<PAGE>
As filed with the Securities and Exchange Commission on February 16, 2000
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
LEXAR MEDIA, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 3861 33-0723123
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
-------------------
47421 Bayside Parkway
Fremont, California 94538
(510) 413-1200
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
-------------------
John H. Reimer
President and Chief Executive Officer
47421 Bayside Parkway
Fremont, California 94538
(510) 413-1200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------
Copies to:
<TABLE>
<CAPTION>
<S> <C>
Dennis R. DeBroeck, Esq. Kenneth R. Lamb, Esq.
Scott J. Leichtner, Esq. Larry M. Furst, Esq.
Larissa M. Cochron, Esq. Kelly Dodge, Esq.
John M. Shields, Esq. Gibson, Dunn & Crutcher LLP
Fenwick & West LLP One Montgomery Street
Two Palo Alto Square San Francisco, California 94104
Palo Alto, California 94306 (415) 393-8200
(650) 494-0600
</TABLE>
Approximate date of commencement 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 of 1933, 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 of 1933, 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(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
-------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum
Title of Each Class Aggregate Offering Amount of
of Securities to be Registered Price(1) Registration Fee
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock, par value $0.0001 per share.......... $80,000,000 $21,120
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
-------------------
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting and offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 16, 2000
PROSPECTUS
Shares
[Lexar Media Logo]
Common Stock
This is the initial public offering of common stock by Lexar Media, Inc. The
estimated initial public offering price is between $ and $ per share.
--------
Prior to this offering, there has been no public market for our common stock.
We have applied to list our common stock on The Nasdaq National Market under
the symbol "LEXR."
--------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price................................... $ $
Underwriting discounts and commissions.......................... $ $
Proceeds to us, before expenses................................. $ $
</TABLE>
We have granted the underwriters an option for a period of 30 days to
purchase up to an additional shares of our common stock.
--------
Investing in our common stock involves a high degree of risk.
See "Risk Factors" beginning on page 8.
--------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
CHASE H&Q J.P. MORGAN & CO.
PRUDENTIAL VOLPE TECHNOLOGY SG COWEN
a unit of Prudential Securities
, 2000
<PAGE>
[PHOTOGRAPHS]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 8
Forward-Looking Statements................................................ 23
Use of Proceeds........................................................... 23
Dividend Policy........................................................... 23
Capitalization............................................................ 24
Dilution.................................................................. 25
Selected Consolidated Financial Data...................................... 26
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 27
Business.................................................................. 35
Management................................................................ 46
Related Party Transactions................................................ 58
Principal Stockholders.................................................... 60
Description of Capital Stock.............................................. 62
Shares Eligible for Future Sale........................................... 66
Underwriting.............................................................. 68
Legal Matters............................................................. 70
Experts................................................................... 70
Additional Information.................................................... 70
Index to Consolidated Financial Statements................................ F-1
</TABLE>
---------------------
The Lexar Media name and logo are trademarks that are federally registered
in the United States. The titles and logos associated with our products
appearing in this prospectus, including Space Manager and Digital Film
Compliant, are either federally registered trademarks or are subject to pending
applications for registration. Our trademarks may also be registered in other
jurisdictions. All other trademarks or trade names appearing elsewhere in this
prospectus are the property of their respective owners.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary contains basic information about our business and this
offering. It may not contain all of the information that is important to you.
You should read the entire prospectus, including "Risk Factors" and our
consolidated financial statements and notes to the financial statements, before
making an investment decision. Except as otherwise indicated, all information
in this prospectus assumes the conversion of each outstanding share of our
Series A preferred stock, Series B preferred stock, Series C preferred stock
and Series D preferred stock into one share of our common stock and the
conversion of each outstanding share of our Series E preferred stock into 0.838
shares of our common stock, no exercise of the underwriters' over-allotment
option and our reincorporation in Delaware.
Lexar Media, Inc.
We are a leading designer, developer and marketer of high-performance
digital film and connectivity products for the digital photography market. Our
broad line of high-performance digital film combines flash memory from leading
suppliers with our patented controller technology to address the needs of
professional, commercial and consumer photographers. Our connectivity products
make it easy to transfer digital images from digital film to a personal
computer. Our online photofinishing site, Printroom.com, provides consumers
with high-quality prints of digital images and photo sharing services.
Collectively, our products and services provide an end-to-end solution for
digital photographers.
Digital photography offers several advantages over traditional photography.
The photographer can immediately preview digital images, select the best
digital image from multiple shots and delete unwanted images. Photographers can
also transfer the digital images to a personal computer where they can be
easily edited and shared. These attributes, together with the growing presence
of personal computers in the home and the ability to transmit images to friends
and family over the Internet, are stimulating demand for digital cameras.
Our digital film is a removable and reusable storage device that captures
images from a digital camera. It is compatible with substantially all digital
cameras, including those manufactured by Canon, Casio, Epson, Fuji, Kodak,
Minolta, Nikon, Olympus, Sony and Yashica. Our digital film records images
faster than most other digital film, particularly when used in advanced digital
cameras that have the ability to take advantage of our write speed, or the rate
at which our film is able to capture a digital image. We believe that our
digital film is the leading choice for professional photographers.
Our digital film reader/writers are products that facilitate the transfer of
digital images to a personal computer and other devices without a direct
connection to the digital camera. Our new JumpShot cable connects the universal
serial bus port to our USB-enabled CompactFlash digital film to quickly and
easily transfer images. It received the 1999 Best of What's New Award from
Popular Science and the Editor's Choice Award from PC Photo. We protect the
technology underlying our digital photography products through our large patent
portfolio consisting of 23 U.S. patents granted or allowed.
Our photofinishing site, Printroom.com, enables digital camera users to
submit their digital images for printing directly over the Internet in order to
receive high-quality photographic prints in the mail at prices competitive with
traditional photofinishing services. We also offer online photo sharing
services through which our customers are able to share their digital images
with family and friends.
4
<PAGE>
Our products and services offer the following benefits:
. Superior Speed. Our digital film records images faster than most other
digital film, particularly when used in advanced digital cameras that
have the ability to take advantage of our increased write speed.
. Quick Connectivity. Our digital film reader/writers facilitate the
transfer of digital images to a personal computer and other devices
without a direct connection to the digital camera.
. High Capacity. Our digital film is available in capacities up to 320
megabytes to meet the requirements of high resolution digital cameras.
. Guaranteed Compatibility. Our extensive testing allows us to market our
entire line of digital film as "Digital Film Compliant," which is our
guarantee that our digital film will work seamlessly with any digital
camera that uses a particular format.
. Internet Photofinishing Services. Our online photofinishing site,
Printroom.com, offers a broad array of photofinishing and photo sharing
services over the Internet.
We generate product revenues primarily from the sale of digital film and
connectivity products to the professional, commercial and consumer markets and,
to a lesser extent, from the sale of controllers to suppliers of flash memory
products. Our customers include distributors, consumer retailers, original
equipment manufacturers and private label resellers. Our products are widely
available to consumers through leading retailers such as B&H Photo, Best Buy,
Camera World, CompUSA and Wal-Mart.
In addition to digital photography, our digital film technology can be
applied to a variety of consumer electronic applications, such as Internet
music players, laptop computers, personal digital assistants, telecommunication
and network devices and digital video recorders. In order to extend our digital
film technology into these markets, we intend to selectively license our
products and technology to third parties. We recently entered into a non-
binding memorandum of understanding with Sony to combine our proprietary
controller technology with their Memory Stick media format.
Our objective is to establish our products and services as the industry
standard solution for capturing, storing, viewing, editing and distributing
digital images. We intend to capitalize on the anticipated growth and
development of the digital photography market by offering a broad range of
digital film and connectivity products and services and by leveraging our
proprietary technology into other consumer product applications. We aim to:
. leverage our technology to enhance the digital photography experience;
. build our brand;
. extend our patented controller technology to address new market
opportunities;
. capitalize on supply flexibility for our key components; and
. expand our international presence.
Our Corporate Information
We incorporated in California in September 1996 under the name Lexar
Microsystems, Inc. We changed our name to Lexar Media, Inc. in February 1998
and reincorporated in Delaware in February 2000. Our principal executive
offices are located at 47421 Bayside Parkway, Fremont, California 94538, and
our telephone number is 510-413-1200.
5
<PAGE>
The Offering
Common stock offered by us.......... shares
Common stock to be outstanding
after this offering................
shares
Use of proceeds..................... For general corporate purposes, including
working capital, capital expenditures and
the repayment of debt.
Proposed Nasdaq National Market LEXR
Symbol.............................
The number of shares of our common stock that will be outstanding after this
offering is based on 47,560,534 shares outstanding as of December 31, 1999.
This number assumes the conversion of all of our outstanding preferred stock
into 34,148,853 shares of common stock and includes 475,000 shares of our
common stock that we issued to the former shareholders of Printroom.com in
connection with our acquisition of Printroom.com in January 2000 and the
exercise of outstanding warrants to purchase 272,359 shares of our common stock
prior to the completion of this offering.
The number of shares of common stock into which each share of our Series E
preferred stock will be converted upon completion of this offering may be
adjusted under some circumstances as described in "Description of Capital
Stock--Preferred Stock." The number of shares of our common stock that will be
outstanding after this offering excludes:
. 1,471,992 shares of our common stock subject to options outstanding as
of December 31, 1999 at a weighted average exercise price of $0.47 per
share;
. 1,200,000 shares of our common stock subject to restricted stock grants
which were outstanding but unexercised as of December 31, 1999 at a
weighted average exercise price of $2.00 per share;
. 228,943 shares of our common stock subject to warrants outstanding as of
December 31, 1999 at a weighted average exercise price of $1.57 per
share;
. 11,964,046 additional shares of our common stock that have been reserved
for issuance upon future grants under our stock option and stock
purchase plans; and
. up to 30,000 shares of our common stock that we would issue if we
complete the acquisition of Impact Peripherals.
6
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from
September 16,
1996 (date of
inception) to Years Ended December 31,
December 31, --------------------------
1996 1997 1998 1999
------------- ------- ------- --------
<S> <C> <C> <C> <C>
Consolidated Statement of Income
Data:
Revenues:
Product sales..................... $ 452 $ 1,938 $ 7,609 $ 29,219
Development fees.................. -- 1,005 -- --
------- ------- ------- --------
Total revenues................... 452 2,943 7,609 29,219
------- ------- ------- --------
Gross margin........................ 185 1,810 1,576 4,623
------- ------- ------- --------
Operating expenses:
Research and development.......... 726 3,931 3,101 4,141
Sales and marketing............... 238 1,098 4,413 8,599
General and administrative........ 709 1,650 2,733 5,241
In-process research and
development write-off............ 3,047 -- -- --
Stock-based compensation.......... -- -- -- 1,806
------- ------- ------- --------
Total operating expenses......... 4,720 6,679 10,247 19,787
------- ------- ------- --------
Loss from operations................ (4,535) (4,869) (8,671) (15,164)
------- ------- ------- --------
Net loss............................ $(4,555) $(5,157) $(9,090) $(15,281)
======= ======= ======= ========
Net loss per common share--basic and
diluted............................ $ (0.27) $ (0.52) $ (2.79) $ (2.53)
======= ======= ======= ========
Shares used in net loss per common
share calculation--basic and
diluted (see Note 2 to the
consolidated financial
statements)........................ 16,854 9,945 3,255 6,114
======= ======= ======= ========
Pro forma net loss per common
share--basic and diluted
(unaudited) ....................... $ (0.46)
========
Shares used in pro forma net loss
per common share calculation--basic
and diluted (unaudited) (see Note
12 to the consolidated financial
statements)........................ 32,957
========
</TABLE>
The pro forma consolidated balance sheet data below reflects the issuance of
up to 475,000 shares of common stock to the former shareholders of
Printroom.com in connection with our acquisition of Printroom.com in January
2000, the exercise of outstanding warrants to purchase 272,359 shares of our
common stock which expire upon the closing of this offering and the automatic
conversion of all shares of preferred stock into 34,148,853 shares of common
stock upon the closing of this offering. The pro forma as adjusted consolidated
balance sheet data below reflects the receipt of the net proceeds from the sale
of the shares of common stock offered by us at an assumed initial
public offering price of $ per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by us.
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- ------- -----------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents........................ $ 6,495 $ 6,495
Short-term investments........................... 3,896 3,896
Working capital.................................. 19,574 19,574
Total assets..................................... 38,274 38,274
Short-term debt.................................. 5,224 5,224
Long-term debt................................... 96 96
Mandatorily redeemable convertible preferred
stock .......................................... 53,136 --
Total stockholders' equity (deficit)............. (31,429) 25,616
</TABLE>
7
<PAGE>
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should
carefully consider the following factors, as well as other information
contained in this prospectus, before deciding to invest in shares of our common
stock. If any of the following risks actually occurs, our business, financial
condition and results of operations would suffer. In this case, the trading
price of our common stock could decline and you may lose all or part of your
investment in our common stock. The risks described below are not the only ones
that we face. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also harm our business.
Risks Related to Our Business
Because we have a limited operating history and because we operate in a new and
rapidly evolving market, you may have difficulty assessing our business and
future prospects.
We were organized in September 1996 and have a short operating history. We
began marketing and selling our digital film products in mid-1997, introduced
the latest versions of our digital film products in August 1999 and have only
recently begun offering photofinishing services over the Internet as the result
of our acquisition of Printroom.com in January 2000. Because we have only
recently introduced our products and services and have limited historical
financial data, it is difficult to evaluate our business and future prospects.
In addition, because of our limited operating history and because the market
for digital cameras, digital film and Internet photofinishing is still in an
emerging stage and is characterized by an increasing number of competitors and
competing technologies and formats, we have limited insight into trends that
may emerge and affect our business. Our business will be seriously harmed if we
do not successfully execute our business strategy or if we do not successfully
address the risks we face.
We have a history of losses, anticipate incurring losses for the foreseeable
future and may never become profitable.
We incurred net losses of approximately $5.2 million, $9.1 million and $15.3
million for 1997, 1998 and 1999, respectively. As of December 31, 1999, we had
an accumulated deficit of approximately $34.1 million. We will incur losses for
this year and are likely to incur losses for the foreseeable future. The size
of our future losses and our ability to become profitable substantially depend
on the rate of growth of the market for digital cameras and digital film and
the extent to which our products and services are accepted by this market.
Therefore, we believe it is critical to devote substantial resources to
developing the brand awareness of our digital film. In the future we expect
sales and marketing, general and administrative and research and development
expenses to increase significantly as we pursue our strategic objectives. The
average selling prices for our digital film have declined in the past and may
continue to do so, which could harm our financial results. We may also continue
to incur significant expenses in connection with our existing patent litigation
discussed elsewhere in this section and prospectus. In addition, we expect to
incur significant non-cash charges relating to stock-based compensation and the
issuance of warrants. As a result, we will need to significantly increase our
revenues in order to achieve profitability. Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or an annual basis.
Our quarterly operating results may fluctuate significantly in the future and
are difficult to predict, and if our future results are below the expectations
of investors or securities analysts, the market price of our common stock would
likely decline significantly.
Our quarterly operating results are likely to vary significantly in the
future based on a number of factors related to our industry and the markets for
our products. We will have little or no control over many of these factors and
any of these factors could cause the price of our common stock to fluctuate
significantly. These factors include, among others:
. the rate of growth of the market for digital cameras, digital film and
Internet photofinishing;
8
<PAGE>
. fluctuation and seasonality in demand for our products, as the demand
for our digital film has historically increased during the third and
fourth quarters of the calendar year;
. the timing and amount of orders and cancellations from existing and new
retailers, distributors and original equipment manufacturer customers;
. increases in costs charged by our component suppliers, particularly our
flash memory suppliers;
. the timing and amount of any reductions in the average selling prices of
our products and services;
. the availability of flash memory, particularly high-performance flash
memory with increased memory capacity;
. our ability to develop, introduce and market new products and services
on a timely basis, including our ability to develop flash storage
devices for products other than digital cameras;
. the announcement or introduction of products and technologies by
competitors;
. market-driven changes in our product mix;
. the availability of production capacity at independent foundries that
manufacture our products;
. the costs associated with and the impact of any adverse results in our
current and any future patent infringement and other litigation;
. natural disasters, particularly earthquakes, affecting countries in
which we conduct our business or in which our products are manufactured;
. the evolution of industry standards; and
. general economic conditions and conditions specific to the semiconductor
and digital photography markets.
In addition, as a result of our limited operating history and the emerging
nature of our market, we may be unable to accurately forecast our revenues and
gross margins. We incur expenses based predominately on operating plans and
estimates of future revenues. Our expenses are to a large extent fixed and we
may not be able to adjust them quickly to meet a shortfall in revenues during
any particular quarter. Any significant shortfall in revenues in relation to
our expenses would decrease our net income or increase our operating losses and
would also harm our financial condition. Fluctuations in our operating results
may cause us to fail to meet the expectations of investors or securities
analysts. If this were to happen, the market price for our common stock would
likely decline significantly.
We are currently involved in litigation with our primary competitor that has
diverted management's time and attention, could be time-consuming and expensive
to defend and could seriously harm our business.
We are currently involved in litigation with SanDisk Corporation, our
primary competitor in the digital film market, regarding allegations by SanDisk
that certain of our products infringe one of their patents. In its complaint,
SanDisk seeks preliminary and permanent injunctions against infringement and
damages relating to our CompactFlash and PC Card formats. A substantial portion
of our revenues for the foreseeable future depends upon sales of these and
other parts incorporating versions of our controllers. While we are vigorously
contesting these claims, we cannot predict the ultimate outcome of the lawsuit.
See "Business--Legal Proceedings" for a more complete discussion of this
litigation.
In the event that a permanent injunction were granted, we would be unable to
sell products incorporating those methods or parts found to infringe SanDisk's
patent. We would need to either negotiate a license with SanDisk or engage in a
redesign of those products. A redesign of those products would result in an
interruption in sales that could extend for some time. We cannot assure you
that any development or
9
<PAGE>
redesign efforts would be successful. Accordingly, a permanent injunction would
result in a substantial reduction in our revenues and losses over an extended
period of time, and our business would suffer. In addition, we also could be
required to pay damages to SanDisk, which could be subject to trebling were we
found to have willfully infringed the identified patent. Any of these outcomes
could seriously harm our business.
In connection with the SanDisk litigation, we have incurred and expect to
continue to incur substantial legal and other expenses. In addition, the
SanDisk litigation has diverted, and is expected to continue to divert, the
efforts and attention of our management and technical personnel. Patent
litigation is highly complex and can extend for a protracted period of time,
which can substantially increase the cost of litigation. Accordingly, the
expenses and diversion of resources associated with the SanDisk litigation
could seriously harm our business and financial condition. Further, if the
SanDisk patent litigation were to be resolved by a settlement, we might need to
make substantial payments to SanDisk or grant a license to SanDisk to utilize
portions of our technology, which could substantially harm our business and
financial condition.
We may become subject to additional intellectual property claims which could
divert management's time and attention, could be time-consuming and expensive
to defend and could seriously harm our business.
We may become a party to litigation with other third parties in the future
to protect our intellectual property or as a result of an alleged infringement
of others' intellectual property. These lawsuits could subject us to
significant liability for damages and invalidate our proprietary rights. These
lawsuits, regardless of their outcome, would likely be time-consuming and
expensive to resolve and would divert management's time and attention. Any
potential intellectual property litigation also could force us to do one or
more of the following:
. stop selling products or using technology that contain the allegedly
infringing intellectual property;
. attempt to obtain a license to the relevant intellectual property, which
license may not be available on reasonable terms or at all; and
. attempt to redesign those products that contain the allegedly infringing
intellectual property.
If we are forced to take any of the foregoing actions, we may be unable to
manufacture and sell our products, which could seriously harm our business.
We primarily depend upon two sources for our supply of flash memory, and if
they are unable to provide us with sufficient quantities of flash memory in a
timely manner, we would not be able to manufacture and deliver digital film to
our customers in accordance with their volume and schedule requirements.
We purchase substantially all of our flash memory from Toshiba America
Electronic Corporation and Samsung Semiconductor, Inc. We expect that the
demand for flash memory over the next several years will be substantially
greater than in past periods due to the increasing acceptance of digital
cameras and other digital consumer products. If we are unable to obtain
sufficient quantities of flash memory from Toshiba or Samsung in a timely
manner, we would not be able to manufacture and deliver digital film to satisfy
our customers' volume and schedule requirements. If we are not able to satisfy
the delivery requirements of our customers, they may reduce any future orders
or eliminate us as a supplier. Our reputation would likely also be harmed and
we may not be able to replace any lost business with new customers. Even if we
are able to obtain flash memory in sufficient volume and on schedules that
permit us to satisfy our delivery requirements, we cannot assure you that the
prices charged by these suppliers will enable us to compete effectively in our
market. Samsung and Toshiba are both located in Asia, a region that has
recently been, and in the future may be, affected by economic and political
instability that could adversely affect the price and
10
<PAGE>
supply of flash memory. If we are unable to obtain flash memory from our
current suppliers or others at economical prices, our margins would decline
unless we could raise the prices of our products in a commensurate manner. The
existing competitive conditions may not permit us to do so, in which case we
may suffer increasing losses or reduced profits.
Our recent growth has placed a significant strain on our management systems and
resources, and if we are unable to successfully manage future growth, our
business may be harmed.
In recent periods, rapid growth and acceleration of our product development
and marketing efforts have imposed significant strains on our operations. Our
revenues have grown from $3.0 million for the year ended December 31, 1997 to
approximately $29.2 million for the year ended December 31, 1999. In addition,
we have grown from 25 employees as of December 31, 1997 to 54 employees as of
December 31, 1998 to 104 employees as of January 31, 2000, and we anticipate
further significant increases in the number of our employees as we continue to
grow. We expect the strains from this growth to increase, and our financial
performance and ability to compete effectively will depend, in large part, on
our ability to manage this growth effectively. To that end, we must continually
develop our budgeting and forecasting procedures, develop administrative,
accounting and management information systems and controls, manage our research
and development efforts, manage appropriate levels of inventory, improve
coordination among our engineering, accounting, finance, marketing and
operations personnel and hire and train additional qualified personnel.
The rate of any future expansion, in combination with a rapidly evolving
market for our products, will require a high level of managerial effectiveness
in anticipating, planning, coordinating and satisfying our operational needs
and the demands of our customers. The continued development of our operations
in diverse locations may also affect our ability to manage our growth. If we
are unable to manage our growth effectively, we may not be able to successfully
compete in our market.
If we are unable to develop and introduce on a timely basis new products or
services that are accepted by our customers and consumers, we will not be able
to compete effectively in our market.
We operate in an industry that is subject to evolving industry standards,
rapid technological changes, rapid changes in consumer demands and the rapid
introduction of new, higher performance products that shorten product life
cycles and tend to decrease average selling prices. To remain competitive in
this demanding market, we must continually design, develop and introduce new
products and services that meet the performance and price requirements of our
customers and consumers. Any significant delay or failure in releasing new
products or services would harm our reputation, provide a competitor a first-
to-market opportunity or allow a competitor to achieve greater market share. We
also cannot assure you that any products or services we do introduce will gain
market acceptance. The introduction of new products is inherently risky because
it is difficult to foresee advances in technology and the adoption of new
standards, to coordinate our technical personnel and strategic relationships
and to identify and eliminate design and products flaws. We may not be able to
recoup research and development expenditures if our new products or services
are not widely accepted.
We have only recently begun offering Internet photofinishing services and, if
this service is not rapidly accepted or used by consumers, our revenues may
fall short of our expectations.
We have only recently begun offering Internet photofinishing services
through our acquisition of Printroom.com in January 2000. We cannot be certain
that there will be customer demand for this service or that we will be
successful in penetrating this market. If we are unable to successfully
implement this new service or this service is not rapidly accepted or used by
consumers, our revenues may fall short of our expectations.
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If we are unable to develop or maintain the strategic relationships necessary
to develop, sell and market products that are commercially viable and widely
accepted, the growth and success of our business may be limited.
We may not be able to develop and sell products that are commercially viable
and widely accepted if we are unable to anticipate market trends and the price,
performance and functionality requirements of digital camera and flash memory
manufacturers. We must continue to collaborate closely with our customers,
digital camera manufacturers, flash memory manufacturers and other suppliers to
ensure that critical development, marketing and distribution projects proceed
in a coordinated manner. This collaboration is also important because our
ability to anticipate trends and plan our development activities depends to a
significant degree upon our continued access to information derived from
strategic relationships we currently have with digital camera and flash memory
manufacturers. This collaboration can be difficult because many of these
companies are located overseas. If any of our current relationships terminate
or otherwise deteriorate, or if we are unable to enter into future alliances
that provide us with comparable insight into market trends, we will be hindered
in our product development efforts.
We depend on a few key customers and the loss of any of them could
significantly reduce our revenues.
Historically, a small number of our customers have accounted for a
significant portion of our product revenues. In 1997, 1998 and 1999, sales to
our top 10 customers accounted for approximately 99.7%, 83.7% and 79.2%,
respectively, of our total revenues. Four customers, Ingram Micro, Kodak,
Impact Peripherals and Tech Data, accounted for 12.8%, 11.4%, 10.0% and 8.8% of
sales in 1999, respectively. We believe that a substantial majority of the
products we sold to Ingram Micro and Tech Data were resold by those parties to
CompUSA. Our revenues could decline if one or more of these customers were to
significantly reduce, delay or cancel their orders, decide to purchase digital
film manufactured by one of our competitors or develop and manufacture their
own digital film. In addition, any difficulty in collecting outstanding amounts
due from our customers, particularly customers who place larger orders, would
also harm our financial results. Because our sales are made by means of
standard purchase orders rather than long-term contracts, we cannot assure you
that these customers will continue to purchase quantities of our products at
current levels, or at all. Furthermore, our revenues include sales to original
equipment manufactures, some of which may in the future decide to compete
against us in the digital film market. We expect our operating results will
continue to depend on sales to a relatively small number of customers for the
foreseeable future.
The success of our business depends on promoting our brand and achieving strong
brand recognition in target markets.
We believe that brand recognition will be critical to our ability to be
successful as the digital photography market develops. We plan to significantly
increase our marketing expenditures to create and maintain prominent brand
awareness. If we fail to promote our brand successfully, or the expenses
associated with doing so become increasingly high, our business may be harmed.
In addition, if our products exhibit poor performance or other defects, our
brand may be significantly diluted and our business may suffer.
Because many of our retail customers and distributors have rights of return, we
may be required to take back large quantities of unsold inventory which could
harm our operating results.
Substantially all of our sales to end-users are made through distributors
and retailers. Our sales through these channels often include rights to return
unsold inventory. We generally recognize revenue upon shipment of our products,
although we establish reserves for estimated returns. Additionally, we permit
some of our customers to return products in their inventory for credit or in
exchange for new products. If there are significant inventories of old products
in our distribution channel when a new product is released, or if these
distributors and retailers are unsuccessful in selling our products, there
could be substantial product
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returns. If our reserves are insufficient to account for these returns or if we
are unable to resell these products on a timely basis at similar prices, our
operating results would be harmed. Because the market for our products is
rapidly evolving, we may not be able to resell returned products at attractive
prices or at all.
Because we protect many of our retail customers and distributors against the
effects of price decreases on their inventories of our products, we may be
required to make large price protection payments if we reduce our prices when
there are large quantities of our products in our distribution channel.
A significant portion of our sales are made through distributors and
retailers to whom we provide price protection guarantees. Accordingly, if we
reduce our prices, we will pay these distributors and retailers for the
difference between the new price and the price paid for the same product still
in their inventory. If our price protection reserves are insufficient to
account for these payments, our operating results would be harmed.
Because we depend on single suppliers for some key components, and do not have
long-term supply contracts with those suppliers, we are exposed to the risks of
a potential inability to obtain an adequate supply of components, price
increases, late deliveries and poor component quality.
ZETEX Semiconductors is the sole manufacturer of transistors for our
CompactFlash, PC Card and connectivity products. In addition, Dual Systems,
Inc. is our only qualified supplier of enclosures used in our CompactFlash
product. Because we depend on single suppliers for these key components, and do
not have long-term supply contracts with these suppliers, we face the risk of
inadequate component supply, price increases, late deliveries and poor
component quality. These companies may terminate their relationships with us or
pursue other relationships with our competitors, and if we were to lose a
relationship with a single supplier, the lead time required to qualify new
suppliers could be as long as three months. Also, if we lose one of our single
suppliers or any of those suppliers is otherwise unable to satisfy our volume
and delivery schedule requirements, it may be difficult to locate any suppliers
who have the ability to develop, manufacture and deliver the specialized
components we need for our products. If we are unable to accurately predict our
supply needs, or if our supply of components is disrupted, our business and
reputation may be harmed.
Our products are characterized by average selling prices that have historically
declined over relatively short time periods, and if we are unable to reduce our
costs, introduce new products with higher average selling prices or increase
our sales volumes, our financial results will suffer.
Although consumers have recently begun to purchase digital cameras in
volume, they still exert pressure on digital camera manufacturers and on us to
lower prices of digital photography products, like our digital film, to prices
comparable to those of traditional photography products. Our competitors also
impose pricing pressures on us. In addition, because a large percentage of our
sales is to a small number of customers that are primarily large original
equipment manufacturers, retail consumer chains and distributors, these
customers have exerted, and we expect they will continue to exert, pressure on
us to make price concessions. Any reduction in prices by us will cause our
gross margins to decline, unless we can concurrently reduce our costs. If we
are unable to reduce our costs to offset declines in average selling prices or
increase the sales volume of our existing products, our financial results would
suffer. Our average selling prices may continue to decline for the foreseeable
future.
If we are unable to adequately protect our intellectual property, our
competitors may gain access to our technology which could harm our business.
We regard our intellectual property as critical to our success. If we are
unable to protect our intellectual property rights, our business would be
harmed. We rely on a combination of patent, copyright, trademark and trade
secret laws, as well as confidentiality agreements and other methods to protect
our proprietary
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technologies. We have been granted patents in the United States and other
countries and have a number of pending United States and foreign patent
applications. We cannot assure you, however, that:
. any of our existing or future patents will not be invalidated;
. patents will be issued for any of our pending applications;
. any claims allowed from existing or pending patents will have sufficient
scope or strength; or
. our patents will be issued in the primary countries where our products
are sold.
It may also be possible for a third party to copy or otherwise obtain and
use our products or technology without authorization, develop similar
technology independently or design around our patents.
We depend on a single third-party wafer foundry to manufacture all of our
controllers, and if we are unable to obtain sufficient quantities of
controllers at acceptable quality, yields and prices, and in a timely manner,
our business would be seriously harmed.
We do not own or operate a semiconductor fabrication facility. Instead, we
rely on a single outside foundry to produce all of our controller products. Our
reliance on an independent foundry involves a number of significant risks,
including:
. reduced control over delivery schedules, quality assurance,
manufacturing yields and production costs;
. lack of guaranteed production capacity or product supply; and
. unavailability of, or delayed access to, next-generation or key process
technologies.
Our controllers are currently manufactured by United Microelectronics
Corporation, or UMC, in Taiwan. We do not have a long-term supply agreement
with UMC and instead obtain manufacturing services on a purchase order basis.
UMC has no obligation to supply products to us for any specific period, in any
specific quantity or at any specific price, except as set forth in a particular
purchase order. Our requirements represent a small portion of the total
production capacity of UMC, and UMC may reallocate capacity to other customers
on short notice, even during periods of high demand for our products. If UMC
were to become unable or unwilling to continue manufacturing our controllers in
the required volumes, at acceptable quality, yields and prices, and in a timely
manner, our business would be seriously harmed. Although we have attempted to
diversify our sources of controllers by qualifying two other foundries, Taiwan
Semiconductor Manufacturing Co. Ltd. and Chartered Semiconductor Manufacturing,
we cannot assure you that these foundries will have sufficient capacity to
accommodate our demand at any particular time.
In addition, if competition for foundry capacity increases, we may incur
significant expenses to secure access to manufacturing services, which in turn
may cause our product costs to increase substantially. We expect that the
demand for capacity at these facilities will increase substantially in the near
future due to increasing demand for consumer electronic and industrial products
that depend on semiconductors manufactured at these facilities. All of these
foundries are located in an area of the world that may be subject to political
and economic instability and natural disasters, particularly earthquakes. While
the recent earthquake in Taiwan did not have a significant impact on deliveries
to us from UMC, a similar event in the future at one of their foundries could
have a significant impact.
We depend solely on third-party subcontractors for assembly and testing of our
digital film products, and if these subcontractors are unable or unwilling to
continue to provide assembly and test services and deliver products of
acceptable quality, at acceptable costs and in a timely manner, our business
would be seriously harmed.
Substantially all of our digital film is currently assembled and tested by
Flash Electronics, Inc. in Fremont, California and Samsung in Korea. Although
we have a written contract with Samsung, we do not
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have a long-term agreement with Flash Electronics and typically obtain services
from them on a per order basis. Additionally, our controllers are tested and
packaged primarily by Advanced Semiconductor Engineering, Inc. in Taiwan. Our
reliance on these subcontractors involves risks such as reduced control over
delivery schedules, quality assurance and costs. These risks could result in
product shortages or increase our costs of manufacturing, assembling or testing
our products. If these subcontractors are unable or unwilling to continue to
provide assembly and test services and deliver products of acceptable quality,
at acceptable costs and in a timely manner, our business would be seriously
harmed. We would also have to identify and qualify additional substitute
subcontractors, which could be time-consuming and difficult and result in
unforeseen operations problems.
If we are unable to license our controller technology for application in other
products, the growth of our business may be limited.
We currently derive all of our revenues from the sale of products and
services related to our digital film and connectivity products. We believe,
however, that our future growth depends to a large extent on our ability to
license our proprietary controller technology for use in new digital
photography applications or applications in other markets, such as music and
video. For example, we recently entered into a non-binding memorandum of
understanding with Sony to license our controller technology for use in their
Memory Stick technology, which is used in a variety of other consumer products
such as Internet music players, laptop computers and digital video recorders.
If we fail to market and license our technology to third parties for new
applications, or fail to generate significant licensing or other revenue from
these activities, we may not grow our revenues as planned, and our business and
operating results would be harmed.
Several key members of our senior management team have recently joined us and
their failure to integrate into our operations effectively and in a timely
manner could impede the execution of our business strategy.
We have recently hired a significant number of executive officers, including
our Chief Financial Officer, our Chief Operating Officer and our Vice President
of Operations. We have also recently hired several other individuals who serve
important operational, marketing and sales functions. These individuals have
had a short amount of time to work together and have limited experience with us
and our operations. Our success will depend to a significant extent on the
ability of our new officers to integrate themselves into our daily operations,
to gain the trust and confidence of other employees and to work effectively as
a team. If any of them fails to do so, our ability to execute our business
strategy would be impeded.
Our success depends on our ability to attract and retain qualified personnel in
all areas of our business.
Our future success will depend to a significant extent on the continued
services of our key employees, including John H. Reimer, our President and
Chief Executive Officer, Petro Estakhri, our Chief Technology Officer and
Executive Vice President of Engineering, and Eric B. Stang, our Chief Operating
Officer. Our success will also depend on our ability to identify, attract and
retain qualified technical, sales, marketing, finance and managerial personnel.
Our need to hire qualified personnel in these areas has become particularly
acute as a result of a recent period of rapid growth. We are currently seeking
to hire individuals to fill several key positions, including the head of our
Japan operations. If we are unable to find, hire and retain qualified
individuals, we may have difficulty implementing portions of our business
strategy in a timely manner, or at all. Petro Estakhri and Mike Assar, our
Senior Vice President Technology, are the only employees with whom we have
entered into employment agreements. In addition, we do not maintain key man
life insurance on the members of our senior management team, other than Mr.
Reimer and Mr. Estakhri.
The competition for qualified personnel is particularly intense in our
industry and in northern California, where there is a high concentration of
established and emerging growth technology companies. This competition makes it
more difficult to retain our key personnel and to recruit new highly-qualified
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personnel. To attract and retain qualified personnel, we may be required to
grant large option or other stock-based incentive awards, which may be highly
dilutive to existing stockholders. We may also be required to pay significant
base salaries and cash bonuses to attract and retain these individuals, which
could harm our operating results. We have experienced, and may continue to
experience, difficulty in hiring and retaining candidates with appropriate
qualifications. If we do not succeed in hiring and retaining candidates with
appropriate qualifications, our business could be seriously harmed.
Difficulty in identifying, acquiring and integrating acquisition candidates
could harm our results of operations or put a strain on our resources, and if
financed by the issuance of shares of our common stock could cause dilution to
our stockholders.
We may supplement our internal growth by acquiring complementary businesses,
technologies, product lines or service offerings. For example, we recently
acquired Printroom.com, an Internet photofinishing service provider, and we
must successfully integrate their operations into our business. We may be
unable to identify and acquire additional suitable candidates on reasonable
terms, if at all. We compete for acquisition candidates with other companies
that have substantially greater financial, management and other resources than
we do. Acquisitions, in particular multiple acquisitions over a short period of
time, involve a number of risks that may result in our failure to achieve the
desired benefits of the transaction. These risks include, among others, the
following:
. difficulties in assimilating the operations of the acquired businesses;
. potential disruption of our existing operations;
. an inability to integrate, train, retain and motivate key personnel of
the acquired business;
. diversion of management attention away from day-to-day operations;
. an inability to incorporate, develop, market or sell acquired
technologies or products;
. unexpected liabilities of the acquired business without sufficient
indemnification from the sellers;
. operating inefficiencies and difficulties associated with managing
companies in different geographical locations; and
. potential impairment of our relationships with our employees, customers,
suppliers and strategic partners.
We may finance acquisitions by issuing shares of our common stock, which
could dilute our existing stockholders. We may also use cash or incur
additional debt to pay for these acquisitions. In addition, we may be required
to expend substantial funds to develop acquired technologies and/or to amortize
significant amounts of goodwill and other intangible assets in connection with
future acquisitions, which could harm our operating results.
We are uncertain of our ability to obtain additional financing for our future
capital needs.
We expect the net proceeds from this offering and our current cash and cash
equivalents will meet our working capital and capital expenditure needs for at
least the next 12 months. We may need to raise additional funding at that time
or earlier if we decide to undertake more rapid expansion, including
acquisitions of complementary products or technologies, or if we increase our
marketing and/or research and development efforts in order to respond to
competitive pressures. We cannot be certain that we will be able to obtain
additional financing on favorable terms, if at all. We may obtain additional
financing by issuing shares of our common stock, which could dilute our
existing stockholders. If we cannot raise needed funds on acceptable terms, or
at all, we may not be able to develop or enhance our products or respond
appropriately to competitive pressures, which would seriously harm our
business.
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If our products contain defects, we may incur unexpected and significant
operating expenses to correct the defects, we may be required to pay damages to
third parties and our reputation may suffer serious harm.
Although our digital film products are tested after they are assembled,
these products are extremely complex and may contain defects. These defects are
particularly likely when new versions or enhancements are released. The sale of
products with defects or reliability, quality or compatibility problems may
damage our reputation and our ability to retain existing customers and attract
new customers. For example, if there are defects in our products which cause
loss of data, customers may lose their digital images stored on our digital
film. In addition, product defects and errors could result in additional
development costs, diversion of technical and management resources, delayed
product shipments, increased product returns, and product liability claims
against us which may not be fully covered by insurance. Any of these
consequences could seriously harm our business.
We face foreign political and economic risks because a significant portion of
our revenues is derived from sales outside of the United States.
Sales outside of the United States accounted for 8.7%, 21.9% and 27.6% of
our revenues for 1997, 1998 and 1999, respectively. One of our principal growth
strategies is to expand our presence in international markets both through
increased international sales and strategic relationships. Consequently, we
anticipate that sales outside of the United States will continue to account for
a significant portion of our revenue in future periods. Accordingly, we are
subject to international risks, including:
. transportation delays and interruptions;
. slower payment practices and difficulties in accounts receivable
collections;
. timing and availability of export licenses;
. changes in regulatory requirements, tariffs and other barriers;
. reduced or limited protection of our intellectual property;
. the burden of complying with complex foreign laws and treaties;
. foreign currency exchange fluctuations;
. political and economic instability; and
. natural disasters affecting those countries in which we conduct
business.
The sales of our products are denominated primarily in United States
dollars. As a result, increases in the value of the United States dollar
relative to foreign currencies could cause our products to become less
competitive in international markets and could result in a reduction in sales
and profitability. To the extent that we change our pricing practices to
denominate sales in foreign currencies, we will be exposed to increased risks
of currency fluctuations. We have no hedging policies in place to mitigate
these potential risks, and we cannot assure you that any policies or techniques
implemented in the future will be successful or that our business and financial
condition will not be harmed by exchange rate fluctuations.
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Risks Related to Our Industry
Our business will not succeed unless the digital photography market continues
to grow and is accepted by professional, commercial and consumer users.
We currently depend on sales of digital film and connectivity products for
the substantial majority of our revenues, which exposes us to substantial risk
in the event the digital photography market does not grow rapidly. The digital
photography market is in an early stage of development and is rapidly evolving.
The success of this market depends on many factors, including:
. the ability of digital cameras to take high-quality photographs;
. the availability of digital cameras at prices and with performance
characteristics comparable to traditional cameras;
. the availability of digital film that meet users' requirements with
respect to speed, connectivity, capacity and compatibility;
. the speed at which digital cameras are able to take successive
photographs;
. the ease with which digital files can be transferred to a personal
computer or printer; and
. the availability of digital image prints comparable in quality and price
to traditional photographs.
In addition to the above factors related to the digital photography market
as a whole, we believe the following additional factors will affect the
successful adoption of digital photography by consumers:
. marketing campaigns that increase brand awareness in end-user markets,
both domestically and internationally;
. increased association between brand names and attractive price and
performance characteristics; and
. heightened consumer confidence in digital photography technology.
If the digital photography market does not continue to grow and be accepted
by professional, commercial and consumer users, our business will not succeed.
If digital camera manufacturers do not develop and promote products that are
able to take advantage of our fastest digital film products, the growth and
success of our business may be limited.
Most of the digital cameras currently available on the market do not
incorporate technologies that can take advantage of the speed available in our
fastest digital film products. In addition, we are developing new digital film
products that are faster than our current products and hope to introduce those
products in the future. We believe the speed capabilities of our products have
provided a competitive advantage to us. We also have had higher gross margins
on the products that we have recently introduced and are our most advanced. As
a result, we depend on the research and development, marketing and sales
efforts of digital camera manufacturers in developing, marketing and selling
digital cameras that can use our more advanced existing and future products. We
cannot assure you that digital camera manufacturers will be successful in these
efforts.
Increased competition in the digital film market may lead to a decrease in
revenues and market share.
We currently compete in an industry characterized by intense competition,
rapid technological change, evolving industry standards, declining average
selling prices and rapid product obsolescence. Our existing competitors include
many large domestic and international companies that have longer operating
histories
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and greater brand name recognition, greater access to flash memory,
substantially greater financial, technical, marketing and other resources,
broader product lines and longer standing relationships with customers. As a
result, these competitors may be able to adapt more quickly to new or emerging
technologies or devote greater resources to the promotion and sale of their
products than we may. This may lead to a decrease in sales, profits and market
share.
Our primary competitors are companies that sell digital film into the
consumer and original equipment manufacturer digital film markets. These
companies are primarily integrated flash storage media manufacturers with both
controller and flash memory capabilities, such as SanDisk and Hitachi
Semiconductor (America), Inc. SanDisk recently announced that it has entered
into a non-binding memorandum of understanding with Toshiba to jointly develop
and manufacture high-performance flash memory. Because flash memory represents
a significant portion of the cost of digital film, SanDisk may have a
competitive advantage in that it will have access to high-capacity flash memory
at prices that may be substantially below the prices that Toshiba or Samsung
will charge us.
We also compete with manufacturers, package or card assemblers and resellers
who combine controllers and flash memory developed by others, such as Hitachi,
into flash memory cards, including Kingston Technology, Simple Technology,
Smart Modular Technologies and Viking. Additionally, Hitachi as well as flash
controller developers such as Feiya Technology, Tokyo Electronic and M-Systems
compete with our controller sales.
Kodak and Fuji, the largest and best known manufacturers of traditional film
products, have not as yet entered the digital film market. Kodak is, in fact,
one of our largest customers for digital film. If either Kodak or Fuji decide
to acquire or develop the requisite technology and manufacture digital film,
their resources and worldwide brand recognition would likely make them
formidable competitors for our core business. We also expect to face
competition from existing or future competitors that design and market similar
or alternative data storage solutions that may be less costly or provide
additional features. If a manufacturer of digital cameras or other consumer
electronic devices designs one of these alternative competing standards into
its products, our digital film as currently configured will not be compatible
with that product and our business may suffer.
Competition in the Internet photofinishing market may make it difficult for us
to generate revenues and establish market share.
We are faced with growing competition in the area of Internet photofinishing
which could make it difficult for us to generate revenues and establish market
share. Our primary competitors in these areas are Internet digital
photofinishing companies such as EZ Prints, Kodak, Ofoto, PhotoAccess, Seattle
Film Works, Shutterfly and Wolf Camera, which process digital images
transferred to them by customers over the Internet and mail finished prints to
them. These companies also provide traditional prints from scanned traditional
photographs, or digital camera images and photo-image management services
allowing consumers to archive, edit and share uploaded images and create on-
line photo albums. Additionally, digital imaging kiosks, such as those from
Kodak, Fuji, Pixel Magic and Telepix, allow consumers to scan traditional
images or download digital images for processing and output. Traditional film
processors with strong brand recognition such as Kodak will pose a significant
challenge if they begin to focus their efforts on direct digital-to-paper
photofinishing processing and leverage their advantage in brand recognition.
