct an investigation to
determine whether Hazardous Materials are being used, stored and disposed
of in an appropriate manner. Lessee, at it expense, shall comply with all
recommendations of the consultant.
D. ASSIGNMENT AND SUBLETTING. It shall not be unreasonable for Lessor
to withhold its consent to any proposed assignment or subletting if (i)
the proposed assignee's or sublessee's anticipated use of the Premises
involves the storage, use or disposal of Hazardous Materials; (ii) if the
proposed assignee or sublessee has been required by any prior Lessor,
lender or governmental authority to "clean-up" Hazardous Material; (iii)
if the proposed assignee or sublessee is subject to investigation or an
enforcement order or proceeding by any governmental authority in
connection with the use, disposal or storage of a Hazardous Material.
E. SURRENDER. Upon the expiration or earlier termination of the Lease,
Lessee, at its sole cost, shall remove all Hazardous Materials from the
Premises and shall surrender the Premises free of all Hazardous
Materials. If Lessee fails to so surrender the Premises, Lessee shall
indemnify, protect, defend and hold Lessor harmless of all damages and
liabilities resulting from Lessee's failure to surrender the Premises as
required by this paragraph, including without
3
<PAGE>
limitation any claims or damages in connection with the condition of the
Premises including, without limitation, damages occasioned by the
inability to relet the Premises or a reduction in the fair market and/or
rental value of the Premises by reason of the existence of any Hazardous
Materials in or around the Premises.
6. RIGHT OF REFUSAL TO LEASE ADDITIONAL SPACE. Lessor has granted first and
second rights of refusal to lease available space to Macrovision and
Intelligenetics, and hereby grants Lessee a right of third refusal to
lease additional ground floor space at the Crossroads Office Building
that may come available during Lessee's lease term or any extension(s)
thereof on the following terms and conditions:
A. NOTICE OF INTENT TO LEASE. If Lessor proposes to lease the Space to
a prospective tenant, then Lessor shall notify Lessee in writing (the
Lessor's Notice") of the form of the lease Lessor intends to use, and the
following basic business terms upon which Lessor is willing to lease such
space (collectively referred to herein as the "Basic Business Terms"):
(i) the description of the space to be leased; (ii) the term of the
lease; (iii) the tenant improvements Lessor is willing to construct or
that it will require to be constructed and the contribution Lessor is
willing to make to pay for such tenant improvements; (iv) the rent for the
initial term or the formula to be used to determine such rent (including,
if applicable, free rent, the tenant's share of the taxes, assessments,
operating expenses, insurance costs, and the like); (v) any option or
options to extend (including the rent to be charged during the extension
periods); and (vi) any other material business term Lessor elects to
specify.
B. EXERCISE OF RIGHT OF THIRD REFUSAL. If Lessee, within two (2)
business days after receipt of Lessor's Notice, delivers to Lessor its
written agreement to lease the Space on the Basic Business Terms stated
in Lessor's Notice, then Lessor shall lease to Lessee and Lessee shall
lease from Lessor such space on the terms stated in Lessor's Notice (the
"Second Lease"); provided, however, that this Lease shall be modified to
include and the Second Lease shall include a cross-default provision
providing that Lessee will be in default under both the Second Lease and
this Lease, if it is in default under either Lease. The Second Lease
shall be consummated by the preparation and execution of a written lease
form in the same form as this Lease, modified to incorporation the Basic
Business Terms set forth in Lessor's Notice and the cross-default
provision and to eliminate the terms of the Lease that are inconsistent
with such Basic Business Terms.
C. LESSOR'S RIGHT TO LEASE. If Lessee does not deliver to Lessor its
written agreement to enter into the Second Lease on the terms contained
in Lessor's Notice within the allowed period of time, then Lessor
thereafter shall have the right to lease the Space on the same Basic
Business Terms as are set forth in Lessor's Notice and on such other
terms as are contained in the form of the lease at the request of any
prospective tenant to induce it to lease such space from Lessor so long
as Lessor does not change the Basic Business Terms set forth in Lessor's
Notice.
D. TERMINATION. The provisions of this paragraph shall terminate upon
the earlier of (i) Lessee's failure to deliver to Lessor, within the
allowed period of time, Lessee's written agreement to enter into the
Second Lease on the terms contained in Lessor's Notice, following receipt
thereof; or (ii) the expiration or earlier termination of this Lease.
Accordingly, the provisions of this Paragraph shall only apply to the
initial occupancy of the Space and
4
<PAGE>
will not apply to any lease after the first occupant of space vacates.