Moreover, Internet photo-image archiving and sharing services such as Club
Photo, PhotoIsland, PhotoLoft and Zing present additional competition through
their current and potential alliances with digital photo labs to directly
compete with the services we offer.
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The manufacturing of our products is complex and subject to yield problems,
which could harm our results of operations.
The manufacture of flash memory and controllers is a complex process, and it
is often difficult for companies to achieve acceptable product yields. Reduced
flash memory yields could decrease available supply and increase costs.
Controller yields depend on both our product design and the manufacturing
process technology unique to the semiconductor foundry. Because low yields may
result from either design defects or process difficulties, we may not identify
yield problems until well into the production cycle, when an actual product
exists and can be analyzed and tested. In addition, many of these yield
problems are difficult to diagnose and time consuming or expensive to remedy.
Risks Related to this Offering
Management might apply the net proceeds from this offering to uses that do not
improve our operating results or market value.
The net proceeds from the sale of our common stock in this offering will be
added to our general working capital. We currently have no definite plans to
use the net proceeds from the offering, other than to repay outstanding
indebtedness. Our management will therefore have significant flexibility in
applying the net proceeds of this offering and may apply those proceeds in ways
with which you may disagree. The net proceeds may be used for corporate
purposes that do not improve our operating results or market value and you will
not have the opportunity to evaluate the economic, financial or other
information on which we base our decisions on how to use the proceeds. Pending
application of the proceeds, they might be placed in investments that do not
produce income or that lose value.
The liquidity of our common stock is uncertain because it has never been
publicly traded, and you may not be able to resell your shares at or above the
price you paid.
There has not been a public market for our common stock. As a result, the
initial public offering price will be determined by negotiations among the
underwriters and us, and may not be indicative of prices that will prevail in
the public trading markets. We also cannot predict the extent to which a
trading market for our common stock will develop or how liquid that market will
be. You may not be able to resell your shares at or above the initial public
offering price.
The market price of our common stock may fluctuate significantly as a result of
market volatility, which could result in a decline in the value of your
investment.
We believe that the market price of our common stock, like that of other
early-stage technology companies, is likely to be highly volatile and may
fluctuate substantially. The price of the common stock that will prevail in the
market after the offering may be higher or lower than the price you pay,
depending on many factors, including:
. actual or anticipated fluctuations in our quarterly results of
operations;
. changes in financial estimates of our operating results by securities
analysts;
. announcements by us or our competitors of new products, significant
acquisitions or strategic partnerships;
. a loss of or decrease in sales to major customers or a failure to
complete significant transactions;
. additions or departures of key personnel;
. future sales of our common stock, particularly by our officers; and
. commencement of or involvement in litigation.
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In addition, stock markets, particularly the Nasdaq National Market on which
we have applied to have our common stock listed have from time to time
experienced significant price and volume fluctuations that have affected the
market prices for the securities of technology companies. As a result,
investors in our common stock may experience a decrease in the value of their
common stock regardless of our operating performance or prospects. The
fluctuations in the price of our common stock may affect our visibility and
credibility in the digital photography market and may affect our ability to
secure additional financing on acceptable terms, if at all.
We could be subject to securities class action litigation if our stock price is
volatile, which could be costly and time-consuming to defend and could damage
our reputation.
In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market price of their
securities. Those companies, like us, that are involved in rapidly changing
technology markets are particularly subject to this risk. We may be the target
of litigation of this kind in the future. Any securities litigation could
result in substantial costs, divert management's attention and resources and
negatively affect our public image and reputations, any of which could cause
serious harm to our business.
Future sales of our common stock by existing stockholders could cause the price
of our common stock to decline.
Sales of a large number of shares of our common stock in the market after
this offering, or the belief that these sales could occur, could cause a drop
in the market price of our common stock. Upon completion of this offering, we
will have outstanding shares of our common stock. Of these shares, all of
the shares of our common stock sold in this offering will be freely
tradable, unless the shares are purchased by "affiliates" as that term is
defined in Rule 144 under the Securities Act.
The remaining 47,560,534 shares of common stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act. Our directors, executive officers and substantially
all of our stockholders have executed lock-up agreements in which they have
agreed not to sell or otherwise dispose of any shares of our common stock for a
period of at least 180 days after the date of this prospectus without the prior
written approval of Chase Securities Inc. When the lock-up agreements expire,
these shares will become eligible for sale, in some cases only subject to the
volume, manner of sale and notice requirements of Rule 144. The "restricted
securities" will be eligible for resale in the public market as follows:
. 39,998,596 shares will become eligible for resale beginning 180 days
after the date of this prospectus; and
. 7,561,938 additional shares will become eligible for resale upon the
expiration of applicable one-year holding periods under Rule 144 and
Rule 145 at various times commencing more than 180 days after this
prospectus.
In addition, we intend to file a registration on Form S-8 under the
Securities Act after the date of this offering to register shares of our common
stock issued or reserved for issuance under our various stock plans.
Our executive officers, directors and principal stockholders will continue to
hold a substantial portion of our stock subsequent to the completion of this
offering, and, consequently, could make some transactions more difficult or
impossible to complete without their support.
Immediately after the offering, it is anticipated that our executive
officers, directors and principal stockholders will beneficially own or control
approximately % of the outstanding shares of our common stock or % if
the underwriters' overallotment option is exercised in full. Accordingly, if
these persons act together, they will significantly influence, and likely
control, the election of our directors and the outcome of
21
<PAGE>
any corporate transaction or other matter submitted to the stockholders for
approval, including mergers, consolidations and the sale of all or
substantially all of our assets. The voting power of these persons could also
have the effect of delaying or preventing a change in control. The interests of
these stockholders may differ from the interests of the other stockholders.
Our charter documents and Delaware law could delay or prevent a takeover of us
that stockholders may consider favorable.
There are provisions in our certificate of incorporation, bylaws and
Delaware law that may have the effect of delaying or preventing a change of
control or changes in our management that stockholders consider favorable or
beneficial. You should refer to the information in the section entitled
"Description of Capital Stock" for more information regarding these provisions.
If a change of control or change in management is delayed or prevented, the
market price of our common stock could suffer.
You will suffer immediate and substantial dilution in the book value of your
investment.
The initial public offering price per share of our common stock will
significantly exceed the net tangible book value per share. Accordingly,
investors purchasing shares in this offering will suffer immediate and
substantial dilution of $ per share in their investment, assuming an
initial public offering price of $ per share. In the past, we issued
options and warrants to acquire our common stock at prices significantly below
the initial offering price. To the extent these outstanding options and
warrants are ultimately exercised, there will be further dilution to investors
in this offering.
22
<PAGE>
FORWARD-LOOKING STATEMENTS
We have made statements under the captions "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and in other sections of this prospectus
that are forward-looking statements. In some cases, you can identify these
statements by forward-looking words such as "may," "might," "will," "should,"
"expects," "intends," "plans," "anticipates," "believes," "estimates,"
"predicts," "projects," "potential" or "continue," the negative of these terms
and other comparable terminology. These forward-looking statements, which are
subject to risks, uncertainties, and assumptions about us, may include, among
other things, projections of our future financial performance, our anticipated
growth strategies and anticipated trends in our business. These statements are
only predictions based on our current expectations and projections about future
events. Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause our actual results,
level of activity, performance or achievements to differ materially from the
results, level of activity, performance or achievements expressed or implied by
the forward-looking statements, including those factors discussed under the
caption entitled "Risk Factors." You should specifically consider the numerous
risks outlined under "Risk Factors."
Although we believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of any of these
forward-looking statements. We are under no duty to update any of these
forward-looking statements after the date of this prospectus to conform our
prior statements to actual results or revised expectations.
USE OF PROCEEDS
We estimate that the net proceeds from our sale of the shares of
common stock we are offering will be approximately $ million, assuming
an initial public offering price of $ and after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses payable by us. If the underwriters' over-allotment option is exercised
in full, we estimate that our net proceeds will be approximately $
million.
The principal purposes of this offering are to obtain additional working
capital, establish a public market for our common stock and facilitate our
future access to public capital markets. We currently expect to use the net
proceeds from this offering for working capital and other general corporate
purposes. We have not yet determined our expected use of these proceeds, but we
currently anticipate that we will use approximately $5.2 million to repay
indebtedness outstanding under secured promissory notes with three of our
stockholders. We may also use a portion of the net proceeds to acquire or
invest in complementary businesses, technologies, products or services. We have
no present commitments or agreements with respect to any acquisition or
investment. Pending these uses, we intend to invest the net proceeds in short-
term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently expect to retain earnings, if any, to finance the growth and
development of our business. Therefore, we do not anticipate declaring or
paying cash dividends on our common stock in the foreseeable future.
23
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1999 our short-term debt
and capitalization:
. on an actual basis;
. on a pro forma basis to reflect the issuance of up to 475,000 shares of
our common stock to the former shareholders of Printroom.com in
connection with our acquisition of Printroom.com in January 2000, the
exercise of outstanding warrants to purchase 272,359 shares of our
common stock which expire upon the closing of this offering and the
automatic conversion of all shares of preferred stock into 34,148,853
shares of common stock upon the closing of this offering; and
. on a pro forma as adjusted basis to reflect the sale of the shares
of our common stock offered by us at an assumed initial public offering
price of $ per share, after deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by us.
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(in thousands)
<S> <C> <C> <C>
Short-term debt:
Notes payable to stockholders................ $ 5,224 $ 5,224 $
-------- -------- --------
Total short-term debt...................... $ 5,224 $ 5,224 $
======== ======== ========
Notes payable to stockholders, net of current
portion(1).................................... $ 96 $ 96 $
-------- -------- --------
Mandatorily redeemable convertible preferred
stock(2)...................................... 53,136 -- --
-------- -------- --------
Stockholders' equity (deficit):
Preferred stock, $0.0001 par value per share;
no shares authorized, issued or outstanding,
actual and pro forma; 10,000,000 shares
authorized, no shares issued or outstanding
pro forma as adjusted....................... -- -- --
-------- -------- --------
Common stock, $0.0001 par value per share;
75,000,000 shares authorized, 12,664,322
shares issued and outstanding, actual;
75,000,000 shares authorized, 47,560,534
shares issued and outstanding, pro forma;
200,000,000 shares authorized, shares
issued and outstanding, pro forma as
adjusted(3)................................. 1 5
Additional paid-in capital................... 24,566 81,607
Unearned stock-based compensation............ (19,158) (19,158)
Notes receivable from stockholders........... (2,756) (2,756)
Accumulated deficit.......................... (34,082) (34,082)
-------- -------- --------
Total stockholders' (deficit) equity....... (31,429) 25,616
-------- -------- --------
Total capitalization..................... $ 27,026 $ 30,936 $
======== ======== ========
</TABLE>
- -------------------
(1) See Note 4 of notes to consolidated financial statements.
(2) See Note 6 of notes to consolidated financial statements.
(3) The number of shares of common stock into which each share of our Series E
preferred stock will be converted upon completion of this offering may be
adjusted under some circumstances as described in "Description of Capital
Stock--Preferred Stock."
The number of shares of our common stock outstanding set forth in the table
above excludes the following:
. 1,471,992 shares of our common stock subject to options outstanding as
of December 31, 1999 at a weighted average exercise price of $0.47 per
share;
. 1,200,000 shares of our common stock subject to restricted stock grants
which were outstanding but unexercised as of December 31, 1999 at a
weighted average exercise price of $2.00 per share;
. 228,943 shares of our common stock subject to warrants outstanding as of
December 31, 1999 at a weighted average exercise price of $1.57 per
share;
. 11,964,046 additional shares of our common stock that have been reserved
for issuance upon future grants of options under our stock option and
stock purchase plans; and
. up to 30,000 shares of our common stock that we would issue if we
complete the acquisition of Impact Peripherals.
24
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $25.4 million, or $0.45 per share of our common stock. Our pro
forma net tangible book value per share represents our total tangible assets
less total liabilities divided by the pro forma total number of shares of
common stock outstanding at such date, after giving effect to the issuance of
up to 475,000 shares of our common stock to the former shareholders of
Printroom.com in connection with our acquisition of Printroom.com in
January 2000, the exercise of warrants to purchase 272,359 shares of our common
stock and the conversion of all outstanding shares of preferred stock into
shares of common stock. The dilution in pro forma net tangible book value per
share represents the difference between the amount per share paid by purchasers
of shares of our common stock in this offering and the net tangible book value
per share of our common stock immediately following this offering.
Without taking into account any changes in pro forma net tangible book value
after December 31, 1999, other than to give effect to the sale of the shares of
common stock offered by us at an assumed initial public offering price of $
per share, after deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by us, our pro forma net tangible book
value as of December 31, 1999 would have been approximately $ million or $
per share of common stock. This amount represents an immediate increase in pro
forma net tangible book value of $ per share to the existing stockholders and
an immediate and substantial dilution in pro forma net tangible book value of
$ per share to new investors purchasing shares in this offering. The
following table illustrates the dilution in pro forma net tangible book value
per share to new investors.
<TABLE>
<S> <C>
Assumed initial public offering price per share...................... $
Pro forma net tangible book value per share as of December 31,
1999.............................................................. $ 0.45
Increase per share attributable to new investors...................
Pro forma net tangible book value per share after the offering.......
------
Dilution per share to new investors.................................. $
======
</TABLE>
The following table summarizes, as of December 31, 1999, on the pro forma
basis described above, the number of shares of common stock purchased from us,
the total consideration paid to us and the average price per share paid by
existing stockholders and to be paid by new investors purchasing shares of
common stock in this offering at an assumed initial public offering price of
$ per share, before deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us.
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration
-------------- -------------- Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ % $ % $
New investors....................
--- --- ---- ---
Total.......................... 100% 100%
=== === ==== ===
</TABLE>
The above information assumes no exercise of the underwriters' over-
allotment option and excludes exercises of stock options or warrants after
December 31, 1999. As of December 31, 1999, we had outstanding options to
purchase 1,471,992 shares of our common stock at a weighted average exercise
price of $0.47 per share and warrants to purchase 228,943 shares of our common
stock at a weighted average exercise price of $1.57 per share. We also had
1,200,000 shares of our common stock subject to restricted stock grants
outstanding but unexercised at a weighted average exercise price of $2.00 per
share. To the extent any of these options, warrants or grants are exercised,
there will be further dilution to new investors.
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and the
related notes thereto included elsewhere in this prospectus. The selected
consolidated balance sheet data as of December 31, 1998 and 1999 and the
selected consolidated statements of operations data for each of the three years
in the period ended December 31, 1999 have been derived from our consolidated
financial statements, which have been audited by PricewaterhouseCoopers LLP,
independent accountants, and are included elsewhere in this prospectus. The
selected consolidated balance sheet data as of December 31, 1996 and December
31, 1997 and the selected consolidated statements of operations data for the
period from September 16, 1996 (date of inception) to December 31, 1996 were
derived from audited financial statements that are not included in this
prospectus.
<TABLE>
<CAPTION>
Period from
September 16,
1996 (date of
inception) to Years Ended December 31,
December 31, ---------------------------
1996 1997 1998 1999
------------- ------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Revenues:
Product sales.................... $ 452 $ 1,938 $ 7,609 $ 29,219
Development fees................. -- 1,005 -- --
-------- ------- -------- --------
Total revenues.................. 452 2,943 7,609 29,219
-------- ------- -------- --------
Gross margin....................... 185 1,810 1,576 4,623
-------- ------- -------- --------
Operating expenses:
Research and development......... 726 3,931 3,101 4,141
Sales and marketing.............. 238 1,098 4,413 8,599
General and administrative....... 709 1,650 2,733 5,241
In-process research and
development write-off........... 3,047 -- -- --
Stock-based compensation......... -- -- -- 1,806
-------- ------- -------- --------
Total operating expenses........ 4,720 6,679 10,247 19,787
-------- ------- -------- --------
Loss from operations............... (4,535) (4,869) (8,671) (15,164)
-------- ------- -------- --------
Net loss........................... $ (4,555) $(5,157) $ (9,090) $(15,281)
======== ======= ======== ========
Net loss per common share--basic
and diluted....................... $ (0.27) $ (0.52) $ (2.79) $ (2.53)
======== ======= ======== ========
Shares used in net loss per common
share calculation--basic and
diluted (see Note 2 to the
consolidated financial
statements)....................... 16,854 9,945 3,255 6,114
======== ======= ======== ========
Pro forma net loss per common
share--basic and diluted
(unaudited) ...................... $ (0.46)
========
Shares used in pro forma net loss
per common share calculation--
basic and diluted (unaudited) (see
Note 12 to the consolidated
financial statements)............. 32,957
========
<CAPTION>
December 31,
-----------------------------------------
1996 1997 1998 1999
------------- ------- -------- --------
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.......... $ 94 $ 341 $ 9,824 $ 6,495
Short-term investments............. -- -- -- 3,896
Working capital (deficit).......... (4,975) (751) 10,382 19,574
Total assets....................... 1,048 2,102 16,814 38,274
Short-term debt.................... 3,500 61 67 5,224
Long-term debt..................... -- 6,400 5,326 96
Mandatorily redeemable convertible
preferred stock................... -- 2,922 24,653 53,136
Total stockholders' deficit........ (4,446) (9,329) (18,411) (31,429)
</TABLE>
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated
financial statements and notes thereto and other financial information
appearing elsewhere in this prospectus.
Overview
We design, develop and market high-performance digital film and connectivity
products for the digital photography market. Our products and services allow
customers to capture digital images and download them quickly to a personal
computer for editing, distributing and printing.
We were formed in September 1996 to purchase the solid-state storage
business unit of Cirrus Logic, Inc. From the inception of the business unit to
September 1996 the business unit was engaged principally in research and
development activities and recorded approximately $250,000 and $659,000 of
revenues in 1995 and in the period from January 1, 1996 to September 15, 1996,
respectively. After the acquisition and through the middle of 1997, we focused
primarily on the sale of controllers and PC Cards for general flash memory
applications. Commencing in the middle of 1997, we began to focus our products
as well as marketing and sales efforts on the digital film market.
Revenues. We generate revenues primarily from the sale of digital film and
connectivity products for the professional, commercial and consumer markets.
Our digital film is offered in the three primary media formats currently used
by digital cameras: CompactFlash, PC Card and SmartMedia. In 2000, we expect to
begin receiving a modest to small amount of revenues from the licensing of our
technology. In addition, as a result of our acquisition of Printroom.com in
January 2000, we offer photofinishing services over the Internet and will begin
to recognize modest revenues from these services in 2000.
Our customers include original equipment manufacturers, private label
resellers, consumer retailers and distributors. Some of these customers have
return and price protection rights. We protect some of our customers against
the effects of price decreases on their inventories. Accordingly, if we reduce
our prices, we pay certain distributors and consumer retailers for the
difference between the new price and the price paid for the same product still
in their inventory. We permit some of our customers to return products still in
their inventory for credit or new products. We recognize revenue where there is
a contract or purchase order, upon shipment or delivery depending on the terms
of sale and collectibility of the resulting receivable is probable. We provide
for estimated future returns and price protection based on historical
experience at the time the corresponding revenue is recognized. At the time of
sale, we also provide for the estimated costs of meeting product warranty
obligations. For one of our distributors, revenues and cost of revenues are
deferred until the distributor has sold the product to its customers.
A majority of our sales have been to a limited number of customers. Product
sales to our top 10 customers accounted for approximately 99.7% of our product
sales in 1997, 83.7% in 1998 and 79.2% in 1999. We expect that sales of our
products to a limited number of customers will continue to account for a
substantial portion of our product sales for the foreseeable future. Domestic
sales account for the majority of our revenues. Product sales in the United
States represented 78.1% of total revenues in 1998 and 72.4% in 1999. We expect
that international sales, especially in Japan, will become a larger percentage
of our revenues in the future.
Cost of Revenues. Our cost of revenues consists primarily of material costs,
with flash memory accounting for most of those costs. We maintain relationships
with key suppliers, which we believe will be able to provide us with sufficient
quantities of flash memory during 2000. However, we expect to face price
fluctuations for flash memory for the foreseeable future. In addition, cost of
revenues includes expenses related to materials procurement, inventory
management and manufacturing.
27
<PAGE>
Research and Development. Our research and development expenses include
salaries and related expenses for research and development personnel, fees for
outside consultants, patent costs and prototype development costs. We believe
that continued investment in research and development is important to attain
our strategic objectives, and we anticipate that our research and development
expenses will continue to increase significantly in absolute dollars due to our
product development efforts.
Sales and Marketing. Our sales and marketing expenses include salaries and
related expenses for sales and marketing personnel, advertising, customer
service, technical support, distribution and travel and trade show expenses. We
expect sales and marketing expenses to increase significantly as we add sales
staff and expand our promotional and branding efforts, both domestically and
internationally, primarily in Japan and Europe.
General and Administrative. Our general and administrative expenses include
salaries and related expenses for executive, administrative and operational
personnel, fees for professional services and other corporate expenses. We have
incurred significant legal expenses related to patent litigation with SanDisk,
which we expect to continue in 2000. We expect general and administrative
expenses to increase significantly as we add personnel to support the expansion
of our operations, incur additional expenses related to the anticipated growth
of our business, assume the responsibilities of a public company and continue
to incur expenses in ongoing litigation.
Stock-based Compensation. Stock-based compensation represents the aggregate
difference, at the date of grant, between the deemed fair market value of the
stock underlying options and the exercise prices of these options. Stock-based
compensation is amortized over the vesting period of the underlying options
based on an accelerated vesting method.
Our History of Losses
We have incurred significant losses to date. As of December 31, 1999, we had
an accumulated deficit of approximately $34.1 million. We intend to continue to
expend significant financial and management resources on developing additional
products and services, increasing sales and marketing activities, improving our
technologies and expanding our operations. As a result, we expect to continue
to incur additional losses and negative cash flow through 2000 and possibly
beyond. In view of the rapidly changing nature of our market and our limited
operating history, we believe that period-to-period comparisons of our revenues
and other operating results are not necessarily meaningful and should not be
relied upon as indications of future performance. Our historic revenue growth
rates are not necessarily sustainable or indicative of our future growth.
28
<PAGE>
Results of Operations
The following table sets forth our statement of operations data as a
percentage of total revenues for the years indicated.
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Revenues:
Product sales...................................... 65.9 % 100.0 % 100.0 %
Development fees................................... 34.1 -- --
------ ------ ------
Total revenues................................... 100.0 100.0 100.0
Cost of revenues..................................... 38.5 79.3 84.2
------ ------ ------
Gross margin......................................... 61.5 20.7 15.8
Operating expenses:
Research and development........................... 133.6 40.8 14.2
Sales and marketing................................ 37.3 58.0 29.4
General and administrative......................... 56.1 35.9 17.9
Stock-based compensation........................... -- -- 6.2
------ ------ ------
Total operating expenses......................... 227.0 134.7 67.7
------ ------ ------
Loss from operations................................. (165.5) (114.0) (51.9)
Interest expense and other........................... (9.7) (4.5) (0.4)
------ ------ ------
Net loss......................................... (175.2)% (118.5)% (52.3)%
====== ====== ======
</TABLE>
Year Ended December 31, 1998 versus Year Ended December 31, 1999
Revenues. Total revenues increased 284.2% from $7.6 million in 1998 to $29.2
million in 1999. This increase was the result of continued increases in sales
of our digital film and connectivity products, including our USB-enabled
CompactFlash digital film and the JumpShot product introduced in the last half
of the year. In addition, in 1999, we added several new customers that
generated significant sales, including Best Buy, Nikon, Tech Data and Wal-Mart.
Product sales in 1999 were predominantly to customers in the United States
(72.4%), Japan (14.6%) and the United Kingdom (11.7%). Product sales in 1998
were predominantly to customers in the United States (78.1%) and Japan (19.3%).
Four customers, Ingram Micro, Kodak, Impact Peripherals and Tech Data,
accounted for 12.8%, 11.4%, 10.0% and 8.8% of product sales in 1999. Four
customers, Kodak, ADTEC, Ingram Micro and Viking, accounted for 24.6%, 18.1%,
13.2% and 10.6% of product sales in 1998. We believe that a substantial
majority of the products we sold to Ingram Micro and Tech Data were resold by
those parties to CompUSA.
Cost of Revenues. Cost of revenues increased 310.0% from $6.0 million in
1998 to $24.6 million in 1999. The increase in cost of revenues was due to
increased sales of digital film and connectivity products and higher material
costs. Overall, cost of revenues increased from 79.3% of total revenues in 1998
to 84.2% of total revenues in 1999. Our gross margins have fluctuated due to
changes in our product mix, flash memory pricing, competitive pricing and other
factors, such as higher product costs in the introductory phase of new
products. We believe that our gross margins will continue to fluctuate.
Research and Development. Research and development expenses increased 33.5%
from $3.1 million in 1998 to $4.1 million in 1999. The increase in research and
development expenses was primarily due to an increase in the number of
development projects that we pursued and an increase in the use of outside
consultants. We may continue to use consultants in the future from time to
time. Our research and development efforts continue to focus on product
enhancement and new product development. Research and development expenses
decreased from 40.8% of total revenues in 1998 to 14.2% of total revenues in
1999.
29
<PAGE>
Sales and Marketing. Sales and marketing expenses increased 94.9% from $4.4
million in 1998 to $8.6 million in 1999. The increased level of expenditures
was primarily due to increases in advertising and marketing, increase in
commissions as sales increased and personnel-related costs due to increased
hiring. Overall, sales and marketing expenses decreased from 58.0% of total
revenues in 1998 to 29.4% of total revenues in 1999.
General and Administrative. General and administrative expenses increased
91.8% from $2.7 million in 1998 to $5.2 million in 1999. This increase was the
result of increasing personnel and facilities costs to support our growing
operations and increased costs in connection with ongoing litigation matters.
General and administrative costs decreased from 35.9% of total revenues in 1998
to 17.9% of total revenues in 1999.
Stock-based Compensation. The unamortized stock-based compensation recorded
for all option grants through December 31, 1999 totaled $21.0 million. In 1999,
we recognized stock-based compensation of $1.8 million associated with these
options. The remainder of the unamortized stock-based compensation will be
amortized as follows: $11.4 million in 2000; $4.8 million in 2001; $2.3 million
in 2002; and $0.7 million in 2003.
Interest Expense and Other. Interest expense and other, which is comprised
primarily of net interest expense and foreign currency fluctuation, decreased
72.3% from $419,000 in 1998 to $117,000 in 1999. The decrease was the result of
interest earned on temporary deposits resulting from the proceeds of our
preferred stock offerings.
Income Taxes. No provision for federal and state income taxes was recorded,
since we incurred net operating losses from inception through December 31,
1999. As of December 31, 1999, we had approximately $25.7 million of federal
and state net operating loss carryforwards, which expire in varying amounts
beginning in 2003 and ending in 2019, if not utilized. Due to the uncertainty
regarding the ultimate utilization of the net operating loss carryforwards, we
have not recorded any benefit for losses and a valuation allowance has been
recorded for the entire amount of the net deferred tax asset. In addition,
sales of our stock, including shares sold in this offering, may further
restrict our ability to utilize our net operating loss carryforwards.
Year Ended December 31, 1997 versus Year Ended December 31, 1998
Revenues. Total revenues increased 162% from $2.9 million in 1997 to $7.6
million in 1998. The increase was the result of a 292.6% increase in product
revenues. No development fees were recognized in 1998. The product revenue
increase was due primarily to increasing sales from new media formats such as
CompactFlash, PC Card and SmartMedia for use in digital cameras. In 1998,
substantially all of our product sales related to sales of digital film whereas
in 1997 product sales related primarily to sales of controllers and, to a
lesser degree, digital film. Product sales in 1997 were substantially all to
customers in the United States. Product sales in 1998 were primarily to
customers in the United States (78.1%) and Japan (19.3%). Four customers,
Kodak, ADTEC, Ingram Micro and Viking, accounted for 24.6%, 18.1%, 13.2% and
10.6% of product sales in 1998. Three customers, Simple Technologies, Hitachi
and Mitsubishi, accounted for 47.8%, 20.4% and 14.9% of product sales in 1997.
We recognized $1.0 million in development fees in 1997 from three major
semiconductor manufacturers.
Cost of Revenues. The cost of development fee revenue for 1997 has been
included in research and development costs. These costs were not allocated to
cost of revenue as they represented internal research and development projects
that we were already undertaking as part of the development of our own core
technology. Accordingly, our gross margin has been measured based on a
percentage of product sales.
Cost of product revenues increased 445.4% from $1.1 million in 1997 to $6.0
million in 1998. The increase in cost of product revenues was primarily due to
increased sales of digital photography products and higher material costs for
our digital film. Cost of product revenues increased from 58.5% of product
sales in 1997 to 79.3% of product sales in 1998, largely due to changes in our
product mix.
30
<PAGE>
Research and Development. Research and development expenses decreased 21.1%
from $3.9 million in 1997 to $3.1 million in 1998. The decrease was primarily
due to reductions in research and development personnel and the number of
development projects that we pursued. Research and development costs decreased
from 202.9% of product sales in 1997 to 40.8% of product sales in 1998.
Sales and Marketing. Sales and marketing expenses increased 301.9% from $1.1
million in 1997 to $4.4 million in 1998. The increase was primarily due to
higher expenses associated with selling and promoting our new digital film and
connectivity products in the U.S. market. Sales and marketing expenses
increased from 56.6% of product sales in 1997 to 57.9% of product sales in
1998.
General and Administrative. General and administrative expenses increased
65.6% from $1.7 million in 1997 to $2.7 million in 1998. This increase was the
result of increasing personnel and facilities costs to support our growing
operations. In addition, we incurred significant legal expenses in 1998 related
to our patent litigation with SanDisk. General and administrative costs
decreased from 85.2% of product sales in 1997 to 35.9% of product sales in
1998.
Interest Expense and Other. Net interest expense increased 45.5% from
$288,000 in 1997 to $419,000 in 1998. The increase was primarily due to the
timing of borrowings from related parties.
31
<PAGE>
Quarterly Results of Operations
The following table sets forth quarterly statement of operations data for
the eight quarters in 1998 and 1999. This quarterly information has been
derived from our unaudited financial statements and, in the opinion of
management, includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the information for the
periods covered. The quarterly data should be read in conjunction with our
consolidated financial statements and related notes. The operating results for
any quarter are not necessarily indicative of the operating results for any
future period.
<TABLE>
<CAPTION>
Quarters Ended
-------------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- --------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Product sales........... $ 215 $ 1,235 $ 2,072 $ 4,087 $ 3,726 $ 5,511 $ 8,176 $11,806
Cost of revenues........ 212 858 1,457 3,507 3,240 4,695 7,059 9,602
------- ------- ------- ------- ------- ------- ------- -------
Gross margin............ 3 377 615 580 486 816 1,117 2,204
Operating expenses:
Research and
development........... 577 719 788 1,017 944 1,019 1,069 1,109
Sales and marketing.... 661 873 1,151 1,728 1,757 1,758 2,260 2,824
General and
administrative........ 380 587 727 1,038 997 1,373 1,018 1,853
Stock-based
compensation.......... -- -- -- -- 23 275 140 1,368
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 1,618 2,179 2,666 3,783 3,721 4,425 4,487 7,154
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (1,615) (1,802) (2,051) (3,203) (3,235) (3,609) (3,370) (4,950)
Interest expense and
other.................. (129) (93) (134) (63) (20) (93) (54) 51
------- ------- ------- ------- ------- ------- ------- -------
Net loss................ $(1,744) $(1,895) $(2,185) $(3,266) $(3,255) $(3,702) $(3,424) $(4,899)
======= ======= ======= ======= ======= ======= ======= =======
The following table sets forth our statement of operations data as a
percentage of total revenues for the periods indicated.
<CAPTION>
Quarters Ended
-------------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Product sales........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........ 98.6 69.4 70.3 85.8 87.0 85.2 86.3 81.3
------- ------- ------- ------- ------- ------- ------- -------
Gross margin............ 1.4 30.6 29.7 14.2 13.0 14.8 13.7 18.7
Operating expenses:
Research and
development........... 268.4 58.2 38.0 24.9 25.3 18.5 13.1 9.4
Sales and marketing.... 307.4 70.7 55.6 42.3 47.2 31.9 27.6 23.9
General and
administrative........ 176.7 47.6 35.1 25.4 26.8 24.9 12.5 15.7
Stock-based
compensation.......... -- -- -- -- 0.6 5.0 1.7 11.6
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 752.5 176.5 128.7 92.6 99.9 80.3 54.9 60.6
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (751.1) (145.9) (99.0) (78.4) (86.9) (65.5) (41.2) (41.9)
Interest expense and
other.................. (60.0) (7.5) (6.5) (1.5) (0.5) (1.7) (0.7) 0.4
------- ------- ------- ------- ------- ------- ------- -------
Net loss................ (811.1)% (153.4)% (105.5)% (79.9)% (87.4)% (67.2)% (41.9)% (41.5)%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Product sales have increased each of the past eight quarters, except for the
first quarter of 1999. We expect our quarterly operating results to fluctuate
significantly in the future as a result of a variety of factors, many of which
are outside of our control. These factors include, for example, changes in
component costs, manufacturing yields, the prices at which we sell our products
and the mix of the products we sell. Historically, our quarterly gross margins
have varied significantly. For example, our gross margins for the fourth
quarter in 1999 were significantly higher than in previous quarters. We believe
our fourth quarter 1999 gross margin benefited from improved yields for some of
our components, stable prices, more favorable margins on recently introduced
USB products and a more favorable product mix. We do not anticipate benefiting
from all of these events at the same time in the foreseeable future.
32
<PAGE>
We plan to significantly increase our research and development, sales and
marketing and general and administrative expenses in 2000 and beyond. Our
expenses are partially based on our expectations regarding future revenues, and
are largely fixed in nature, particularly in the short term. As a result, if
our revenues in a period do not meet our expectations, our financial results
will likely suffer. We believe that comparisons of our historical quarterly
operating results are neither meaningful nor predictive of future performance.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
sales of our common stock and preferred stock, which through December 31, 1999
totaled approximately $54.9 million. Net cash used in operating activities was
approximately $4.6 million in 1997, $10.3 million in 1998 and $26.3 million in
1999. Net cash used in operating activities resulted primarily from our net
losses, increases in inventory and, in 1998 and 1999, increases in accounts
receivable, offset in part by increases in accounts payable and accrued
liabilities.
Net cash used in investing activities was $738,000 in 1997, $631,000 in 1998
and $5.6 million in 1999. Net cash used in investing activities in 1997 and
1998 primarily represented purchases of property, equipment and software. In
1999, net cash used in investing activities resulted from purchases of short-
term investments and property, equipment and software.
Net cash provided by financing activities was $5.6 million in 1997, $20.4
million in 1998 and $28.5 million in 1999. Net cash provided by financing
activities in 1997 was from the proceeds of notes payable and other loans,
offset by cash used to repurchase stock. Net cash provided by financing
activities in 1998 and 1999 consisted primarily of proceeds from preferred
stock offerings and from new investor loans later converted into preferred
stock.
As of December 31, 1999, we had $6.5 million of cash and $3.9 million of
short-term investments, $2.5 million of which is restricted. As of that date,
our principal commitments consisted of obligations outstanding under
noncancelable operating leases for $3.2 million, including contractual
commitments of $612,000 for 2000. We anticipate a substantial increase in our
lease commitments and our cash needs, consistent with the anticipated growth in
operations and infrastructure.
We currently anticipate that the net proceeds of this offering, together
with current balances of cash, cash equivalents and short-term investments,
will be sufficient to meet our anticipated needs for working capital and
capital expenditures through at least the next 12 months. We may need to raise
additional funds prior to the expiration of this period if, for example, we
pursue acquisitions or experience operating losses that exceed our current
expectations. We cannot be certain that additional financing will be available
to us on favorable terms when required, or at all.
Quantitative and Qualitative Disclosure of Market Risks
We sell our products primarily to customers in the U.S. and to a lesser
extent Japan and the U.K. All of our sales are currently denominated in U.S.
dollars, with the exception of one Japanese customer that accounted for
approximately 5.3% of sales in 1999 whose sales are denominated in Japanese
yen. As a result, it is unlikely that our financial results could be directly
affected to a significant extent by changes in foreign currency exchange rates,
although the prices of our products would become more expensive in a particular
foreign market if the value of the U.S. dollar rises in comparison to the local
currency, which may make it more difficult to sell our products in that market.
We may face foreign currency exchange risk in the future. Approximately 72.4%
of our total revenues for the year ended December 31, 1999 were derived from
countries other than the United States. Therefore, our financial results could
be directly affected by weak economic conditions in foreign markets. These
risks may change if we acquire businesses outside the U.S. or if we sell in
non-U.S. dollar denominated currencies.
33
<PAGE>
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest expense we must pay on
our outstanding debt instruments. The risk associated with fluctuating interest
expense is limited to the exposure related to those debt instruments and credit
facilities that are tied to market rates. We do not plan to use derivative
financial instruments in our investment portfolio. We plan to ensure the safety
and preservation of our invested principal funds by limiting default risk and
market risk. We plan to mitigate default risk by investing in investment-grade
securities. We have historically invested in investment-grade, short-term
securities that we have held until maturity to limit our market risk.
Year 2000 Readiness Disclosure
As of February 15, 2000, we had not experienced any Year 2000-related
disruption in the operation of our systems. Although most Year 2000 problems
should have become evident on January 1, 2000, additional Year 2000-related
problems may become evident only after that date. For example, some software
programs may have difficulty resolving the so-called "century leap year"
algorithm which will also occur during the Year 2000.
Recently Issued Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position 98-1, or SOP 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. The adoption of SOP 98-1 does
not have a material impact on our financial statements.
In April 1998, AcSEC issued Statement of Position 98-5, or SOP 98-5,
"Reporting on the Costs of Start-Up Activities." This standard requires
companies to expense the costs of start-up activities and organization costs as
incurred. In general, SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. The adoption of SOP 98-5 does not have a material impact on
our results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities.
SFAS 133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a components of
comprehensive income, depending on the type of hedging relationship that
exists. SFAS 133 will be effective for fiscal years beginning after June 15,
2000. We do not currently hold derivative instruments or engage in hedging
activities.
34
<PAGE>
BUSINESS
We are a leading designer, developer and marketer of high-performance
digital film and connectivity products for the digital photography market. Our
broad line of high-performance digital film combines flash memory from leading
suppliers with our patented controller technology to address the needs of
professional, commercial and consumer photographers. Our connectivity products
make it easy to transfer digital images from digital film to a personal
computer. Our online photofinishing site, Printroom.com, provides consumers
with high-quality prints of digital images and photo sharing services.
Collectively, our products and services provide an end-to-end solution for the
digital photographer.
Our high-performance digital film can record images faster than most other
digital film. This performance advantage is particularly noticeable when used
in advanced digital cameras that take advantage of our write speed, or the rate
at which our film can capture a digital image. We believe that our digital film
is the leading choice for professional photographers. We offer digital film for
substantially all digital cameras, including those manufactured by Canon,
Casio, Epson, Fuji, Kodak, Minolta, Nikon, Olympus, Sony and Yashica. We
currently offer digital film in the three primary media formats currently used
by digital cameras: CompactFlash, SmartMedia and PC Card.
Our technology can be applied to a variety of consumer electronic
applications, including digital cameras, Internet music players, laptop
computers, personal digital assistants, telecommunication and network devices
and digital video recorders. As an example of how we intend to leverage our
digital film technology into some of these markets, we have entered into a non-
binding memorandum of understanding with Sony to combine our proprietary
controller technology with their Memory Stick media format and include the
Memory Stick as one of our digital film products.
Industry Background
Traditional Photography Market. According to data from Photofinishing News,
the worldwide photography market, consisting of cameras and ancillary products,
film and photofinishing services, exceeded $85 billion in 1998. Participants in
this global market include leading providers of traditional photography
products and services, such as Canon, Fuji, Kodak, Minolta, Nikon and Olympus.
According to Lyra Research, Inc., a photography market research firm, over 60
million traditional film cameras were sold worldwide in 1998. In addition, Lyra
Research estimates that there were approximately 3.4 billion rolls of
traditional film sold during this period, resulting in approximately 88 billion
total exposures.
Digital Photography. Digital photography offers several advantages over
traditional photography: the photographer can immediately preview digital
images, select the best digital image from multiple shots and easily edit the
image. Photographers can also transfer the digital images to a personal
computer where they can be easily edited and shared. Initially, the demand for
digital images was driven primarily by professional and commercial users in
such fields as photojournalism, advertising, publishing, insurance and real
estate. These users obtained digital images either by using digital scanners to
capture traditional film photographs or by using relatively expensive digital
cameras with high-resolution capabilities.
Although early digital cameras were typically too expensive or offered poor
resolution capabilities, recent technological improvements have resulted in
both reduced prices and improved image quality. The growing presence of
personal computers in the home and the ability to transmit images to friends
and family over the Internet are stimulating the demand for and use of digital
cameras. International Data Corporation, or IDC, estimates that the number of
Internet users worldwide will increase from approximately 200 million in 1999
to approximately 500 million by 2003. This penetration could further increase
if historical bandwidth constraints are successfully addressed by improved
delivery systems such as digital cable, satellite and digital subscriber lines.
Digital Camera Market. IDC projects that the photo-quality digital camera
market will be the fastest growing digital camera segment from 1998 to 2003,
with an estimated compound annual growth rate of
35
<PAGE>
approximately 62% during this period. It expects this segment to drive the
growth of the entire digital camera market. IDC defines photo-quality digital
cameras as those cameras that approximate both the cost and image quality of a
traditional 35mm camera. The sale of photo-quality digital cameras accounted
for approximately 64% of total digital camera sales in 1998 and is projected to
account for nearly all digital camera sales by the end of 2002. IDC projects
that the number of photo-quality digital camera units shipped will increase
from approximately 2.0 million in 1998 to 21.8 million in 2003.
The Digital Film Market. Digital cameras typically store images on removable
and reusable flash memory cards called digital film. An integral part of most
digital film are the controllers that write the image onto the digital film.
Controllers either reside on the flash memory card or permanently in the
digital camera. The CompactFlash, Memory Stick and PC Card formats contain a
controller, while the SmartMedia format does not. When the controller resides
in the digital camera, as is the case with SmartMedia, the ability of that
camera to utilize the latest advances in flash memory technology is limited.
The inclusion of the controller on the flash memory card allows the latest
advances in controller technology to be combined with the latest advances in
flash memory technology. We believe this inclusion allows digital film
manufacturers to more quickly design and market digital film products with
higher capacity and faster write speeds. CompactFlash and PC Cards accounted
for approximately 77% of flash memory-based digital film market revenue in
1997.
We believe the increasing acceptance of digital cameras will continue to
drive the growth of the digital film market. Semico Research, Inc., a
technology market research firm, estimates that the digital film market will
increase from approximately $80 million in 1998 to over $1.2 billion in 2003,
representing an estimated compound annual growth rate of approximately 72%. The
acceptance of digital cameras depends in large part upon achieving lower prices
and higher resolution. It also depends on the availability of digital film
products and services that meet the following consumer needs:
. Speed. The speed with which a user can take successive photographs is a
critical element of digital photography. The factors that limit this
speed include image file size, the processing speed of the camera and
the sustained write speed of the digital film. As digital cameras with
faster processing speeds enter the market, we believe sustained write
capabilities will distinguish competing brands of digital film.
. Connectivity. According to IDC, the speed at which digital images can be
transferred to a personal computer or another device is one of the most
important characteristics for consumers when considering the overall
usability of a digital camera. Today, there are relatively few options
for quickly and easily transferring digital images to a personal
computer. The most common method, and also the slowest, is to transfer
images via the serial port on the camera, which can often take over 30
minutes to transmit 32 megabytes of digital images. Several digital
camera manufacturers have recently introduced cameras with connectivity
solutions utilizing the universal serial bus, or USB port, of the
personal computer. These solutions, however, are inherently complex and
require a direct physical connection between the digital camera and the
personal computer to transfer images. This connection draws from and
drains the power supply of the camera.
. Capacity. The emergence of digital cameras with increasingly higher
resolution capabilities is driving the need for higher capacity digital
film. Several digital camera manufacturers have recently introduced
models with resolution capabilities ranging from one to six megapixels.
The images produced by these high-resolution digital cameras have
greater memory requirements, which limit the storage capacity of
existing digital film products to a few pictures. Most digital cameras
are currently shipped with an eight megabyte storage card, which means
that typically fewer than 10 to 15 pictures can be stored from existing
photo-quality cameras shooting at the highest resolution.
. Compatibility. Not all digital film of a particular format is compatible
with each digital camera requiring that format. Accordingly, the
consumer who purchases a new digital camera or who owns multiple cameras
requires digital film that is compatible in terms of format and
functionality with each model.
36
<PAGE>
Digital Photofinishing Market. Consumers currently obtain prints from
digital images primarily by home printing or through Internet sites offering
photofinishing services. The majority of consumers currently choose to use
traditional inkjet printers at home to print their digital images. These
printers produce prints that vary in image quality or resolution and can fade.
The industry has recently experienced a substantial increase in the number of
companies offering Internet photofinishing services. These services allow
consumers to submit their digital images online and receive photographic prints
in the mail. These services are convenient, cost-effective and produce high-
quality prints that are comparable to traditional photofinishing services. Many
of these Internet photofinishing services also provide image archiving and
sharing services. Additionally, digital imaging kiosks, such as those from
Kodak, Fuji, Pixel Magic and Telepix, allow consumers to scan traditional
images or download digital images for processing and output.
Our Solution
We provide an extensive array of digital film and connectivity products and
services that improve the overall digital photography experience. We combine
flash memory from leading suppliers with our patented controller technology to
offer a broad line of high-performance digital film that addresses the needs of
professional, commercial and consumer photographers. Our connectivity products
make it easy for consumers to transfer digital images from their camera to a
personal computer. We also offer high-quality photofinishing services over the
Internet. Our products and services offer the following benefits:
Superior Speed. Our digital film records images faster than most other flash
memory cards, particularly when used in advanced digital cameras that have the
ability to take advantage of our increased write speed. We currently offer
digital film with write speeds ranging from 600 kilobytes per second to
1.5 megabytes per second for our CompactFlash product. Currently, our
competitors generally offer speeds of 600 kilobytes per second or below. This
means that consumers using our digital film are able to take more pictures in
less time, increasing the likelihood of capturing the desired image. Higher
resolution cameras produce larger image files that must be stored in a short
amount of time in order to rapidly take successive pictures. We believe the
faster write speeds of our digital film will become increasingly important as
digital cameras incorporate higher resolution capabilities.
Quick Connectivity. We offer a line of digital film reader/writers that
facilitate the transfer of digital images to a personal computer and other
devices without a direct connection to the digital camera. Our connectivity
products include parallel port and USB port universal reader/writers that are
compatible with all types of digital film formats, as well as with the
Macintosh and PC platforms. Our USB-enabled CompactFlash product, which
received The 1999 Best of What's New award from Popular Science and The
Editor's Choice Award from PC Photo, was the first digital film product to
integrate the USB-protocol directly onto the controller of the digital film.
Our USB-enabled digital film combined with our JumpShot cable provide the
convenience of plug-and-play operation and image transfer rates up to 25 times
faster than connectivity products using the serial port of a digital camera.
High Capacity. Our ability to reprogram our controller allows us to purchase
flash memory from the manufacturer that offers the highest capacity flash
memory. We currently offer digital film with capacities of up to 320 megabytes
in the PC Card format, 160 megabytes in the CompactFlash format and 32
megabytes in the SmartMedia format. Our high-capacity digital film addresses
the needs of those consumers who wish to replicate or surpass the number of
pictures that can be captured with traditional film products, particularly as
digital cameras incorporating higher resolution capabilities are introduced
into market. For example, our 160 megabyte CompactFlash digital film is capable
of storing the equivalent of 229 images using the Epson 850z digital camera in
its highest resolution mode.
Guaranteed Compatibility. We offer digital film for substantially all
digital cameras, including those manufactured by Canon, Casio, Epson, Fuji,
Kodak, Minolta, Nikon, Olympus, Sony and Yashica. We currently offer digital
film in the three primary media formats currently used by digital cameras:
CompactFlash, SmartMedia and PC Card. The patented programmability of our
controller technology
37
<PAGE>
allows us to meet a wide range of digital camera compatibility specifications
without physically altering our digital film. We maintain a laboratory where we
test prototypes of digital camera models from manufacturers prior to their
introduction to market to ensure their compatibility with our digital film.
This testing enables us to market our entire line of digital film as "Digital
Film Compliant," which is our guarantee that our digital film will work
seamlessly with any digital camera that uses the particular format.
Internet Photofinishing Services. Through our recent acquisition of
Printroom.com, we offer a broad array of photofinishing and ancillary services
over the Internet. Our service enables digital camera users to submit their
digital images for printing directly over the Internet and to receive high-
quality photographic prints in the mail at prices competitive with traditional
photofinishing services. We also offer online photo-sharing services through
which our customers are able to share their digital images with family and
friends over the Internet.
Our Strategy
Our objective is to establish our products and services as the industry
standard solution for capturing, storing, viewing, editing and distributing
digital images. We intend to capitalize on the anticipated growth and
development of the digital photography market by offering a broad range of
digital film and connectivity products and services and by leveraging our
proprietary technology into other consumer product applications. The key
elements of our business strategy include the following:
Leverage Our Technology to Enhance the Digital Photography Experience. Our
primary focus is to develop, market and sell digital film and connectivity
products and services. We intend to continue our research and development
efforts to further increase the performance of our digital film and
connectivity products and to work with digital camera manufacturers to improve
the design of their next generation cameras to take advantage of our high-speed
digital film. In addition, to enhance the overall digital photography
experience of our customers, we intend to combine our digital film and
connectivity products with our recently introduced Internet photo-sharing and
photofinishing services to create a seamless solution for our customers who
wish to capture, edit, distribute and print their digital images.
Build Our Brand. We believe that our brand of digital film is the leading
choice of professional photographers. We will continue to focus our marketing
efforts on leveraging this position and using our products' superior
performance to extend our brand recognition in the commercial and consumer
markets. We actively promote our brand in the commercial and consumer markets
through merchandising, packaging and print advertising. We have entered into
supply arrangements for our branded digital film with digital camera
manufacturers such as Epson, Kodak, Minolta, Nikon, Olympus and Yashica. In
addition, we actively work with leading retailers such as B&H Photo, Best Buy,
Camera World, CompUSA and Wal-Mart to offer and promote our branded digital
film. To promote Printroom.com, we intend to establish relationships with
digital camera manufacturers and retailers, as well as with online photography
communities. We intend to cross-promote our digital film and connectivity
products and our Internet photofinishing services to capitalize on our growing
brand awareness.
Extend Our Patented Controller Technology to Address New Market
Opportunities. Our controller technology and products can be licensed for use
in a number of significant emerging markets, outside of digital film, that
require high-speed digital memory. For example, Internet music players, laptop
computers, personal digital assistants, digital video recorders,
telecommunication and network devices and other consumer electronic products
utilize flash memory devices. We believe that many original equipment
manufacturers that address these markets will be attracted to the
programmability, compatibility, high-performance and ease of connectivity of
our controller. We recently announced that we have entered into a non-binding
memorandum of understanding with Sony to license our controller technology for
use with their Memory Stick media format, which is used in a variety of
consumer electronic products, including Internet music players, laptop
computers, digital video recorders and digital cameras. We intend to
selectively pursue similar relationships and licensing arrangements.
38
<PAGE>
Capitalize on Supply Flexibility for Our Key Components. Our patented
programmable controller technology is compatible with multiple sources of flash
memory. This flexibility enables us to outsource and draw on the highest
capacity or otherwise available flash memory at competitive prices. We believe
that outsourcing, rather than internally designing, developing and
manufacturing components, allows us to focus on our core competencies of
product design and development. Furthermore, we are able to take advantage of
the substantial expenditures made, and economies of scale achieved, by our
suppliers as well as their direct and more timely access to advancing
technology. We are committed to maintaining strong relationships with leading
suppliers to provide technologically superior products.
Expand Our International Presence. We intend to rapidly expand our
international presence. We currently sell our products in Europe and Asia
primarily through distributors. As part of our European expansion, we recently
agreed to acquire Impact Peripherals Limited, our primary European distributor
based in the United Kingdom. In addition, we recently established a small sales
group in Japan and plan on significantly expanding our direct sales and
marketing presence in Asia. Printroom.com, our Internet photofinishing service,
currently has a limited customer base of domestic and international customers.
We intend to rapidly expand our services in selected international markets.
When such markets achieve a certain size, we may establish local photofinishing
operations to serve our customers more quickly and more cost-efficiently.
Our Products and Services
Digital Film. We offer digital film in a variety of speeds and capacities in
the CompactFlash, PC Card and SmartMedia formats. Through our recently
announced non-binding memorandum of understanding with Sony, we intend to
expand our digital film offerings to include the Memory Stick media format. Our
entire line of digital film products is subjected to rigorous design and
testing procedures that we believe are more comprehensive than the standards
for compatibility set by the industry in general. These procedures guarantee
that our digital film will work seamlessly with any digital camera that uses
the particular format.
We label each of our digital film products for write speed performance in
which 1x is equal to a write speed of 150 kilobytes per second, nomenclature
similar to that used in the CD-ROM industry. For example, our 4x digital film
products are capable of sustained write speeds of at least 600 kilobytes per
second. Currently, we offer digital film products with write speeds ranging
from 4x to 10x.
The table below provides information on our principal digital film products:
Digital Film Products
<TABLE>
<CAPTION>
Sustained Write Storage Capacity Target U.S. Suggested
Format Speed (Megabytes) Market Retail Price
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CompactFlash 4x 8, 16, 32, 48, 64 and 80 Consumer $69 to $299
--------------------------------------------------------------------------
8x 32, 48, 64, 80, 128 and 160 Enthusiast $179 to $749
--------------------------------------------------------------------------
10x 128 and 160 Professional $649 to $799
- ----------------------------------------------------------------------------------------
SmartMedia Camera Dependent 8, 16 and 32 Consumer $29 to $129
- ----------------------------------------------------------------------------------------
PC Card 8x 160 and 320 Professional $629 to $1,199
</TABLE>
39
<PAGE>
Connectivity Products. We offer a complete line of digital film
reader/writers that facilitate the transfer of digital images to a personal
computer and other devices without a direct connection to the digital camera.
We recently introduced our USB-enabled CompactFlash digital film, which
received the 1999 Best of What's New Award from Popular Science and the
Editor's Choice Award from PC Photo. With our USB-enabled digital film, the
consumer simply removes the digital film from the camera and slips it into our
JumpShot cable, which is then plugged into the universal serial bus port of the
computer. When used with our JumpShot cable, our USB-enabled CompactFlash card
functions as a removable drive, thus enabling the consumer to easily transfer
digital images from our digital film to a personal computer.
The table below provides information on our connectivity products:
Connectivity Products
<TABLE>
<CAPTION>
Suggested
Type of Product Description Retail Price
- ----------------------------------------------------------------------------------------
<C> <C> <S>
Digital Film Readers CompactFlash Adapter $11.99
-----------------------------------------------------------------
Universal (CompactFlash, SmartMedia and $49
PC Card) Reader/Writer for the Parallel Port
-----------------------------------------------------------------
CompactFlash Reader/Writer for the USB Port $99
- ----------------------------------------------------------------------------------------
JumpShot Connectivity Cable used to connect our USB-enabled
Kit* CompactFlash digital film to a personal
computer via a USB Port $19.95
- ----------------------------------------------------------------------------------------
</TABLE>
* Currently bundled with our USB-enabled CompactFlash digital film.
Photofinishing Services. Our Internet photofinishing services offer high-
quality digital prints as well as online photo-sharing capabilities. Through
Printroom.com, we enable our users to easily submit digital images over the
Internet and to receive high-quality photographic prints in one or more
destinations. Our photofinishing lab offers image enhancement and a full range
of print sizes ranging from wallet size to 8X10 inches. We also offer the
ability to create and share online albums and guest books with family and
friends.
Sales and Marketing
We sell our digital film and connectivity products to end-users primarily
through original equipment manufacturer and consumer retail channels. The
original equipment manufacturer channel consists of digital camera
manufacturers and other private label resellers. The consumer channel includes
national and regional retailers and select corporate accounts. We use a direct
sales force, as well as distributors, value-added resellers and independent
sales representatives for the consumer market. Our direct sales force includes
10 individuals based in Fremont, California and three in Japan. We currently
distribute products directly in Japan and Europe and other parts of the world
through international distributors. We also market our products through our
website.
To support our sales efforts, we conduct marketing programs designed to
educate our target markets about the differences in digital film offerings. Our
retail marketing programs include merchandising programs, in-store promotions,
trade events and print advertising. We also support our marketing strategy by
establishing and maintaining close relationships with original equipment
manufacturers. For example, several major digital camera manufacturers,
including Epson, Minolta, Nikon and Yashica, recently began bundling our Lexar
branded USB-enabled CompactFlash digital film with their digital cameras.
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Customers
The following chart illustrates the consumer retailers, original equipment
manufacturers and private label resellers and distributors that sell our
products and accounted for more than $300,000 in total revenues in 1999.
<TABLE>
<CAPTION>
Original Equipment
Consumer Manufacturers and
Retailers Private Label Resellers Distributors
--------- ----------------------- ------------
<S> <C> <C>
Best Buy ADTEC Argraph
B&H Photo Casio Associated Press
Camera World Epson Impact Peripherals
CompUSA Hagiwara Ingram Micro
Fry's Electronics Kodak Tech Data
Wal-Mart Nikon
Simple Technology
Viking
Widget
</TABLE>
Four customers, Ingram Micro, Kodak, Impact Peripherals and Tech Data,
accounted for 12.8%, 11.4%, 10.0% and 8.8% of our product sales in 1999,
respectively. Four customers, Kodak, ADTEC, Ingram Micro and Viking, accounted
for 24.6%, 18.1%, 13.2% and 10.6% of our product sales in 1998, respectively.
We believe that a substantial majority of the products we sold to Ingram Micro
and Tech Data were resold by those parties to CompUSA.
We protect some of our customers against the effects of price decreases on
their inventories. Accordingly, if we reduce our prices, we pay certain
distributors and consumer retailers for the difference between the price paid
for the product still in their inventory and the new price. Additionally, we
permit some of our customers to return products still in their inventory for
credit or in exchange for new products.
Competition
Our primary competitors are companies that sell digital film into the
consumer and original equipment manufacturer digital film markets. These
companies are primarily integrated flash storage media manufacturers with both
controller and flash memory capabilities, such as SanDisk and Hitachi. We
believe that SanDisk is our primary competitor. SanDisk currently holds the
largest market share position in the flash media market, selling primarily
CompactFlash and PC Cards. We believe that SanDisk's strategy is to sell flash
memory products into a broad range of solid-state storage applications, one of
which is digital cameras. We expect to compete with SanDisk both for retail
accounts and in the original equipment manufacturer market. SanDisk's products
generally have lower prices than our products. We believe the principal
competitive factors in this market are performance and price. We believe we
compete favorably with SanDisk by offering premium products with superior
performance rather than low cost solutions. SanDisk is larger than we are and,
because it manufactures its own controllers and flash memory, it does not
depend as we do on third parties to supply it with flash memory or assemble its
final products. We are currently in litigation with SanDisk regarding some of
our products. You should refer to "Business--Legal Proceedings" for a
discussion of our current litigation with SanDisk.
We also compete with manufacturers, package or card assemblers and resellers
that combine controllers and flash memory chips developed by others, such as
Hitachi, into flash storage cards, including Kingston Technology, Simple
Technology, Smart Modular Technologies and Viking. Some of these competitors,
however, from time to time are customers of ours because they either buy
digital film on a private label basis or controllers. Additionally, Hitachi, as
well as flash controller developers such as Feiya Technology, Tokyo Electronic
and M-Systems, compete with our controller sales.
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Several companies have introduced competing technologies for use in digital
cameras. These include Sony's Memory Stick, Iomega Corporation's Clik!, and IBM
Corporation's MicroDrive. Some competing technologies are mechanically and
electronically incompatible with the CompactFlash, PC Card and SmartMedia
formats, which means our products do not work in digital cameras incorporating
those technologies. To expand our digital film products, we have entered into a
non-binding memorandum of understanding with Sony to combine our proprietary
controller technology with their Memory Stick media format.
In addition to competition in our traditional markets, with our recent
acquisition of Printroom.com, we compete with a growing number of companies in
the areas of photofinishing and on-line photo-image management. Our primary
competitors in these areas are on-line digital photofinishing companies such as
EZ Prints, Kodak, Ofoto, PhotoAccess, Seattle Film Works, Shutterfly and Wolf
Camera. These companies provide traditional prints from scanned traditional
photographs, or digital camera images and photo-image management services
allowing consumers to archive, edit and share downloaded images and create on-
line photo albums. Additionally, digital imaging kiosks, such as those from
Kodak, Fuji, Pixel Magic and Telepix, allow consumers to scan traditional
images or download digital images for processing and output. Traditional film
processors with strong brand recognition such as Kodak, through its PhotoNet
network, will pose a significant challenge if they begin to focus their efforts
in direct digital-to-paper photofinishing processing. Moreover, Internet photo-
image archiving and sharing services, such as Club Photo, PhotoIsland,
PhotoLoft and Zing, present additional competition through their current and
potential alliances with digital photofinishing companies.
Technology
Our technology is a result of over ten years of research and development.
Our engineering group initially developed controller devices to work with
magnetic and optical storage devices. This experience expanded our knowledge
and expertise in solid-state storage systems, and more specifically in flash
memory. As of February 10, 2000, we have filed for 36 United States patents, of
which 23 have been granted or allowed while 13 are pending in the United States
Patent and Trademark Office. We have also filed 26 corresponding foreign
applications. Most of our patents revolve around our core expertise in
developing and designing a programmable controller to work with AND and NAND,
the principal types of flash memory.
Our patented system and circuit technology and proprietary Space Manager
enable high write speed operations to the flash memory without long,
corresponding erase cycles. We achieve this by using our proprietary indirect
mapping methodology. Our high-speed technology provides a major advantage when
used in applications requiring large amounts of data to be transferred quickly,
such as digital imaging and digital sound recordings. Our controller integrates
various digital and advanced analog modules by using proprietary tools. We
believe our controller technology enables us to provide a high-performance
solution to our customers, while remaining cost-effective.
Our patented controller architecture also allows the controller's operating
software, which we refer to as firmware, to reside in the flash storage device.
The firmware is downloaded into the controller's internal random access memory
for execution and can easily be upgraded using simple utilities. This feature
allows us to reprogram the firmware for any digital camera or other digital
device. As a result, we provide digital film solutions with high-performance
and low power consumption without physically altering the digital storage
device.
Our USB-enabled CompactFlash digital film combined with our JumpShot cable
enables users to transfer their digital images or data to or from the computer
with ease at higher performance and lower cost than standard digital film
reader/writers. Our JumpShot cable does not require the user to connect the
camera to a computer, which avoids the drain on digital camera batteries, as
would be the case if the consumer were to use the serial port or USB port of
the digital camera to transfer digital images. Our digital film also uses less
power per shot than most other flash memory cards, which means consumers do not
have to change their camera batteries as often.
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We also sell our controllers as a stand-alone product to other flash storage
manufacturers and may license this technology to other original equipment
manufacturers. These controllers and the underlying technology are applicable
to numerous applications such as digital cameras, Internet music players,
laptop computers, telecommunication and network devices, personal digital
assistants, digital video recorders and other portable consumer electronics
products.
Research and Development
We believe that in order to compete successfully, we must continually
design, develop and introduce new product innovations that take advantage of
market opportunities and address emerging standards. As of January 31, 2000, we
had a staff of 23 research and development personnel, 14 of which were involved
in system architecture development, six of which were involved in proprietary
circuit and cell design and process development and three of which were
involved in digital image processing and printing at Printroom.com. In
addition, we have, on occasion, engaged outside consultants to assist in the
development of technologies to our specifications. We intend to continue this
selective use of outside consultants in the future. During 1997, 1998 and 1999,
we spent approximately $3.9 million, $3.1 million and $4.1 million,
respectively, on research and development activities.
In addition, we endeavor to develop and maintain close relationships with
key suppliers of components and technologies in order to enable us to quickly
introduce new products that incorporate the latest technologies. We have worked
closely with our flash memory suppliers to develop customized flash memory. We
also consistently receive prototypes of digital camera models from
manufacturers prior to their market introduction to ensure compatibility with
our digital film. We have also worked with some digital camera manufacturers to
optimize the performance of their digital camera when used with our digital
film. We believe our relationships with digital camera manufacturers provide
valuable insights into their current and future digital film requirements.
Manufacturing and Operations
We contract with independent foundries and assembly and testing
organizations to manufacture all of our products. This allows us to focus on
our design efforts, minimize fixed costs and capital expenditures and gain
access to advanced manufacturing capabilities. We maintain a comprehensive
quality testing program to help ensure that our products meet our quality
standards. We also require and certify that all subcontractors are ISO 9002
certified.
We use industry standard NAND flash memory. Although we currently purchase
almost all of our NAND flash memory from Toshiba and Samsung, we have the
ability to use NAND flash memory produced by Advanced Micro Devices, Inc. and
Fujitsu. Our controllers can also be configured to work with AND flash memory
produced by Hitachi. Our controller technology can also be applied to other
types of flash memory including NOR and other proprietary types of flash
memory.
UMC, based in Taiwan, currently manufactures our controller chips. Other
foundries that can produce our controller chip include Taiwan Semiconductor
Manufacturing and Chartered Semiconductor Manufacturing. Our flash memory cards
are assembled at Flash Electronics, in Fremont, California, and Samsung
Electro-Mechanical Corporation, in Seoul, Korea.
Legal Proceedings
We are a party to SanDisk Corporation v. Lexar Media, Inc., an action filed
in March 1998 in the United States District Court for the Northern District of
California, Case No. C98-01115 CRB. The suit involves allegations by SanDisk
that our CompactFlash cards and PC Cards are infringing its U.S. Patent
No. 5,602,987. In its complaint, SanDisk alleges that it will seek preliminary
and permanent injunctions against infringement, damages for infringement,
increased damages for willful infringement up to treble
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damages, attorneys' fees and costs. A substantial portion of our revenues for
the foreseeable future will depend upon sales of our CompactFlash cards and PC
cards.
To date, SanDisk has not sought a preliminary injunction. At our request,
the district court conducted an expedited claim construction proceeding.
SanDisk identified Claims 1, 10, 17, 23 and 35 of U.S. Patent No. 5,602,987 as
being at issue. On March 4, 1999, the Court issued a memorandum and order
regarding the construction of these claims of U.S. Patent No. 5,602,987. In
that memorandum and order, the district court adopted some of the claim
construction positions advanced by SanDisk and some of the claim construction
positions advanced by Lexar, and did not rule on some of the issues raised by
the parties. On September 20, 1999, SanDisk updated its disclosures to assert
solely Claims 1 and 10 of U.S. Patent No. 5,602,987, with a reservation of
rights with respect to the other claims originally asserted.
On July 29, 1999, SanDisk filed a motion for partial summary judgment that
the identified products contribute to the infringement of Claim 10 of U.S.
Patent No. 5,602,987. We believe that SanDisk's arguments are incorrect and,
accordingly, we filed an opposition to this motion on December 30, 1999. We
also filed our own motions that there is no infringement of this claim and that
it is invalid. These motions are scheduled to be heard on March 10, 2000, after
which the District Court will issue its decision.
We believe that the SanDisk complaint is without merit and that we have
meritorious defenses. We intend to vigorously defend the SanDisk litigation. We
do not believe that our products infringe U.S. Patent No. 5,602,987. We further
believe that U.S. Patent No. 5,602,987 is invalid and/or unenforceable. We have
received a written opinion from our patent counsel, Oppenheimer Wolff &
Donnelly, LLP, regarding non-infringement and invalidity of U.S. Patent No.
5,602,987. While we are vigorously contesting these claims, we cannot predict
the ultimate outcome of the lawsuit.
In the event that a permanent injunction were granted, we would be unable to
sell products incorporating those methods and parts found to infringe U.S.
Patent No. 5,602,987. We would need to either negotiate a license with SanDisk
or engage in a redesign of those products. A redesign of those products would
result in an interruption in sales that could extend for some time. Other than
our regular product development efforts, we are not currently engaged in any
development or redesign efforts in this regard, and there can be no assurance
that any such efforts would be successful. Accordingly, a permanent injunction
would result in a substantial reduction in our revenues and losses over an
extended period of time, and our business would suffer. In the event of an
adverse ruling, we also could be required to pay damages to SanDisk, which
could be subject to trebling were we found to have willfully infringed U.S.
Patent No. 5,602,987.
In connection with the SanDisk litigation, we have incurred and expect to
continue to incur substantial legal and other expenses. In addition, the
SanDisk litigation has diverted and is expected to continue to divert the
efforts and attention of our management and technical personnel. Patent
litigation is highly complex and can extend for a protracted period of time,
which can substantially increase the cost of litigation. Accordingly, the
expenses and diversion of resources associated with the SanDisk litigation
could seriously harm our business and financial condition and could affect our
ability to raise capital in the future. Further, if the SanDisk patent
litigation were to be resolved by a settlement, we might need to make
substantial payments to SanDisk or grant a license to SanDisk to utilize
portions of our technology, which could have a material adverse effect on our
business and financial condition.
In addition, new patent applications may be currently pending or be filed in
the future by SanDisk. All pending United States patent applications are
confidential until patents are issued, and thus it is impossible to ascertain
all possible patent infringement issues that may be raised.
We are also a party to Lexar Media, Inc. v. SanDisk Corporation, Case No.
C99-02463 CRB. On May 25, 1999, we filed a complaint in the United States
District Court for the Northern District of California alleging that SanDisk
has engaged in false advertising, unfair competition, trade libel and
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<PAGE>
interference with our prospective business advantage. We amended our complaint
to delete unfair competition claims relating to the actions of SanDisk
regarding the Compact Flash Association. We sought a preliminary injunction
against the anticompetitive conduct of SanDisk and its use of false and
misleading advertising, which the District Court granted in September 1999.
SanDisk has retracted its false and misleading advertising. We are also seeking
damages incurred as a result of the false advertising and anticompetitive
conduct. On October 1, 1999, SanDisk answered our complaint and has filed four
counterclaims for false advertising. On November 19, 1999, we filed a motion to
dismiss two of the counterclaims of SanDisk. The motion was heard on December
3, 1999 and two of SanDisk's counterclaims were dismissed.
We were also involved in a patent interference proceeding, Patent
Interference No. 103,607, in which SanDisk and Western Digital Corporation are
real parties in interest. The interference involved conflicting claims between
us and SanDisk and Western Digital relating to rights claimed in Claims 1 and
10 of our U.S. Patent No. 5,388,083. Our U.S. Patent No. 5,388,083 relates to
our wear-leveling technology. On October 26, 1999, the Board of Patent Appeals
and Interferences determined that the prior claims of SanDisk and Western
Digital are unpatentable. SanDisk and Western Digital have indicated that they
are not going to pursue an appeal of this decision.
Facilities
Our corporate headquarters and principal operating facility are located in
Fremont, California. Our headquarters is comprised of approximately 34,400
square feet and is the location for all our engineering, operations,
administrative and worldwide sales and marketing functions. We occupy this
facility under a lease that expires on December 31, 2003 and have option to
renew this lease for an additional five-year period. We currently plan to
increase our office space in Fremont. We also currently lease a facility in San
Jose, California for our Internet photofinishing business and in Tokyo, Japan
for our sales and marketing organization there. The lease for our San Jose
facility expires on March 31, 2000 and the lease for our Tokyo facility expires
on September 30, 2001. Upon the expiration of our San Jose facility lease, we
intend to consolidate those operations in our Fremont facility.
Employees
At January 31, 2000, we had 104 full-time employees and 14 part-time
employees, of which 37 were employed in marketing and sales, 23 in engineering
and research and development, 23 in operations and 30 in corporate
administration. Of these employees, three are based in our Japanese marketing
subsidiary, based in Tokyo. Our continued success will depend, in part, on our
ability to attract and retain skilled and motivated personnel who are in great
demand throughout the industry. None of our employees are represented by labor
unions. We believe that we have good relations with our employees.
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MANAGEMENT
Executive Officers, Directors and Other Key Employees
The following table presents information concerning our executive officers,
directors and other key employees as of January 31, 2000.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Executive Officers and Directors:
Petro Estakhri................... 42 Chairman, Chief Technology Officer and
Executive Vice President, Engineering
John H. Reimer................... 42 President, Chief Executive Officer and
Director
Eric B. Stang.................... 40 Chief Operating Officer and Director
Ronald H. Bissinger.............. 49 Vice President, Finance and Chief
Financial Officer
J. Scott Case.................... 32 Director
William T. Dodds................. 52 Director
Brian D. Jacobs.................. 38 Director
John A. Rollwagen................ 59 Director
William J. Stewart............... 39 Director
Key Employees:
Mahmud (Mike) Assar.............. 56 Senior Vice President, Technology
Robert N. Leibowitz.............. 41 Vice President, Product Marketing
Paul D. McGuire.................. 36 Vice President, Original Equipment
Manufacturers and International Sales
Jack H. Peterson................. 35 Vice President, Consumer Products
Joseph A. Young.................. 42 Vice President, Operations
Carlton X. Osborne............... 30 General Counsel, Director of Business
Development and Strategic Alliances and
Secretary
</TABLE>
Petro Estakhri has served as our Chief Technology Officer since April 1999
and as our Chairman and Executive Vice President, Engineering since August
1997. Mr. Estakhri also served as our Vice President, Systems from September
1996 to August 1997. From January 1993 to August 1996, Mr. Estakhri served as
the Senior Director of Mass Storage Controller Engineering at Cirrus Logic.
Mr. Estakhri is a co-author of many patents related to magnetic media, flash
storage controller and systems architecture. Mr. Estakhri holds a B.S. and an
M.S. in electrical and computer engineering from the University of California
at Davis.
John H. Reimer has served as our President and Chief Executive Officer since
joining us in August 1997 and as a director since May 1997. From May 1994 to
August 1997, Mr. Reimer served as the Senior Director of WorldWide Operations
for the Mobile Computing Products Division of Motorola. Prior to this time, Mr.
Reimer served as the Vice President of Marketing at SanDisk. Mr. Reimer was a
founder and four-time Chairman of Personal Computer Memory Card International
Association, the organization that sets the worldwide standard for PC Cards.
Mr. Reimer has also held management positions at Texas Instruments and Fujitsu
Microelectronics. Mr. Reimer holds a B.S. in electrical engineering from the
University of Illinois at Champaign.
Eric B. Stang has served as our Chief Operating Officer since joining us in
November 1999 and as a director since January 2000. From June 1998 to November
1999, Mr. Stang was Vice President and General Manager of the Radiation Therapy
Products Division of ADAC Laboratories, a medical equipment and software
company. From January 1995 to May 1998, he was Director of Operations at
Raychem Corporation, a material science company. Prior to joining Raychem, Mr.
Stang co-founded Monitor Company Europe Limited, an international strategic
consulting firm. Mr. Stang holds a B.A. in economics from Stanford University
and an M.B.A. from the Harvard Business School.
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<PAGE>
Ronald H. Bissinger has served as our Vice President, Finance and Chief
Financial Officer since December 1999. From October 1999 to December 1999, Mr.
Bissinger was independently employed as a financial consultant. From March 1998
until October 1999, Mr. Bissinger was Vice President of Finance and Business
Development and Chief Financial Officer of Ultradata Corp., an enterprise
software company. From July 1997 to March 1998, he was independently employed
as a financial consultant. From March 1996 to July 1997, he was Chief Financial
Officer of The Alta Group, a wireless design software company, from May 1995 to
March 1996, he was Chief Financial Officer of Biosym/MSI, a simulation software
company, and from July 1994 to May 1999, he was Chief Financial Officer of
Crystal Graphics, a multimedia software company. Mr. Bissinger holds a B.S. in
chemical engineering from Clarkson University, an M.S. in chemical engineering
from the University of California at Berkeley and an M.B.A. from the University
of Denver.
J. Scott Case has served as a member of our board of directors since
September 1999. Since July 1997, Mr. Case has been a Senior Vice President with
GE Equity, the private equity division of GE Capital. From September 1994 to
July 1997, he was an associate with J.P. Morgan & Co. Mr. Case holds a B.A. in
English from Wake Forest University and an M.B.A. from the University of North
Carolina at Chapel Hill.
William T. Dodds has served as a member of our board of directors since
February 1998. Since February 1980, Mr. Dodds has been Vice President and
Secretary of The Woodbridge Company Limited, a Toronto, Canada based holding
company. The Woodbridge Company Limited owns a majority interest in The Thomson
Corporation, an information publishing company. Mr. Dodds is also Vice
President and Secretary of Thomson Capital Ventures, Inc., a venture capital
firm. Mr. Dodd serves on the board of directors of Certicom Corporation, a
provider of encryption technology for computing and communication applications.
Mr. Dodds holds a B.A. in economics from the University of Waterloo and has a
Canadian Chartered Accountant's Designation.
Brian D. Jacobs has served as a member of our board of directors since
February 1998. Mr. Jacobs has been a general partner and Executive Vice
President of St. Paul Venture Capital, a venture capital firm, since 1992. Mr.
Jacobs serves on the board of directors of several private companies. Mr.
Jacobs hold a B.S. and an M.S. in mechanical engineering from the Massachusetts
Institute of Technology and an M.B.A. from Stanford University.
John A. Rollwagen has served as a member of our board of directors since
February 1998. From May 1993 to December 1999, Mr. Rollwagen was a venture
partner with St. Paul Venture Capital. From 1981 to January 1993, Mr. Rollwagen
served as the Chairman and Chief Executive Officer of Cray Research, Inc., a
worldwide supplier of supercomputers. Mr. Rollwagen was a founding member of
the Computer Systems Policy Project, an organization of chief executive
officers of 12 leading computer systems companies in the United States that was
created to identify and advocate industry positions on trade and technology
policy. Mr. Rollwagen also serves on the board of directors of Computer Network
Technology Corporation, a supplier of computer networking hardware and
software, and Diva Systems, a video-on-demand service provider. Mr. Rollwagen
holds a B.S. in electrical engineering from the Massachusetts Institute of
Technology and an M.B.A. from the Harvard Business School.
William J. Stewart has served as a member of our board of directors since
February 1998. Mr. Stewart has been the President of Asia Pacific Ventures, a
consulting and technology transfer firm that he founded, since October 1989.
Mr. Stewart is also a general partner of APV Technology Partners, a venture
capital firm. Mr. Stewart also serves on the board of directors of Certicom
Corporation, a provider of encryption technology for computing and
communication applications. Mr. Stewart holds a B.A. in economics from
St. Anselm College and an M.B.A. from Suffolk University.
Mahmud (Mike) Assar has served as our Senior Vice President, Technology
since our inception in September 1996. From November 1994 to September 1996,
Mr. Assar served as the Vice President of Engineering at Cirrus Logic. Mr.
Assar is a co-author of several patents related to Mass Storage Flash
controller architecture and circuits. Mr. Assar holds a B.S. in electrical
engineering from the University of Illinois at Champaign.
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Robert N. Leibowitz has served as our Vice President, Product Marketing
since December 1998. From December 1997 to December 1998, Mr. Leibowitz was
Business Director of WorldWide TDMA Digital Cellphones for the Cellular
Subscriber Group of Motorola. From January 1995 to December 1997, Mr. Leibowitz
was Director of Marketing for the Information Systems Group at Motorola. Mr.
Leibowitz holds a B.S. in physics from New York State University at Oneonta and
an M.S. in electrical engineering from California State University at
Northridge.
Paul D. McGuire has served as our Vice President, Original Equipment
Manufacturers and International Sales since October 1998. From June 1991 to
October 1998, Mr. McGuire served as a member of the sales management team at
SanDisk. Mr. McGuire holds a B.S. in electrical engineering from Dublin
University, Trinity College in Dublin, Ireland.
Jack H. Peterson has served as our Vice President, Consumer Products since
February 1998. From February 1994 to February 1998, Mr. Peterson was the
Director of Strategic Alliances for Macmillan Publishing USA, a software and
book publisher. Mr. Peterson holds a B.S. in electrical and computer
engineering from the University of Texas at Austin, Texas.
Joseph A. Young has served as our Vice President, Operations since December
1999. From June 1998 to December 1999, Mr. Young was Director of Operations for
the OEM Electronics Division of Raychem Corporation. From 1983 to June 1998,
Mr. Young held various management positions with Raychem, including World Wide
Director of Operations and Operations Manager of Raychem's Polyswitch Division.
Mr. Young holds a B.S. in industrial engineering from Rensselaer Polytechnic
Institute, an M.S. in operations research from the University of New Haven and
an M.B.A. from the Wharton School of the University of Pennsylvania.
Carlton X. Osborne has served as our General Counsel, Director of Business
Development and Strategic Alliances and Secretary since August 1999. From
January 1999 to August 1999, Mr. Osborne was our Acting General Counsel. From
December 1996 to August 1998, Mr. Osborne was in private law practice with
Fenwick & West LLP. From September 1995 to December 1996, Mr. Osborne was in
private law practice with Latham & Watkins. Prior to joining Latham & Watkins,
Mr. Osborne attended law school at Stanford University from September 1992 to
May 1995. Mr. Osborne holds a B.A. in philosophy from the University of
Pennsylvania and a J.D. from Stanford Law School.
Composition of Board of Directors
Our bylaws currently provide for a board of directors consisting of eight
members. Our current directors were elected pursuant to a voting agreement
between us and some of our principal stockholders. The holders of the Series C
preferred stock were entitled to elect two directors. Messrs. Stewart and
Jacobs serve on our board pursuant to this right. The holders of the Series E
preferred stock were entitled to elect one director. Mr. Case serves on our
board pursuant to this right. The holders of our common stock, voting as a
separate class were entitled to elect one director. Mr. Estakhri serves on our
board pursuant to this right. Finally, the holders of our preferred stock and
common stock, voting together as a single class, were entitled to elect four
directors. Messrs. Reimer, Stang, Rollwagen and Dodds serve on our board
pursuant to this right. Upon the closing of the offering, these board
representation rights will terminate and no stockholders will have any special
rights with respect to board representation.
Our certificate of incorporation and bylaws that will take effect upon
completion of this offering provide that our board will consist of eight
directors divided into three classes, Class I, Class II and Class III, that
serve staggered three-year terms. The Class I directors, initially Messrs.
Case, Stewart and Rollwagen, will stand for reelection at the 2001 annual
meeting of stockholders. The Class II directors, initially Messrs. Jacobs,
Dodds and Stang, will stand for reelection at the 2002 annual meeting of
stockholders. The Class III directors, initially Messrs. Reimer and Estakhri,
will stand for reelection at the 2003 annual meeting of stockholders. As a
result, only one class of directors will be elected at each annual meeting of
our
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stockholders, with the other classes continuing for the remainder of their
respective terms. This classification of our board could make it more difficult
for a third party to acquire, or could discourage a third party from acquiring,
control of Lexar Media.
Committees of Board of Directors
Our board of directors has a compensation committee and an audit committee.
Compensation Committee. The current members of our compensation committee
are Messrs. Jacobs and Stewart. The compensation committee reviews and makes
recommendations to our board of directors concerning salaries and incentive
compensation for our officers and employees. Although the board of directors
currently administers the issuance of stock options and other awards under our
1996 Stock Option/ Stock Issuance Plan, the compensation committee will
administer our 2000 Equity Incentive Plan and our 2000 Employee Stock Purchase
Plan.
Audit Committee. The current members of our audit committee are Messrs.
Dodds, Rollwagen and Case. The audit committee reviews and monitors our
financial statements and accounting practices, makes recommendations to our
board regarding the selection of independent auditors and reviews the results
and scope of the audit and other services provided by our independent auditors.
Compensation Committee Interlocks and Insider Participation
None of the members of the compensation committee has at any time since our
formation been an officer or employee of ours. None of our executive officers
currently serves or in the past has served as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving on our board or compensation committee. Prior to the
creation of our compensation committee, all compensation decisions were made by
our full board. None of Messrs. Estakhri, Reimer or Stang participated in
discussions by our board with respect to his own compensation. You should refer
to "Related Party Transactions" for a description of transactions between us
and entities affiliated with the members of the compensation committee.
Director Compensation
Our directors do not receive cash compensation for their services as
directors, but are reimbursed for their reasonable and necessary expenses in
attending board and committee meetings. All board members are eligible to
receive stock options pursuant to the discretionary option grant program in
effect under our 1996 Stock Option/Stock Issuance Plan. In March 1998, we
granted Mr. Rollwagen an option to purchase a total of 150,000 shares of our
common stock at an exercise price of $0.08 per share, which he exercised in
full on May 23, 1999. The option was immediately exercisable and subject to
vesting over a four-year period. We have the right to repurchase the unvested
shares of this option if Mr. Rollwagen ceases to provide services to us as one
of our directors. In the event of a change of control of 50% or more of our
outstanding stock, any unvested shares will vest immediately.
Each member of the board who is not our employee, or an employee of a
parent, subsidiary or affiliate of ours, will be eligible to participate in our
2000 Equity Incentive Plan. Under this plan, the option grants to directors are
automatic and nondiscretionary. Each non-employee director who became a member
of our board of directors before the date of this offering will receive an
option to purchase 25,000 shares of our common stock. Each non-employee
director who becomes a member of our board of directors on or after the date of
this offering will be granted an option to purchase 50,000 shares of our common
stock. Immediately after each annual meeting of our stockholders, each non-
employee director will automatically be granted an additional option to
purchase 25,000 shares if the director has served continuously as a member of
our board since the date of the director's initial grant and for a period of at
least one year before the annual meeting. The board may also make discretionary
supplemental grants to a non-employee director
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who has served for less than one year from the date of the director's initial
grant, provided that no director may receive options to purchase more than
75,000 shares of our common stock in any calendar year.
Each option will have an exercise price equal to the fair market value of
our common stock on the date of grant. The options will have ten year terms and
will terminate three months following the date the director ceases to be a
director or 12 months if the termination is due to death or disability. Each of
these options will vest and become exercisable as to 25% of the shares on the
one year anniversary of the date of grant and as to 2.083% of the shares per
month after this anniversary so long as the director continues to be a member
of the board. In the event of our liquidation or dissolution or a change of
control of 50% or more of our outstanding stock, the options granted to each
non-employee director under this plan will become fully vested and exercisable.
Executive Compensation
The following table presents the compensation earned, awarded or paid for
services rendered to us in all capacities during 1999 by our Chief Executive
Officer and by each person who was an executive officer in 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual
Compensation Awards
---------------- ------------
Shares of
Common Stock
Underlying All Other
Name and Principal Position Salary Bonus Options Compensation(1)
- --------------------------- -------- ------- ------------ ---------------
<S> <C> <C> <C> <C>
John H. Reimer.................. $252,000 $45,000 -- $ 5,496
President and Chief Executive
Officer
Petro Estakhri.................. $180,105 $45,000 -- $ 4,513
Chief Technology Officer and
Executive Vice President,
Engineering
Robert J. Netter, Jr. (2)....... $141,750 $15,000 -- $96,033
Former Vice President, Finance
and Chief Financial Officer
Eric B. Stang (3)............... $200,000 $ -- 800,000 $ 2,151
Chief Operating Officer
Ronald H. Bissinger (4)......... $165,000 $ -- 400,000 $ 1,546
Vice President, Finance and
Chief Financial Officer
</TABLE>
- ---------------------
(1) These amounts consist of (a) supplemental payments made by us to the named
individuals to subsidize medical expenses not reimbursed by insurance, (b)
the fair market value of a digital camera given by us to each of the named
individuals and (c) in the case of Mr. Netter, a severance payment and loan
forgiveness in the aggregate amount of $93,663 upon termination of his
employment.
(2) Mr. Netter resigned as our Vice President, Finance and Chief Financial
Officer in October 1999.
(3) Mr. Stang joined us on November 8, 1999. As of December 31, 1999, we paid
Mr. Stang an actual salary of $30,769.24.
(4) Mr. Bissinger joined us on December 20, 1999. As of December 31, 1999, we
paid Mr. Bissinger an actual salary of $3,273.08.
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Option Grants in Last Fiscal Year
The following table sets forth grants of stock options made during 1999 to
the executive officers listed in the Summary Compensation Table.
Potential realizable values are calculated by:
. Multiplying the number of shares of common stock subject to a given
option by the deemed fair market value of our common stock at December
31, 1999;
. Assuming that the aggregate option exercise price derived from that
calculation compounds at the annual 5% or 10% rates shown in the table
for the entire ten-year term of the option; and
. Subtracting from that result the aggregate option exercise price.
The 5% and 10% assumed annual rates of stock price appreciation are required
by the rules of the Securities and Exchange Commission and do not reflect our
estimate or projections of future stock price growth.
The percentage of total options granted to employees in the last fiscal year
is based on options to purchase an aggregate of 3,290,906 shares of common
stock granted to employees during 1999. All options were granted at fair market
value on the date of grant as determined by our board of directors.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
-------------------------------------------- ---------------------
Shares of % of Total
Common Options
Stock Granted to
Underlying Employees Exercise or
Options in Fiscal Base Price Expiration
Name Granted Year Per Share Date 5% 10%
- ---- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John H. Reimer.......... -- -- -- -- -- --
Petro Estakhri.......... -- -- -- -- -- --
Robert J. Netter, Jr. .. -- -- -- -- -- --
Eric B. Stang........... 800,000 24.31% $0.50 11/28/09 $2,206,232 $3,749,988
Ronald H. Bissinger..... 400,000 12.16% $2.00 12/20/09 $ 503,116 $1,274,994
</TABLE>
The options granted in 1999 and 2000 to Messrs. Stang and Bissinger are
under our 1996 Stock Option/Stock Issuance Plan, are immediately exercisable
and are either incentive stock options or nonqualified stock options.
Messrs. Stang and Bissinger exercised these options on November 30, 1999 and
December 27, 1999, respectively. We have a right to repurchase these shares
upon termination of their employment with us. This right lapses as to 25% of
the shares subject to the option one year from the date of grant and as to
2.083% of the shares each succeeding month. In January 2000, Messrs. Stang and
Bissinger were granted additional options to purchase 100,000 and 50,000 shares
of our common stock, respectively, at an exercise price of $3.00 per share. For
information regarding restricted stock purchases by Messrs. Reimer and
Estakhri, please refer to "--Employment Contracts and Change of Control
Arrangements."
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Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table sets forth the number of shares of common stock acquired
and the value realized upon exercise of stock options during 1999 by each of
the executive officers named in the Summary Compensation Table. As of December
31, 1999, none of these individuals held any unexercised stock options. Value
at fiscal year-end is the difference between the exercise price and the deemed
fair market value of the underlying common stock at December 31, 1999.