LESSOR: LESSEE:
Crossroads Investment Group, a Macrovision Corporation, a
California general partnership California corporation
By: /s/ BERNARD KOTANSKY By: /s/ DONNA S. BIRKS
-------------------------- ---------------------------
Bernard Kotansky Name: Donna S. Birks
Managing Partner -------------------------
Date: 7/2/92 Date: June 18, 1992
------------------------ -------------------------
5
<PAGE>
EXHIBIT 11.01
MACROVISION CORPORATION
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
12/31/95 9/30/96
----------- -------------------
<S> <C> <C>
Net income from continuing operations, as reported................................ $ 1,056 $ 823
Preferred stock dividends......................................................... (450) (401)
----------- ------
Adjusted net income from continuing operations.................................... 606 422
Discontinued operations........................................................... (125) (827)
----------- ------
Earnings (loss) applicable to common stock........................................ $ 481 $ (405)
----------- ------
----------- ------
Weighted average common shares outstanding........................................ 3,620 3,652
Common stock options, utilizing treasury stock method when dilutive............... 297 491
Staff Accounting Bulletin No. 83 issuances and grants (1)......................... 245 245
----------- ------
Weighted average shares outstanding............................................... 4,162 4,388
----------- ------
----------- ------
Earnings (loss) per share:
Continuing operations............................................................. $ .15 $ .10
Discontinued operations........................................................... (.03) (.19)
----------- ------
Net income (loss)................................................................. $ .12 $ (.09)
----------- ------
----------- ------
</TABLE>
- ------------------------
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, common and preferred stock issued for consideration below the assumed
initial public offering (IPO) price of $11.00, and stock options and
warrants granted with exercise prices below the IPO price during the
12-month period preceding the date of the initial filing of the Registration
Statement, have been included in the calculation of common equivalent
shares, using the treasury stock method, as if they were outstanding for all
periods presented.
<PAGE>
EXHIBIT 16.01
January 7, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Gentlemen:
We have read the section entitled Change in Independent Auditors in the
Registration Statement (Form SB-2) dated January 7, 1997, of Macrovision
Corporation and are in agreement with the statements with respect to Ernst &
Young LLP contained therein in the first three sentences. We have no basis to
agree or disagree with other statements of the Company contained in such
section.
/s/ Ernst & Young LLP
<PAGE>
EXHIBIT 21.01
LIST OF REGISTRANT'S SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF PERCENTAGE OWNED
NAME ORGANIZATION BY REGISTRANT
- -------------------------------------------------------------------- ------------------------- -----------------
<S> <C> <C>
Macrovision UK Limited.............................................. England and Wales 100%
Macrovision Japan Kabushiki Kaisha (KK)............................. Japan 100%
Macrovision Service Corporation..................................... Delaware 100%
Macrovision Barbados Ltd............................................ Barbados 100%
</TABLE>
<PAGE>
EXHIBIT 23.02
CONSENT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
The Board of Directors
Macrovision Corporation and Subsidiaries:
We consent to the use of our report included in the registration statement
on Form SB-2 and to the references to our firm under the headings "Selected
Consolidated Financial Data," "Change in Auditors," and "Experts" in the
prospectus.
KPMG Peat Marwick LLP
San Jose, California
January 7, 1997
<PAGE>
EXHIBIT 23.03
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Consolidated Financial Data," "Change in Auditors" and "Experts" and to the use
of our report dated March 7, 1995 included in the Registration Statement (Form
SB-2) and related Prospectus of Macrovision Corporation for the registration of
its common stock.
Ernst & Young LLP
Palo Alto, California
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the completion
of the reincorporation of the Company in Delaware and the related exchange of
common and preferred shares as described in Note 10 of Notes to Consolidated
Financial Statements.
/s/ Ernst & Young LLP
Palo Alto, California
January 7, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2064
<SECURITIES> 0
<RECEIVABLES> 3465
<ALLOWANCES> (304)
<INVENTORY> 654
<CURRENT-ASSETS> 1916
<PP&E> 4189
<DEPRECIATION> (2095)
<TOTAL-ASSETS> 11658
<CURRENT-LIABILITIES> 5504
<BONDS> 0
0
1
<COMMON> 4
<OTHER-SE> 5100
<TOTAL-LIABILITY-AND-EQUITY> 11658
<SALES> 0
<TOTAL-REVENUES> 11699
<CGS> 0
<TOTAL-COSTS> 1826
<OTHER-EXPENSES> 8224
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 281
<INCOME-PRETAX> 1408
<INCOME-TAX> 585
<INCOME-CONTINUING> 823
<DISCONTINUED> (827)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4)
<EPS-PRIMARY> 0
<EPS-DILUTED> (.09)
</TABLE>