<TABLE>
<CAPTION>
Common Stock
Acquired on Value
Name Exercise(#)(1) Realized($)
- ---- -------------- -----------
<S> <C> <C>
John H. Reimer....................................... -- --
Petro Estakhri....................................... 602,324 $1,108,276
Robert J. Netter, Jr. ............................... -- --
Eric B. Stang........................................ 800,000 $1,200,000
Ronald H. Bissinger.................................. 400,000 --
</TABLE>
- ---------------------
(1) The options granted to the named individuals vest over a four-year period.
As of December 31, 1999, we had a right to repurchase 112,936 of Mr.
Estakhri's shares of common stock acquired upon exercise of options and all
of Mr. Stang's and Mr. Bissinger's shares of common stock acquired upon
exercise of options.
Employment Contracts and Change of Control Arrangements
All of our employees are at-will employees, which means that either we or
our employees may terminate the employment relationship at any time for any
reason.
We entered into an employment offer letter on September 4, 1997 with John H.
Reimer, our President and Chief Executive Officer. This letter established Mr.
Reimer's initial annual base salary at $240,000 and his eligibility for a bonus
of up to $120,000 per year based upon his achievement of certain performance
goals. The offer letter also provided for Mr. Reimer's election to the board of
directors and for reimbursement of his relocation expenses. On June 5, 1998,
Mr. Reimer purchased 2,400,000 shares of our common stock at a purchase price
of $0.08 per share. The shares purchased by Mr. Reimer are subject to our right
to repurchase the shares upon termination of his employment. Our repurchase
right lapsed with respect to 600,000 shares on June 5, 1998 and 600,000 shares
on July 15, 1998. The repurchase right expires ratably as to the remaining
shares over a 24-month period. Our repurchase right also expires as to all of
the shares if Mr. Reimer is terminated after a change of control of Lexar
Media. On June 5, 1998, we loaned Mr. Reimer $192,000, all of which remains
outstanding. This loan is secured by a stock pledge and security agreement in
connection with this purchase of our common stock. This loan accrues interest
at a rate of 6.23% and is due on or before the earlier of July 15, 2002 or the
termination of Mr. Reimer's employment. On January 17, 2000, Mr. Reimer
purchased an additional 400,000 shares of common stock at a purchase price of
$2.00 per share which is subject to the same repurchase rights described above.
In connection with this purchase of our common stock, on January 17, 2000, we
loaned Mr. Reimer $800,000 secured by a stock pledge and security agreement.
This loan accrues interest at a rate of 6.21% and is due on or before the
earlier of (1) January 17, 2004, (2) the termination of Mr. Reimer's employment
or (3) a change of control of Lexar Media. If we terminate Mr. Reimer's
employment without cause, we must continue to pay his base salary for twelve
months or until he finds other employment, whichever occurs first.
We executed an employment agreement on September 19, 1996 with Petro
Estakhri, our Chief Technology Officer and Executive Vice President,
Engineering. This agreement established Mr. Estakhri's initial annual base
salary at $125,000. On November 19, 1996, we granted Mr. Estakhri an option to
purchase 602,324 shares of our common stock at an exercise price of $0.16 per
share. Of these shares, 150,581 vested on November 19, 1997 and the remainder
vests ratably over a 36-month period. In the event of a change of control of
Lexar Media, 100% of the shares issued upon exercise of the options will vest
52
<PAGE>
immediately. On December 2, 1999, we loaned Mr. Estakhri $96,372, all of which
remains outstanding. This loan is secured by a stock pledge and security
agreement in connection with the exercise of these options. The loan accrues
interest at a rate of 6.20% and is due on or before the earlier of (1) December
2, 2003, (2) the termination of Mr. Estakhri's employment or (3) a change of
control of Lexar Media.
On June 5, 1998, Mr. Estakhri purchased 1,076,284 shares of our common stock
at a purchase price of $0.08 per share. The shares purchased by Mr. Estakhri
are subject to our right to repurchase the shares upon termination of his
employment. Our repurchase right lapsed with respect to 269,071 shares on July
15, 1998 and expires ratably as to the remaining shares over a 36-month period.
Our repurchase right also expires as to all of the shares if Mr. Estakhri is
terminated after a change of control of Lexar Media. On June 5, 1998, we loaned
Mr. Estakhri $86,103, all of which remains outstanding. This loan is secured by
a stock pledge and security agreement in connection with this purchase of our
common stock. This loan accrues interest at a rate of 6.23% and is due on or
before the earlier of July 15, 2002 or the termination of Mr. Estakhri's
employment. On January 17, 2000, Mr. Estakhri purchased an additional 400,000
shares of common stock at a purchase price of $2.00 per share which is subject
to the same repurchase rights described above. In connection with this purchase
of our common stock, on January 17, 1999, we loaned Mr. Estakhri $800,000
secured by a stock pledge and security agreement. This loan accrues interest at
a rate of 6.21% and is due on or before the earlier of (1) January 17, 2004,
(2) the termination of Mr. Estakhri's employment or (3) a change of control of
Lexar Media.
We also entered into an employment offer letter on December 15, 1999 with
Ronald Bissinger, our Chief Financial Officer and Executive Vice President,
Finance. This letter established Mr. Bissinger's initial annual base salary at
$165,000 and his eligibility for a bonus based upon his achievement of certain
performance goals. Under this offer letter, on December 20, 1999, Mr. Bissinger
was granted an option to purchase 400,000 shares of our common stock at an
exercise price of $2.00 per share. Of these shares, 100,000 will vest on
December 20, 2000 and the remainder will vest ratably over a 36-month period.
In the event of a change of control of Lexar Media, 100% of the shares issued
upon exercise of the option will vest immediately. On December 27, 1999 we
loaned Mr. Bissinger $800,000, all of which remains outstanding. This loan is
secured by a stock pledge and security agreement in connection with the
exercise of these options. This loan accrues interest at a rate of 6.20% and is
due on or before the earlier of (1) December 27, 2003, (2) the termination of
Mr. Bissinger's employment or (3) a change of control of Lexar Media. On
January 21, 2000, Mr. Bissinger was granted an additional option to purchase
50,000 shares of our common stock at an exercise price of $3.00 per share. Of
these shares, 12,500 will vest on January 21, 2001 and the remainder will vest
ratably over a 36-month period. In the event of a change of control of Lexar
Media, 100% of the shares issued upon exercise of the option will vest
immediately. If we terminate Mr. Bissinger's employment without cause, we must
continue to pay his base salary for six months or until he finds other
employment, whichever occurs first.
We also entered into an employment offer letter on November 8, 1999 with
Eric Stang, our Chief Operating Officer. This letter established Mr. Stang's
initial annual base salary at $200,000 and his eligibility for a bonus based
upon his achievement of certain performance goals. The offer letter also
provided for Mr. Stang's election to the board of directors. Under this offer
letter, on November 29, 1999, Mr. Stang was granted an option to purchase
800,000 shares of our common stock at an exercise price of $0.50 per share. Of
these shares, 200,000 will vest on November 8, 2000 and the remainder will vest
ratably over a 36-month period. In the event of a change of control of Lexar
Media, 100% of the shares issued upon exercise of the option will vest
immediately. On November 30, 1999, we loaned Mr. Stang $400,000, all of which
remains outstanding. This loan is secured by a stock pledge and security
agreement in connection with the exercise of this option. This loan accrues
interest at a rate of 6.08% and is due on or before the earlier of (1) November
30, 2003, (2) the termination of Mr. Stang's employment or (3) a change of
control of Lexar Media. On January 21, 2000, Mr. Stang was granted an
additional option to purchase 100,000 shares of common stock at an exercise
price of $3.00 per share. Of these shares, 25,000 will vest on January 21, 2001
and the remainder will vest ratably over a 36-month period. In the event of a
change of control of Lexar,
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<PAGE>
100% of the shares issued upon exercise of the option will vest immediately.
If we terminate Mr. Stang's employment without cause, we must continue to pay
his base salary for six months or until he finds other employment, whichever
occurs first.
In connection with the termination of Robert J. Netter Jr.'s employment as
our Vice President, Finance and Chief Financial Officer, we entered into a
Separation Agreement with Mr. Netter dated October 7, 1999. Pursuant to our
agreement, we paid Mr. Netter his full salary through the end of February 2000,
subject to reduction for payments Mr. Netter may receive from another employer.
Mr. Netter also received a severance bonus of $70,875 and forgiveness of
$21,000 he owed to us under a promissory note for the purchase of shares of our
common stock. We also accelerated 12 months of the vesting of shares of our
common stock owned by Mr. Netter, constituting 100,000 shares.
Employee Benefit Plans
1996 Stock Option/Stock Issuance Plan. We have historically granted options
to purchase our common stock pursuant to our 1996 Stock Option/Stock Issuance
Plan. Our board of directors adopted our 1996 Stock Option/Stock Issuance Plan
on December 19, 1996. Subject to adjustments for stock splits and similar
events, the total number of shares of our common stock that may be issued under
the plan is 13,038,082. As of December 31, 1999, there were 2,964,046 shares
available for issuance under this plan and options to purchase 1,471,992 shares
of our common stock currently outstanding under this plan. The board of
directors has resolved, however, that this plan will terminate immediately
prior to the completion of this offering and no further options will be
granted. The termination of this plan will not affect any outstanding options.
Those options will remain outstanding until they are exercised, terminate or
expire.
2000 Equity Incentive Plan. On January 21, 2000, our board of directors
adopted the 2000 Equity Incentive Plan subject to stockholder approval. The
2000 Equity Incentive Plan will become effective on the date of this prospectus
and will serve as the successor to our 1996 Stock Option/Stock Issuance Plan.
The 2000 Equity Incentive Plan authorizes the award of options, restricted
stock awards and stock bonuses.
The 2000 Equity Incentive Plan will be administered by the compensation
committee of our board of directors, which currently consists of Mr. Jacobs and
Mr. Stewart, each of whom is an outside director as defined under applicable
federal tax laws. The compensation committee will have the authority to
interpret this plan and any agreement entered into under the plan, grant awards
and make all other determinations for the administration of the plan.
Our 2000 Equity Incentive Plan will provide for the grant of both incentive
stock options that qualify under Section 422 of the Internal Revenue Code and
nonqualified stock options. The incentive stock options may be granted only to
our employees or employees of any of our subsidiaries. The nonqualified stock
options, and all other awards other than incentive stock options, may be
granted to the employees, officers, directors, consultants, independent
contractors and advisors of ours or any of our subsidiaries. However,
consultants, independent contractors and advisors are only eligible to receive
awards if they render bona fide services not in connection with the offer and
sale of securities in a capital-raising transaction. The exercise price of
incentive stock options must be at least equal to the fair market value of our
common stock on the date of grant. The exercise price of incentive stock
options granted to 10% stockholders must be at least equal to 110% of the fair
market value of our common stock on the date of grant. The exercise price of
nonqualified stock options must be at least equal to 85% of the fair market
value of our common stock on the date of grant.
The maximum term of the options granted under our 2000 Equity Incentive Plan
is ten years. The awards granted under this plan may not be transferred in any
manner other than by will or by the laws of descent and distribution and may be
exercised during the lifetime of the optionee only by the optionee. The
compensation committee may allow exceptions to this restriction with respect to
awards that are not incentive stock options. Options granted under our 2000
Equity Incentive Plan generally expire three months after the
54
<PAGE>
termination of the optionee's service to us or to a parent or subsidiary of
ours, or 12 months if the termination is due to death or disability. In the
event of a liquidation, dissolution or "change in control" in which the
successor does not assume the options, the options granted under the plan will
vest and become exercisable as to 25% of the unvested shares with the remaining
shares vesting over the original vesting term.
We have reserved 8,000,000 shares of our common stock for issuance under the
2000 Equity Incentive Plan. The number of shares reserved for issuance under
this plan will be increased to include:
. any shares of our common stock reserved under our 1996 Stock
Option/Stock Issuance Plan that are not issued or subject to outstanding
grants on the date of this prospectus;
. any shares of our common stock issued under our 1996 Stock Option/Stock
Issuance Plan that are repurchased by us at the original purchase price;
and
. any shares of our common stock issuable upon exercise of options granted
under our 1996 Stock Option/Stock Issuance Plan that expire or become
unexercisable without having been exercised in full at any time after
this offering.
In addition, under the terms of the 2000 Equity Incentive Plan, the number
of shares of our common stock reserved for issuance under the plan will
increase automatically on January 1 of each year by an amount equal to 5% of
our total outstanding shares of common stock as of the immediately preceding
December 31. Our board of directors or our Compensation Committee may reduce
the amount of the increase in any particular year.
Shares available for grant and issuance under our 2000 Equity Incentive Plan
include:
. shares of our common stock issuable upon exercise of an option granted
under the plan that is terminated or cancelled before the option is
exercised;
. shares of our common stock issued upon exercise of an option granted
under this plan that are subsequently repurchased by us at the original
purchase price;
. shares of our common stock subject to awards granted under this plan
that are subsequently forfeited or repurchased by us at the original
issue price; and
. shares of our common stock subject to stock bonuses granted under this
plan that otherwise terminate without shares being issued.
During any calendar year, no person will be eligible to receive more than
2,000,000 shares, or 3,000,000 shares in the case of a new employee, under the
2000 Equity Incentive Plan. The 2000 Equity Incentive Plan will terminate on
January 20, 2010, unless it is terminated earlier by our board of directors.
2000 Employee Stock Purchase Plan. On January 21, 2000, our board of
directors adopted the 2000 Employee Stock Purchase Plan subject to stockholder
approval. The 2000 Employee Stock Purchase Plan will become effective on the
first day on which price quotations are available for our common stock on the
Nasdaq National Market. The employee stock purchase plan is designed to enable
eligible employees to purchase shares of our common stock at a discount on a
periodic basis through payroll deductions.
Our compensation committee will administer the 2000 Employee Stock Purchase
Plan. Our employees generally will be eligible to participate in this plan if
they are employed by us, or a subsidiary of ours that we designate, for more
than 20 hours per week and more than five months in a calendar year. Our
employees are not eligible to participate in our 2000 Employee Stock Purchase
Plan if they are 5% stockholders or would become 5% stockholders as a result of
their participation in the plan. Under the 2000 Employee Stock Purchase Plan,
eligible employees may acquire shares of our common stock through payroll
deductions. Our eligible employees may select a rate of payroll deduction
between 1% and 15% of their cash
55
<PAGE>
compensation. An employee's participation in this plan will end automatically
upon termination of employment for any reason.
No participant will be able to purchase shares having a fair market value of
more than $25,000, determined as of the first day of the applicable offering
period, in any calendar year in which the employee participates in the 2000
Employee Stock Purchase Plan. Each offering period will be for two years and
will consist of four six-month purchase periods. The first offering period is
expected to begin on the first business day on which price quotations for our
common stock are available on the Nasdaq National Market. The first purchase
period may be more or less than six months long. The offering periods
thereafter will begin on February 1 and August 1. The purchase price for shares
of our common stock purchased under the 2000 Employee Stock Purchase Plan will
be 85% of the lesser of the fair market value of our common stock on the first
day of the applicable offering period or the last day of each purchase period.
Our compensation committee will have the power to change the starting date of
any subsequent offering period, the purchase date of a purchase period and the
duration of any offering period or purchase period without stockholder approval
if this change is announced before the relevant offering period or purchase
period. Our 2000 Employee Stock Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code.
We have initially reserved 1,000,000 shares of our common stock for issuance
under the 2000 Employee Stock Purchase Plan. The number of shares reserved for
issuance under the plan will increase automatically on January 1 of each year
by an amount equal to 1% of our total outstanding shares as of the immediately
preceding December 31. Our board of directors or compensation committee may
reduce the amount of the increase in any particular year. The 2000 Employee
Stock Purchase Plan will terminate on January 20, 2010, unless it is terminated
earlier by our board of directors.
401(k) Plan. We sponsor a defined contribution plan intended to qualify
under Section 401(k) of the Internal Revenue Code. All employees who are at
least 21 years old are generally eligible to participate and may enter the
401(k) on January 1, April 1, July 1, and October 1 of each year. Participants
may make pre-tax contributions to the plan of up to 20% of their eligible
compensation, subject to a statutorily prescribed annual limit. Participants
are fully vested in their contributions and the investment earnings. The plan
does not provide for any matching contributions by us. Participant
contributions are held in trust as required by law. Individual participants may
direct the trustee to invest their accounts in authorized investment
alternatives.
Indemnification of Directors and Executive Officers and Limitation on Liability
Our certificate of incorporation limits the liability of our directors to
the maximum extent permitted by Delaware law. Delaware law provides that a
director of a corporation will not be personally liable to us or our
stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under Delaware law regarding unlawful dividends and stock purchases; or
. for any transaction from which the director derived an improper personal
benefit.
As permitted by Delaware law, our bylaws will provide that:
. we must indemnify our directors and officers to the fullest extent
permitted by Delaware law, provided that each indemnified officer and
director acted in good faith and in a manner that the officer or
director reasonably believed to be in or not opposed to our best
interests;
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. we may indemnify our other employees and agents; and
. we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law, subject to very limited exceptions.
In addition to the indemnification provisions in our certificate of
incorporation and bylaws, we intend to enter into indemnification agreements
with each of our current directors and executive officers prior to the
completion of this offering. These agreements will provide for the
indemnification of our executive officers and directors for all expenses and
liabilities incurred in connection with any action or proceeding brought
against them by reason of the fact that they are or were our agents. We have
also obtained directors' and officers' insurance to cover our directors,
executive officers and some of our employees for specific liabilities,
including public securities matters. We believe that these indemnification
provisions and agreements and this insurance are necessary to attract and
retain qualified directors and officers.
The limitation of liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against our directors for breach of their fiduciary duty.
They may also reduce the likelihood of derivative litigation against directors
and officers, even though an action, if successful, might benefit us and other
stockholders. Furthermore, your investment may be negatively affected to the
extent we pay the costs of settlement and damage awards against directors and
officers as required by these indemnification provisions.
There is presently no pending litigation or proceeding involving any of our
directors, officers or employees for which indemnification is sought, nor are
we aware of any threatened litigation that may result in claims for
indemnification.
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RELATED PARTY TRANSACTIONS
Other than the transactions described in "Management" and the transactions
described below, since we were incorporated in September 1996, there has not
been nor is there currently proposed any transaction or series of similar
transactions to which we were or will be a party in which the amount involved
exceeded or will exceed $60,000 and in which any director, executive officer,
holder of more than 5% of our common stock or any member of his or her
immediate family had or will have a direct or indirect material interest.
Financing Transactions
In May 1997, we sold an aggregate of 6,000,000 shares of our Series A
preferred stock at a purchase price of $1.00 per share, 3,000,000 shares of
which we subsequently repurchased. In August 1997, we sold (1) convertible
secured promissory notes that were convertible into shares of our Series B
preferred stock, at a conversion price of $0.41667 per share, in the aggregate
principal amount of $1,250,000 and (2) secured promissory notes in the
aggregate principal amount of $4,750,000 which we intend to repay with a
portion of the net proceeds from this offering. In February 1998, the note
holders converted their secured convertible promissory notes into 3,000,048
shares of our Series B preferred stock in connection with the sale of an
aggregate of 11,443,750 shares of our Series C preferred stock at a purchase
price of $0.80 per share. In November 1998 and January 1999, we sold an
aggregate of 6,943,618 shares of our Series D preferred stock at a purchase
price of $1.685 per share. In September 1999, we sold an aggregate of
11,648,493 shares of our Series E preferred stock at a purchase price of $2.59
per share.
The following table summarizes, as of December 31, 1999, private placement
transactions of our preferred stock to, among others, the following executive
officers, directors and holders of more than 5% of our outstanding stock. You
should refer to "Principal Stockholders" for more detail on shares of our
common stock held by these purchasers and their affiliations with our directors
and officers.
<TABLE>
<CAPTION>
Preferred Stock(1)
------------------------------------------------
Stockholder Series A Series B Series C Series D Series E
- ----------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Directors and Executive
Officers
John A. Rollwagen............ 150,000 10,645
5% Stockholders
Toshiba America Electronic
Components, Inc............. 3,000,000
APV Technology Partners II,
L.P. ....................... 3,750,000 1,186,943 873,591
Entities affiliated with St.
Paul Venture Capital, Inc. . 3,750,000 1,186,943 1,617,761
Thomvest Holdings, Inc....... 3,750,000 1,186,943 1,067,722
1267104 Ontario, Limited..... 3,264,094
GE Capital Equity
Investments, Inc. .......... 2,426,641
</TABLE>
- ---------------------
(1) Shown on an as-if-converted to common stock basis.
In January 1998, in connection with a bridge financing, we issued warrants
to purchase shares of our common stock at an exercise price of $0.80 per share
to some of our stockholders who hold more than 5% of our outstanding stock.
These warrants have not been exercised. These holders, who are identified
below, are affiliated with certain of our directors. You should refer to
"Principal Stockholders" for more detail on their affiliations with our
directors.
<TABLE>
<CAPTION>
Common Stock
Warrant Holder Subject to Warrant Expiration Date
-------------- ------------------ -----------------
<S> <C> <C>
APV Technology Partners II, L.P........ 62,500 December 31, 2002
Entities affiliated with St. Paul
Venture Capital, Inc. ................ 62,500 December 31, 2002
</TABLE>
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<PAGE>
In August 1999, in connection with a bridge financing, we issued warrants to
purchase shares of our Series E preferred stock at an exercise price of $2.59
per share to some of our stockholders who hold more than 5% of our outstanding
stock. These warrants have not been exercised. These holders, who are
identified below, are affiliated with certain of our directors. You should
refer to "Principal Stockholders" for more detail on their affiliations with
our directors.
<TABLE>
<CAPTION>
Common Stock
Warrant Holder Subject to Warrant Expiration Date
-------------- ------------------ ---------------
<S> <C> <C>
John A. Rollwagen........................ 1,064 August 6, 2003
Entities affiliated with St. Paul Venture
Capital, Inc............................ 17,794 August 6, 2003
Thomvest Holdings, Inc................... 21,022 August 6, 2003
APV Technology Partners II, L.P.......... 21,289 August 9, 2003
</TABLE>
Loans to Executive Officers
In addition to the loans described in "Management--Employment Contracts and
Change of Control Arrangements," we loaned to Petro Estakhri, our Chairman of
the Board, Chief Technology Officer and Executive Vice President, Engineering,
a total of $40,000, all of which remains outstanding as of December 31, 1999.
This loan is secured by a stock pledge agreement and bears interest at a rate
of 5.7% per year. The principal is due on or before the earlier of (1) April
2002 or (2) a change of control of Lexar Media.
Transactions with Stockholders
Toshiba America Electronic Components, Inc. In June and July 1997, we
received a cash advance for working capital in the amount of $400,000 from
Toshiba America Electronic Components, Inc., a holder of more than 5% of our
common stock and, from May 1997 until September 1999, a shareholder with rights
under our articles of incorporation to elect a representative to serve on our
board of directors. The advance bears interest at a rate of 5.5% per year and
is payable in July 2000. As of December 31, 1999, the total amount outstanding,
including accrued interest, was approximately $406,000. We intend to repay this
advance with a portion of the net proceeds from this offering. Toshiba is also
the guarantor of a promissory note that we sold to MetLife Capital Corporation
in the aggregate principal amount of $348,423 which is more fully described
below. On April 15, 1998, we entered into a Consignment Agreement with Toshiba
for the supply of flash memory. In 1998, we purchased approximately $5.3
million of materials from Toshiba pursuant to this agreement and, as of
December 31, 1998, had payables to Toshiba of approximately $1.8 million. The
agreement had a one-year term renewable at our option, and we renewed the
agreement with Toshiba in April 1999. In 1999, we purchased approximately $18.5
million of materials from Toshiba, and as of December 31, 1999, we had payables
to Toshiba of approximately $3.4 million.
GE Capital Equity Investments, Inc. In March 1997, we issued and sold a
promissory note in the aggregate principal amount of $348,423 to MetLife
Capital Corporation, which was purchased by General Electric Capital Business
Asset Funding Corporation, an affiliate of GE Capital Equity Investments, Inc.,
a holder of more than 5% of our common stock. This note is secured by software
that we own and is guaranteed by Toshiba, a holder of more than 5% of our
common stock. The note accrues interest at a rate of 9.68% per year and is due
and payable on March 8, 2002. As of December 31, 1999, the total amount
outstanding, was approximately $170,353.
59
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of December 31, 1999, and as adjusted to
reflect the sale of the shares in this offering for:
. each person known by us to own beneficially more than 5% of our common
stock;
. each director and executive officer; and
. all directors and executive officers as a group.
The percentage of beneficial ownership for the following table is based on
47,560,534 shares of common stock outstanding on December 31, 1999, including
475,000 shares of our common stock that we issued in connection with our
acquisition of Printroom.com, and assuming the exercise of outstanding warrants
to purchase 272,359 shares of our common stock prior to the completion of this
offering and the conversion of all outstanding shares of our preferred stock
into our common stock, and shares of our common stock outstanding after the
completion of this offering, assuming no exercise of the underwriters' over-
allotment option.
Unless otherwise indicated below, to our knowledge, all persons listed below
have sole voting and investment power with respect to their shares of our
common stock, except to the extent authority is shared by spouses under
applicable law. Unless otherwise indicated, each entity or person listed below
maintains a mailing address of c/o Lexar Media, Inc., 47421 Bayside Parkway,
Fremont, California 94538.
The number of shares beneficially owned by each stockholder is determined in
accordance with the rules of the Securities and Exchange Commission and is not
necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes those share of common stock that the
stockholder has sole or shared voting or investment power and any shares of
common stock which the stockholder has a right to acquire within 60 days after
December 31, 1999 through the exercise of any option, warrant or other right.
The percentage ownership of the outstanding common stock, however, is based on
the assumption, expressly required by the rules of the Securities and Exchange
Commission, that only the person or entity whose ownership is being reported
has converted options or warrants into shares of our common stock.
<TABLE>
<CAPTION>
Percent of Shares
Number of Beneficially Owned
Shares ----------------------
Beneficially Before After
Name and Address of Beneficial Owner Owned Offering Offering
- ------------------------------------ ------------ --------- ---------
<S> <C> <C> <C>
Executive Officers and Directors:
Petro Estakhri (1)................... 2,800,000 5.84%
John H. Reimer (2)................... 2,800,000 5.84
Eric B. Stang........................ 800,000 1.7
Robert J. Netter, Jr. ............... 268,750 *
Ronald H. Bissinger.................. 400,000 *
J. Scott Case (3).................... 2,426,641 5.1
GE Capital Equity Investments, Inc.
William T. Dodds (4)................. 6,025,687 12.7
Thomvest Holdings, Inc.
Brian D. Jacobs (5).................. 6,634,998 13.9
Entities affiliated with St. Paul
Venture Capital, Inc.
John A. Rollwagen (6)................ 311,709 *
William J. Stewart (7)............... 5,894,322 12.4
APV Technology Partner II, L.P.
Executive Officers and Directors as a
group (9 persons) (8)............... 28,093,357 57.2
5% Stockholders:
1267104 Ontario, Limited............. 3,264,094 6.9
Toshiba America Electronic
Components, Inc..................... 3,000,000 6.3
</TABLE>
- ---------------------
* Less than 1%
60
<PAGE>
(1) Includes 1,323,716 shares of our common stock held directly by Mr. Estakhri
and 1,076,284 shares of our common stock held jointly between Mr. Estakhri
and his wife. Also includes the right to purchase 400,000 shares of our
restricted common stock.
(2) Includes the right to purchase 400,000 shares of our restricted common
stock.
(3) Represents shares of our common stock owned by GE Capital Equity
Investments, Inc., with which Mr. Case is affiliated by virtue of his being
a Senior Vice President of GE Equity Investments, Inc., which is under
common control with such entity. Mr. Case disclaims any beneficial interest
of such shares except to the extent of any individual interest in such
shares. The address of GE Capital Equity Investments, Inc. is 185 Berry
Street, Suite 3600, San Francisco, CA 94107.
(4) Represents 6,004,665 shares of our common stock and includes a warrant to
purchase 21,022 shares of our common stock, which is immediately
exercisable, owned by Thomvest Holdings, Inc., with which Mr. Dodds is
affiliated by virtue of his being a Vice President thereof. Mr. Dodds
disclaims any beneficial interest of such shares except to the extent of
any individual interest in such shares. The address of Thomvest Holdings,
Inc. is 65 Queen Street West, Suite 2400, Toronto, Ontario, Canada M5H 2M8.
(5) Represents 180,254 shares of our common stock owned by St. Paul Venture
Capital Affiliates Fund I, LLC, 4,801,177 shares of our common stock owned
by St. Paul Venture Capital IV, LLC and 1,573,273 shares of our common
stock owned by St. Paul Venture Capital V, LLC. Also includes warrants to
purchase 2,208 shares of our common stock held by St. Paul Venture Capital
Fund I, LLC, a warrant to purchase 60,781 shares of our common stock held
by St. Paul Venture Capital IV, LLC and a warrant to purchase 17,306 of our
common stock held by St. Paul Venture Capital V, LLC, each of which is
immediately exercisable. Mr. Jacobs is affiliated with the funds by virtue
of his being a general partner, manager or principal, or a general partner,
manager or principal of the general partner or managing member, of each of
the funds. Mr. Jacobs disclaims any beneficial interest of such shares
except to the extent of any individual interest in such shares. The address
of each of the St. Paul Venture Capital entities is 10400 Viking Drive,
Suite 550, Eden Prairie, MN 55344.
(6) Includes 160,645 shares of our common stock owned by the John A. Rollwagen
Revocable Trust, 75,000 shares of our common stock owned by an individual
retirement account for the benefit of Mr. Rollwagen, 75,000 shares of our
common stock owned by the Rollwagen Family Limited Partnership and a
warrant owned by the John A. Rollwagen Revocable Trust to purchase 1,064
shares of our common stock, which is immediately exercisable.
(7) Represents shares of our common stock owned by APV Technology Partner II,
L.P., with which Mr. Stewart is affiliated by virtue of his being a general
partner, manager or principal, or a general partner, manager or principal
of the general partner or managing member, of such fund. Mr. Stewart
disclaims any beneficial interest of such shares except to the extent of
any individual interest in such shares. Also includes warrants to purchase
81,359 shares of our common stock, each of which is immediately
exercisable. The address of APV Technology Partners II, L.P. is 535
Middlefield Road, Suite 150, Menlo Park, CA 94025.
(8) Excludes former Vice President, Finance and Chief Financial Officer, Robert
J. Netter, Jr.
61
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital
stock will consist of 200,000,000 shares of common stock, par value $0.0001 per
share, and 10,000,000 shares of preferred stock, par value $0.0001 per share.
As of December 31, 1999, assuming the conversion of all of our outstanding
preferred stock into 34,148,853 shares of common stock and including the
475,000 shares of common stock that we issued to the former shareholders of
Printroom.com in connection with our acquisition of Printroom.com in January
2000 and the exercise of outstanding warrants to purchase 272,359 shares of our
common stock prior to the completion of this offering, there were outstanding
47,560,534 shares of our common stock held of record by approximately 155
stockholders, options to purchase 1,471,992 shares of our common stock,
1,200,000 shares of common stock subject to restricted stock grants which were
outstanding but unexercised as of December 31, 1999 and warrants to purchase
228,943 shares of our common stock. The following description of our capital
stock does not purport to be complete and is subject to and qualified by our
certificate of incorporation and bylaws, which are included as exhibits to the
Registration Statement of which this prospectus forms a part, and by the
provisions of applicable Delaware law.
Common Stock
Voting Rights. Each holder of our common stock is entitled to one vote for
each share held of record on all matters submitted to a vote of the
stockholders, including the election of directors. We do not provide in our
certificate of incorporation for cumulative voting in the election of
directors. Therefore, in accordance with Section 2115 of the California
Corporations Code, commencing at the first annual meeting of stockholders
following the date on which we first shall have had at least 800 holders of our
common stock, the holders of a majority of the shares of our common stock can
elect all of the directors then standing for election. Prior to that time,
however, cumulative voting in the election of directors will be in effect,
meaning that each holder of our common stock is entitled to a number of votes
equal to the number of votes to which that share of common stock is normally
entitled multiplied by the number of directors to be elected. In essence, a
stockholder then would be permitted to cast all of its votes for a single
candidate or allocate its votes among as many candidates as the stockholder may
choose.
Dividend Rights. Subject to preferences that may be applicable to any
outstanding series of our preferred stock, the holders of outstanding shares of
our common stock are entitled to receive dividends out of assets that are
legally available for distribution at the times and in the amounts that our
board of directors may determine.
Liquidation Rights. In case of our liquidation, dissolution or winding up,
the holders of our common stock will be entitled to share ratably in the assets
legally available for distribution to stockholders, in each case after payment
of all of our liabilities and subject to preferences that may be applicable to
any series of our preferred stock then outstanding.
Other Rights. The holders of our common stock have no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to our common stock. The rights, preferences
and privileges of holders of our common stock are subject to the rights of the
holders of shares of any series of preferred stock that we may designate and
issue in the future.
Preferred Stock
Upon the completion of this offering, our outstanding preferred stock will
convert into 34,148,853 shares of our common stock, assuming that each
outstanding share of our Series A preferred stock, Series B preferred stock,
Series C preferred stock and Series D preferred stock will be converted into
one share of our common stock and each outstanding share of our Series E
preferred stock will be converted into 0.838 shares of our common stock.
Upon the closing of this offering, all outstanding shares of our Series E
preferred stock will automatically convert into 9,923,213 shares of common
stock, assuming a conversion price for the Series E preferred stock of $3.09
per share. If this offering has not closed by March 31, 2000, the conversion
price for the Series E
62
<PAGE>
preferred stock is subject to adjustments based on certain performance
criteria. This conversion price will, however, not be lower than $2.09 per
share or higher than $3.09 per share, representing a conversion rate of 1.239
and 0.838 shares of our common stock for each share of our Series E preferred
stock. Management assumes this conversion price to be $3.09 per share for the
purpose of calculating the pro forma net loss per common share and pro forma
stockholders' equity. However, should the conversion price be $2.09 per share,
an additional 4,748,459 shares of common stock will be issued to the Series E
preferred stock holders upon the closing of the offering.
Our board of directors has the authority, without further action by our
stockholders, to issue, from time to time, shares of our preferred stock in one
or more series. Our board of directors may fix the number of shares,
designations, preferences, powers and other special rights of the preferred
stock. The preferences, powers, rights and restrictions of different series of
preferred stock may differ. The issuance of preferred stock could decrease the
amount of earnings and assets available for distribution to holders of our
common stock or impair the rights and powers, including voting rights, of the
holders of common stock. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, may also have the effect of discouraging, delaying or preventing a
change in control of Lexar Media, regardless of whether the transaction may be
beneficial to stockholders. After the completion of this offering, there will
be no shares of preferred stock outstanding, and we have no current plans to
issue any shares of preferred stock.
Warrants
As of December 31, 1999, we had the following outstanding warrants to
purchase our stock:
<TABLE>
<CAPTION>
Total Number
of Shares
Subject to Exercise Price
Type of Stock Warrants(1) Per Share Expiration Date
- ------------- ------------ -------------- ----------------------------------
<S> <C> <C> <C>
Common Stock............ 10,583 $0.30 Upon consummation of this offering
Common Stock............ 125,000 $0.80 December 31, 2002
Common Stock............ 30,000 $1.00 January 31, 2005
Series C Preferred
Stock.................. 100,000 $0.80 Upon consummation of this offering
Series E Preferred
Stock.................. 39,880 $2.59 August 6, 2003
Series E Preferred
Stock.................. 34,063 $2.59 August 9, 2003
Series E Preferred
Stock.................. 161,776 $2.59 Upon consummation of this offering
</TABLE>
- ---------------------
(1) Shown on an as-if-converted to common stock basis.
Registration Rights
Immediately after the completion of this offering, in accordance with an
Investors' Rights Agreement dated September 28, 1999, certain of our
stockholders and warrantholders beneficially owning 34,377,796 shares of our
common stock will be entitled to rights with respect to the registration of
their shares under the Securities Act, as described below.
Demand Registration Rights. At any time after six months following the
completion of this offering, both the holders of at least a majority of the
shares having registration rights and the holders of at least one-fifth of the
shares of the Series E preferred stock can request that we register all or a
portion of their shares so long as the total offering price of the shares to
the public is at least $5,000,000. We will only be required to file two
registration statements in response to a demand for registration by the holders
of a majority of the shares having registration rights and one registration
statement in response to a demand for registration by the holders of at least
one-fifth of the shares of the Series E preferred stock. We are not required to
file more than one registration statement in any six-month period. We may
postpone the filing of any registration statement for up to 90 days if we
determine that the filing would be seriously detrimental to us and our
stockholders, although we may only exercise this right once in any 12-month
period.
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<PAGE>
Piggyback Registration Rights. If we register any securities for public
sale, the stockholders with registration rights will have the right to include
their shares in this registration. This right, however, does not apply to a
registration statement relating to any of our employee benefit plans or to a
corporate reorganization. If marketing reasons dictate, the managing
underwriter of any underwritten offering will have the right to limit the
number of shares registered by these holders to be included in the registration
statement to 10% of the total shares covered by the registration statement.
Form S-3 Registration Statements. The holders of the shares having
registration rights can request that we register their shares if we are
eligible to file a registration statement on Form S-3 and if the total price of
the shares of common stock offered to the public is at least $500,000. These
holders may only require us to file two Form S-3 Registration Statements in any
12-month period. We are not required to file any registration statement
pursuant to these rights within the six months following this offering. We may
postpone the filing of any registration statement for up to 90 days if we
determine that the filing would be seriously detrimental to us and our
stockholders, although we may only exercise this right once in any 12-month
period.
We will pay all expenses incurred in connection with the filings described
above, except for underwriters' and brokers' discounts and commissions, which
will be paid by each of the selling stockholders. The registration rights
described above will expire with respect to any particular stockholder if it
can sell all of its shares in a three-month period under Rule 144 of the
Securities Act. In any event, the registration rights described above will
expire five years after the completion of this offering.
Anti-takeover Effects of Delaware Law and our Certificate of Incorporation and
Bylaws
There are certain provisions of Delaware law and our certificate of
incorporation and bylaws that may be deemed to have an anti-takeover effect and
may discourage, delay or prevent a tender offer or takeover attempt that you
might consider to be in your best interest, including any attempt that might
result in a premium over the market price for your shares. These provisions are
summarized in the following paragraphs.
Classified Board of Directors. In accordance with Section 2115 of the
California Corporations Code, commencing at the first annual meeting of
stockholders following the date on which we first shall have had at least 800
holders of our common stock, our board of directors will be divided into three
classes of directors, as nearly equal in size as possible, serving staggered
three-year terms. Upon expiration of the term of a class of directors, the
directors in that class will be elected for three-year terms at the annual
meeting of stockholders in the year in which the term for that class of
directors expires. Our certificate of incorporation and bylaws provide that
directors may be removed only by the affirmative vote of the holders of two-
thirds of the shares of capital stock entitled to vote in the election of
directors. In addition, any vacancy on the board of directors, however
occurring, including a vacancy resulting from an enlargement of the board of
directors, may only be filled by vote of a majority of the directors then in
office. The classification of the board of directors and the limitations on the
removal of directors and filling of vacancies could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third
party from acquiring, control of Lexar Media.
Stockholder Action; Special Meeting of Stockholders. Our certificate of
incorporation eliminates the ability of stockholders to act by written consent.
Our bylaws further provide that our stockholders may not call special meetings
without advance notice and approval of stockholders owning at least a majority
of our outstanding voting stock. These provisions could have the effect of
delaying actions that are favored by some stockholders. These provisions may
also discourage another person from making a tender offer for our common stock,
because that person, even if it acquired a majority of our outstanding voting
securities, would be able to take action as a stockholder, such as electing new
directors or approving a merger, only at a duly called meeting of stockholders
and not by written consent.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Our bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must provide timely
notice thereof in writing. To be timely, a stockholder's notice must be
received at our principal executive offices not less than 60 days nor more than
90 days before the one-year anniversary of the prior annual meeting of
stockholders. If
64
<PAGE>
the annual meeting is called for a date that is not within 30 days before or 60
days after the anniversary date, in order to be timely, notice from the
stockholder must be received within ten days after the date on which notice of
the annual meeting was mailed to stockholders or made public, whichever
occurred first. Our bylaws also specify certain requirements as to the form and
content of a stockholder's notice. These provisions may preclude stockholders
from bringing matters before an annual meeting of stockholders or from making
nominations for directors at an annual meeting of stockholders.
Authorized but Unissued Shares. The authorized but unissued shares of common
stock and preferred stock are available for future issuance without stockholder
approval. These additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans. The existence of authorized
but unissued shares of common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise.
Amendments; Supermajority Vote Requirements. Delaware law provides generally
that the affirmative vote of stockholders owning a majority of the outstanding
shares of stock entitled to vote on a matter is required to amend a
corporation's certificate of incorporation or bylaws, unless a corporation's
certificate of incorporation or bylaws, as the case may be, requires a greater
percentage. Our certificate of incorporation requires the approval of holders
of at least two-thirds of the outstanding shares of stock entitled to vote in
order to adopt, amend or repeal the provisions of our certificate of
incorporation relating to the election and removal of directors and the ability
of our stockholders to take action by written consent.
Section 203 Business Combinations. After this offering, we will be subject
to the provisions of Section 203 of the Delaware General Corporation Law
regulating corporate takeovers. This section prevents some Delaware
corporations from engaging, under some circumstances, in a business
combination, which includes a merger or sale of more than 10% of the
corporation's assets with any interested stockholder, meaning a stockholder who
owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of the stockholder, for three years following the
date that the stockholder became an interested stockholder unless:
. the transaction is approved by the board of directors before the date
the interested stockholder attained the status;
. upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced; or
. on or subsequent to that date the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by at least two-thirds of the outstanding voting stock that
is not owned by the interested stockholder.
A Delaware corporation may opt out of this section 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. However, we
have not opted out of this provision. The statute could prohibit or delay
mergers or other takeover or change-in-control attempts and, accordingly, may
discourage attempts to acquire us.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services.
Listing
We have applied to list our common stock on the Nasdaq National Market under
the trading symbol "LEXR."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there was no public market for our common stock. A
significant public market for our common stock may not develop or be sustained
after this offering. The sale of a substantial amount of our common stock,
including shares issued upon exercise of outstanding options and warrants, in
the public market after this offering, or the possibility of these sales
occurring, could cause the prevailing market price of our common stock to
decline or impair our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of our common stock, based on shares of common stock outstanding as
of December 31, 1999, assuming the conversion of all of our outstanding
preferred stock into 34,148,853 shares of our common stock and including
475,000 shares of our common stock that we issued to the former shareholders of
Printroom.com in connection with our acquisition of Printroom.com in January
2000 and the exercise of outstanding warrants to purchase 272,359 shares of our
common stock prior to the completion of this offering. Of these shares, all of
the shares of our common stock sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
unless the shares are purchased by affiliates as that term is defined in Rule
144 under the Securities Act. Any shares purchased by an affiliate may not be
resold except pursuant to an effective registration statement or an applicable
exemption from registration, including an exemption under Rule 144 of the
Securities Act. The remaining 47,560,534 shares of our common stock held by
existing stockholders are restricted securities as that term is defined in Rule
144 under the Securities Act. These restricted securities may be sold in the
public market only if they are registered or if they qualify for an exemption
from registration under Rule 144 or Rule 701 under the Securities Act. These
rules are summarized below. Subject to the lock-up agreements described below
and the provisions of Rule 144 and Rule 701, additional shares will be
available for sale in the public market as follows:
<TABLE>
<CAPTION>
Number
of Shares Date
--------- ----
<C> <S>
On the date of this prospectus, these shares sold in the offering
will be immediately available for sale in the public market.
39,998,596 180 days after the date of this prospectus, the 180-day lock-up
terminates and these shares are saleable under Rule 144 (subject in
some cases to volume limitations) or Rule 144(k) or Rule 701.
7,561,938 At various times commencing more than 180 days after the date of
this prospectus, these shares will be eligible for sale under Rule
144 or Rule 145 upon the expiration of various one-year holding
periods or the lapse of various repurchase rights.
</TABLE>
Lock-Up Agreements
All of our officers and directors and substantially all of our stockholders
have signed lock-up agreements that prohibit them from offering, selling or
otherwise disposing of any shares of our common stock, options or warrants to
acquire shares of our common stock or securities exchangeable for or
convertible into shares of our common stock owned by them without the prior
written consent of Chase Securities, Inc. during the 180-day period following
the date of this prospectus. Chase Securities Inc. may choose to release some
of these shares from these restrictions prior to the expiration of this 180-day
period, although it has no current intention to do so.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year from the later of the date those shares of
common stock were acquired from us or from an affiliate of ours would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
(1) 1% of the number of shares of common stock then outstanding, which
will equal approximately shares immediately after this offering; or
66
<PAGE>
(2) the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale of any shares of common stock.
The sales of any shares of common stock under Rule 144 are also subject to
manner of sale provisions and notice requirements and to the availability of
current public information about us. Affiliates may sell shares not
constituting restricted securities in accordance with the foregoing volume
limitations and other restrictions, but without regard to the one-year holding
period.
Rule 144(k)
In addition, under Rule 144(k), a person who is not one of our affiliates at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years from the later of
the date those shares of common stock were acquired from us or from an
affiliate of ours, including the holding period of any prior owner other than
an affiliate, is entitled to sell those shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144. Therefore, unless otherwise restricted pursuant to the lock-up
agreements or otherwise, those shares may be sold immediately upon the
completion of this offering.
Rule 701
Any employee, officer or director of, or consultant to, us who purchased his
or her shares under a written compensatory plan or contract may be entitled to
sell his or her shares in reliance on Rule 701. Rule 701 permits affiliates to
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirements of Rule 144. Rule 701 further provides that non-affiliates
may sell those shares in reliance on Rule 144 without having to comply with the
holding period, public information, volume limitation or notice provisions of
Rule 144. All holders of Rule 701 shares are required to wait until 90 days
after the date of this prospectus before selling those shares. However, all
shares issued under Rule 701 are subject to lock-up agreements and will only
become eligible for sale when the 180-day lock-up agreements expire.
Stock Options
At December 31, 1999, there were options to purchase 1,471,992 shares of our
common stock outstanding under our stock option plans and otherwise.
Immediately after the effective date of this offering, we expect to file a
registration statement under the Securities Act covering the shares of common
stock reserved for issuance under our stock option plans. Upon the filing of
this registration statement and upon expiration of 180-day lock-up agreements,
approximately shares of common stock issuable upon exercise of stock
options will be immediately eligible for sale in the public market, subject to
Rule 144 volume limitations applicable to our affiliates.
67
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Chase Securities Inc.,
J.P. Morgan Securities Inc., Prudential Securities Incorporated and SG Cowen
Securities Corporation, have severally agreed to purchase from us the following
respective numbers of shares of our common stock:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Chase Securities Inc...............................................
J.P. Morgan Securities Inc.........................................
Prudential Securities Incorporated.................................
SG Cowen Securities Corporation....................................
---------
Total............................................................
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to conditions, including the absence of any material adverse change
in our business and the receipt of certificates, opinions and letters from us
and our counsel. The nature of the underwriters' obligations requires that they
purchase all shares of our common stock offered in this offering if they
purchase any of the shares in this offering.
The underwriters propose to offer the shares of common stock directly to the
public at the initial public offering price set forth on the cover page of this
prospectus and to dealers at that price less a concession not in excess of
$ per share. The underwriters may allow and the dealers may reallow a
concession not in excess of $ per share to other dealers. After the public
offering of the shares, the underwriters may change the offering price and
other selling terms. The representatives have advised us that the underwriters
do not intend to confirm discretionary sales in excess of 5% of the shares of
common stock offered by this prospectus.
We have granted to the underwriters an option, exercisable no later than 30
days after the date of the effective date of this offering, to purchase up to
additional shares of our common stock at the initial public offering
price, less the underwriting discounts and commissions, set forth on the cover
page of this prospectus. To the extent that the underwriters exercise this
option, each underwriter will have a firm commitment to purchase approximately
the same percentage that the number of shares of our common stock to be
purchased by it shown in the above table bears to the total number of shares of
our common stock offered in this offering. We will be obligated to sell shares
to the underwriters to the extent the option is exercised. The underwriters may
exercise the option only to cover over-allotments made in connection with the
sale of our common stock offered in this offering.
The following table shows the per share and total public offering price, the
underwriting discounts and commissions and the proceeds before expenses to us.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $ .
<TABLE>
<CAPTION>
Per Share Without Option With Option
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price...
Underwriting discounts
and commissions........
Proceeds, before
expenses, to us........
</TABLE>
At our request, the underwriters have reserved up to shares of our
common stock to be sold in the offering and offered for sale, at the initial
public offering price, to friends and relatives of employees, employees,
consultants, directors and other persons with business relationships to us. The
number of shares of our common stock available for sale to the general public
will be reduced to the extent these individuals purchase the reserved shares.
Any reserved shares that are not so purchased will be offered by the
underwriters to the general public on the same basis as the other shares
offered by this prospectus.
68
<PAGE>
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
We have agreed to indemnify the underwriters against liabilities connected
to this offering, including liabilities under the Securities Act of 1933, and
to contribute to payments the underwriters may be required to make in respect
of those liabilities.
Substantially all of our stockholders, including all of our executive
officers and directors, who will own in the aggregate shares of our
common stock after the offering, have agreed that they will not, without the
prior written consent of Chase Securities Inc., offer, sell or otherwise
dispose of any shares of our common stock, options or warrants to acquire
shares of our common stock or securities exchangeable for or convertible into
shares of common stock owned by them during the 180-day period following the
date of this prospectus. We have agreed that we will not, without the prior
written consent of Chase Securities Inc., offer, sell or otherwise dispose of
any shares of our common stock, options or warrants to acquire shares of our
common stock or securities exchangeable for or convertible into shares of our
common stock during the 180-day period following the date of this prospectus,
except that we may issue shares upon the exercise of options granted before the
date of this prospectus and may grant additional options under our stock option
plans, provided, however, that, without the prior written consent of Chase
Securities Inc., the additional options will not be exercisable during such
period.
Prior to this offering, there has been no public market for our shares. The
initial public offering price will be negotiated among the underwriters and us.
Among the factors to be considered in determining the initial public offering
price of the shares, in addition to prevailing market conditions, will be our
historical performance, estimates of our business potential and earnings
prospects, an assessment of management and the consideration of the above
factors in relation to market valuations of companies in related businesses.
The estimated initial public offering price range set forth on the cover of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.
In connection with the offering, the underwriters may purchase and sell
shares of our common stock in the open market. These transactions may include
short sales, stabilizing transactions and purchases to cover positions created
by short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discounts and commissions received by it because the representatives have
repurchased shares sold by or for the account of such underwriter in
stabilizing or short covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of our common stock. As a result, the price of our
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
Prudential Securities Incorporated facilitates the marketing of new issues
online through its PrudentialSecurities.com division. Clients of Prudential
AdvisorSM, a full service brokerage firm program, may view offering terms and a
prospectus online and place orders through their financial advisors.
On September 28, 1999, in consideration for services that SG Cowen
Securities Corporation provided to us in connection with the issuance and sale
of our Series E preferred stock, we issued to SG Cowen a warrant to purchase
193,050 shares of our Series E preferred stock at an exercise price of
$2.59 per share convertible into 161,776 shares of common stock. This warrant
expires, if not earlier exercised, on the earlier of September 28, 2003 or the
consummation of this offering.
69
<PAGE>
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the issuance of the shares of common stock offered by this prospectus for us.
Gibson, Dunn & Crutcher LLP, San Francisco, California, will pass upon certain
legal matters in connection with this offering for the underwriters. An
investment partnership comprised of partners from Fenwick & West LLP holds
43,750 shares of our common stock and Fenwick & West LLP holds a warrant to
purchase 30,000 shares of our common stock.
EXPERTS
The financial statements as of December 31, 1998 and 1999 and for each of
the three years in the period ended December 31, 1999 have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1, including exhibits and schedules, under the Securities
Act with respect to the common stock to be sold in this offering. This
prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement or the
exhibits and schedules that are part of the Registration Statement. Any
statements made in this prospectus as to the contents of any contract,
agreement or other document are not necessarily complete. With respect to each
of these contracts, agreements or other documents filed as an exhibit to the
Registration Statement, we refer you to the exhibit for a more complete
description of the matter involved, and each statement in this prospectus is
qualified in its entirety by this reference. You may read and copy all or any
portion of the Registration Statement or any reports, statements or other
information in the files at the following public reference facilities of the
Securities and Exchange Commission:
<TABLE>
<S> <C> <C>
Room 1024, Judiciary Plaza Seven World Trade Center 500 West Madison Street
450 Fifth Street, N.W. Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
</TABLE>
You can request copies of these documents upon payment of a duplicating fee
by writing to the Commission. You may call the Commission at 1-800-SEC-0330 for
further information on the operation of its public reference rooms. Our
filings, including the Registration Statement, will also be available to you on
the Internet web site maintained by the Commission at http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors, and make available to
our stockholders quarterly reports for the first three quarters of each year
containing unaudited interim financial statements.
70
<PAGE>
LEXAR MEDIA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-4
Consolidated Statements of Mandatorily Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit)................................. F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Lexar Media, Inc.
The reincorporation of Lexar Media, Inc. in the State of Delaware, described in
Note 13 to the financial statements, has not been consummated at February 16,
2000. When it has been consummated, we will be in a position to furnish the
following report:
"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of mandatorily redeemable
convertible preferred stock and stockholders' equity (deficit) and of cash
flows present fairly, in all material respects, the financial position of Lexar
Media, Inc. at December 31, 1998 and 1999, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above."
PricewaterhouseCoopers LLP
San Jose, California
February 3, 2000
F-2
<PAGE>
LEXAR MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity
------------------ December 31,
1998 1999 1999
-------- -------- -------------
(unaudited)
ASSETS (Note 12)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................. $ 9,824 $ 6,495
Short-term investments (including $2,500 of
restricted securities).................... -- 3,896
Accounts receivable, net of allowances for
sales returns and doubtful accounts of
$239 in 1998 and $730 in 1999............. 2,603 8,822
Inventory, net............................. 2,856 16,287
Prepaid expenses and other current assets.. 345 545
-------- --------
Total current assets..................... 15,628 36,045
Property and equipment, net.................. 807 1,834
Intangible assets, net....................... 299 188
Other assets................................. 80 207
-------- --------
Total assets............................. $ 16,814 $ 38,274
======== ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................... $ 4,133 $ 9,029
Accrued liabilities........................ 950 2,106
Deferred revenue........................... 97 112
Notes payable to stockholders.............. 67 5,224
-------- --------
Total current liabilities................ 5,247 16,471
Notes payable to stockholders, net of current
portion..................................... 5,326 96
-------- --------
Total liabilities........................ 10,573 16,567
Mandatorily redeemable convertible preferred
stock....................................... 24,653 53,136
Commitments and contingencies (Notes 9 and
10)
Stockholders' equity (deficit):
Common stock, $0.0001 par value:
Authorized: 75,000,000 shares
Issued and outstanding: 7,971,217 shares
in 1998, 12,664,322 shares in 1999, and
47,560,534 shares pro forma............. -- 1 $ 5
Additional paid-in capital................. 845 24,566 81,607
Unearned stock-based compensation.......... -- (19,158) (19,158)
Notes receivable from stockholders......... (456) (2,756) (2,756)
Accumulated deficit........................ (18,801) (34,082) (34,082)
-------- -------- --------
Total stockholders' equity (deficit)..... (18,412) (31,429) $ 25,616
-------- -------- ========
Total liabilities, mandatorily redeemable
convertible preferred stock and
stockholders' equity (deficit).......... $ 16,814 $ 38,274
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
LEXAR MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Revenues:
Product sales.................................... $ 1,938 $ 7,609 $ 29,219
Development fees................................. 1,005 -- --
------- ------- --------
Total revenues................................. 2,943 7,609 29,219
Cost of revenues................................... 1,133 6,033 24,596
------- ------- --------
Gross margin....................................... 1,810 1,576 4,623
Operating expenses:
Research and development......................... 3,931 3,101 4,141
Sales and marketing.............................. 1,098 4,413 8,599
General and administrative....................... 1,650 2,733 5,241
Stock-based compensation......................... -- -- 1,806
------- ------- --------
Total operating expenses....................... 6,679 10,247 19,787
------- ------- --------
Loss from operations............................... (4,869) (8,671) (15,164)
Interest expense and other......................... 288 419 117
------- ------- --------
Net loss....................................... $(5,157) $(9,090) $(15,281)
======= ======= ========
Net loss per common share--basic and diluted....... $ (0.52) $ (2.79) $ (2.53)
======= ======= ========
Shares used in net loss per common share calcula-
tion--basic and diluted........................... 9,945 3,255 6,114
======= ======= ========
Pro forma net loss per common share--basic and di-
luted (unaudited) (Note 12)....................... $ (0.46)
========
Shares used in pro forma net loss per common share
calculation--basic and diluted (unaudited) (Note
12)............................................... 32,957
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
LEXAR MEDIA, INC.
CONSOLIDATED STATEMENTS OF MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Mandatorily
Redeemable
Convertible
Preferred Notes
Stock Common Stock Additional Unearned Receivable
--------------- --------------- Paid-in Stock-based from
Shares Amount Shares Amount Capital Compensation Stockholders
------ ------- ------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997.... 16,854 $ 2 $ 107 $ -- $ --
Conversion of note payable
into Series A mandatorily
redeemable convertible
preferred stock............. 3,000 $ 3,000
Issuance of Series A
mandatorily redeemable
convertible preferred stock. 3,000 2,919 15 -- 2 -- --
Issuance of common stock to
employees for services...... -- -- 1,631 -- 257 -- --
Issuance of common stock for
services.................... -- -- 100 -- 16 -- --
Exercise of stock options.... -- -- 9 -- 1 -- --
Repurchase of stock.......... (3,000) (2,997) (16,279) (2) (1) -- --
Net loss..................... -- -- -- -- -- -- --
------ ------- ------- --- ------- -------- -------
Balances, December 31, 1997.. 3,000 2,922 2,330 -- 382 -- --
Conversion of convertible
promissory notes into Series
B mandatorily redeemable
convertible preferred stock. 3,000 1,240
Issuance of Series C
mandatorily redeemable
convertible preferred stock. 10,444 8,267
Conversion of bridge loan
into Series C mandatorily
redeemable convertible
preferred stock............. 1,000 800
Issuance of Series D
mandatorily redeemable
convertible preferred stock. 6,825 11,424
Issuance of restricted stock
to employees in exchange for
notes receivable............ -- -- 4,553 -- 364 -- (364)
Exercise of stock options and
grant of restricted stock... -- -- 1,201 -- 108 -- (104)
Repurchase of stock.......... -- -- (113) -- (9) -- 9
Reduction of notes receivable
from stockholders........... -- -- -- -- -- -- 3
Net loss..................... -- -- -- -- -- -- --
------ ------- ------- --- ------- -------- -------
Balances, December 31, 1998.. 24,269 24,653 7,971 -- 845 -- (456)
Issuance of Series D
mandatorily redeemable
convertible preferred stock. 119 200
Conversion of bridge loan
into Series E mandatorily
redeemable convertible
preferred stock............. 882 2,285
Conversion of note payable
into Series E mandatorily
redeemable convertible
preferred stock............. 65 153
Issuance of Series E
mandatorily redeemable
convertible preferred stock. 10,701 25,845
Unearned stock-based
compensation................ -- -- -- -- 20,964 (20,964) --
Amortization of unearned
stock-based compensation.... -- -- -- -- -- 1,806 --
Accretion of mandatorily
redeemable convertible
preferred stock............. -- -- -- -- (166) -- --
Issuance of warrants for
bridge financing............ -- -- -- -- 5 -- --
Issuance of warrants for
services.................... -- -- -- -- 446 -- --
Exercise of stock options.... -- -- 4,849 1 2,484 -- (2,349)
Repurchase of stock.......... -- -- (156) -- (12) -- 12
Reduction of notes receivable
from stockholders........... -- -- -- -- -- -- 37
Net loss..................... -- -- -- -- -- -- --
------ ------- ------- --- ------- -------- -------
Balances, December 31, 1999.. 36,036 $53,136 12,664 $ 1 $24,566 $(19,158) $(2,756)
- --------------------------------------------------
====== ======= ======= === ======= ======== =======
<CAPTION>
Accumulated
Deficit Total
----------- ---------
<S> <C> <C>
Balances, January 1, 1997.... $ (4,554) $ (4,445)
Conversion of note payable
into Series A mandatorily
redeemable convertible
preferred stock.............
Issuance of Series A
mandatorily redeemable
convertible preferred stock. -- 2
Issuance of common stock to
employees for services...... -- 257
Issuance of common stock for
services.................... -- 16
Exercise of stock options.... -- 1
Repurchase of stock.......... -- (3)
Net loss..................... (5,157) (5,157)
----------- ---------
Balances, December 31, 1997.. (9,711) (9,329)
Conversion of convertible
promissory notes into Series
B mandatorily redeemable
convertible preferred stock.
Issuance of Series C
mandatorily redeemable
convertible preferred stock.
Conversion of bridge loan
into Series C mandatorily
redeemable convertible
preferred stock.............
Issuance of Series D
mandatorily redeemable
convertible preferred stock.
Issuance of restricted stock
to employees in exchange for
notes receivable............ -- --
Exercise of stock options and
grant of restricted stock... -- 4
Repurchase of stock.......... -- --
Reduction of notes receivable
from stockholders........... -- 3
Net loss..................... (9,090) (9,090)
----------- ---------
Balances, December 31, 1998.. (18,801) (18,412)
Issuance of Series D
mandatorily redeemable
convertible preferred stock.
Conversion of bridge loan
into Series E mandatorily
redeemable convertible
preferred stock.............
Conversion of note payable
into Series E mandatorily
redeemable convertible
preferred stock.............
Issuance of Series E
mandatorily redeemable
convertible preferred stock.
Unearned stock-based
compensation................ -- --
Amortization of unearned
stock-based compensation.... -- 1,806
Accretion of mandatorily
redeemable convertible
preferred stock............. -- (166)
Issuance of warrants for
bridge financing............ -- 5
Issuance of warrants for
services.................... -- 446
Exercise of stock options.... -- 136
Repurchase of stock.......... -- --
Reduction of notes receivable
from stockholders........... -- 37
Net loss..................... (15,281) (15,281)
----------- ---------
Balances, December 31, 1999.. $(34,082) $(31,429)
- --------------------------------------------------
=========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
LEXAR MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(5,157) $ (9,090) $(15,281)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock issued for services rendered.............. 273 -- --
Depreciation and amortization................... 286 433 740
Gain on sale of fixed assets.................... (6) -- --
Allowances for sales returns and doubtful ac-
counts......................................... 39 201 491
Allowance to reduce inventory to net realizable
value.......................................... 102 125 296
Note issued in connection with legal settlement. -- -- 154
Amortization of stock-based compensation........ -- -- 1,806
Issuance of warrants............................ -- -- 192
Change in operating assets and liabilities:
Accounts receivable............................. 48 (2,541) (6,709)
Inventory....................................... (562) (2,520) (13,728)
Prepaid expenses and other assets............... 23 (294) (326)
Accounts payable................................ 96 3,030 3,920
Accrued liabilities............................. 566 247 2,132
Deferred revenue................................ (350) 97 15
------- -------- --------
Net cash used in operating activities.......... (4,642) (10,312) (26,298)
------- -------- --------
Cash flows from investing activities:
Purchase of intangible assets.................... -- (17) --
Purchase of property and equipment............... (753) (534) (1,657)
Proceeds from sale of fixed assets............... 15 -- --
Purchase of short-term investments (including
$2,500 of restricted securities)................ -- -- (3,896)
Stockholders' loans.............................. -- (80) --
------- -------- --------
Net cash used in investing activities.......... (738) (631) (5,553)
------- -------- --------
Cash flows from financing activities:
Issuance of mandatorily redeemable convertible
preferred stock................................. 2,922 19,680 26,137
Reduction of notes receivable from stockholders.. -- 3 35
Exercise of stock options........................ 1 5 136
Proceeds from loans.............................. 349 800 2,285
Repayment of loan................................ (45) (61) (73)
Repayment of note payable........................ (1,000) -- --
Repurchase of stock.............................. (3,000) -- --
Proceeds from notes payable to stockholders...... 6,400 -- --
------- -------- --------
Net cash provided by financing activities...... 5,627 20,427 28,520
------- -------- --------
Net increase (decrease) in cash................... 247 9,484 (3,329)
Cash at beginning of the year..................... 93 340 9,824
------- -------- --------
Cash at end of year............................... $ 340 $ 9,824 $ 6,495
======= ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest........... $ 76 $ 667 $ 575
Taxes paid....................................... $ 1 $ 1 $ 1
Supplemental disclosure of non-cash financing and
investing activities:
Conversion of note payable into mandatorily
redeemable convertible
preferred stock................................ $ 3,000 $ 1,250 $ 153
Conversion of bridge loan into mandatorily
redeemable convertible
preferred stock................................ $ -- $ 800 $ 2,285
Exercise of stock options and restricted stock
grants in exchange for full recourse notes..... $ -- $ 468 $ 2,349
Repurchase of shares through cancellation of
notes receivable............................... $ -- $ 9 $ 13
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
LEXAR MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF BUSINESS:
Lexar Media, Inc. (the "Company") was incorporated under the laws of the
State of California on September 16, 1996 when the company acquired the solid-
state storage business unit of Cirrus Logic, Inc. ("Cirrus Logic"). The Company
designs, develops and markets a complete line of removable digital film and
digital photography connectivity products. Operations and revenues, to date,
have been generated primarily from sales in the United States, the United
Kingdom ("UK") and Japan. The Company changed its name from Lexar Microsystems,
Inc. to Lexar Media, Inc. in February 1998.
In September 1996, immediately following its formation, the Company acquired
all of the intangible assets of the solid state business unit of Cirrus Logic
for $3,500,000 plus legal costs of $73,000. The acquisition was accounted for
as a purchase transaction. The Company financed the acquisition by borrowing
$1,000,000 from Cirrus Logic and the issuance of a note of $2,500,000 for the
remainder of the purchase price to a new third party. The $1,000,000 note was
repaid in May 1997 and the $2,500,000 note was converted into Series A
Preferred Stock in September 1997. The Company also obtained the option to
purchase certain assets of Cirrus Logic related to the business unit. The
option was exercised and certain of the option assets were acquired for
additional consideration of $227,000 in 1997. The entire original purchase
price of $3,500,000 was allocated to intangibles. Of this amount, $3,047,000
was determined to be in-process research and development costs and has been
charged to operations at the date of acquisition. The remaining goodwill is
being amortized to operations on a straight-line basis over five years.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
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 amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an
original or remaining maturity of three months or less to be cash equivalents.
Concentration of cash and credit risk
The Company's cash and cash equivalents are maintained at major U.S. and
Japanese financial institutions. Deposits in these institutions may exceed the
amount of insurance provided on these deposits.
The Company's accounts receivable are derived from revenues earned from
customers located primarily in the U.S., U.K. and Japan. The Company performs
ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. The Company maintains an
allowance for doubtful accounts receivable based upon the expected
collectibility of accounts receivable.
Four customers accounted for 39%, 11%, 11% and 10% of accounts receivable as
of December 31, 1998. Three customers accounted for 16%, 15% and 13% of
accounts receivable as of December 31, 1999.
F-7
<PAGE>
LEXAR MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenues from three customers represented 48%, 20% and 15% of total revenues
for the year ended December 31, 1997. Revenues from four customers represented
25%, 18%, 13% and 11% of total revenues for the year ended December 31, 1998.
Revenues from three customers represented 13%, 11% and 10% of total revenues
for the year ended December 31, 1999.
Certain components necessary for the manufacture of the Company's products
are obtained from a sole supplier or a limited group of suppliers.
Restricted securities
At December 31, 1999, $2,500,000 of the Company's short-term investments
were restricted under letters of credit.
Fair value of financial instruments
Carrying amounts of certain of the Company's financial instruments including
cash equivalents, short term investment, accounts receivable, notes receivable,
accounts payable, notes payable and accrued liabilities approximate fair value
due to their short maturities.
Investments in marketable securities
The Company accounts for investments in marketable securities in accordance
with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Debt and equity securities are classified as available for sale
securities and are reported at fair market value with any unrealized holding
gains and losses excluded from current earnings and reported as a separate
component of stockholders' equity and as a separate component of comprehensive
income. As of December 31, 1999, there was no significant difference between
the costs of debt and equity securities and their fair market values.
Inventory
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out method. Appropriate allowances are made to reduce the
value of inventories to net realizable value, where this is below cost. This
may occur where the Company determines that inventories may be slow-moving or
obsolete.
Property and equipment
Property and equipment are stated at cost. Depreciation and amortization is
computed using the straight-line basis over the estimated useful lives of the
assets, generally 3 to 5 years as follows:
<TABLE>
<CAPTION>
Useful Life
-----------
<S> <C>
Computer equipment............................................... 3 years
Software......................................................... 3 years
Engineering and office equipment................................. 5 years
Furniture, fixtures and improvements............................. 5 years
</TABLE>
Leasehold improvements are amortized over the shorter of the lease term or
the estimated useful lives of the related assets.
Intangible assets
Goodwill, primarily related to the acquisition of the solid-state storage
business unit acquired from Cirrus Logic, is amortized on a straight-line basis
to operations over five years.
F-8
<PAGE>
LEXAR MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Segments
The Company follows Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Company operates in one segment, using one measurement of profitability to
manage its business. All long-lived assets are maintained in the United States.
The revenues generated from customers located in countries other than the
United States that represented over 10% of revenues were as follows (in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1998 1999
--------------- --------
<S> <C> <C> <C>
Japan............................................... $ 257 $ 1,550 $ 4,275
United Kingdom...................................... $ -- $ 192 $ 3,398
</TABLE>
Revenue recognition
The Company's customers include distributors, retailers, original equipment
manufacturers and end users. Certain customers have return and price protection
rights. The Company recognizes revenue where there is a contract or purchase
order, upon shipment or delivery depending on the terms of sale and
collectibility of the resulting receivable is probable. The Company provides
for estimated future returns and price protection based on historical
experience at the time revenue is recognized. At the time of sale, the Company
also provides for the estimated costs of meeting product warranty obligations.
For one of the Company's distributors, revenues and the costs of revenues are
deferred until the distributor has sold the product to its customer.
Research and development
Research and development costs are charged to operations as incurred.
Accounting for stock-based compensation
The Company follows the disclosure provisions of Financial Accounting
Standards Board ("FASB") SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company has elected to continue accounting for stock-based
compensation issued to employees using Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly,
pro forma disclosures required under SFAS No. 123 have been presented (see Note
7). Under APB No. 25, compensation expense is based on the difference, if any,
on the date of the grant, between the fair value of the Company's stock and the
exercise price of the option. Stock, stock options and warrants for stock
issued to non-employees have been accounted for in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18,
"Accounting for Equity Instruments that are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services."
Advertising costs
Advertising costs are charged to operations as incurred. Advertising costs
for the years ended December 31, 1997, 1998 and 1999 were $9,000, $710,000 and
$2,456,000, respectively.
F-9
<PAGE>
LEXAR MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Comprehensive income
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. Through December 31, 1999, the Company had not had any
transactions that were required to be reported in other comprehensive income.
Recent accounting pronouncements
In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position 98-1, or SOP 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. The adoption of SOP 98-1 does
not have a material impact on the financial statements.
In April 1998, the AcSEC issued Statement of Position 98-5, or SOP 98-5,
"Reporting on the Costs of Start-Up Activities." The standard requires
companies to expense the costs of start-up activities and organization costs as
incurred. In general, SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. The adoption of SOP 98-5 does not have a material impact on
the results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities.
SFAS 133 requires that all derivatives be recognized at fair value in the
balance sheet, and that the corresponding gains or losses be reported either in
the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. SFAS 133 will be
effective for fiscal years beginning after June 15, 2000. The Company does not
currently hold derivative instruments or engage in hedging activities.
F-10
<PAGE>
LEXAR MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net loss per common share
Basic net loss per common share is computed by dividing net loss available
to common stockholders by the weighted average number of vested common shares
outstanding for the period. Diluted net loss per share is computed giving
effect to all dilutive potential common shares, including options, warrants and
preferred stock. A reconciliation of the numerator and denominator used in the
calculation of historical basic and diluted net loss per share follows (in
thousands, except per common share amounts):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Numerator:
Net loss....................................... $(5,157) $(9,090) $(15,281)
Accretion of mandatorily redeemable convertible
preferred stock ............................. -- -- (166)
------- ------- --------
Net loss after accretion of mandatorily
redeemable convertible preferred stock......... $(5,157) $(9,090) $(15,447)
======= ======= ========
Denominator:
Weighted average common shares outstanding..... 10,387 5,812 8,622
Weighted average unvested common shares subject
to repurchase................................. (442) (2,557) (2,508)
------- ------- --------
Denominator for basic and diluted calculations.. 9,945 3,255 6,114
======= ======= ========
Net loss per common share--basic and diluted.... $ (0.52) $ (2.79) $ (2.53)
======= ======= ========
</TABLE>
Antidilutive securities
Securities listed below have not been included in the computations of
diluted net loss per share for the years ended December 31, 1997, 1998 and 1999
indicated (in thousands):
<TABLE>
<CAPTION>
Years Ended December
31,
--------------------
1997 1998 1999
------ ------ ------
Shares Shares Shares
------ ------ ------
<S> <C> <C> <C>
Shares under warrants for Series C mandatorily
redeemable convertible preferred stock................ 100 100 100
Shares under warrants for Series E mandatorily
redeemable convertible preferred stock................ -- -- 281
Shares under warrants for common stock................. -- 125 166
Shares under options for common stock.................. 2,407 3,371 1,472
Restricted stock ...................................... -- -- 1,200
Mandatorily redeemable convertible preferred stock..... 3,000 24,269 36,036
</TABLE>
Foreign currency transactions
Foreign currency denominated monetary assets and liabilities are translated
into U.S. dollars at the end-of-period exchange rates; nonmonetary assets and
liabilities are recorded at their historical exchange rates. Gains and losses
from foreign currency transactions are included in interest expense and other.
F-11
<PAGE>
LEXAR MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 3 -- BALANCE SHEET DISCLOSURES (in thousands):
Inventory consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------ -------
<S> <C> <C>
Raw materials.............................................. $ 265 $ 5,332
Controllers................................................ 29 1,877
Flash memory products...................................... 2,403 8,760
Ancillary products......................................... 386 841
------ -------
3,083 16,810
Less: inventory reserve.................................... (227) (523)
------ -------
$2,856 $16,287
====== =======
Property and equipment consisted of the following:
<CAPTION>
December 31,
---------------
1998 1999
------ -------
<S> <C> <C>
Equipment.................................................. $ 852 $ 1,858
Software................................................... 390 785
Furniture, fixtures and improvements....................... 70 325
------ -------
1,312 2,968
Less: accumulated depreciation and amortization............ (505) (1,134)
------ -------
Property and equipment, net................................ $ 807 $ 1,834
====== =======
Intangible assets consisted of the following:
<CAPTION>
December 31,
---------------
1998 1999
------ -------
<S> <C> <C>
Goodwill, primarily related to the acquisition of the
solid-state storage business unit from Cirrus Logic....... $ 543 $ 543
Less: accumulated amortization............................. (244) (355)
------ -------
$ 299 $ 188
====== =======
Accrued liabilities consisted of the following:
<CAPTION>
December 31,
---------------
1998 1999
------ -------
<S> <C> <C>
Payroll and related amounts................................ $ 526 $ 1,390
Interest................................................... 136 87
Other...................................................... 288 629
------ -------
$ 950 $ 2,106
====== =======
</TABLE>
F-12
<PAGE>
LEXAR MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 4--NOTES PAYABLE:
In April 1997, the Company purchased engineering equipment financed through
an equipment financing company. The loan is collateralized by the equipment. At
December 31, 1999, the holder of this note was a stockholder of the Company;
accordingly the loan balance has been classified under notes payable to
stockholders. The note, which bears interest at 9.68% per year, requires
monthly principal and interest payments of $7,000 through March 2002. Principal
payments are as follows (in thousands):
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
2000................................................................ $ 74
2001................................................................ 82
2002................................................................ 14
----
$170
====
</TABLE>
In June and July 1997, a stockholder made a cash advance to the Company in
the amount of $400,000 to provide working capital to the Company. The note
bears interest at 5.5% and the maturity date is July 2000.
Under a Note Purchase Agreement signed in August 1997 with two noteholders,
the Company issued two convertible promissory notes and ten other promissory
notes for a total amount of $6,000,000. In February 1998, $1,250,000 of these
convertible promissory notes were converted to shares of Series B mandatorily
redeemable convertible preferred stock. In February 1998, the interest rate on
the remaining $4,750,000 was changed from 8.5% to 10% and the maturity date was
extended from July 31, 1999 to July 31, 2000. All these notes are
collateralized by all assets of the Company.
NOTE 5--INCOME TAXES:
The federal and state tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities are presented
below (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1999
------- --------
<S> <C> <C>
Deferred tax assets and liabilities:
Net operating loss carryforwards......................... $ 5,236 $ 11,027
Depreciation and amortization............................ 1,275 1,344
Research credit carryforwards............................ 387 1,157
Other.................................................... 868 1,107
------- --------
7,766 14,635
Less: valuation allowance................................. (7,766) (14,635)
------- --------
$ -- $ --
======= ========
</TABLE>
At December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $25,741,000, and federal and state research
credits of approximately $580,000 and $577,000, respectively, to offset future
taxes. The operating loss carryforwards and credits will expire between 2003
and 2019 if not utilized. The Company has established a 100% valuation
allowance since it is more likely than not that no benefit will be realized for
its deferred tax assets.
The future utilization of the Company's net operating loss carryforwards
will be subject to certain limitations based on an ownership change as defined
by Internal Revenue Code section 382.
F-13
<PAGE>
LEXAR MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 6--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT):
In January 1998, the Company completed a bridge loan financing with three
venture capital parties for an aggregate amount of $800,000 plus interest of
10% per annum. The bridge loan was converted into 1,000,000 shares of Series C
mandatorily redeemable convertible preferred stock in February 1998 when the
Company entered into a Series C mandatorily redeemable preferred stock purchase
agreement with venture capital firms and other investors. Under this agreement,
the Company issued 11,443,750 shares (including the 1,000,000 shares) of Series
C mandatorily redeemable convertible preferred stock at $0.80 per share for a
total consideration of $9,155,000.
In November 1998, the Company issued 6,824,923 shares of Series D
mandatorily redeemable convertible preferred stock at $1.685 per share for
$11,500,000. In January 1999, the Company issued 118,695 additional shares of
Series D mandatorily redeemable convertible preferred stock at $1.685 per share
for $200,000.
In August 1999, the Company completed a bridge loan financing for an
aggregate amount of $2,285,000 plus interest at 6% per annum. The bridge loan
was converted at $2.59 share into 882,409 shares of Series E mandatorily
redeemable convertible preferred stock. Additionally, a $153,000 note payable
including interest was converted into 65,482 shares of Series E mandatory
redeemable convertible preferred stock in September 1999. The Company also
issued 10,700,602 shares of Series E mandatorily redeemable convertible
preferred stock at $2.59 per share, for a total of $27,715,000.
Mandatorily redeemable convertible preferred stock
At December 31, 1998 and 1999, the amounts of the mandatorily redeemable
convertible preferred stock by series were as follows (in thousands):
<TABLE>
<CAPTION>
Shares Issued
and Outstanding Net Amount Liquidation Value
December 31, December 31, Including
Shares --------------- --------------- Liquidation Undeclared,
Series Authorized 1998 1999 1998 1999 Value Unpaid Dividends
------ ---------- ------- ------- ------- ------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
A 3,000 3,000 3,000 $ 2,922 $ 2,955 $ 3,000 $ 3,620
B 3,000 3,000 3,000 1,240 1,243 1,250 1,433
C 11,544 11,444 11,444 9,067 9,096 9,155 10,498
D 6,943 6,825 6,944 11,424 11,640 11,700 12,769
E 12,171 -- 11,648 -- 28,202 30,153 30,757
------ ------- ------- ------- ------- ------- -------
36,658 24,269 36,036 $24,653 $53,136 $55,258 $59,077
====== ======= ======= ======= ======= ======= =======
</TABLE>
Dividends
The holders of each share of Series A, Series B, Series C, Series D and
Series E mandatorily redeemable convertible preferred stock are entitled to
receive cumulative dividends, out of any funds and assets of the Company
legally available, prior and in preference to any declaration or payment of any
dividend on common stock of the Company at the annual dividend rate (which
means respectively $0.08, $0.033, $0.064, $0.1348 and $0.2072 per share per
annum for the Series A, Series B, Series C, Series D and Series E mandatorily
redeemable convertible preferred stock, respectively, adjusted for any stock
split, combination, dividend or other recapitalization) when, as and if
declared by the Board of Directors of the Company. Such cumulative dividends
will accrue on each share of Series A, Series B, Series C, Series D and Series
E mandatorily redeemable convertible preferred stock, when, as and if declared
by the Board of Directors, from the date such share is issued and will accrue
from day to day whether or not earned.
F-14
<PAGE>
LEXAR MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Payments of any dividends to the holders of the Series A, Series B, Series C,
Series D and Series E mandatorily redeemable convertible preferred stock shall
be made pro rata, on an equal priority, pari passu basis, according to their
respective dividend preferences. If the Company will have accrued but unpaid
dividends on redeemable convertible preferred stock, upon conversion at an
initial public offering, then all such accrued but unpaid dividends shall be
cancelled.
Liquidation rights
The holders of each share of Series A, Series B, Series C, Series D and
Series E mandatorily redeemable convertible preferred stock will be entitled to
be paid, out of the available funds and assets, and prior and in preference to
any payment or distribution of any available funds and assets on any shares of
common stock, an amount per share equal to the original issue price (which
means respectively $1.00, $0.417, $0.80, $1.685 and $2.59 per share of the
Series A, Series B, Series C, Series D and Series E mandatorily redeemable
convertible preferred stock adjusted for any stock split, combination, dividend
or other recapitalization) plus any accrued but unpaid dividends. Funds and
assets will be distributed among the holders of the outstanding Series A,
Series B, Series C, Series D and Series E mandatorily redeemable convertible
preferred stock pro rata, on an equal priority, pari passu basis, according to
their respective liquidation preferences. A consolidation, merger or sale of
the Company will be deemed to be a liquidation, dissolution or winding up of
the Company for purposes of liquidation rights.
Participation rights
If there are any funds and assets remaining after the payment or
distribution to the holders of the mandatorily redeemable preferred stock of
their full preferential amounts, then all remaining assets and funds will be
distributed among the holders of the outstanding common stock and the Series A,
the Series B, Series C, Series D and Series E mandatorily redeemable
convertible preferred stock pro rata according to the number of shares of
common stock held by such holders assuming conversion of the mandatorily
redeemable preferred stock into common stock.
Redemption
The Company, to the extent it is lawfully and contractually able to do so,
is obligated to offer to redeem, at the respective Original Issue Price plus
accrued but unpaid dividends (if declared) all of the Series A, Series B,
Series C, Series D and Series E mandatorily redeemable convertible preferred
stock in three annual installments, one-third of the mandatorily redeemable
convertible preferred stock issued by the Company within sixty days of each of
the fifth and sixth annual anniversary dates of the Original Issue Date and
100% of the remaining mandatorily redeemable convertible preferred stock issued
by the Company within sixty days of the seventh anniversary of the Original
Issue Date. The holders of each of the Series A, Series B, Series C, Series D
and Series E mandatorily redeemable convertible preferred stock will have the
option, each year, to either accept or reject the redemption offer.
Voting rights
Each holder of shares of common stock is entitled to one vote for each share
held.
Each holder of shares of mandatorily redeemable convertible preferred stock
is entitled to the number of votes equal to the number of whole shares of
common stock into which such shares of mandatorily redeemable convertible
preferred stock are convertible.
F-15
<PAGE>
LEXAR MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Conversion rights
At the option of the holder, each share of mandatorily redeemable
convertible preferred stock is convertible, at any time or from time to time,
into fully paid and nonassessable shares of common stock.
Each share of mandatorily redeemable convertible preferred stock will
automatically be converted into fully paid and nonassessable shares of common
stock, immediately prior to the closing of an initial public offering with
minimum proceeds and a price per share as set forth in the agreements for each
series or upon the Company's receipt of the written consent of the holders of
not less than two-thirds of the then outstanding shares of mandatorily
redeemable convertible preferred stock to the conversion of all then
outstanding mandatorily redeemable convertible preferred stock. Series A,
Series B, Series C and Series D mandatorily redeemable convertible preferred
stock is convertible into shares of common stock on a one-for-one basis. The
conversion price of Series E mandatorily redeemable convertible preferred stock
is subject to adjustments based on certain performance criteria. The conversion
price will, however, not be lower than $2.09 per share or higher than $3.09 per
share.
Common stock
In February 1998, three employees were issued 2,400,000, 1,076,284 and
1,076,284 shares, respectively, of the Company's common stock at a price of
$0.08 per share. The share issuances were outside of the Company's 1996 Stock
Plan. The purchase price was paid through full-recourse promissory notes
payable in full to the Company in four years. The purchased shares are subject
to repurchase by the Company at the original purchase price paid per share,
upon the purchaser's cessation of service other than by involuntary termination
prior to vesting of such shares. The repurchase right lapses with respect to
the purchased shares upon vesting. At December 31, 1999, the unvested shares
for the three employees were 712,500, 600,000 and 600,000, respectively.
712,500 shares granted to the first employee will continue to vest monthly
until the unvested shares total 600,000. The last 600,000 shares for each
employee will vest fully at the end of the four year vesting period or earlier
if certain performance criteria are met.
F-16
<PAGE>
LEXAR MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Warrants
During the years ended December 31, 1998 and 1999, the Company issued the
following warrants:
Shares subject to warrants to purchase mandatorily redeemable convertible
preferred stock (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Exercise Number of Black-Scholes
Series Date Issued Price Shares Value Reason
------ -------------- -------- --------- ------------- ---------------------
<S> <C> <C> <C> <C> <C>
C February 1998 $0.80 100 0.414 Services
E August 1999 $2.59 88 1.339 Bridge financing
E September 1999 $2.59 193 1.339 Services
Shares subject to warrants to purchase common stock (in thousands):
<CAPTION>
Exercise Number of Black-Scholes
Date Issued Price Shares Value Reason
-------------- -------- --------- ------------- ---------------------
<S> <C> <C> <C> <C> <C>
February 1998 $0.80 125 0.414 Equity financing cost
September 1999 $0.30 11 2.361 Legal settlement
December 1999 $1.00 30 6.247 Services
</TABLE>
Warrants issued during the years ended December 31, 1998 and 1999 were
valued using the Black-Scholes valuation model using the following assumptions;
dividend yield of 0%, volatility of 60%, risk-free interest rate of 6% and a
contractual term of four years.
NOTE 7--STOCK OPTION PLAN:
The Company has a 1996 Stock Option/Stock Issuance Plan. The Plan is divided
into three separate equity programs: the option grant program, the stock
issuance program and the stock bonus program. Under the Plan, the exercise
price per share of the stock options granted to employees, members of the Board
of Directors or consultants shall not be less than 85% (110% for a 10%
shareholder) of the fair market value on the option grant date. Incentive
options may only be granted to employees and exercise price per share shall not
be less than 100% of the fair market value per share of common stock on the
option grant date.
Each option is exercisable as determined by the Board of Directors for all
of the option shares and has a maximum term of ten years from the date of the
grant. The Company has the right to repurchase, at the time of cessation of
employment, at the exercise price paid per share any unvested shares, as
established by the Board of Directors. As of December 31, 1998 and 1999, the
Company had reserved 7,938,082 and 13,038,082 shares, respectively, under the
Plan.
F-17
<PAGE>
LEXAR MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock option activity under the Plan for the period from January 1, 1997 to
December 31, 1999 is summarized below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------------
Shares Weighted
Available Number of Exercise Average
for Grant Shares Price Exercise Price
--------- --------- ---------- --------------
<S> <C> <C> <C> <C>
Balances, January 1, 1997..... 3,751 2,762 $ 0.16 $0.160
Additional shares reserved... 1,208 -- --
Options granted.............. (766) 766 0.08-0.16 0.147
Options exercised............ -- (9) 0.16 0.160
Options canceled............. 1,113 (1,113) 0.16 0.160
------ ------
Balances, December 31, 1997... 5,306 2,406 0.08-0.16 0.158
Additional shares reserved... 217 -- --
Options granted.............. (1,207) 1,207 0.08-0.20 0.105
Options exercised............ -- (151) 0.16 0.160
Options canceled............. 92 (92) 0.08-0.16 0.099
------ ------
Balances, December 31, 1998... 4,408 3,370 0.08-0.20 0.140
Additional shares reserved... 5,100 --
Options granted.............. (3,291) 3,291 0.20-2.00 0.770
Options exercised............ -- (4,849) 0.08-1.00 0.512
Options canceled............. 340 (340) 0.08-0.30 0.126
Repurchases.................. 156 -- 0.08 0.080
------ ------
Balances, December 31, 1999... 6,713/1/ 1,472 $0.08-2.00 $0.468
====== ======
</TABLE>
- ---------------------
(1) The Company granted 2,699,331 and 1,050,000 shares of restricted stock to
employees during the years ended December 31, 1996 and 1998, respectively.
These grants were made under the Company's 1996 Stock Option/Issuance Plan,
therefore the shares available for grant at December 31, 1999 were
2,964,046.
In December 1999, three employees were granted 1,200,000 shares of
restricted stock with a purchase price of $2.00 per share. These equity grants
were made outside of the Company's 1996 Stock Plan and vest over a four-year
period.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123 ("SFAS 123"), "Accounting for Stock-
Based Compensation," which was effective for the Company's fiscal year 1997.
SFAS 123 allows companies to either account for stock-based compensation under
the new provisions of SFAS 123 or under the provisions of Accounting Principles
Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees,"
but requires pro forma disclosure in the footnotes to the financial statements
as if the measurement provisions of SFAS 123 had been adopted.
The Company has continued to account for its stock-based compensation under
the Plan in accordance with APB 25. Accordingly, no compensation expense has
been recognized for the Plan.
F-18
<PAGE>
LEXAR MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Had compensation expense for the Company's stock options and the restricted
stock issuances been determined based on the fair value of the grant date for
awards in fiscal years 1997, 1998 and 1999 consistent with the provision of
SFAS 123, the Company's net loss for 1997, 1998 and 1999 would have been
increased to the pro forma amounts indicated below (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Net loss:
As reported.................................... $(5,157) $(9,090) $(15,281)
======= ======= ========
Pro forma...................................... $(5,181) $(9,097) $(15,581)
======= ======= ========
Net loss per common share--basic and diluted as
reported....................................... $ (0.52) $ (2.79) $ (2.53)
======= ======= ========
Net loss per common share--basic and diluted pro
forma.......................................... $ (0.52) $ (2.79) $ (2.55)
======= ======= ========
</TABLE>
In accordance with the provisions of SFAS 123, the fair value of each option
is estimated using the following assumptions for grants during the years ended
December 31, 1997, 1998 and 1999; dividend yield of 0%, volatility of 60%,
risk-free interest rates of between 4.25% to 8.66% at the date of grant and an
expected term of five years.
During the year ended December 31, 1999, the Company recorded unearned
stock-based compensation totaling $20,964,000, which is being amortized to
expense over the period during which the options vest, generally four years,
using the method set out in Example 2 both FASB Interpretation No. 28 ("FIN
28"). Under the FIN 28 method, each vested tranche of options is accounted for
as a separate option grant awarded for past services. Accordingly, the
compensation expense is recognized over the period during which the services
have been provided. This method results in a front-loading of the compensation
expense. For the year ended December 31, 1999, the Company recorded stock-based
compensation of $1,806,000 in respect of options granted to employees and non-
employees during the year.
The total unamortized unearned stock-based compensation recorded for all
option grants through December 31, 1999 will be amortized as follows: $11.4
million for the year ending December 31, 2000; $4.8 million for the year ending
December 31, 2001; $2.3 million for the year ending December 31, 2002; and $0.7
million for the year ending December 31, 2003.
The weighted average per share fair value of common stock options granted
during 1997, 1998 and 1999 was $0.147, $0.105 and $5.890, respectively.
F-19
<PAGE>
LEXAR MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding
at December 31, 1999 (shares in thousands):
<TABLE>
<CAPTION>
Weighted Weighted Number Weighted
Average Average Exercisable Average
Exercise Number Contractual Exercise Not Subject Exercise
Price Outstanding Life Price to Repurchase Price
-------- ----------- ----------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
$0.16 90 6.84 $0.16 37 $0.16
0.08 311 7.94 0.08 71 0.08
0.08 30 8.62 0.08 10 0.08
0.20 400 9.04 0.20 58 0.20
0.30 56 9.59 0.30 -- 0.30
0.50 94 9.76 0.50 -- 0.50
1.00 286 9.94 1.00 5 1.00
2.00 205 9.97 2.00 23 2.00
----- ---
1,472 204
===== ===
</TABLE>
At December 31, 1999, there were 2,997,680 shares issued under the plan
which were unvested and subject to repurchase.
NOTE 8--401(k) PLAN:
The Company has a 401(k) plan. The Company does not make matching
contributions or discretionary contributions under the plan.
NOTE 9--COMMITMENTS:
The Company leases its U.S. facilities under an operating lease agreement
expiring in December 2003. Rent expense was $260,000, $338,000 and $383,000 for
the years ended December 31, 1997, 1998 and 1999, respectively.
The Company leases its Japanese facilities under an agreement which provides
for the lease of executive office space and administrative services in Japan
and expires on September 30, 2001. The lease payment is approximately $5,000
per month.
Minimum lease payments under all non-cancelable operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
2000.............................................................. $ 612
2001.............................................................. 631
2002.............................................................. 655
2003.............................................................. 656
2004.............................................................. 670
------
$3,224
======
</TABLE>
F-20
<PAGE>
LEXAR MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 10--CONTINGENCIES:
On March 20, 1998, a competitor, SanDisk, sued the company for patent
infringement. Motions by both parties are currently pending and will be heard
on March 10, 2000. Trial is set for October 23, 2000. The Company believes,
based in part on discussions with patent counsel and on an opinion of patent
counsel, that it has meritorious defenses to the plaintiff's claims and intends
to defend the litigation vigorously. The Company believes that the ultimate
resolution of the matter will not have a material adverse effect on its results
of operations for the year ended December 31, 1999 or its financial condition
and cash flow as of that date as reported in these financial statements. This
litigation, whether or not determined in the Company's favor or settled by the
Company, may be costly and may divert the efforts and attention of the
Company's management from normal business operations and could affect the
ability of the Company to raise capital in the future.
NOTE 11--RELATED PARTY TRANSACTIONS:
In 1997, the Company sold $1,397,000 of products to Simple Technology, Inc.
The owners of this Company were stockholders of Lexar Media, Inc. until August
1997. As of December 31, 1997, the Company had receivables due from Simple
Technology, Inc. of $37,000. There were no such transactions in 1998 or 1999.
In 1998, the Company sold $294,000 of products to and made purchases of
$557,000 from Kingston Technology, Inc., an investor in the Company. At
December 31, 1998, the Company had payables to Kingston Technology, Inc. of
$22,000. There were no such transactions in 1997 or 1999.
The Company purchased materials of $5,273,000 and $18,509,000 from Toshiba,
an investor in the Company during the years ended December 31, 1998 and 1999,
respectively. The Company had payables of $1,803,000 and $3,392,000 to Toshiba
at December 31, 1998 and 1999, respectively.
During 1998, the Company advanced $80,000 to two officers (who are also
stockholders of the Company) in relation to taxes owed on bonus payments. The
term of these loans is four years and they bear interest at 5.7% per annum.
The Company had a $170,000 note payable to GE Capital, a stockholder of the
Company, this note is also guaranteed by Toshiba.
NOTE 12--UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE AND STOCKHOLDERS'
EQUITY:
Upon the closing of the Company's initial public offering, all outstanding
Series A, Series B, Series C, Series D and Series E mandatorily redeemable
convertible preferred stock and expiring warrants will automatically convert
into 34,148,853 and 272,359 shares of common stock, respectively, assuming a
conversion price for the Series E mandatorily redeemable convertible preferred
stock of $3.09 per share. If this offering has not closed by March 31, 2000,
the conversion price for Series E mandatorily redeemable convertible preferred
stock is subject to adjustments based on certain performance criteria. This
conversion price will, however, not be lower than $2.09 per share or higher
than $3.09 per share, representing a conversion rate of 1.239 and 0.838 shares
of common stock for each share of Series E mandatorily redeemable convertible
preferred stock, respectively. Management assumes this conversion price to be
$3.09 per share for the purpose of calculating the pro forma net loss per
common share and pro forma stockholders' equity. However, should the conversion
price be $2.09 per share, an additional 4,748,459 shares of common stock will
be issued to the Series E mandatorily redeemable convertible
F-21
<PAGE>
LEXAR MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
preferred stock and warrant holders upon the closing of the offering. The pro
forma effect of this conversion has been presented as a separate column in the
Company's balance sheet, assuming that this conversion had occurred as of
December 31, 1999 (see Note 13).
Pro forma basic and diluted net loss per common share have been computed to
give effect to common equivalent shares from preferred stock that will
automatically convert upon the closing of the Company's initial public offering
(using the as-if-converted method) for the year ended December 31, 1999.
A reconciliation of the numerator and denominator used in the calculation of
pro forma basic and diluted net loss per share follows (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------
(unaudited)
<S> <C>
Numerator:
Net loss......................................................... $(15,281)
========
Denominator:
Shares used in computing basic and diluted net loss per share.... 6,114
Adjusted to reflect the effect of the assumed conversion of
convertible preferred stock from the date of issuance:
Series A mandatorily redeemable preferred stock................ 3,000
Series B mandatorily redeemable preferred stock................ 3,000
Series C mandatorily redeemable preferred stock................ 11,444
Series D mandatorily redeemable preferred stock................ 6,939
Series E mandatorily redeemable preferred stock................ 2,460
Issuance of 475,000 shares for Printroom.com, Inc. acquisition... --
Exercise of warrants for 272,359 shares of stock which expire
upon closing of the initial public offering..................... --
--------
Weighted average shares used in computing pro forma basic and
diluted net loss per share....................................... 32,957
========
Pro forma basic and diluted net loss per share.................... $ (0.46)
========
</TABLE>
NOTE 13--SUBSEQUENT EVENTS:
Acquisition
On January 21, 2000, the Company acquired all of the outstanding stock of
Printroom.com, Inc. for 475,000 shares of the Company's common stock. The
transaction will be accounted for as a purchase.
Reincorporation
On January 21, 2000, the board of directors authorized the reincorporation
of the Company in the State of Delaware.
Following the reincorporation, the Company will be authorized to issue
200,000,000 shares of $0.0001 par value common stock and 10,000,000 shares of
$0.0001 par value preferred stock. The board of directors has the authority to
issue the undesignated preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof.
F-22
<PAGE>
LEXAR MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Initial Public Offering
On January 21, 2000, the board of directors approved the filing of a
registration statement for an underwritten public offering of the Company's
common stock.
The 2000 Equity Incentive Plan
On January 21, 2000, the board of directors approved the adoption of the
2000 Equity Incentive Plan, which will become effective upon the effective date
of an initial public offering. The Company reserved 8,000,000 shares under this
plan for grants to employees.
The 2000 Employee Stock Purchase
On January 21, 2000, the board of directors approved the adoption of the
2000 Employee Stock Purchase Plan, which will become effective on the first
business day on which price quotations for the Company's common stock are
available on the Nasdaq National Market. The Company has reserved 1,000,000
shares under this plan for grants to employees.
F-23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
[Lexar Media Logo]
Common Stock
----------------
PROSPECTUS
----------------
Chase H&Q J.P. Morgan & Co.
Prudential Volpe Technology SG Cowen
a unit of Prudential Securities
---------------------
, 2000
---------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with information that is different. We are not, and the underwriters are
not, making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the information
contained in this prospectus is accurate only as of the date on the front cover
of this prospectus. Our business, financial condition, results of operations
and prospects may have changed since that date.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are required to inform
themselves about and to observe any restrictions as to this offering and the
distribution of this prospectus applicable to that jurisdiction.
Until , 2000, which is the 25th day after the commencement of
this offering, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates, except
the Securities and Exchange Commission registration fee, NASD filing fee and
Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $21,120
NASD Filing Fee................................................... 12,000
Nasdaq National Market Listing Fee................................ *
Blue Sky Fees and Expenses........................................ 5,000
Transfer Agent and Registrar Fees................................. *
Accounting Fees and Expenses...................................... *
Directors, and Officers, Liability Insurance Legal Fees and
Expenses......................................................... *
Printing Expenses................................................. *
Miscellaneous..................................................... *
-------
Total........................................................... $ *
=======
</TABLE>
- ---------------------
* To be filed by amendment.
ITEM 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or the board of directors of a corporation to grant, indemnity to
directors and officers in terms sufficiently broad to permit indemnification
under certain circumstances for liabilities, including reimbursement for
expenses incurred, arising under the Securities Act of 1933.
As permitted by Delaware law, the Registrant's certificate of incorporation
provides that its directors shall not be liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that the exculpation from liabilities is not permitted
under Delaware law as in effect at the time the liability is determined. As
permitted by Delaware law, the bylaws of the Registrant provide that the
Registrant shall indemnify its directors to the full extent permitted by
Delaware law. The Registrant also has an insurance policy in place covering its
directors and officers from losses arising from the performance of their duties
with or on behalf of the Registrant, including in connection with public
securities matters.
The Registrant also intends to enter into indemnification agreements with
its directors and officers obligating the Registrant to indemnify such
directors and officers against losses incurred in connection with certain
claims in their capacities as agents of the Registrant. The Underwriting
Agreement provides for the indemnification of officers and directors of the
Registrant by the Underwriters against certain liabilities.
ITEM 15. Recent Sales of Unregistered Securities.
In the three fiscal years prior to the effective date of this Registration
Statement, we have issued and sold the following unregistered securities:
1. In March 1997, we issued and sold a secured promissory note to
MetLife Capital Corporation in the aggregate principal amount of
$348,423.21 for an aggregate consideration of $348,423.21 in cash.
2. In May 1997, we issued and sold an aggregate of 6,000,000 shares of
Series A preferred stock to four investors for an aggregate consideration
of $6,000,000 in cash.
II-1
<PAGE>
3. In August 1997, we issued and sold convertible secured promissory
notes in the aggregate principal amount of $1,250,000 and secured
promissory notes in the aggregate principal amount of $4,750,000 to two
investors for an aggregate consideration of $6,000,000 in cash. In February
1998, these noteholders converted the secured convertible promissory notes
into 3,000,048 shares of our Series B preferred stock at a conversion price
of $0.41667 per share.
4. In January 1998, we issued a warrant to APV Technology Partners II,
L.P. to purchase up to 62,500 shares of common stock, a warrant to St. Paul
Venture Capital Affiliates Fund I, LLC to purchase up to 1,719 shares of
common stock and a warrant to St. Paul Venture Capital IV, LLC to purchase
up to 60,781 shares of common stock, each at an exercise price of $0.80 per
share, which warrants expire, if not earlier exercised, on December 31,
2002.
5. In January 1998, we issued and sold convertible promissory notes in
the aggregate principal amount of $800,000 to three investors for $800,000
in cash. On February 23, 1998, these noteholders converted the convertible
promissory notes into 1,000,000 shares of Series C preferred stock at a
conversion price of $0.80 per share.
6. In February 1998, we issued and sold 11,443,750 shares of Series C
preferred stock to seven investors for $8,355,000 in cash and by conversion
of bridge financing promissory notes in the aggregate principal amount of
$800,000 for an aggregate consideration of $9,155,000.
7. In February 1998, we issued a warrant to Micro-Comp Industries, Inc.
to purchase up to 100,000 shares of Series C preferred stock at an exercise
price of $0.80 per share, which warrant expires, if not earlier exercised,
on the earlier of February 23, 2001 or the consummation of this offering.
8. In November 1998 and January 1999, we issued and sold an aggregate of
6,943,618 shares of Series D preferred stock to six investors for an
aggregate consideration of $11,700,001 in cash.
9. In May 1999, we issued and sold a convertible promissory note in the
aggregate principal amount of $153,425 to Smart Modular Technologies, Inc.
in connection with a litigation settlement. On September 28, 1999, the
noteholder converted this promissory note into 65,482 shares of Series E
preferred stock at a conversion price of $2.34 per share.
10. In August 1999, we issued a warrant to St. Paul Venture Capital
Affiliates Fund I, LLC to purchase up to 583 shares of Series E preferred
stock, a warrant to St. Paul Venture Capital V, LLC to purchase up to
20,651 shares of Series E preferred stock, a warrant to John A. Rollwagen
to purchase up to 1,270 shares of Series E preferred stock and a warrant to
Thomvest Holdings, Inc. to purchase up to 25,086 shares of Series E
preferred stock, each at an exercise price of $2.59 per share, which
warrants expire, if not earlier exercised, on August 6, 2003.
11. In August 1999, we issued and sold convertible promissory notes in
the aggregate amount of $2,400,000.02 to seven investors for $2,400,000.02
in cash. On September 28, 1999, these noteholders converted the convertible
promissory notes into 4,412,251 shares of Series E preferred stock at a
conversion price of $2.59 per share.
12. In August 1999, we issued a warrant to APV Technology Partners II,
L.P. to purchase up to 25,404 shares of Series E preferred stock, a warrant
to David Sun to purchase up to 7,622 shares of Series E preferred stock and
a warrant to John Tu to purchase up to 7,622 shares of Series E preferred
stock, each at an exercise price of $2.59 per share which warrants expire,
if not earlier exercised, on August 9, 2003.
13. In September 1999, we issued and sold 11,583,011 shares of Series E
preferred stock to fifteen investors for $27,714,552.96 in cash and by
conversion of bridge financing promissory notes in the aggregate amount of
$2,285,445.54 for an aggregate consideration of $29,999,998.50.
II-2
<PAGE>
14. In September 1999, we issued a warrant to SG Cowen Securities
Corporation to purchase up to 193,050 shares of Series E preferred stock at
an exercise price of $2.59 per share, which warrant expires, if not earlier
exercised, on the earlier of September 28, 2003 or the consummation of this
offering and a warrant to Smart Modular Technologies, Inc. to purchase up
to 10,583 shares of common stock at an exercise price of $0.30 per share,
which warrant expires, if not earlier exercised, on the earlier of
September 28, 2000 or the consummation of this offering.
15. In December 1999, we issued a warrant to Fenwick & West LLP to
purchase up to 30,000 shares of common stock at an exercise price of $1.00
per share, which warrant expires, if not earlier exercised, on January 31,
2005.
16. In January 2000, we issued 475,000 shares of common stock to the
shareholders of Printroom.com, Inc. in connection with our acquisition of
Printroom.com.
17. As of December 31, 1999, 8,758,294 shares of common stock had been
issued to our employees, consultants and other service providers upon
exercise of options or pursuant to restricted stock purchase agreements,
1,471,992 shares of common stock were issuable upon exercise of outstanding
options under our 1996 Stock Option/Stock Issuance Plan.
All of the 3,000,000 outstanding shares of Series A preferred stock will
automatically convert on a one-to-one basis into shares of common stock upon
the consummation of this offering. All of the 3,000,048 outstanding shares of
Series B preferred stock will automatically convert into shares of common stock
upon the consummation of this offering. All of the 11,443,750 shares of Series
C preferred stock will automatically convert on a one-to-one basis into shares
of common stock. All of the 6,943,618 shares of Series D preferred stock will
automatically convert on a one-to-one basis into shares of common stock
upon the consummation of this offering. All of the 11,648,493 shares of Series
E preferred stock will automatically convert into 9,763,623 shares of common
stock upon the consummation of this offering assuming the conversion price of
the Series E preferred stock is $3.09 per share.
The sales and issuances of securities listed above, other the sales and
issuances in Item 17, were deemed to be exempt from registration under Section
4(2) of the Securities Act of 1933 or Regulation D thereunder as transactions
not involving a public offering. The sales and issuances of securities listed
above in Item 17 were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated under Section 3(b) of the
Securities Act as transactions pursuant to compensatory benefit plans and
contracts relating to compensation. All of the foregoing securities are deemed
restricted securities for purposes of the Securities Act.
ITEM 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation as filed January 11, 2000
3.2 Form of First Amended and Restated Certificate of Incorporation to be
effective before the closing of the offering*
3.3 Form of Second Amended and Restated Certificate of Incorporation to be
effective upon the closing of the offering
3.4 Bylaws
3.5 Restated Bylaws to be effective upon the closing of the offering
4.1 Specimen Common Stock Certificate*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
4.2 Investors Rights Agreement dated September 28, 1999, as amended
5.1 Opinion of Fenwick & West LLP*
10.1 Form of Indemnity Agreement entered into between the Registrant and
all executive officers and directors
10.2 1996 Stock Option/Stock Issuance Plan
10.3 2000 Equity Incentive Plan*
10.4 2000 Employee Stock Purchase Plan
10.5 Form of Common Stock Warrant
10.6 Form of Series E Warrant
10.7 Lease between Registrant and Renco Investment Company dated January 1,
1997, as amended
10.8 Offer letter for John H. Reimer dated September 4, 1997*
10.9 Employment Agreement with Petro Estakhri dated September 19, 1996, as
amended*
10.10 Offer letter for Eric B. Stang dated October 20, 1999*
10.11 Offer letter for Ronald H. Bissinger dated December 15, 1999*
10.12 Restricted Stock Purchase Agreement between the Registrant and John H.
Reimer
dated June 5, 1998*
10.13 Restricted Stock Purchase Agreement between the Registrant and Petro
Estakhri
dated June 5, 1998*
10.14 Restricted Stock Purchase Agreement between the Registrant and John H.
Reimer
dated January 17, 2000*
10.15 Restricted Stock Purchase Agreement between the Registrant and Petro
Estakhri
dated January 17, 2000*
10.16 Confidential Separation Agreement and Release between the Registrant
and Robert J. Netter, Jr. dated October 7, 1999*
21.1 Subsidiaries
23.1 Consent of Fenwick & West LLP (Exhibit 5.1)*
23.2 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (see page II-6 of this Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ---------------------
* To be filed by amendment.
(b) Financial Statement Schedule
Other financial statement schedules are omitted because the information
called for is not required or is shown either in our consolidated financial
statements or the notes thereto.
ITEM 17. Undertakings.
(a) 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 14--Indemnification
of Directors and Officers" 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
II-4
<PAGE>
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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 pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to provide to the
underwriters, at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fremont,
State of California, on the 15th day of February, 2000.
Lexar Media, Inc.
By: /s/ John H. Reimer
-----------------------------------
John H. Reimer
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints John H. Reimer, Eric B. Stang and Ronald
H. Bissinger 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 of 1933, as amended, and all post-
effective amendments thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, making such changes in this
Registration Statement as such person or persons so acting deems appropriate,
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 or by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Petro Estakhri Chairman of the Board, Chief February 15,
___________________________________________ Technology Officer and 2000
Petro Estakhri Executive Vice President,
Engineering
/s/ John H. Reimer President and Chief February 15,
___________________________________________ Executive Officer and 2000
John H. Reimer Director (Principal
Executive Officer)
/s/ Eric B. Stang Chief Operating Officer and February 15,
___________________________________________ Director 2000
Eric B. Stang
/s/ Ronald H. Bissinger Chief Financial Officer February 15,
___________________________________________ (Principal Financial 2000
Ronald H. Bissinger Officer and Principal
Accounting Officer)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William T. Dodds Director February 15,
___________________________________________ 2000
William T. Dodds
/s/ J. Scott Case Director February 15,
___________________________________________ 2000
J. Scott Case
/s/ Brian D. Jacobs Director February 15,
___________________________________________ 2000
Brian D. Jacobs
/s/ John A. Rollwagen Director February 15,
___________________________________________ 2000
John A. Rollwagen
/s/ William J. Stewart Director February 15,
___________________________________________ 2000
</TABLE> William J. Stewart
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S> <C>
3.1 Certificate of Incorporation as filed January 11, 2000...........
3.3 Form of Second Amended and Restated Certificate of Incorporation
to be effective upon the closing of the offering.................
3.4 Bylaws...........................................................
3.5 Restated Bylaws to be effective upon the closing of the offering.
4.2 Investors Rights Agreement dated September 28, 1999, as amended..
10.1 Form of Indemnity Agreement entered into between the Registrant
and all executive officers and directors.........................
10.2 1996 Stock Option/Stock Issuance Plan............................
10.4 2000 Employee Stock Purchase Plan................................
10.5 Form of Common Stock Warrant.....................................
10.6 Form of Series E Warrant.........................................
10.7 Lease between Registrant and Renco Investment Company dated
January 1, 1997, as amended......................................
21.1 Subsidiaries.....................................................
23.2 Consent of PricewaterhouseCoopers LLP............................
24.1 Power of Attorney (see page II-6 of this Registration Statement).
27.1 Financial Data Schedule..........................................
</TABLE>
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
LEXAR MEDIA, INC. (DELAWARE)
ARTICLE I
The name of the corporation is Lexar Media, Inc. (Delaware).
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 15 East North Street, City of Dover, County of Kent. The name of its
registered agent at that address is Incorporating Services, Ltd.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
The total number of shares of stock which the corporation has authority to
issue is One Thousand (1,000) shares, all of which shall be Common Stock, par
value $0.001 per share.
ARTICLE V
The Board of Directors of the corporation shall have the power to
adopt, amend or repeal the Bylaws of the corporation, subject to the right of
the stockholders entitled to vote with respect thereto to alter and repeal
provisions of the Bylaws adopted by the Board of Directors.
ARTICLE VI
The election of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
1
<PAGE>
Neither any amendment nor repeal of this Article VII, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
ARTICLE VIII
The name and mailing address of the incorporator is Adriana Berumen, c/o
Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California 94306.
The undersigned incorporator hereby acknowledges that the foregoing
certificate is his act and deed and that the facts stated herein are true.
Dated: January 11, 2000
-------------------------------------
Adriana Berumen, Incorporator
2
<PAGE>
EXHIBIT 3.3
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
LEXAR MEDIA, INC.
Lexar Media, Inc., a Delaware corporation (the "Corporation"), which was
originally incorporated on January 11, 2000 under the name Lexar Media, Inc.
(Delaware), hereby certifies that the Second Amended and Restated Certificate of
Incorporation of the Corporation attached hereto as Exhibit A, which is
---------
incorporated herein by this reference, has been duly adopted by the Board of
Directors and stockholders of the Corporation in accordance with Sections 242
and 245 of the Delaware General Corporation Law, with the approval of the
stockholders having been given by written consent without a meeting in
accordance with Section 228 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, said Corporation has caused this Second Amended and
Restated Certificate of Incorporation to be signed by its duly authorized
officer.
Dated: February ___, 2000
LEXAR MEDIA, INC.
__________________________________
John Reimer, President
<PAGE>
Exhibit A
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
LEXAR MEDIA, INC.
ARTICLE I
The name of the corporation is Lexar Media, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 15 East North Street, City of Dover, County of Kent. The name of
its registered agent at that address is Incorporating Services, Ltd.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware. This corporation shall have perpetual existence.
ARTICLE IV
The total number of shares of all classes of stock which the corporation
has authority to issue is 210,000,000 shares, consisting of two classes:
200,000,000 shares of Common Stock, par value $0.001 per share, and 10,000,000
shares of Preferred Stock, par value $0.0001 per share.
The voting, dividend and liquidation rights of the holders of the Common
Stock are subject to and qualified by the rights of the holders of the Preferred
Stock of any series as may be designated by the Board of Directors upon any
issuance of the Preferred Stock of any series. The holders of the Common Stock
shall have no preemptive rights to subscribe for any shares of any class of
stock of this corporation whether now or hereafter authorized. The holders of
the Common Stock are entitled to one vote for each share of Common Stock held at
all meetings of stockholders. There shall be no cumulative voting. Dividends
may be declared and paid on the Common Stock from funds lawfully available
therefor as and when determined by the Board of Directors and subject to any
preferential dividend rights of any then outstanding Preferred Stock. Upon the
dissolution or liquidation of the corporation, whether voluntary or involuntary,
the holders of Common Stock will be entitled to receive all assets of the
corporation available for distribution to its stockholders, subject to any
preferential rights of any then outstanding Preferred Stock.
1
<PAGE>
The Board of Directors is authorized, subject to any limitations prescribed
by the law of the State of Delaware, to provide for the issuance of the shares
of Preferred Stock in one or more series and, by filing a Certificate of
Designation pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, to fix the designation, powers, preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions thereof,
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. The number of
authorized shares of Preferred Stock may also be increased or decreased, but not
below the number of shares thereof then outstanding, by the affirmative vote of
the holders of a majority of the capital stock of the corporation entitled to
vote, unless a vote of any other holders is required pursuant to the Certificate
of Designation establishing a series of Preferred Stock. Any shares of
Preferred Stock that may be redeemed, purchased or acquired by the corporation
may be reissued except as otherwise provided by applicable law or the
Certificate of Designation establishing such series of Preferred Stock. The
different series of Preferred Stock that may be issued hereunder shall not be
construed to constitute different classes of shares for the purposes of voting
by classes unless expressly provided in the Certificate of Designation providing
for the issue of such series of Preferred Stock.
Except as otherwise expressly provided in any Certificate of Designation
designating any series of Preferred Stock pursuant to the foregoing provisions
of this Article IV, any new series of Preferred Stock may be designated, fixed
and determined as provided herein by the Board of Directors without approval of
the holders of Common Stock or the holders of Preferred Stock, or any series
thereof, and any such new series may have powers, preferences and rights,
including, without limitation, voting rights, dividend rights, liquidation
rights, redemption rights and conversion rights, senior to, junior to or pari
passu with the rights of the Common Stock, the Preferred Stock or any future
class or series of Preferred Stock or Common Stock.
ARTICLE V
In furtherance of and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to adopt, amend or repeal the
Bylaws of this corporation, subject to the right of the stockholders entitled to
vote with respect thereto, in accordance with the provisions of such Bylaws, to
alter and repeal the Bylaws adopted or amended by the Board of Directors.
Notwithstanding any other provisions of law, this Certificate of Incorporation
or the Bylaws, each as amended, and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation or the
Bylaws, the affirmative vote of the holders of at least sixty six and two-thirds
percent (66 2/3%) of the outstanding voting stock then entitled to vote at an
election of directors, voting together as a single class, shall be required to
alter, change, amend, repeal or adopt any provision inconsistent with this
Article V.
ARTICLE VI
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
2
<PAGE>
(a) The conduct of the affairs of the corporation shall be managed under
the direction of the Board of Directors. The number of directors shall be fixed
from time to time exclusively by resolution of the Board of Directors in the
manner provided in the Bylaws of the corporation.
(b) Notwithstanding the foregoing provision of this Article VI, each
director shall hold office until such director's successor is elected and
qualified, or until such director's earlier death, resignation or removal. No
decrease in the authorized number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
(c) Subject to the rights of the holders of any series of Preferred Stock,
any vacancy occurring in the Board of Directors for any cause, and any newly
created directorship resulting from any increase in the authorized number of
directors, shall, unless the Board of Directors determines by resolution that
any such vacancies or newly created directorship shall be filled by the
stockholders, be filled only by the affirmative vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director, and not by the stockholders. A director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office, and a
director chosen to fill a position resulting from an increase in the number of
directors shall hold office until the next election of the class for which such
director shall have been chosen, subject to the election and qualification of
his successor and to his earlier death, resignation or removal.
(d) Subject to the rights of the holders of any series of Preferred Stock,
the directors of the corporation may be removed by the affirmative vote of the
holders of at least sixty six and two-thirds percent (66 2/3%) of the shares of
the capital stock of the corporation issued and outstanding and entitled to vote
generally in the election of directors cast at a meeting of the stockholders
called for that purpose.
(e) Subject to the rights of the holders of any series of Preferred Stock
to elect additional directors under specified circumstances, following the
closing of the initial public offering of this corporation pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock to the public (the "Initial Public
Offering"), the directors shall be divided, with respect to the time for which
they severally hold office, into three classes designated as Class I, Class II
and Class III, respectively. The directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors,
with the number of directors in each class to be divided as equally as
reasonably possible. No one class shall have more than one director more than
any other class. The term of office of the Class I Directors shall expire at
the first annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class II Directors shall expire at
the second annual meeting of stockholders following the closing of the Initial
Public Offering, and the term of office of the Class III Directors shall expire
at the third annual meeting of stockholders following the closing of the Initial
Public Offering. At each annual meeting of stockholders commencing with the
first annual meeting of stockholders following the closing of the Initial Public
Offering, directors elected to succeed those directors of the class whose terms
then expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election. Prior to the
closing of the Initial Public Offering, or in the event the corporation is
prohibited from dividing its board of directors in the manner described above
through the operation of Section 2115 of the California General
3
<PAGE>
Corporation Law following the record date of the first annual meeting of
stockholders following the closing of the Initial Public Offering, each director
shall hold office until the next annual meeting of stockholders and until such
director's successor is elected and qualified, or until such director's earlier
death, resignation or removal. In the event of any increase or decrease in the
authorized number of directors, (i) each director then serving as such shall
nevertheless continue as a director of the class of which he is a member and
(ii) the newly created or eliminated directorships resulting from such increase
or decrease shall be apportioned by the Board of Directors among the three
classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of office are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
(f) Unless and except to the extent that the Bylaws of this corporation
shall so require, the election of directors need not be by written ballot.
(g) 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 of the corporation, and no action shall be taken by the stockholders by
written consent in lieu of a meeting.
(h) The advance notice of stockholder nominations for the election of
directors of the corporation and of other business to be brought by stockholders
before any meeting of stockholders of the corporation shall be given in the
manner provided in the Bylaws of the corporation. Any business transacted at
special meetings of stockholders shall be confined to the purpose or purposes
stated in the notice of such meeting.
(i) Notwithstanding any other provisions of law, this Certificate of
Incorporation or the Bylaws, each as amended, and notwithstanding the fact that
a lesser percentage may be specified by applicable law, this Certificate of
Incorporation or the Bylaws, the affirmative vote of the holders of at least
sixty six and two-thirds percent (66 2/3%) of the outstanding voting stock then
entitled to vote at an election of directors, voting together as a single class,
shall be required to alter, change, amend, repeal or adopt any provision
inconsistent with this Article VI.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable to the corporation or its stockholders for monetary
damages for any breach of fiduciary duty as a director, notwithstanding any
provision of law imposing such liability. Without limiting the effect of the
preceding sentence, if the Delaware General Corporation Law is hereafter amended
to authorize the further elimination or limitation of the liability of a
director, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law as so amended. No amendment to or repeal of this provision, nor
the adoption of any provision of this Certificate of Incorporation inconsistent
with this Article VII, shall apply to or have any effect on the liability or
alleged
4
<PAGE>
liability of any director of the corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
ARTICLE VIII
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute and this Certificate of Incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE IX
The books of this corporation may, subject to any stationary requirements,
be kept outside the State of Delaware as may be designated by the Board of
Directors or by the Bylaws of this corporation.
5
<PAGE>
EXHIBIT 3.4
BYLAWS
OF
LEXAR MEDIA, INC. (DELAWARE)
<PAGE>
BYLAWS
OF
LEXAR MEDIA, INC. (DELAWARE)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I STOCKHOLDERS.............................................................. 1
Section 1.1: Annual Meetings........................................................... 1
Section 1.2: Special Meetings.......................................................... 1
Section 1.3: Notice of Meetings........................................................ 1
Section 1.4: Adjournments.............................................................. 1
Section 1.5: Quorum.................................................................... 1
Section 1.6: Organization.............................................................. 2
Section 1.7: Voting; Proxies........................................................... 2
Section 1.8: Fixing Date for Determination of Stockholders of Record................... 2
Section 1.9: List of Stockholders Entitled to Vote..................................... 3
Section 1.10: Action by Written Consent of Stockholders................................. 3
Section 1.11: Inspectors of Elections................................................... 4
ARTICLE II BOARD OF DIRECTORS........................................................ 5
Section 2.1: Number; Qualifications.................................................... 5
Section 2.3: Regular Meetings.......................................................... 5
Section 2.4: Special Meetings.......................................................... 5
Section 2.5: Telephonic Meetings Permitted............................................. 6
Section 2.6: Quorum; Vote Required for Action.......................................... 6
Section 2.7: Organization.............................................................. 6
Section 2.8: Written Action by Directors............................................... 6
</TABLE>
i
<PAGE>
BYLAWS
OF
LEXAR MEDIA, INC. (DELAWARE)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 2.9: Powers.................................................................... 6
ARTICLE III COMMITTEES................................................................ 6
Section 3.1: Committees................................................................ 6
Section 3.2: Committee Rules........................................................... 7
ARTICLE IV OFFICERS.................................................................. 7
Section 4.1: Generally................................................................. 7
Section 4.2: Chief Executive Officer................................................... 7
Section 4.3: Chairperson of the Board.................................................. 8
Section 4.4: President................................................................. 8
Section 4.5: Vice President............................................................ 8
Section 4.6: Chief Financial Officer................................................... 8
Section 4.7: Treasurer................................................................. 8
Section 4.8: Secretary................................................................. 9
Section 4.9: Delegation of Authority................................................... 9
Section 4.10: Removal................................................................... 9
ARTICLE V STOCK..................................................................... 9
Section 5.1: Certificates.............................................................. 9
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates 9
Section 5.3: Other Regulations......................................................... 9
ARTICLE VI INDEMNIFICATION........................................................... 10
Section 6.1 Indemnification of Officers and Directors................................. 10
</TABLE>
ii
<PAGE>
BYLAWS
OF
LEXAR MEDIA, INC. (DELAWARE)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 6.2: Advance of Expenses....................................................... 10
Section 6.3: Non-Exclusivity of Rights................................................. 10
Section 6.4: Indemnification Contracts................................................. 11
Section 6.5: Effect of Amendment....................................................... 11
ARTICLE VII NOTICES................................................................... 11
Section 7.1: Notice.................................................................... 11
Section 7.2: Waiver of Notice.......................................................... 11
ARTICLE VIII INTERESTED DIRECTORS...................................................... 12
Section 8.1: Interested Directors; Quorum.............................................. 12
ARTICLE IX MISCELLANEOUS............................................................. 12
Section 9.1: Fiscal Year............................................................... 12
Section 9.2: Seal...................................................................... 12
Section 9.3: Form of Records........................................................... 12
Section 9.4: Reliance Upon Books and Records........................................... 12
Section 9.5: Certificate of Incorporation Governs...................................... 13
Section 9.6: Severability.............................................................. 13
ARTICLE X AMENDMENT................................................................. 13
Section 10.1: Amendments................................................................ 13
</TABLE>
iii
<PAGE>
BYLAWS
OF
LEXAR MEDIA, INC. (DELAWARE)
ARTICLE I
STOCKHOLDERS
Section 1.1: Annual Meetings. Unless directors are elected by written
----------- ---------------
consent in lieu of an annual meeting as permitted by Section 211 of the Delaware
General Corporation Law, an annual meeting of stockholders shall be held for the
election of directors at such date, time and place, either within or without the
State of Delaware, as the Board of Directors shall each year fix. Any other
proper business may be transacted at the annual meeting.
Section 1.2: Special Meetings. Special meetings of stockholders for any
----------- ----------------
purpose or purposes may be called at any time by the Chairperson of the Board of
Directors, the Chief Executive Officer, the President, the holders of shares of
the Corporation that are entitled to cast not less than ten percent (10%) of the
total number of votes entitled to be cast by all stockholders at such meeting,
or by a majority of the members of the Board of Directors. Special meetings may
not be called by any other person or persons.
Section 1.3: Notice of Meetings. Written notice of all meetings of
----------- ------------------
stockholders shall be given stating the place, date and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by applicable law or the Certificate of
Incorporation of the Corporation, such notice shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder of record entitled to vote at such meeting. Such notice shall be
given by the Secretary of the Corporation or by an officer of the Corporation
designated by the Board of Directors, or in the case of a special meeting of
stockholders, by the officer or persons calling such meeting.
Section 1.4: Adjournments. Any meeting of stockholders may adjourn from
----------- ------------
time to time to reconvene at the same or another place, and notice need not be
given of any such adjourned meeting if the time, date and place thereof are
announced at the meeting at which the adjournment is taken; provided, however,
-------- -------
that if the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, then a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting. At the adjourned meeting the Corporation may transact
any business that might have been transacted at the original meeting.
Section 1.5: Quorum. At each meeting of stockholders the holders of a
----------- ------
majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business, except if otherwise required by applicable law or the Certificate of
Incorporation. If a quorum shall fail to attend any meeting, the chairperson of
the meeting or the holders of a majority of the shares entitled to vote who are
1
<PAGE>
present, in person or by proxy, at the meeting may adjourn the meeting. The
shares of the capital stock of the Corporation belonging to the Corporation, or
to another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation are held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
-------- -------
right of the Corporation or any other corporation to vote any shares of the
Corporation's stock held by it in a fiduciary capacity.
Section 1.6: Organization. The meetings of stockholders shall be
----------- ------------
presided over by such person as the Board of Directors may designate, or, in the
absence of such a person, the Chairperson of the Board of Directors, or, in the
absence of such person, the President of the Corporation, or, in the absence of
such person, such person as may be chosen by the holders of a majority of the
shares entitled to vote who are present, in person or by proxy, at the meeting.
Such person shall be chairperson of the meeting and, subject to Section 1.11
hereof, shall determine the order of business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct of discussion
as seems to him or her to be in order. The Secretary of the Corporation shall
act as secretary of the meeting, but in such person's absence the chairperson of
the meeting may appoint any person to act as secretary of the meeting.
Section 1.7: Voting; Proxies. Unless otherwise provided by law or the
----------- ---------------
Certificate of Incorporation, and subject to the provisions of Section 1.8 of
these Bylaws, each stockholder shall be entitled to one (1) vote for each share
of stock held by such stockholder. Each stockholder entitled to vote at a
meeting of stockholders, or to express consent or dissent to corporate action in
writing without a meeting, may authorize another person or persons to act for
such stockholder by proxy. Such a proxy may be prepared, transmitted and
delivered in any manner permitted by applicable law. The voting at meetings of
stockholders need not be by written ballot unless such is demanded at the
meeting before voting begins by a stockholder or stockholders holding shares,
either directly or represented by proxy, representing at least one percent (1%)
of the votes entitled to vote at such meeting; provided, however, that an
-------- -------
election of directors shall be by written ballot if demand is so made by any
stockholder at the meeting before voting begins. If a vote is to be taken by
written ballot, then each such ballot shall state the name of the stockholder or
proxy voting and such other information as the chairperson of the meeting deems
appropriate. The directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Unless otherwise provided by applicable law,
the Certificate of Incorporation or these Bylaws, every matter other than the
election of directors shall be decided by the affirmative vote of the holders of
a majority of the shares of stock entitled to vote thereon that are present in
person or represented by proxy at the meeting and are voted for or against the
matter.
Section 1.8: Fixing Date for Determination of Stockholders of Record. In
----------- -------------------------------------------------------
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or 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 change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not precede the date
upon which the resolution fixing the
2
<PAGE>
record date is adopted by the Board of Directors and which shall not be more
than sixty (60) nor less than ten (10) days before the date of such meeting, nor
more than sixty (60) days prior to any other action. If no record date is fixed
by the Board of Directors, then the record date shall be as provided by
applicable law. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
-------- -------
date for the adjourned meeting.
Section 1.9: List of Stockholders Entitled to Vote. A complete list of
----------- -------------------------------------
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The 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 stockholder who is present at the meeting.
Section 1.10: Action by Written Consent of Stockholders.
------------ -----------------------------------------
(a) Procedure. Unless otherwise provided by the Certificate of
---------
Incorporation or prohibited by applicable law, any action required or permitted
to be taken at any annual or special meeting of the stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the 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. Written stockholder consents
shall bear the date of signature of each stockholder who signs the consent and
shall be delivered to the Corporation by delivery to its registered office in
the State of Delaware, to its principal place of business or to any officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Any delivery made to the registered
office of the Corporation shall be by hand or by certified or registered mail,
return receipt requested. No written consent shall be effective to take the
action set forth therein unless, within sixty (60) days of the earliest dated
consent delivered to the Corporation in the manner provided above, written
consents signed by a sufficient number of stockholders to take the action set
forth therein are delivered to the Corporation in the manner provided above.
(b) Notice of Consent. Prompt notice of the taking of corporate action by
-----------------
stockholders without a meeting by less than unanimous written consent of the
stockholders shall be given to those stockholders who have not consented thereto
in writing and who, if the action had been taken at a meeting, would have been
entitled to notice of the meeting if the record date for such meeting had been
the date that written consents signed by a sufficient number of holders to take
the action were delivered to the Corporation. In the case of a Certificate
Action, as defined below, if the Delaware General Corporation Law so requires,
such notice shall be given prior to filing of the Certificate Action in
question. If the action which is consented to requires the filing of a
certificate under the Delaware General Corporation Law (a "Certificate Action"),
3
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then if the Delaware General Corporation Law so requires, the certificate so
filed shall state that written stockholder consent has been given in accordance
with Section 228 of the Delaware General Corporation Law and that written notice
of the taking of corporate action by stockholders without a meeting as described
herein has been given as provided in such section.
Section 1.11: Inspectors of Elections.
------------ -----------------------
(a) Applicability. Unless otherwise provided in the Certificate of
-------------
Incorporation or required by the Delaware General Corporation Law, the following
provisions of this Section 1.11 shall apply only if and when the Corporation has
a class of voting stock that is: (i) listed on a national securities exchange;
(ii) authorized for quotation on an automated interdealer quotation system of a
registered national securities association; or (iii) held of record by more than
two thousand stockholders. In all other cases, observance of the provisions of
this Section 1.11 shall be optional and at the discretion of the Corporation.
(b) Appointment. The Corporation shall, in advance of any meeting of
-----------
stockholders, appoint one or more inspectors of election to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act at
the meeting.
(c) Inspector's Oath. Each inspector of election, before entering upon the
----------------
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of such
inspector's ability.
(d) Duties of Inspectors. At a meeting of stockholders, the inspectors of
--------------------
election shall (i) ascertain the number of shares outstanding and the voting
power of each share, (ii) determine the shares represented at a meeting and the
validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period of time a record of the disposition
of any challenges made to any determination by the inspectors, and (v) certify
their determination of the number of shares represented at the meeting, and
their count of all votes and ballots. The inspectors may appoint or retain
other persons or entities to assist the inspectors in the performance of the
duties of the inspectors.
(e) Opening and Closing of Polls. The date and time of the opening and the
----------------------------
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be announced by the inspectors at the meeting. No ballot, proxies
or votes, nor any revocations thereof or changes thereto, shall be accepted by
the inspectors after the closing of the polls unless the Court of Chancery upon
application by a stockholder shall determine otherwise.
(f) Determinations. In determining the validity and counting of proxies
--------------
and ballots, the inspectors shall be limited to an examination of the proxies,
any envelopes submitted with those proxies, any information provided in
connection with proxies in accordance with Section 212(c)(2) of the Delaware
General Corporation Law, ballots and the regular books and records of the
Corporation, except that the inspectors may consider other reliable information
for the limited
4
<PAGE>
purpose of reconciling proxies and ballots submitted by or on behalf of banks,
brokers, their nominees or similar persons which represent more votes than the
holder of a proxy is authorized by the record owner to cast or more votes than
the stockholder holds of record. If the inspectors consider other reliable
information for the limited purpose permitted herein, the inspectors at the time
they make their certification of their determinations pursuant to this Section
1.11 shall specify the precise information considered by them, including the
person or persons from whom they obtained the information, when the information
was obtained, the means by which the information was obtained and the basis for
the inspectors' belief that such information is accurate and reliable.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board of Directors shall
----------- ----------------------
consist of one or more members. The initial number of directors shall be two,
and thereafter shall be fixed from time to time by resolution of the Board of
Directors. No decrease in the authorized number of directors constituting the
Board of Directors shall shorten the term of any incumbent director. The
directors need not be stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. The Board of
----------- -----------------------------------------
Directors shall initially consist of the person or persons elected by the
incorporator or named in the initial Certificate of Incorporation. Each
director shall hold office until such director's successor is elected and
qualified, or until such director's earlier death, resignation or removal. Any
director may resign at any time upon written notice to the Corporation. Subject
to the rights of the holders of any series of Preferred Stock then outstanding:
(i) any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors and (ii) any vacancy occurring in the Board of
Directors for any cause, and any newly created directorship resulting from any
increase in the authorized number of directors to be elected by all stockholders
having the right to vote as a single class, may be filled by the stockholders,
by a majority of the directors then in office, although less than a quorum, or
by a sole remaining director.
Section 2.3: Regular Meetings. The regular meetings of the Board of
----------- ----------------
Directors may be held at such places, within or without the State of Delaware,
and at such times as the Board of Directors may from time to time determine.
The notice of regular meetings need not be given if the date, times and places
thereof are fixed by resolution of the Board of Directors.
Section 2.4: Special Meetings. Special meetings of the Board of
----------- ----------------
Directors may be called by the Chairperson of the Board of Directors, the
President or a majority of the members of the Board of Directors then in office
and may be held at any time, date or place, within or without the State of
Delaware, as the person or persons calling the meeting shall fix. Notice of the
time, date and place of such meeting shall be given, orally or in writing, by
the person or persons calling the meeting to all directors at least four (4)
days before the meeting if the notice is mailed, or at least twenty-four (24)
hours before the meeting if such notice is given by
5
<PAGE>
telephone, hand delivery, telegram, telex, mailgram, facsimile or similar
communication method. Unless otherwise indicated in the notice, any and all
business may be transacted at a special meeting.
Section 2.5: Telephonic Meetings Permitted. Members of the Board of
----------- -----------------------------
Directors, or any committee of the Board of Directors, may participate in a
meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to conference telephone or similar communications equipment shall
constitute presence in person at such meeting.
Section 2.6: Quorum; Vote Required for Action. At all meetings of the
----------- --------------------------------
Board of Directors a majority of the total number of authorized directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation, or required by
applicable law, the vote of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors.
Section 2.7: Organization. The meetings of the Board of Directors shall
----------- ------------
be presided over by the Chairperson of the Board of Directors, or in such
person's absence by the President, or in such person's absence by a chairperson
chosen at the meeting. The Secretary shall act as secretary of the meeting, but
in such person's absence the chairperson of the meeting may appoint any person
to act as secretary of the meeting.
Section 2.8: Written Action by Directors. Any action required or
----------- ---------------------------
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board of
Directors or such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors or committee, respectively.
Section 2.9: Powers. The Board of Directors may, except as otherwise
------------ ------
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.
Section 2.10: Compensation of Directors. Directors, as such, may receive,
------------ -------------------------
pursuant to a resolution of the Board of Directors, fees and other compensation
for their services as directors, including without limitation their services as
members of committees of the Board of Directors.
ARTICLE III
COMMITTEES
Section 3.1: Committees. The Board of Directors may designate one or
----------- ----------
more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof
6
<PAGE>
present at any meeting of such committee who are not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in place
of any such absent or disqualified member. Any such committee, to the extent
provided in a resolution of the Board of Directors, shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers that may require it. No such committee,
however, shall have the power or authority in reference to the following
matters: (i) approving or adopting, or recommending to the stockholders, any
action or matter expressly required by the Delaware General Corporation Law to
be submitted to stockholders for approval or (ii) adopting, amending or
repealing any provision of the Bylaws of the Corporation.
Section 3.2: Committee Rules. Unless the Board of Directors otherwise
----------- ---------------
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
ARTICLE IV
OFFICERS
Section 4.1: Generally. The officers of the Corporation shall consist
----------- ---------
of a Chief Executive Officer and/or a President, one or more Vice Presidents, a
Secretary, a Treasurer and such other officers, including a Chairperson of the
Board of Directors and/or Chief Financial Officer, as may from time to time be
appointed by the Board of Directors. All officers shall be elected by the Board
of Directors; provided, however, that the Board of Directors may empower the
-------- -------
Chief Executive Officer of the Corporation to appoint officers other than the
Chairperson of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer or the Treasurer. Each officer shall hold office until such
person's successor is elected and qualified or until such person's earlier
resignation or removal. Any number of offices may be held by the same person.
Any officer may resign at any time upon written notice to the Corporation. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise may be filled by the Board of Directors.
Section 4.2: Chief Executive Officer. Subject to the control of the
----------- -----------------------
Board of Directors and such supervisory powers, if any, as may be given by the
Board of Directors, the powers and duties of the Chief Executive Officer of the
Corporation are: (a) to act as the general manager and, subject to the control
of the Board of Directors, to have general supervision, direction and control of
the business and affairs of the Corporation; (b) to preside at all meetings of
the stockholders; (c) to call meetings of the stockholders to be held at such
times and, subject to the limitations prescribed by law or by these Bylaws, at
such places as he or she shall deem proper; and (d) to affix the signature of
the Corporation to all deeds, conveyances, mortgages, guarantees, leases,
obligations, bonds, certificates and other papers and instruments in writing
which have been authorized by the Board of Directors or which, in the judgment
of the Chief
7
<PAGE>
Executive Officer, should be executed on behalf of the Corporation; to sign
certificates for shares of stock of the Corporation; and, subject to the
direction of the Board of Directors, to have general charge of the property of
the Corporation and to supervise and control all officers, agents and employees
of the Corporation.
The President shall be the Chief Executive Officer of the Corporation
unless the Board of Directors shall designate another officer to be the Chief
Executive Officer. If there is no President, and the Board of Directors has not
designated any other officer to be the Chief Executive Officer, then the
Chairperson of the Board of Directors shall be the Chief Executive Officer.
Section 4.3: Chairperson of the Board. The Chairperson of the Board of
----------- ------------------------
Directors shall have the power to preside at all meetings of the Board of
Directors and shall have such other powers and duties as provided in these
Bylaws and as the Board of Directors may from time to time prescribe.
Section 4.4: President. The President shall be the Chief Executive
----------- ---------
Officer of the Corporation unless the Board of Directors shall have designated
another officer as the Chief Executive Officer of the Corporation. Subject to
the provisions of these Bylaws and to the direction of the Board of Directors,
and subject to the supervisory powers of the Chief Executive Officer, if the
Chief Executive Officer is an officer other than the President, and subject to
such supervisory powers and authority as may be given by the Board of Directors
to the Chairperson of the Board of Directors, and/or to any other officer, the
President shall have the responsibility for the general management the control
of the business and affairs of the Corporation and the general supervision and
direction of all of the officers, employees and agents of the Corporation, other
than the Chief Executive Officer, if the Chief Executive Officer is an officer
other than the President, and shall perform all duties and have all powers that
are commonly incident to the office of President or that are delegated to the
President by the Board of Directors.
Section 4.5: Vice President. Each Vice President shall have all such
----------- --------------
powers and duties as are commonly incident to the office of Vice President, or
that are delegated to him or her by the Board of Directors or the Chief
Executive Officer. A Vice President may be designated by the Board of Directors
to perform the duties and exercise the powers of the Chief Executive Officer in
the event of the absence or disability of the Chief Executive Officer.
Section 4.6: Chief Financial Officer. The Chief Financial Officer shall
----------- -----------------------
be the Treasurer of the Corporation unless the Board of Directors shall have
designated another officer as the Treasurer of the Corporation. Subject to the
direction of the Board of Directors and the Chief Executive Officer, the Chief
Financial Officer shall perform all duties and have all powers that are commonly
incident to the office of Chief Financial Officer.
Section 4.7: Treasurer. The Treasurer shall have custody of all monies
----------- ---------
and securities of the Corporation. The Treasurer shall be the Chief Financial
Officer of the Corporation unless the Board of Directors shall have designated
another officer as Chief Financial Officer of the Corporation. The Treasurer
shall make such disbursements of the funds of the Corporation as are authorized
and shall render from time to time an account of all such transactions. The
Treasurer
8
<PAGE>
shall also perform such other duties and have such other powers as are
commonly incident to the office of Treasurer, or as the Board of Directors or
the Chief Executive Officer may from time to time prescribe.
Section 4.8: Secretary. The Secretary shall issue or cause to be issued
----------- ---------
all authorized notices for, and shall keep, or cause to be kept, minutes of all
meetings of the stockholders and the Board of Directors. The Secretary shall
have charge of the corporate minute books and similar records and shall perform
such other duties and have such other powers as are commonly incident to the
office of Secretary, or as the Board of Directors or the Chief Executive Officer
may from time to time prescribe.
Section 4.9: Delegation of Authority. The Board of Directors may from
----------- -----------------------
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
Section 4.10: Removal. Any officer of the Corporation shall serve at
------------ -------
the pleasure of the Board of Directors and may be removed at any time, with or
without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.
ARTICLE V
STOCK
Section 5.1: Certificates. Every holder of stock shall be entitled to
----------- ------------
have a certificate signed by or in the name of the Corporation by the
Chairperson or Vice-Chairperson of the Board of Directors, or the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation. Any or all of the signatures on
the certificate may be a facsimile.
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New
----------- -------------------------------------------------------------
Certificates. The Corporation may issue a new certificate of stock in the
------------
place of any certificate previously issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such owner's legal representative, to agree
to indemnify the Corporation and/or to give the Corporation a bond sufficient to
indemnify it, against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
Section 5.3: Other Regulations. The issue, transfer, conversion and
----------- -----------------
registration of stock certificates shall be governed by such other regulations
as the Board of Directors may establish.
9
<PAGE>
ARTICLE VI
INDEMNIFICATION
Section 6.1 Indemnification of Officers and Directors. Each person who
----------- -----------------------------------------
was or is made a party to, or is threatened to be made a party to, or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding"), by reason of the fact that
such person, or a person of whom such person is the legal representative, is or
was a director or officer of the Corporation or a Reincorporated Predecessor, as
defined below, or is or was serving at the request of the Corporation or a
Reincorporated Predecessor as a director or officer of another corporation, or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, shall be indemnified and held harmless
by the Corporation to the fullest extent permitted by the Delaware General
Corporation Law, against all expenses, liability and loss, including attorneys'
fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to
be paid in settlement, reasonably incurred or suffered by such person in
connection therewith, provided such person acted in good faith and in a manner
which the person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful. Such indemnification shall continue as to a person who has ceased to
be a director or officer and shall inure to the benefit of such person's heirs,
executors and administrators. Notwithstanding the foregoing, the Corporation
shall indemnify any such person seeking indemnity in connection with a
Proceeding, or part thereof, initiated by such person only if such Proceeding,
or part thereof, was authorized by the Board of Directors of the Corporation.
As used herein, the term "Reincorporated Predecessor" means a corporation that
is merged with and into the Corporation in a statutory merger where (a) the
Corporation is the surviving corporation of such merger and (b) the primary
purpose of such merger is to change the corporate domicile of the Reincorporated
Predecessor to Delaware.
Section 6.2: Advance of Expenses. The Corporation shall pay all
----------- -------------------
expenses, including attorneys' fees, incurred by such a director or officer in
defending any such Proceeding as they are incurred in advance of its final
disposition; provided, however, that if the Delaware General Corporation Law
-------- -------
then so requires, the payment of such expenses incurred by such a director or
officer in advance of the final disposition of such Proceeding shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified under
this Article VI or otherwise; and provided, further, that the Corporation shall
-------- -------
not be required to advance any expenses to a person against whom the Corporation
directly brings a claim, in a Proceeding, alleging that such person has breached
such person's duty of loyalty to the Corporation, committed an act or omission
not in good faith or that involves intentional misconduct or a knowing violation
of law, or derived an improper personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any
------------ -------------------------
person in this Article VI shall not be exclusive of any other right that such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaw, agreement, vote
10
<PAGE>
or consent of stockholders or disinterested directors, or otherwise.
Additionally, nothing in this Article VI shall limit the ability of the
Corporation, in its discretion, to indemnify or advance expenses to persons whom
the Corporation is not obligated to indemnify or advance expenses pursuant to
this Article VI.
Section 6.4: Indemnification Contracts. The Board of Directors is
----------- -------------------------
authorized to cause the Corporation to enter into indemnification contracts with
any director, officer, employee or agent of the Corporation, or any person
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, providing indemnification rights
to such person. Such rights may be greater than those provided in this Article
VI.
Section 6.5: Effect of Amendment. Any amendment, repeal or modification
----------- -------------------
of any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or protection conferred on a person pursuant to this
Article VI and existing at the time of such amendment, repeal or modification.
ARTICLE VII
NOTICES
Section 7.1: Notice. Except as otherwise specifically provided herein
----------- ------
or required by law, all notices required to be given pursuant to these Bylaws
shall be in writing and may in every instance be effectively given by hand
delivery, including use of a delivery service, by depositing such notice in the
mail, postage prepaid, or by sending such notice by prepaid telegram, telex,
overnight express courier, mailgram or facsimile. Any such notice shall be
addressed to the person to whom notice is to be given at such person's address
as it appears on the records of the Corporation. The notice shall be deemed
given (i) in the case of hand delivery, when received by the person to whom
notice is to be given or by any person accepting such notice on behalf of such
person, (ii) in the case of delivery by mail, upon deposit in the mail, (iii) in
the case of delivery by overnight express courier, when dispatched, and (iv) in
the case of delivery via telegram, telex, mailgram or facsimile, when
dispatched.
Section 7.2: Waiver of Notice. Whenever notice is required to be given
----------- ----------------
under any provision of these Bylaws, a written waiver of notice, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
11
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ARTICLE VIII
INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum. No contract or transaction
----------- ----------------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof that
authorizes the contract or transaction, or solely because his, her or their
votes are counted for such purpose, if: (i) the material facts as to his, her or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative vote of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; (ii) the material
facts as to his, her or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified by the
Board of Directors, a committee thereof, or the stockholders. Interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IX
MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be
----------- -----------
determined by resolution of the Board of Directors.
Section 9.2: Seal. The Board of Directors may provide for a corporate
----------- ----
seal, which shall have the name of the Corporation inscribed thereon and shall
otherwise be in such form as may be approved from time to time by the Board of
Directors.
Section 9.3: Form of Records. Any records maintained by the Corporation
----------- ---------------
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, magnetic tape,
diskettes, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 9.4: Reliance Upon Books and Records. A member of the Board of
----------- -------------------------------
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of such person's duties, be fully protected in relying
in good faith upon records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by any
12
<PAGE>
of the officers or employees of the Corporation, or committees of the Board of
Directors, or by any other person as to matters the member reasonably believes
are within such other person's professional or expert competence and who has
been selected with reasonable care by or on behalf of the Corporation.
Section 9.5: Certificate of Incorporation Governs. In the event of any
----------- ------------------------------------
conflict between the provisions of the Certificate of Incorporation and Bylaws
of the Corporation, the provisions of the Certificate of Incorporation shall
govern.
Section 9.6: Severability. If any provision of these Bylaws shall be
----------- ------------
held to be invalid, illegal, unenforceable or in conflict with the provisions of
the Certificate of Incorporation of the Corporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and the remaining provisions of these Bylaws, including without
limitation, all portions of any section of these Bylaws containing any such
provision held to be invalid, illegal, unenforceable or in conflict with the
Certificate of Incorporation, that are not themselves invalid, illegal,
unenforceable or in conflict with the Certificate of Incorporation, shall remain
in full force and effect.
ARTICLE X
AMENDMENT
Section 10.1: Amendments. The stockholders of the Corporation holding a
------------ ----------
majority of the outstanding voting stock then entitled to vote at an election of
directors shall have the power to adopt, amend or repeal Bylaws To the extent
provided in the Certificate of Incorporation of the Corporation, the Board of
Directors of the Corporation shall also have the power to adopt, amend or repeal
Bylaws of the Corporation.
13
<PAGE>
EXHIBIT 3.5
RESTATED BYLAWS
OF
LEXAR MEDIA, INC.
<PAGE>
RESTATED BYLAWS
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TABLE OF CONTENTS
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Article I - STOCKHOLDERS
Section 1.1: Annual Meetings........................................ 1
Section 1.2: Special Meetings....................................... 1
Section 1.3: Notice of Meetings..................................... 1
Section 1.4: Adjournments........................................... 1
Section 1.5: Quorum................................................. 2
Section 1.6: Organization........................................... 2
Section 1.7: Voting; Proxies........................................ 2
Section 1.8: Fixing Date for Determination of Stockholders of Record 3
Section 1.9: List of Stockholders Entitled to Vote.................. 3
Section 1.10: Inspectors of Elections................................ 3
Section 1.11: Notice of Stockholder Business; Nominations............ 4
Article II - BOARD OF DIRECTORS
Section 2.1: Number; Qualifications................................. 6
Section 2.2: Election; Resignation; Removal; Vacancies.............. 6
Section 2.3: Regular Meetings....................................... 8
Section 2.4: Special Meetings....................................... 8
Section 2.5: Telephonic Meetings Permitted.......................... 8
Section 2.6: Quorum; Vote Required for Action....................... 8
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Section 2.7: Organization............... 8
Section 2.8: Written Action by Directors 8
Section 2.9: Powers..................... 8
Section 2.10: Compensation of Directors.. 8
Article III - COMMITTEES
Section 3.1: Committees................. 9
Section 3.2: Committee Rules............ 9
Article IV - OFFICERS
Section 4.1: Generally.................. 9
Section 4.2: Chief Executive Officer.... 9
Section 4.3: Chairperson of the Board... 10
Section 4.4: President.................. 10
Section 4.5: Vice President............. 10
Section 4.6: Chief Financial Officer.... 10
Section 4.7: Treasurer.................. 11
Section 4.8: Secretary.................. 11
Section 4.9: Delegation of Authority.... 11
Section 4.10: Removal.................... 11
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Article V - STOCK
Section 5.l: Certificates............................. 11
Section 5.2: Lost, Stolen or Destroyed Stock
Certificates; Issuance of New
Certificate.............................. 11
Section 5.3: Other Regulations........................ 11
Article VI - INDEMNIFICATION
Section 6.1: Indemnification of Officers and Directors 12
Section 6.2: Advance of Expenses...................... 12
Section 6.3: Non-Exclusivity of Rights................ 12
Section 6.4: Indemnification Contracts................ 13
Section 6.5: Effect of Amendment...................... 13
Article VII - NOTICES
Section 7.l: Notice................................... 13
Section 7.2: Waiver of Notice......................... 13
Article VIII - INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum............. 13
Article IX - MISCELLANEOUS
Section 9.1: Fiscal Year.............................. 14
Section 9.2: Seal..................................... 14
Section 9.3: Form of Records.......................... 14
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Section 9.4: Reliance Upon Books and Records..... 14
Section 9.5: Certificate of Incorporation Governs 14
Section 9.6: Severability........................ 15
Article X - AMENDMENT
Section 10.1: Amendments.......................... 15
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RESTATED BYLAWS
OF
LEXAR MEDIA, INC.
ARTICLE I
STOCKHOLDERS
Section 1.1: Annual Meetings. An annual meeting of stockholders shall be
----------- ---------------
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as the Board of Directors shall each year fix.
Any other proper business may be transacted at the annual meeting.
Section 1.2: Special Meetings. Special meetings of stockholders for any
----------- ----------------
purpose or purposes may be called at any time by the Chairperson of the Board of
Directors, the Chief Executive Officer, or if there is no Chief Executive
Officer, the President, by a majority of the members of the Board of Directors
or by holders of at least a majority of the outstanding voting stock then
entitled to vote at an election of directors. Special meetings may not be
called by any other person or persons. If a special meeting of stockholders is
called at the request of any person or persons other than by a majority of the
----------
members of the Board of Directors, then such person or persons shall request
such meeting by delivering a written request to call such meeting to each member
of the Board of Directors, and the Board of Directors shall then determine the
time, date and place of such special meeting, which shall be held not more than
one hundred twenty (120) nor less than thirty-five (35) days after the written
request to call such special meeting was delivered to each member of the Board
of Directors.
Section 1.3: Notice of Meetings. Written notice of all meetings of
----------- ------------------
stockholders shall be given stating the place, date and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by applicable law or the Certificate of
Incorporation of the Corporation, such notice shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder of record entitled to vote at such meeting. Such notice shall be
given by the Secretary of the Corporation or by an officer of the Corporation
designated by the Board of Directors, or in the case of a special meeting of
stockholders, by the officer or persons calling such meeting. The business to be
transacted at any special meeting of stockholders shall be limited to matters
relating to the purpose or purposes stated in the notice of meeting. If mailed,
notice is given when deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
Corporation.
Section 1.4: Adjournments. Any meeting of stockholders may adjourn from
----------- ------------
time to time to reconvene at the same or another place, and notice need not be
given of any such adjourned meeting if the time, date and place thereof are
announced at the meeting at which the adjournment is taken; provided, however,
-------- -------
that if the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, then a
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notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. At the adjourned meeting the Corporation may
transact any business that might have been transacted at the original meeting.
Section 1.5: Quorum. At each meeting of stockholders the holders of a
----------- ------
majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business, except if otherwise required by applicable law or the Certificate of
Incorporation. If a quorum shall fail to attend any meeting, the chairperson of
the meeting or the holders of a majority of the shares entitled to vote who are
present, in person or by proxy, at the meeting may adjourn the meeting. The
shares of the capital stock of the Corporation belonging to the Corporation , or
to another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation are held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
-------- -------
right of the Corporation or any other corporation to vote any shares of the
capital stock of the Corporation held by it in a fiduciary capacity.
Section 1.6: Organization. The meetings of stockholders shall be presided
----------- ------------
over by such person as the Board of Directors may designate, or, in the absence
of such a person, the Chairperson of the Board of Directors, or, in the absence
of such person, the President of the Corporation, or, in the absence of such
person, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or represented by proxy, at the
meeting. Such person shall be chairperson of the meeting and, subject to
Section 1.11 hereof, shall determine the order of business and the procedure at
the meeting, including such regulation of the manner of voting and the conduct
of discussion as seems to him or her to be in order. The Secretary of the
Corporation shall act as secretary of the meeting, but in such person's absence
the chairperson of the meeting may appoint any person to act as secretary of the
meeting.
Section 1.7: Voting; Proxies. Unless otherwise provided by law or the
----------- ---------------
Certificate of Incorporation, and subject to the provisions of Section 1.8 of
these Bylaws, each stockholder shall be entitled to one (1) vote for each share
of stock held by such stockholder. Each stockholder entitled to vote at a
meeting of stockholders may authorize another person or persons to act for such
stockholder by proxy. Such a proxy may be prepared, transmitted and delivered
in any manner permitted by applicable law. The voting at meetings of
stockholders need not be by written ballot unless such is demanded at the
meeting before voting begins by a stockholder or stockholders holding shares,
either directly or represented by proxy, representing at least one percent (1%)
of the votes entitled to vote at such meeting; provided, however, that an
-------- -------
election of directors shall be by written ballot if demand is so made by any
stockholder at the meeting before voting begins. If a vote is to be taken by
written ballot, then each such ballot shall state the name of the stockholder or
proxy voting and such other information as the chairperson of the meeting deems
appropriate. The directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Unless otherwise provided by applicable law,
the Certificate of Incorporation or these Bylaws, every matter other than the
election of directors shall be decided by the affirmative vote of the holders of
a majority of the shares of stock entitled to vote thereon that are present in
person or represented by proxy at the meeting and are voted for or against the
matter.
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Section 1.8: Fixing Date for Determination of Stockholders of Record. In
----------- -------------------------------------------------------
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or
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 change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors and which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. If no record date is fixed by the Board of Directors,
then the record date shall be as provided by applicable law. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
-------- -------
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 1.9: List of Stockholders Entitled to Vote. A complete list of
----------- -------------------------------------
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The 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 stockholder who is present at the meeting.
Section 1.10: Inspectors of Elections.
------------ -----------------------
(a) Applicability. Unless otherwise provided in the Certificate of
-------------
Incorporation or required by the Delaware General Corporation Law, the following
provisions of this Section 1.10 shall apply only if and when the Corporation has
a class of voting stock that is: (i) listed on a national securities exchange;
(ii) authorized for quotation on an automated interdealer quotation system of a
registered national securities association; or (iii) held of record by more than
two thousand stockholders. In all other cases, observance of the provisions of
this Section 1.10 shall be optional, and at the discretion of the Corporation.
(b) Appointment. The Corporation shall, in advance of any meeting of
-----------
stockholders, appoint one or more inspectors of election to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act at
the meeting.
(c) Inspector's Oath. Each inspector of election, before entering upon the
----------------
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of such
inspector's ability.
(d) Duties of Inspectors. At a meeting of stockholders, the inspectors of
--------------------
election shall (i) ascertain the number of shares outstanding and the voting
power of each share, (ii) determine the shares represented at a meeting and the
validity of proxies and ballots, (iii) count all votes
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and ballots, (iv) determine and retain for a reasonable period of time a record
of the disposition of any challenges made to any determination by the
inspectors, and (v) certify their determination of the number of shares
represented at the meeting, and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors.
(e) Opening and Closing of Polls. The date and time of the opening and the
----------------------------
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be announced by the chairperson of the meeting. No ballot,
proxies or votes, nor any revocations thereof or changes thereto, shall be
accepted by the inspectors after the closing of the polls unless the Court of
Chancery upon application by a stockholder shall determine otherwise.
(f) Determinations. In determining the validity and counting of proxies
--------------
and ballots, the inspectors shall be limited to an examination of the proxies,
any envelopes submitted with those proxies, any information provided in
connection with proxies in accordance with Section 212(c)(2) of the Delaware
General Corporation Law, ballots and the regular books and records of the
Corporation, except that the inspectors may consider other reliable information
for the limited purpose of reconciling proxies and ballots submitted by or on
behalf of banks, brokers, their nominees or similar persons which represent more
votes than the holder of a proxy is authorized by the record owner to cast or
more votes than the stockholder holds of record. If the inspectors consider
other reliable information for the limited purpose permitted herein, the
inspectors at the time they make their certification of their determinations
pursuant to this Section 1.10 shall specify the precise information considered
by them, including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
Section 1.11: Notice of Stockholder Business; Nominations.
------------- -------------------------------------------
(a) Annual Meeting of Stockholders.
------------------------------
(i) Nominations of persons for election to the Board of Directors and
the proposal of business to be considered by the stockholders shall be made at
an annual meeting of stockholders (A) pursuant to the notice of such meeting,
(B) by or at the direction of the Board of Directors or (C) by any stockholder
of the Corporation who was a stockholder of record at the time of giving of the
notice provided for in this Section 1.11, who is entitled to vote at such
meeting and who complies with the notice procedures set forth in this Section
1.11.
(ii) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (C) of subparagraph (a)(i) of
this Section 1.11, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice must be in writing and delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting, except in the case of the first annual meeting after the
adoption of these Bylaws, for which such notice shall be timely if delivered in
the same time period as if such meeting were a special meeting governed by
subparagraph (b) of this Section 1.11;
4
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provided, however, that in the event that the date of the annual meeting is more
- -------- -------
than thirty (30) days before or more than sixty (60) days after such anniversary
date, notice by the stockholder to be timely must be so delivered not earlier
than the close of business on the ninetieth (90th) day prior to such annual
meeting and not later than the close of business on the later of the sixtieth
(60th) day prior to such annual meeting or the close of business on the tenth
(10th) day following the day on which public announcement of the date of such
meeting is first made by the Corporation. Such stockholder's notice shall set
forth: (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected, as well as such other information as may reasonably be required by the
Corporation to determine the eligibility of such proposed nominee to serve as a
director of the Corporation; (b) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (1) the name and
address of such stockholder, as they appear on the books of the Corporation, and
of such beneficial owner, and (2) the class and number of shares of the
Corporation that are owned beneficially and held of record by such stockholder
and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of subparagraph
(a)(ii) of this Section 1.11 to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased Board of
Directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary date, at least
seventy (70) days prior to such annual meeting), a stockholder's notice required
by this Section 1.11 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary of the Corporation at the principal executive office
of the Corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
--------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the notice of such meeting. Nominations of persons for
election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected pursuant to the notice of such
meeting (i) by or at the direction of the Board of Directors or (ii) provided
that the Board of Directors has determined that directors shall be elected at
such meeting, by any stockholder of the Corporation who is a stockholder of
record at the time of giving of notice of the special meeting, who shall be
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Section 1.11. In the event the Corporation calls a special
meeting of stockholders for the purpose of electing one or more directors to the
Board of Directors, any such stockholder may nominate a person or persons, as
the case may be, for
5
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election to such positions as specified in the notice of meeting, if the
stockholder's notice required by subparagraph (a)(ii) of this Section 1.11 shall
be delivered to the Secretary of the Corporation at the principal executive
offices of the Corporation not earlier than the ninetieth (90th) day prior to
such special meeting and not later than the close of business on the later of
the sixtieth (60th) day prior to such special meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(c) General.
-------
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.11 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.11. Except as otherwise provided by law or these
Bylaws, the chairperson of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in this Section 1.11 and, if any proposed nomination or
business is not in compliance herewith, to declare that such defective proposal
or nomination shall be disregarded.
(ii) For purposes of this Section 1.11, the term "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 1.11,
a stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section 1.11 shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the proxy statement
pursuant to Rule 14a-8 under the Exchange Act and any stockholder proposal which
complies with Rule 14a-8 of the proxy rules, or any successor provision,
promulgated under the Securities Exchange Act of 1934, as amended, and is to be
included in the proxy statement of this Corporation for an annual meeting of
stockholders shall be deemed to comply with the requirements of this Section
1.11.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board of Directors shall consist
----------- ----------------------
of one or more members and shall be fixed from time to time by resolution of the
Board of Directors, but in no event shall the number of directors be less than
three. No decrease in the authorized number of directors constituting the Board
of Directors shall shorten the term of any incumbent director. The directors
need not be stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. The Board of
----------- -----------------------------------------
Directors shall initially consist of the person or persons elected by the
incorporator or named in the initial
6
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Certificate of Incorporation. Subject to the rights of the holders of any series
of Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering of the Corporation pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of common stock to the public (the "Initial
Public Offering"), the directors shall be divided, with respect to the time for
which they severally hold office, into three classes designated as Class I,
Class II and Class III, respectively. The directors shall be assigned to each
class in accordance with a resolution or resolutions adopted by the Board of
Directors, with the number of directors in each class to be divided as equally
as reasonably possible. No one class shall have more than one director more than
any other class. The term of office of the Class I directors shall expire at the
first annual meeting of stockholders following the closing of the Initial Public
Offering, the term of office of the Class II directors shall expire at the
second annual meeting of stockholders following the closing of the Initial
Public Offering, and the term of office of the Class III directors shall expire
at the third annual meeting of stockholders following the closing of the Initial
Public Offering. At each annual meeting of stockholders commencing with the
first annual meeting of stockholders following the closing of the Initial Public
Offering, directors elected to succeed those directors of the class whose terms
then expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election. Prior to the
closing of the Initial Public Offering, or in the event the Corporation is
prohibited from dividing its Board of Directors in the manner described above
through the operation of Section 2115 of the California General Corporation Law
following the record date of the first annual meeting of stockholders following
the closing of the Initial Public Offering, each director shall hold office
until the next annual meeting of stockholders and until such director's
successor is elected and qualified, or until such director's earlier death,
resignation or removal. Any director may resign at any time upon written notice
to the Corporation. Subject to the rights of the holders of any series of
Preferred Stock, any director or the entire Board of Directors may be removed
only for cause by the holders of at least sixtysix and two-thirds percent (66
2/3%) of the shares then entitled to vote at an election of directors. Subject
to the rights of the holders of any series of Preferred Stock, any vacancy
occurring in the Board of Directors for any cause, and any newly created
directorship resulting from any increase in the authorized number of directors,
shall be filled only by the affirmative vote of a majority of the directors then
in office, although less than a quorum, or by a sole remaining director, and not
by the stockholders. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next election of the class for which such director shall have been
chosen, subject to the election and qualification of his successor and to his
earlier death, resignation or removal. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
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Section 2.3: Regular Meetings. The regular meetings of the Board of
----------- ----------------
Directors may be held at such places, within or without the State of Delaware,
and at such times as the Board of Directors may from time to time determine.
The notice of regular meetings need not be given if the date, times and places
thereof are fixed by resolution of the Board of Directors.
Section 2.4: Special Meetings. Special meetings of the Board of Directors
----------- ----------------
may be called by the Chairperson of the Board of Directors, the President or a
majority of the members of the Board of Directors then in office and may be held
at any time, date or place, within or without the State of Delaware, as the
person or persons calling the meeting shall fix. Notice of the time, date and
place of such meeting shall be given, orally or in writing, by the person or
persons calling the meeting to all directors at least four (4) days before the
meeting if the notice is mailed, or at least twenty-four (24) hours before the
meeting if such notice is given by telephone, hand delivery, telegram, telex,
mailgram, facsimile or similar communication method. Unless otherwise indicated
in the notice, any and all business may be transacted at a special meeting.
Section 2.5: Telephonic Meetings Permitted. Members of the Board of
----------- -----------------------------
Directors, or any committee of the Board of Directors, may participate in a
meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to conference telephone or similar communications equipment shall
constitute presence in person at such meeting.
Section 2.6: Quorum; Vote Required for Action. At all meetings of the
----------- --------------------------------
Board of Directors, a majority of the total number of authorized directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation, or required by
applicable law, the vote of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors.
Section 2.7: Organization. The meetings of the Board of Directors shall
----------- ------------
be presided over by the Chairperson of the Board of Directors, or in such
person's absence by the President, or in such person's absence by a chairperson
chosen at the meeting. The Secretary shall act as secretary of the meeting, but
in such person's absence the chairperson of the meeting may appoint any person
to act as secretary of the meeting.
Section 2.8: Written Action by Directors. Any action required or
----------- ---------------------------
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board of
Directors or such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors or committee, respectively.
Section 2.9: Powers. The Board of Directors may, except as otherwise
------------ ------
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.
Section 2.10: Compensation of Directors. Directors, as such, may receive,
------------ -------------------------
pursuant to a resolution of the Board of Directors, fees and other compensation
for their services as directors, including without limitation their services as
members of committees of the Board of Directors.
8
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ARTICLE III
COMMITTEES
Section 3.1: Committees. The Board of Directors may designate one or more
----------- ----------
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof present at any meeting of
such committee who are not disqualified from voting, whether or not such member
or members constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in place of any such absent or
disqualified member. Any such committee, to the extent provided in a resolution
of the Board of Directors, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation and may authorize the seal of the Corporation to be
affixed to all papers that may require it. No such committee, however, shall
have the power or authority in reference to the following matters: (i)
approving or adopting, or recommending to the stockholders, any action or matter
expressly required by the Delaware General Corporation Law to be submitted to
stockholders for approval or (ii) adopting, amending or repealing any bylaw of
the Corporation.
Section 3.2: Committee Rules. Unless the Board of Directors otherwise
----------- ---------------
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
ARTICLE IV
OFFICERS
Section 4.1: Generally. The officers of the Corporation shall consist of
----------- ---------
a Chief Executive Officer and/or a President, one or more Vice Presidents, a
Secretary, a Treasurer and such other officers, including a Chairperson of the
Board of Directors and/or Chief Financial Officer, as may from time to time be
appointed by the Board of Directors. All officers shall be elected by the Board
of Directors; provided, however, that the Board of Directors may empower the
-------- -------
Chief Executive Officer of the Corporation to appoint officers other than the
Chairperson of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer or the Treasurer. Each officer shall hold office until such
person's successor is elected and qualified or until such person's earlier
resignation or removal. Any number of offices may be held by the same person.
Any officer may resign at any time upon written notice to the Corporation. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise may be filled by the Board of Directors.
Section 4.2: Chief Executive Officer. Subject to the control of the Board
----------- -----------------------
of Directors and such supervisory powers, if any, as may be given by the Board
of Directors, the powers and duties of the Chief Executive Officer of the
Corporation are: (a) to act as the general manager and, subject to the control
of the Board of Directors, to have general supervision, direction and
9
<PAGE>
control of the business and affairs of the Corporation; (b) to preside at all
meetings of the stockholders; (c) to call meetings of the stockholders to be
held at such times and, subject to the limitations prescribed by law or by these
Bylaws, at such places as he or she shall deem proper; and (d) to affix the
signature of the Corporation to all deeds, conveyances, mortgages, guarantees,
leases, obligations, bonds, certificates and other papers and instruments in
writing which have been authorized by the Board of Directors or which, in the
judgment of the Chief Executive Officer, should be executed on behalf of the
Corporation; to sign certificates for shares of stock of the Corporation; and,
subject to the direction of the Board of Directors, to have general charge of
the property of the Corporation and to supervise and control all officers,
agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the Corporation
unless the Board of Directors shall designate another officer to be the Chief
Executive Officer. If there is no President, and the Board of Directors has not
designated any other officer to be the Chief Executive Officer, then the
Chairperson of the Board of Directors shall be the Chief Executive Officer.
Section 4.3: Chairperson of the Board. The Chairperson of the Board of
----------- ------------------------
Directors shall have the power to preside at all meetings of the Board of
Directors and shall have such other powers and duties as provided in these
Bylaws and as the Board of Directors may from time to time prescribe.
Section 4.4: President. The President shall be the Chief Executive
----------- ---------
Officer of the Corporation unless the Board of Directors shall have designated
another officer as the Chief Executive Officer of the Corporation. Subject to
the provisions of these Bylaws and to the direction of the Board of Directors,
and subject to the supervisory powers of the Chief Executive Officer, if the
Chief Executive Officer is an officer other than the President, and subject to
such supervisory powers and authority as may be given by the Board of Directors
to the Chairperson of the Board of Directors, and/or to any other officer, the
President shall have the responsibility for the general management the control
of the business and affairs of the Corporation and the general supervision and
direction of all of the officers, employees and agents of the Corporation, other
than the Chief Executive Officer, if the Chief Executive Officer is an officer
other than the President, and shall perform all duties and have all powers that
are commonly incident to the office of President or that are delegated to the
President by the Board of Directors.
Section 4.5: Vice President. Each Vice President shall have all such
----------- --------------
powers and duties as are commonly incident to the office of Vice President, or
that are delegated to him or her by the Board of Directors or the Chief
Executive Officer. A Vice President may be designated by the Board of Directors
to perform the duties and exercise the powers of the Chief Executive Officer in
the event of the absence or disability of the Chief Executive Officer.
Section 4.6: Chief Financial Officer. The Chief Financial Officer shall
----------- -----------------------
be the Treasurer of the Corporation unless the Board of Directors shall have
designated another officer as the Treasurer of the Corporation. Subject to the
direction of the Board of Directors and the Chief Executive Officer, the Chief
Financial Officer shall perform all duties and have all powers that are commonly
incident to the office of Chief Financial Officer.
10
<PAGE>
Section 4.7: Treasurer. The Treasurer shall have custody of all monies
----------- ---------
and securities of the Corporation. The Treasurer shall be the Chief Financial
Officer of the Corporation unless the Board of Directors shall have designated
another officer as Chief Financial Officer of the Corporation. The Treasurer
shall make such disbursements of the funds of the Corporation as are authorized
and shall render from time to time an account of all such transactions. The
Treasurer shall also perform such other duties and have such other powers as are
commonly incident to the office of Treasurer, or as the Board of Directors or
the Chief Executive Officer may from time to time prescribe.
Section 4.8: Secretary. The Secretary shall issue or cause to be issued
----------- ---------
all authorized notices for, and shall keep, or cause to be kept, minutes of all
meetings of the stockholders and the Board of Directors. The Secretary shall
have charge of the corporate minute books and similar records and shall perform
such other duties and have such other powers as are commonly incident to the
office of Secretary, or as the Board of Directors or the Chief Executive Officer
may from time to time prescribe.
Section 4.9: Delegation of Authority. The Board of Directors may from
----------- -----------------------
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
Section 4.10: Removal. Any officer of the Corporation shall serve at the
------------ -------
pleasure of the Board of Directors and may be removed at any time, with or
without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.
ARTICLE V
STOCK
Section 5.1: Certificates. Every holder of stock shall be entitled to
----------- ------------
have a certificate signed by or in the name of the Corporation by the
Chairperson or Vice-Chairperson of the Board of Directors, or the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation. Any or all of the signatures on
the certificate may be a facsimile.
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New
----------- -------------------------------------------------------------
Certificates. The Corporation may issue a new certificate of stock in the place
- ------------
of any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or such owner's legal representative, to agree to
indemnify the Corporation and/or to give the Corporation a bond sufficient to
indemnify it, against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
Section 5.3: Other Regulations. The issue, transfer, conversion and
----------- -----------------
registration of stock certificates shall be governed by such other regulations
as the Board of Directors may establish.
11
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ARTICLE VI
INDEMNIFICATION
Section 6.1 Indemnification of Officers and Directors. Each person who
----------- -----------------------------------------
was or is made a party to, or is threatened to be made a party to, or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding"), by reason of the fact that
such person, or a person of whom such person is the legal representative, is or
was a director or officer of the Corporation or a Reincorporated Predecessor, as
defined below, or is or was serving at the request of the Corporation or a
Reincorporated Predecessor, as defined below, as a director or officer of
another corporation, or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by the Delaware General Corporation Law, against all expenses, liability and
loss, including attorneys' fees, judgments, fines, ERISA excise taxes and
penalties and amounts paid or to be paid in settlement, reasonably incurred or
suffered by such person in connection therewith, provided such person acted in
good faith and in a manner which the person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the person's
conduct was unlawful. Such indemnification shall continue as to a person who
has ceased to be a director or officer and shall inure to the benefit of such
person's heirs, executors and administrators. Notwithstanding the foregoing,
the Corporation shall indemnify any such person seeking indemnity in connection
with a Proceeding (or part thereof) initiated by such person only if such
Proceeding or part thereof was authorized by the Board of Directors of the
Corporation. As used herein, the term "Reincorporated Predecessor" means a
corporation that is merged with and into the Corporation in a statutory merger
where (a) the Corporation is the surviving corporation of such merger and (b)
the primary purpose of such merger is to change the corporate domicile of the
Reincorporated Predecessor to Delaware.
Section 6.2: Advance of Expenses. The Corporation shall pay all expenses,
----------- -------------------
including attorneys' fees, incurred by such a director or officer in defending
any such Proceeding as they are incurred in advance of its final disposition;
provided, however, that if the Delaware General Corporation Law then so
- -------- -------
requires, the payment of such expenses incurred by such a director or officer in
advance of the final disposition of such Proceeding shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified under
this Article VI or otherwise; and provided, further, that the Corporation shall
-------- -------
not be required to advance any expenses to a person against whom the Corporation
directly brings a claim, in a Proceeding, alleging that such person has breached
such person's duty of loyalty to the Corporation, committed an act or omission
not in good faith or that involves intentional misconduct or a knowing violation
of law, or derived an improper personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any
------------ -------------------------
person in this Article VI shall not be exclusive of any other right that such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders
or disinterested directors, or otherwise. Additionally, nothing in this
12
<PAGE>
Article VI shall limit the ability of the Corporation, in its discretion, to
indemnify or advance expenses to persons whom the Corporation is not obligated
to indemnify or advance expenses pursuant to this Article VI.
Section 6.4: Indemnification Contracts. The Board of Directors is
----------- -------------------------
authorized to cause the Corporation to enter into indemnification contracts with
any director, officer, employee or agent of the Corporation, or any person
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, providing indemnification rights
to such person. Such rights may be greater than those provided in this Article
VI.
Section 6.5: Effect of Amendment. Any amendment, repeal or modification
----------- -------------------
of any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or protection conferred on a person pursuant to this
Article VI and existing at the time of such amendment, repeal or modification.
ARTICLE VII
NOTICES
Section 7.1: Notice. Except as otherwise specifically provided herein or
----------- ------
required by law, all notices required to be given pursuant to these Bylaws shall
be in writing and may in every instance be effectively given by hand delivery,
including use of a delivery service, by depositing such notice in the mail,
postage prepaid, or by sending such notice by prepaid telegram, telex, overnight
express courier, mailgram or facsimile. Any such notice shall be addressed to
the person to whom notice is to be given at such person's address as it appears
on the records of the Corporation. The notice shall be deemed given (i) in the
case of hand delivery, when received by the person to whom notice is to be given
or by any person accepting such notice on behalf of such person, (ii) in the
case of delivery by mail, upon deposit in the mail, (iii) in the case of
delivery by overnight express courier, when dispatched, and (iv) in the case of
delivery via telegram, telex, mailgram or facsimile, when dispatched.
Section 7.2: Waiver of Notice. Whenever notice is required to be given
----------- ----------------
under any provision of these Bylaws, a written waiver of notice, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE VIII
INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum. No contract or transaction
----------- ----------------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any
13
<PAGE>
other corporation, partnership, association or other organization in which one
or more of its directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the Board of Directors or committee thereof that authorizes the contract or
transaction, or solely because his, her or their votes are counted for such
purpose, if: (i) the material facts as to his, her or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; (ii) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee thereof, or the stockholders. Interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IX
MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be
----------- -----------
determined by resolution of the Board of Directors.
Section 9.2: Seal. The Board of Directors may provide for a corporate
----------- ----
seal, which shall have the name of the Corporation inscribed thereon and shall
otherwise be in such form as may be approved from time to time by the Board of
Directors.
Section 9.3: Form of Records. Any records maintained by the Corporation
----------- ---------------
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, magnetic tape,
diskettes, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 9.4: Reliance Upon Books and Records. A member of the Board of
----------- -------------------------------
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of such person's duties, be fully protected in relying
in good faith upon records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by any of the
officers or employees of the Corporation , or committees of the Board of
Directors, or by any other person as to matters the member reasonably believes
are within such other person's professional or expert competence and who has
been selected with reasonable care by or on behalf of the Corporation.
Section 9.5: Certificate of Incorporation Governs. In the event of any
----------- ------------------------------------
conflict between the provisions of the Certificate of Incorporation and Bylaws
of the Corporation, the provisions of the Certificate of Incorporation shall
govern.
14
<PAGE>
Section 9.6: Severability. If any provision of these Bylaws shall be held
----------- ------------
to be invalid, illegal, unenforceable or in conflict with the provisions of the
Certificate of Incorporation of the Corporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and the remaining provisions of these Bylaws, including without
limitation, all portions of any section of these Bylaws containing any such
provision held to be invalid, illegal, unenforceable or in conflict with the
Certificate of Incorporation, that are not themselves invalid, illegal,
unenforceable or in conflict with the Certificate of Incorporation, shall remain
in full force and effect.
ARTICLE X
AMENDMENT
Section 10.1: Amendments. Following the closing of the Initial Public
------------ ----------
Offering and notwithstanding any other provision of law, the Certificate of
Incorporation or these Bylaws, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least sixty six and two-thirds percent (66 2/3%) of the outstanding voting stock
then entitled to vote at an election of directors shall be required to alter,
amend or repeal any provision of these Bylaws or to adopt new Bylaws. Prior to
the closing of the Initial Public Offering, the affirmative vote of the holders
of at least a majority of the outstanding voting stock then entitled to vote at
an election of directors shall be required to alter, amend or repeal any
provision of these Bylaws or to adopt new Bylaws. To the extent provided in the
Certificate of Incorporation, the Board of Directors of the Corporation shall
also have the power to adopt, amend or repeal these Bylaws or to adopt new
Bylaws.
15
<PAGE>
EXHIBIT 4.2
INVESTORS RIGHTS AGREEMENT
This Agreement is made and entered into as of September 28, 1999 (the
"Effective Date"), by and among Lexar Media, Inc., a California corporation (the
"Company"), certain existing shareholders of the Company who are listed on
Schedule 1 attached hereto (the "Shareholders") and such other persons executing
- ----------
this Agreement who are listed on Schedule 2, attached hereto and as amended from
----------
time to time (collectively referred to as the "Investors").
RECITALS
WHEREAS, the Company and the Investors have entered into a Series E
Preferred Stock Purchase Agreement, of even date herewith as such agreement may
be amended (the "Purchase Agreement"), pursuant to which the Company has agreed
to issue and sell shares of the Company's Series E Convertible Preferred Stock,
no par value ("Series E Preferred"), to the purchasers signatory to the Purchase
Agreement at any closing thereunder (the "Investors"), to the extent and in such
amounts as set forth therein.
WHEREAS, as a condition to the obligations of the Investors under the
Purchase Agreement and in consideration of the consent of the Shareholders to
the transactions contemplated by the Purchase Agreement, the Company has agreed
to grant the Shareholders and the Investors (who collectively are referred to as
the "Holders") certain rights, including without limitation: (i) certain
information and inspection rights, (ii) rights to designate members of the
Company's Board of Directors, (iii) rights of first refusal, and (iv)
registration rights, on the terms and conditions set forth herein.
WHEREAS, the Company and the Holders intend that this Agreement will
supersede all previous and contemporaneous oral negotiations, commitments,
writings and understandings between the parties concerning the matters addressed
in this Agreement, including without limitation: (i) the Investors' Rights
Agreement dated as of November 18, 1998 among the Company and the investor
parties thereto, and (ii) the Summary of Proposed Principal Terms dated August
18, 1999.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Company and the Holders hereby agree as follows.
Section 1. Definitions.
-----------
As used in this Agreement, the following terms shall have the meanings as
set forth herein:
1.1. "Affiliate" means any Person which controls, is controlled by or is
---------
under common control with any other Person or Persons. For the purposes of this
definition, "control"
1
<PAGE>
has the meaning specified as of the date of this Agreement for that word in Rule
405 promulgated by the Commission under the Securities Act.
1.2. "Board" means the Board of Directors of the Company.
-----
1.3. "Bridge Loan Warrant" means the warrant to purchase 88,241 shares of
-------------------
the Company's Series E Preferred Stock granted to certain of the Investors as of
August 6, 1999.
1.4. "Commission" means the United States Securities and Exchange
----------
Commission, and any successor thereto.
1.5. "Common Stock" means the Company's common stock, no par value.
------------
1.6. "Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated from time to time thereunder.
1.7. "Holders" means (a) holders as of the date of this Agreement of
-------
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
or Series E Preferred, who either purchased such shares of Preferred Stock from
the Company or are transferees of such Preferred Stock under Section 7.10 of
this Agreement, and each of whom is a party to this Agreement, (b) any
additional holders of Series E Preferred who acquire Series E Preferred from the
Company pursuant to the Purchase Agreement; and (c) any subsequent legal or
beneficial owner of Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred, Series E Preferred or Registrable Common who has become a
party to this Agreement in accordance with Section 7.10.
1.8. "Person" means an individual, partnership, limited partnership,
------
corporation, business trust, limited liability company, an association, joint
stock company, a trust, unincorporated organization, joint venture, or other
entity of whatever nature.
1.9. "Preferred Stock" means shares of Series A Preferred, Series B
---------------
Preferred, Series C Preferred, Series D Preferred and Series E Preferred and all
shares of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred, as the case may be, issued in exchange or
substitution therefor.
1.10. "Purchase Agreement" has the meaning specified in the Recitals.
------------------
1.11. "Registrable Common" means (a) any shares of Common Stock which have
------------------
been issued or are issuable upon the conversion of the Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred or Series E
Preferred, (b) any shares of Common Stock which have been issued or are issuable
upon exercise of the Warrants, the Series C Warrant, the Series E Warrant or the
Bridge Loan Warrant, and (c) any share of Common Stock issued as a dividend,
stock split, reclassification, recapitalization or other distribution with
respect to or in exchange for replacement of any Registrable Common, provided,
however, that shares of Common Stock shall no longer be Registrable Common when
they shall have been effectively
2
<PAGE>
registered under the Securities Act and sold by the Holder thereof in accordance
with such registration or sold by the Holder pursuant to Rule 144.
1.12. "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.
1.13. "Rule 144" means Rule 144 promulgated by the Commission under the
--------
Securities Act, as such rule may be amended from time to time, or any successor
rule thereto.
1.14. "Securities Act" means the Securities Act of 1933, as amended, and
--------------
the rules and regulations promulgated from time to time thereunder.
1.15. "Series A Preferred" means (a) up to 3,000,000 outstanding shares of
------------------
the Company's Series A Convertible Preferred Stock, no par value, and any shares
of Series A Preferred issued in payment of a dividend upon any share of Series A
Preferred and (b) any other Registrable Common issued as a dividend or other
distribution with respect to, or in replacement of, any Series A Preferred.
1.16. "Series B Preferred" means (a) up to 3,000,048 outstanding shares of
------------------
the Company's Series B Convertible Preferred Stock, no par value, and any shares
of Series B Preferred issued in payment of a dividend upon any share of Series B
Preferred and (b) any other Registrable Common issued as a dividend or other
distribution with respect to, or in replacement of, any Series B Preferred.
1.17. "Series C Preferred" means (a) up to 11,443,750 outstanding shares
------------------
of the Company's Series C Convertible Preferred Stock, no par value, and any
shares of Series C Preferred issued in payment of a dividend upon any share of
Series C Preferred, (b) any shares of Series C Preferred which have been issued
or are issuable upon exercise of the Series C Warrant, and (c) any other
Registrable Common issued as a dividend or other distribution with respect to,
or in replacement of, any Series C Preferred.
1.18. "Series C Warrant" means the warrant to purchase 100,000 shares of
----------------
the Company's Series C Preferred Stock granted to Micro-Comp Industries as of
February 23, 1998.
1.19. "Series D Preferred" means (a) up to 6,943,618 outstanding shares of
------------------
the Company's Series D Convertible Preferred Stock, no par value, and any shares
of Series D Preferred issued in payment of a dividend upon any share of Series D
Preferred, and (b) any other Registrable Common issued as a dividend or other
distribution with respect to, or in replacement of, any Series D Preferred.
1.20. "Series E Preferred" means (a) up to 11,583,011 outstanding shares
------------------
of the Company's Series E Convertible Preferred Stock, no par value, and any
shares of Series E Preferred issued in payment of a dividend upon any share of
Series E Preferred, (b) any shares of Series E Preferred which have been issued
or are issuable upon exercise of the Bridge Loan Warrant or the Series E
Warrant, (c) any shares of Series E Preferred which have been issued or
3
<PAGE>
are issuable upon the conversion of the convertible promissory note issued by
the Company on or about May 13, 1999 in the principal amount of $150,000, (d)
any shares of Series E Preferred which have been issued or are issuable upon the
conversion of the convertible promissory notes issued by the Company on or about
August 6, 1999 in the aggregate principal amount of $2,285,449.38, (e) up to
200,000 shares of Series E Preferred which have been issued or are issuable to
unaffiliated parties providing the Company with equipment leases, real property
leases, loans, credit line, guaranties of indebtedness, cash price reductions or
similar financing and (f) any other Registrable Common issued as a dividend or
other distribution with respect to, or in replacement of, any Series E
Preferred.
1.21. "Series E Warrant" means the warrant to purchase 231,660 shares of
----------------
the Company's Series E Preferred Stock granted to SG Cowen Securities
Corporation as of an even date herewith.
1.22. "Warrants" means the warrants to purchase 125,000 shares of the
--------
Company's Common Stock granted to certain of the Investors as of January 16,
1998 and the warrant granted to SMART Modular Technologies, Inc. as of an even
date herewith to purchase up to a certain number of shares of the Company's
Common Stock as set forth in the warrant.
Section 2. Affirmative Covenants. Subject to the provisions of Section 6,
---------------------
the Company covenants and agrees as follows:
2.1. Corporate Existence. The Company will maintain its corporate
-------------------
existence in good standing and comply with all applicable laws and regulations
of the United States or of any state or political subdivision thereof and of any
government authority where failure to so comply would have a material adverse
effect on the business, properties, prospects or condition, financial or
otherwise, of the Company (a "Material Adverse Effect").
2.2. Books of Account and Reserves. The Company will keep books of record
-----------------------------
and account in which full, true and correct entries are made of all of its
dealings, business and affairs, in accordance with generally accepted accounting
principles. The Company will employ certified public accountants from one of
the "Big 5" firms as selected by the Board of Directors of the Company who are
"independent" within the meaning of the accounting regulations of the Commission
(the "Accountants"). Commencing with the year ending December 31, 1997, the
Company will have annual audits made by such Accountants in the course of which
such Accountants shall make such examinations, in accordance with generally
accepted auditing standards, as will enable them to give such reports or
opinions with respect to the financial statements of the Company as will satisfy
the requirements of the Commission in effect at such time with respect to
reports or opinions of accountants.
2.3. Furnishing of Financial Statements and Information. The Company will
--------------------------------------------------
deliver to each Holder owning at least 500,000 shares of Preferred Stock (or
equivalent number of shares of Common Stock issued upon conversion of the
Preferred Stock subject to appropriate adjustment to reflect stock splits, stock
dividends, reorganizations and other capitalization changes effected after the
Effective Date):
4
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2.3.1. as soon as available, but in any event within forty-five (45)
calendar days after the end of each of the first three (3) quarters of each
fiscal year of the Company, an unaudited balance sheet of the Company,
together with the related statements of operations, retained earnings and
cash flow statements for such quarter (provided, however, that such
statements need not include footnotes, but otherwise shall comply with
generally accepted accounting principles (subject to normal year-end
adjustments));
2.3.2. as soon as available, but in any event within ninety (90)
calendar days after the end of each fiscal year, a balance sheet of the
Company, as of the end of such fiscal year, together with the related
statements of operations, retained earnings and cash flow statements for
such fiscal year, all in reasonable detail and duly certified by the
Accountants, who shall have given the Company an opinion, unqualified as to
the scope of the audit, regarding such statements;
2.3.3. within ten (10) business days after the Company learns of the
commencement or written threats of the commencement of any material
lawsuit, legal or equitable, or of any material administrative, arbitration
or other proceeding against the Company or its business, assets or
properties, written notice of the nature and extent of such suit or
proceeding;
2.3.4. promptly upon transmission thereof, copies of all reports,
proxy statements, registration statements and notifications filed by it
with the Commission pursuant to any act administered by the Commission or
furnished to shareholders of the Company or to any national securities
exchange;
2.3.5. with reasonable promptness, notice of any default in any
agreement involving obligations of or payments to the Company in excess of
Fifty Thousand Dollars ($50,000) in the aggregate;
2.3.6. at least thirty (30) calendar days before the beginning of
each fiscal year, management will prepare and submit to the Board of
Directors and each Holder owning at least 625,000 shares of Preferred Stock
(or equivalent number of shares of Common Stock issued upon the conversion
of the Preferred Stock subject to appropriate adjustment to reflect stock
splits, stock dividends, reorganizations and other capitalization changes
effected after the Effective Date) the operating plan and budget for the
upcoming year, and as soon as available, but in any event within thirty
calendar (30) days after the end of each month, the Company will prepare
and deliver to each such Holder an unaudited balance sheet of the Company
as of the end of such month, together with the related statements of
operations, retained earnings and cash flow statements for each such month,
and on a year to date basis (provided, however, that such statements need
not include footnotes, but otherwise shall comply with generally accepted
accounting principles (subject to normal year-end adjustments)), which
shall also include a comparison of the Company's actual performance against
the Company's operating plan and budget for such period; and
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2.3.7. with reasonable promptness, such other financial information
and projections relating to the business, affairs and financial condition
of the Company as is available to the Company and as from time to time the
Holders may reasonably request.
2.3.8. With respect to any financial projections submitted to the
Holders, the Company represents and warrants only that such financial
projections were prepared in good faith based on reasonable assumptions and
are not inconsistent with any other projections prepared by or for the
Company or reflected in any internal Company plans, budgets or forecasts.
2.4. Inspection. The Company will permit each Holder owning at least
----------
625,000 shares of Preferred Stock (or equivalent number of shares of Common
Stock issued upon the conversion of the Preferred Stock subject to appropriate
adjustment to reflect stock splits, stock dividends, reorganizations and other
capitalization changes effected after the Effective Date), or any other
representatives designated by each Holder and reasonably satisfactory to the
Company, to visit and inspect, at such Holders' expense, any of the properties
of the Company, including its books and records (and to make photocopies thereof
or make extracts therefrom), and to discuss its affairs, finances and accounts
with its officers, lawyers and accountants, all to such reasonable extent and at
such reasonable times and intervals as such Holder may reasonably request;
provided, however, that the Holder's foregoing rights are limited to exercising
such rights only for purposes related to such Holder's stock ownership in the
Company and nothing herein will require the Company to take action or provide
information (i) that would be subject to attorney-client privilege or (ii) to a
party with which the Company is at the time engaged in a dispute or litigation.
The Holders shall maintain, and shall require their representatives to maintain,
all confidential information obtained from the Company on a confidential basis.
2.5. Attendance at Board Meetings. For so long as Toshiba America
----------------------------
Electronic Components, Inc. ("Toshiba") holds (of record and beneficially) at
least 1,000,000 shares of Series A Preferred Stock, Toshiba shall, at its own
expense, be entitled to reasonable notice of and to attend all meetings of the
Board of Directors of the Company as an observer. If GE Capital Equity
Investments, Inc. ("GE Capital") appoints an independent director to the Board
of Directors pursuant to Section 5.5 of Article VI of the Company's Restated
Articles of Incorporation, so long as GE Capital holds (of record and
beneficially) at least 500,000 shares of Series E Preferred Stock, GE Capital
shall be entitled to reasonable notice of and to attend all meetings of the
Board of Directors of the Company as an observer. The Board of Directors may,
however, exclude Toshiba or GE Capital, without prior notice, from attending any
part of any meeting of the Board of Directors if the Board of Directors
reasonably determines that the matters being discussed or to be discussed during
such part of such meeting (i) are of such a competitively sensitive or
confidential nature that disclosure to Toshiba or GE Capital could materially
affect the Company's business, plans, or relationships, or (ii) are subject to
the attorney-client privilege.
2.6. Subsidiaries. The Company shall cause each of its subsidiary
------------
corporations to comply with the applicable covenants set forth in this Section 2
and Sections 3, 4 and 5 of this Agreement.
6
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2.7. Key Person Insurance. The Company will use commercially reasonable,
--------------------
good faith efforts to obtain, own and maintain prior to the Effective Date, but
in no event later than January 1, 2000, (i) directors' and officers' liability
insurance in the amount of $3,000,000 and (ii) term life insurance policies on
the following individuals and in the following face amounts, with the proceeds
of such insurance policies payable to the Company: John Reimer ($1,000,000) and
Petro Estakhri ($750,000). Copies of such directors' and officers' liability
insurance and key person life insurance policies shall be delivered to any
Holder upon written request.
Section 3. Board of Directors.
-------------------
3.1. Indemnification of Directors. The Bylaws of the Company will, at all
----------------------------
times, require the Company to indemnify its directors to the full extent
permitted by applicable law.
3.2. Board Committees. In the event the Board of Directors creates an
----------------
Audit Committee or Compensation Committee of the Board, each of such committees
shall include at least one (1) representative who is one of the two directors
elected by holders of a majority interest of the Series C Preferred, voting as a
separate class, pursuant to Subsection 5.5 of Article VI of the Company's
Restated Articles of Incorporation (the "Series C Directors").
3.3. Reimbursement of Expenses. The Company agrees to pay for the
-------------------------
reasonable out-of-pocket expenses incurred by (i) GE Capital when attending a
meeting of the Board of Directors pursuant to Section 2.5 of this Agreement and
(ii) the Series C Directors, GE Capital and any director nominated by 1267104
Ontario, Ltd. pursuant to the Voting Agreement of even date herewith among the
Company and the investor parties thereto when conducting the Company's business,
including attending meetings of the Board of Directors and its committees.
Section 4. Right of First Refusal.
-----------------------
4.1. Right of First Refusal. In the event that the Company issues any
----------------------
additional shares of its capital stock, except as set forth in Section 4.2
hereof, each Holder of at least 625,000 shares of Preferred Stock (subject to
appropriate adjustment to reflect stock splits, stock dividends, reorganizations
and other capitalization changes effected after the Effective Date) shall have a
right of first refusal on the terms and conditions specified herein. Each such
Holder of Preferred Stock shall have a right of first refusal, for a period of
thirty (30) days after notice from the Company, to purchase all or any portion
of such Holder's Pro Rata Share (as defined below) of any "New Securities" as
defined in Section 4.2 that the Company may from time to time issue after the
date of this Agreement. The purchase price for such additional shares of
capital stock under this right of first refusal shall be the price offered to or
proposed to be paid to the Company by any purchasers, and such Holder's right to
purchase its Pro Rata Share of any New Securities shall not be subject to
increase if any other holder of such right of first refusal elects not to
participate. "Pro Rata Share" shall be determined by multiplying the total
number of New Securities by a fraction, the numerator of which shall be the
number of shares of Common Stock (on an as-if-converted basis) owned by such
holder of the right of first refusal; such number to be determined on a fully
diluted basis with all securities, whether or not then convertible, exercisable
or exchangeable, being deemed to be converted, exercised or exchanged; and the
denominator of which shall be the total number of shares of Common Stock of the
7
<PAGE>
Company outstanding on a fully diluted basis. Holders of two-thirds (2/3rds) of
the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred, voting together on an as-if-converted basis as
a single class, may agree in writing to waive this right of first refusal as to
all Holders. A Holder's failure to respond in writing to the Company's written
notice of such sale, within the 30-day period shall be deemed to be a waiver of
this right of first refusal as to such Holder.
4.2. New Securities. "New Securities" shall mean any shares of Common
--------------
Stock or Preferred Stock of the Company, whether now authorized or not, and
rights, options or warrants to purchase such shares of Common Stock or Preferred
Stock, and securities of any type whatsoever that are, or may become,
convertible or exchangeable into such shares of Common Stock or Preferred Stock;
provided, however, that the term "New Securities" does not include:
---- --- -------
(i) any shares of the Company's Common Stock (and/or options or
warrants therefor) issued or issuable to employees, officers, directors, or
bona fide contractors, advisors or consultants of the Company pursuant to
incentive agreements or plans approved by a majority of the disinterested
members of the Board of Directors of the Company;
(ii) any shares of Series A Preferred issued under the Series A
Purchase Agreement dated as of May 9, 1997 or any shares of Series B
Preferred issued or issuable under the Note Purchase Agreement dated August
8, 1997 or any shares of Series C Preferred issued under the Series C
Purchase Agreement dated as of February 23, 1998 or any shares of Series D
Preferred issued under the Series D Purchase Agreement dated as of November
18, 1998 or any shares of Series E Preferred issued under the Purchase
Agreement, as such agreements may be amended from time to time;
(iii) any securities issuable upon conversion of or with respect to
any of the Preferred Stock;
(iv) any securities issuable upon exercise of the Warrants, the
Series C Warrants, the Series E Warrants and the Bridge Loan Warrants (the
"Warrant Securities") and any securities issuable upon the conversion of
any Warrant Securities;
(v) shares of the Company's Common Stock or Preferred Stock issued
in connection with any stock split or stock dividend;
(vi) any shares of Common Stock offered by the Company in connection
with a public offering of the Company's Common Stock;
(vii) any shares of Series E Preferred Stock issued or issuable upon
(A) the conversion of the convertible promissory note issued by the Company on
or about May 13, 1999 in the principal amount of $150,000 or (B) the conversion
of the convertible promissory notes issued by the Company on or about August 6,
1999 in the aggregate principal amount of $2,285,449.38;
8
<PAGE>
(viii) up to 200,000 shares of Common Stock or Preferred Stock (and/or
options or warrants therefor) approved by the Company's Board of Directors and
issued or issuable to unaffiliated parties providing the Company with equipment
leases, real property leases, loans, credit lines, guaranties of indebtedness,
cash price reductions or similar financing, such number of shares being subject
to proportional adjustment to reflect subdivisions, combinations and stock
dividends affecting the number of outstanding shares of such stock; or
(ix) securities issued pursuant to the acquisition of another
corporation or entity by the Company, as approved by the Company's Board of
Directors, by consolidation, merger, purchase of all or substantially all of the
assets, or other reorganization in which the Company acquires, in a single
transaction or series of related transactions, all or substantially all of the
assets of such other corporation or entity or fifty percent (50%) or more of the
voting power of such other corporation or entity or fifty percent (50%) or more
of the equity ownership of such other entity.
Section 5. Registration Rights.
-------------------
5.1. Required Registration.
---------------------
5.1.1. If, at any time after the earlier of: (i) six (6) months after the
Company's initial public offering of its Common Stock, or (ii) June 1, 2001, the
Company shall receive a written request for registration under the Securities
Act from (a) the record Holder or Holders of an aggregate of at least a majority
of the then Registrable Common not previously registered under the Securities
Act and sold or (b) the record Holder or Holders of an aggregate of at least
one-fifth (1/5th) of the then outstanding Series E Preferred; provided that at
least 500,000 shares of Series E Preferred remain outstanding (a "Registration
Request"):
(a) the Company shall promptly give written notice to all other
record Holders of Registrable Common not previously registered under the
Securities Act and sold that such registration is to be effected
("Registration Notice"); and
(b) subject to the limitations and requirements set forth in this
Section 5.1, the Company shall use its best efforts to prepare and file a
registration statement under the Securities Act, covering the Registrable
Common which is the subject of the Registration Request and such
additional Registrable Common for which it has received written requests
to register by such other record Holders: (i) within twenty (20) days
after the delivery of the Registration Notice if the Company is subject
to the reporting requirements of the Exchange Act or (ii) within forty-
five (45) days after the delivery of the Registration Notice if the
Company is not subject to such reporting requirements; and the Company
shall use its best efforts to cause such registration statement to become
effective as soon as is practicable after receipt of the Registration
Request, but not later than sixty (60) days after receipt of such
request.
9
<PAGE>
5.1.2. The Company shall be obligated (a) to proceed with filing the
Registration Statement only if the anticipated gross offering proceeds
based upon the public offering price per share proposed by the underwriters
is at least $5,000,000, (b) to prepare, file and cause to become effective
no more than two (2) registration statements pursuant to Registration
Requests made by Holders of the Registrable Common under this Section 5.1
and no more than one (1) additional registration statement pursuant to a
Registration Request made by the Holders of Series E Preferred under this
Section 5.1 and (c) notwithstanding the provisions of Subsection 5.1.2(b)
above, to prepare, file and cause to become effective no more than one (1)
registration statement pursuant to a Registration Request made under this
Section 5.1 during any six-month period.
5.1.3. If the Company shall furnish to such Holder(s) within thirty
(30) days of a Registration Notice a certificate signed by the President of
the Company stating that (i) the Company pursuant to an action approved by
the Board of Directors has already a present plan to commence preparation
of a Registration Statement and to file the same within sixty (60) days, or
(ii) in the good faith judgment of the Board of Directors of the Company it
would be detrimental to the Company and its shareholders for such
registration statement to be filed on or before the date filing would be
required and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such
filing for a period ending not later than ninety (90) days from receipt of
the request for registration. The Company may exercise its rights under
this Section 5.1.3 not more than once in any one (1) year period.
5.1.4. If the Holders submitting the Registration Request (the
"Initiating Holders") intend to distribute the Registrable Common covered
by such request by means of an underwriting, the Registration Request shall
so indicate and the Company shall include such information in the
Registration Notice. A majority in interest of the Initiating Holders
shall select the underwriter, with the approval of the Company, which
approval shall not be unreasonably withheld. Notwithstanding any other
provision of this Section 5.1, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require reducing the
number of shares to be underwritten, then the number of shares of
Registrable Common included in the underwriting shall be reduced pro rata
among all participating Holders in proportion (as nearly as practicable) to
the amount of Registrable Common owned by each participating Holder;
provided, that, if in connection with a Registration Request made by the
Holders of Series E Preferred, Registrable Common is being included in the
underwriting pursuant to a Holder's incidental registration rights under
Section 5.2, such reduction shall be made: (i) first, from the number of
Registrable Common requested to be included in the underwriting pursuant to
Section 5.2, on a pro rata basis, based on the number of Registrable Common
requested to be included in the registration by Holders pursuant to Section
5.2, and (ii) second, from the number of Registrable Common requested to be
included in such underwriting by the applicable Initiating Holders, on a
pro rata basis, based on the number of Registrable Common requested to be
included in the registration by such Initiating Holders; provided, however
-------- -------
that such reduction shall be made only if all other
10
<PAGE>
securities (other than Registrable Common) to be included already have been
entirely excluded from the underwriting.
5.1.5. In the event that the Initiating Holders determine for any
reason not to proceed with a registration at any time before a registration
statement has been declared effective by the Commission, and such
registration statement, if theretofore filed with the Commission, is
withdrawn with respect to the Registrable Common covered thereby, and,
unless the withdrawal is based on a materially adverse change in the
condition, business or prospects of the Company from that known to the
Holders at the time of their registration request, the Holders of such
Registrable Common agree to bear their own expenses incurred in connection
therewith and to reimburse the Company for the expenses incurred by it
attributable to the registration of such Registrable Common, and, if such
Holders in fact so reimburse the Company, then the Holders of such
Registrable Common shall not be deemed to have exercised their right to
require the Company to register Registrable Common pursuant to this Section
5.1.
5.1.6. If, at the time a Registration Request is received by the
Company, the Company has already determined to proceed with the actual
preparation and filing of a registration statement under the Securities Act
in connection with the Company's proposed offer and sale for cash of its
securities and such registration is delayed pursuant to Section 5.1.3, the
Registration Request shall be deemed to have been given pursuant to Section
5.2 rather than this Section 5.1, and the rights and obligations of the
Holders and the Company with respect to the Registration Request shall be
governed by Section 5.2 hereof.
5.2. Incidental Registration.
-----------------------
5.2.1. Each time the Company shall determine to proceed with the
actual preparation and filing of a registration statement under the
Securities Act in connection with the proposed offer and sale for cash of
any of its securities by it or any of its security holders (other than a
registration on a form that does not permit the inclusion of shares by its
security holders, but including a registration in response to a
Registration Request), the Company shall give written notice of its
determination to all record Holders of Registrable Common not theretofore
registered under the Securities Act and sold (a "Participation Notice").
Upon the written request of a record Holder of any Registrable Common given
within twenty (20) days after receipt of a Participation Notice, the
Company will, except as herein provided, cause all such Registrable Common,
the record Holders of which have so requested registration thereof, to be
included in such registration statement, provided that all shares of
Preferred Stock for which registration is requested shall be converted into
Common Stock in such registration statement or such Holder shall deliver a
written commitment to the Company to convert such Preferred Stock into
shares of Common Stock simultaneously with the effective date of such
registration statement, all to the extent requisite to permit the sale or
other disposition by the prospective seller or sellers of the Registrable
Common to be so registered. If any registration pursuant to this Section
5.2 shall be underwritten in whole or in part, the
11
<PAGE>
Company may require that the Registrable Common requested for inclusion
pursuant to this Section 5.2 be included in the underwriting on the same
terms and conditions as the securities otherwise being sold through the
underwriters.
5.2.2. Nothing contained in this Agreement shall prevent the Company
from, at any time, abandoning or delaying any such registration initiated
by it. If the Company determines not to proceed with a registration after
the registration statement has been filed with the Commission and the
Company's decision not to proceed is primarily based upon the anticipated
public offering price of the securities to be sold by the Company, the
Company shall promptly complete the registration for the benefit of those
selling security Holders who wish to proceed with a public offering of
their securities and who bear all expenses incurred by the Company as the
result of such registration arising after the Company has decided not to
proceed.
5.2.3. If in the good faith judgment of the managing underwriter of
such public offering, marketing factors require the number of securities
otherwise to be included in the underwritten public offering to be reduced
or excluded such number may be reduced pro rata (by number of shares) or
excluded among the Holders thereof requesting such registration; provided,
however, that, (i) in connection with an offering initiated by the Company,
such reduction shall be made: (a) first, from the number of securities
requested to be included in such offering by Holders exercising incidental
registration rights pursuant to this Section 5.2, on a pro rata basis,
based on the number of Registrable Common requested to be included in the
offering by such Holders and (b) second, from the number of securities to
be offered for the account of the Company and (ii) in connection with a
Registration Request made by the Holders of Series E Preferred, such
reduction shall be made: (a) first, from the number of securities requested
to be included in such offering by Holders exercising incidental
registration rights pursuant to this Section 5.2, on a pro rata basis,
based on the number of Registrable Common requested to be included in the
offering by such Holders and (b) second, from the number of securities to
be offered by the Initiating Holders, on a pro rata basis, based on the
number of Registrable Common requested to be included in the offering by
such Initiating Holders under Section 5.1 or 5.3; and, provided, further,
-------- -------
that the number of Registrable Common included in any such registration is
not reduced below 10 percent (10%) of the shares included in the
registration, except for a registration relating to the Company's initial
public offering, from which all Registrable Common may be excluded.
5.2.4. The right of any Holder to include Registrable Common in any
underwritten registration pursuant to this Agreement shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of
such Holder's Registrable Common in the underwriting. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected.
5.3. Registration on Form S-3. In case the Company shall receive from
------------------------
any Holder of Registrable Common a written request that the Company effect a
registration on Form S-3
12
<PAGE>
and any related qualification or compliance with respect to all or a part of the
Registrable Common owned by such Holder, then the Company will: (i) promptly
give written notice of the proposed registration and the Holder's request
therefor, and any related qualification or compliance, to all other Holders of
Registrable Common and (ii) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's Registrable Common as are specified in such request, together with all
or such portion of the Registrable Common of any other Holders joining in such
request as are specified in a written request given within twenty (20) days
after receipt of such written notice from the Company. Whenever the Company
files a registration statement on Form S-3 in response to a Holder's written
request pursuant to this Section 5.3, the Company shall be obligated (a) to
proceed with filing the registration statement on Form S-3 only if Form S-3 is
available for the offering and the anticipated gross offering proceeds based
upon the public offering price per share proposed by the underwriters, if any,
is at least $500,000, and (b) to prepare, file and cause to become effective no
more than two (2) registration statements pursuant to requests made under this
Section 5.3 during any twelve-month period. Except as otherwise provided in this
Section 5.3, the provisions of Section 5.2 shall govern Registration Requests
pursuant to this Section 5.3.
5.4. Registration Procedures. When the Company is required by the terms of
-----------------------
this Agreement to effect the registration of Registrable Common under the
Securities Act, the Company will do the following:
5.4.1. As promptly as practicable, and in any event within ninety
(90) days, prepare and file with the Commission a registration statement with
respect to such securities, and use its best efforts to cause such registration
statement to become and remain effective for such period as may be reasonably
necessary to effect the sale of such securities, not to exceed six (6) months or
until the distribution described in the registration statement has been
completed.
5.4.2. As promptly as practicable, prepare and file with the
Commission such amendments to such registration statement and supplements to the
prospectus contained therein as may be necessary to keep such registration
statement effective for such period as may be reasonably necessary to effect the
sale of such securities, not to exceed six (6) months or until the distribution
described in the registration statement has been completed.
5.4.3. Within a reasonable time not to exceed ten (10) business days
prior to filing a registration statement or prospectus or any amendment or
supplement thereto (other than any amendment or supplement in the form of a
filing which the Company makes pursuant to the Exchange Act) under Section 5.1
or 5.2, furnish to the Initiating Holders participating in such registration and
to the underwriters of the securities being registered copies of such
registration statement or prospectus as proposed to be filed, which documents
will be subject to the reasonable review and comments of the Holders (and one
legal counsel to be mutually agreed upon by the Holders) during such period.
Thereafter, the Company shall furnish to the Holders participating in such
registration and to the underwriters of the securities being registered such
reasonable number of copies of the registration statement, preliminary
prospectus, final
13
<PAGE>
prospectus and such other documents as they may reasonably request in order to
facilitate the disposition of such securities.
5.4.4. Use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or blue sky
laws of such jurisdictions as such participating Holders may reasonably request
in writing within twenty (20) days following the original filing of such
registration statement, except that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified.
5.4.5. Notify the Holders participating in such registration,
promptly after it shall receive notice thereof, of the time when such
registration statement has become effective or a supplement to any prospectus
forming a part of such registration statement has been filed.
5.4.6. Notify such Holders promptly of any request by the Commission
for the amending or supplementing of such registration statement or prospectus
or for additional information.
5.4.7. Prepare and file with the Commission any amendments or
supplements to such registration statement or prospectus which are required
under the Securities Act or the rules and regulations thereunder in connection
with the distribution of all securities covered by such registration statements.
5.4.8. Notify such Holders of Registrable Common 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 an event
with respect to the Company requiring the preparation of a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Common, such prospectus will not contain, with respect to
the Company, 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, in light of the circumstances in which they were make, not misleading.
The Company shall prepare and promptly file a supplement to or an amendment of
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Common, such prospectus will not contain, with respect to the
Company, any untrue statement of material fact or omit to state 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.
5.4.9. Advise such Holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued.
5.4.10. Not file any amendment or supplement to such registration
statement or prospectus to which a majority in interest of such Holders shall
have reasonably objected on the grounds that such amendment or supplement does
not comply in all material respects with the
14
<PAGE>
requirements of the Securities Act or the rules and regulations promulgated
thereunder, after having been furnished with a copy thereof at least two (2)
business days prior to the filing thereof, unless in the opinion of counsel for
the Company the filing of such amendment or supplement is reasonably necessary
to protect the Company from any liabilities under any applicable federal or
state law and such filing will not violate applicable law.
5.4.11. At the request of any such Holder, furnish: (i) an opinion,
dated as of the closing date of the offering, of the counsel representing the
Company for the purposes of such registration, addressed to the underwriters, if
any, and to the Holder or Holders making such request; and (ii) letters, dated
as of the effective date of the registration statement and as of the closing
date of the offering, from the independent certified public accountants of the
Company, addressed to the underwriters, if any, and to the Holder or Holders
making such request, in each case in form and substance as is customary in an
underwritten public offering.
5.4.12. Use commercially reasonable efforts to cause the Registrable
Common covered by such registration statement to be listed on the principal
exchange or exchanges or qualified for trading on the principal over the counter
market on which securities of the same class and series as the Registrable
Common are then listed or traded upon the sale of such Registrable Common
pursuant to such Registration Statement.
5.4.13. 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(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
5.5. Expenses. All expenses incurred in connection with a registration
--------
pursuant to Sections 5.1 and 5.3 hereof (except as otherwise provided in such
Section) and with respect to each inclusion of Registrable Common in a
registration statement pursuant to Section 5.2 hereof (except as otherwise
provided in such Section), including without limitation all registration and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
special counsel for the selling security Holders (but excluding underwriters'
discounts and commissions), shall be borne by the Company. Each Holder
participating in a registration pursuant to this Section 5 shall bear such
Holder's proportionate share of all discounts, commissions or other amounts
payable to underwriters or brokers in connection with such offering.
5.6. Indemnification. In the event that any Registrable Common is included
---------------
in a registration statement under Section 5.1, 5.2 or 5.3 hereof:
5.6.1. To the fullest extent permitted by law, the Company will
indemnify and hold harmless each Holder of Registrable Common which are included
in a registration statement pursuant to the provisions hereof, its respective
directors and officers, and any underwriter (as defined in the Securities Act)
for such Holder and each Person, if any, who controls such Holder or such
underwriter within the meaning of the Securities Act, from and against, and will
reimburse such Holder and each such underwriter and controlling Person with
respect to, any and all loss, damage, liability (collectively, "Losses") to
which such Holder or any such underwriter
15
<PAGE>
or controlling Person may become subject under the Securities Act, state
securities laws or otherwise, and the Company will pay to each such Holder,
underwriter or controlling person any legal or other costs or expenses
reasonably incurred by such person in connection with investigating or defending
any such Loss, insofar as such Losses are caused by any untrue statement or
alleged untrue statement of material fact contained in such registration
statement, any prospectus contained therein 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, in light of the circumstances in which they were made,
not misleading; provided, however, that the Company will not be liable in any
such case to the extent that any such Loss arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by such Holder, such underwriter
or such controlling Person in writing specifically for use in the preparation of
such registration statement, any prospectus contained therein or any amendment
or supplement thereto, provided however, that the indemnity agreement in this
Section 5.6 shall not apply to amounts paid in settlement of any such Loss if
such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, and that the foregoing indemnity obligation
with respect to any preliminary prospectus shall not inure to the benefit of any
Holder on account of any Loss whatsoever arising from the sale of any
Registrable Common by such Holder to any person if (A) a copy of the prospectus
(as amended or supplemented if such amendments or supplements shall have been
furnished to such Holder prior to the confirmation of the sale involved) shall
not have been sent or given by or on behalf of such Holder to such person, if
required by law, with or prior to the written confirmation of the sale involved,
and (B) the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in such preliminary prospectus from which
such Loss arose was corrected in the prospectus (as amended or supplemented if
such amendments or supplements thereto shall have been furnished as aforesaid).
5.6.2. Each Holder of Registrable Common which is included in a
registration statement pursuant to the provisions hereof will indemnify and hold
harmless the Company, each of its directors and officers, each Person, if any,
who controls the Company within the meaning of the Securities Act, any other
Holder selling securities pursuant to such registration statement, any
controlling Person of any such selling Holder, any underwriter and any
controlling Person of any such underwriter (each, an "Indemnitee") from and
against, and will reimburse any Indemnitee with respect to, any and all Losses
to which such Indemnitee may become subject under the Securities Act, state
securities laws or otherwise, and the Company will pay to each such Holder,
underwriter or controlling person any legal or other costs or expenses
reasonably incurred by such person in connection with investigating or defending
any such Loss, insofar as (but only insofar as) such Losses are caused by any
untrue or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
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, 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 so made in reliance upon and in conformity with written
information furnished by such Holder specifically for use in the preparation
thereof, and
16
<PAGE>
provided, however, that the indemnity agreement in this Section 5.6 shall not
apply to amounts paid in settlement of any such Loss if such settlement is
effected without the consent of the indemnifying Holder, which consent shall not
be unreasonably withheld, and that the foregoing indemnity obligation with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnitee on account of any Loss whatsoever arising from the sale of any
securities by any Indemnitee to any person if (A) a copy of the prospectus (as
amended or supplemented if such amendments or supplements shall have been
furnished to such Indemnitee prior to the confirmation of the sale involved)
shall not have been sent or given by or on behalf of such Indemnitee to such
person, if required by law, with or prior to the written confirmation of the
sale involved, and (B) the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in such preliminary
prospectus from which such Loss arose was corrected in the prospectus (as
amended or supplemented if such amendments or supplements thereto shall have
been furnished as aforesaid); provided, further that the obligations of
Indemnifying Holders under this Section 5.6 shall be limited to an amount equal
to the proceeds to such Indemnifying Holder of Registrable Common sold as
contemplated herein.
5.6.3. Promptly after receipt by a party entitled to indemnification
pursuant to this Section 5.6 (each, an "Indemnified Party") of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such Indemnified Party will, if a claim is to be made
against the party obligated to provide indemnification pursuant to this section
(each, an "Indemnifying Party"), promptly notify the Indemnifying Party of the
commencement thereof; but the omission to provide such notice will not relieve
the Indemnifying Party from any liability hereunder, except to the extent that
the delay in giving, or failing to give, such notice has a material adverse
effect upon the ability of the Indemnifying Party to defend against the claim.
In case such action is brought against an Indemnified Party, the Indemnifying
Party shall have the right to participate in and, at the Indemnifying Party's
option, to assume the defense thereof, singly or jointly with any other
Indemnifying Party similarly notified, with counsel satisfactory to the
Indemnified Party; provided, however, that if the defendants in any action
include both the Indemnified Party and the Indemnifying Party and the
Indemnified Party shall have reasonably concluded that there may be legal
defenses available to any Indemnified Parties that are different from or
additional to those available to the Indemnifying Party, or if there is a
conflict of interest which would prevent counsel for the Indemnifying Party from
also representing the Indemnified Party, the Indemnified Party shall have the
right to select counsel to participate in the defense of such action on behalf
of such Indemnified Party at the expense of the Indemnifying Party; provided
that the Indemnifying Party shall be responsible for the expense of only one
such special counsel selected jointly by the Indemnified Parties, if there is
more than one Indemnified Party. After notice from an Indemnifying Party to any
Indemnified Party of such Indemnifying Party's election to assume the defense or
the action, the Indemnifying Party will not be liable to such Indemnified Party
pursuant to this Section 5.6 for any legal or other expense subsequently
incurred by such Indemnified Party in connection with the defense thereof other
than reasonable costs of investigation, unless (i) the Indemnified Party shall
have employed counsel in accordance with the proviso of the preceding sentence,
or (ii) the Indemnifying Party shall not have employed counsel satisfactory to
the Indemnified Party to represent the Indemnified Party within a reasonable
time after the notice of the commencement of the action, or (iii) the
Indemnifying
17
<PAGE>
Party has authorized the employment of counsel for the Indemnified Party at the
expense of the Indemnifying Party.
5.7. Exceptions to and Termination of Registration Obligations. The
---------------------------------------------------------
Company shall not be obligated to effect a registration (i) during the one
hundred eighty (180) day period commencing with the date of the Company's
initial public offering or (ii) if the Company delivers to the Holders of the
Registrable Common within thirty (30) days of any Registration Request the
notice permitted by Section 5.1.3 and so files with such period described in the
notice. Section 5 of this Agreement, and the registration rights set forth
herein, shall terminate upon the earlier to occur of (a) the expiration of five
(5) years following the Company's initial public offering or (b) with respect to
any holder of less than one percent (1%) of the Company's Common Stock on an as-
if-converted basis, that time following the Company's initial public offering
that such holder is able to sell all of such holder's Preferred Stock and Common
Stock during any ninety (90) day period.
5.8. Cooperation. Any Holder whose Registrable Common are to be included
-----------
in a Registration Statement either filed pursuant to a demand or as part of a
Company registration agrees to cooperate with all reasonable requests by the
Company necessary to effectuate the purposes of this Section 5, including by
timely providing the Company with all information necessary to file a
registration statement.
5.9. "Market Stand-Off" Agreement. Each Holder hereby agrees that,
----------------------------
following the effective date of a registration statement of the Company's
initial sale of securities under the Securities Act, for the period of time and
to the extent reasonably requested by the underwriter(s) and the Company, such
Holder shall not sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of any securities of the Company held by such Holder, directly or
indirectly, except securities covered by the registration statement and
transfers to donees who agree to be similarly bound) for the period; provided
however, that (i) the executive officers and directors of the Company, as well
as any holder of at least five percent (5%) of the Company's Preferred Stock or
Common Stock, shall have agreed to be bound by substantially the same terms and
conditions, (ii) the time period requested for such market stand-off shall not
exceed one hundred eighty (180) days, and (iii) the restriction shall not apply
to a registration relating solely to employee, consultant or advisor benefit
plans on Form S-1 or Form S-8 (or similar forms promulgated after the date
hereof) or a registration relating solely to a transaction pursuant to Rule 145
promulgated under the Securities Act on Form S-4 (or similar forms promulgated
after the date hereof). The Company may impose stop-transfer instructions
during such stand-off period with respect to the securities of each Holder
subject to this restriction if necessary to enforce such restrictions.
5.10. Limitations on Additional Registration Rights. From and after the
---------------------------------------------
date of this Agreement, unless holders of at least two-thirds (2/3rds) of the
Registrable Common have consented, the Company shall not enter into any
agreement granting any holder or prospective holder of any securities of the
Company registration rights with respect to such securities except for
agreements granting new registration rights which are subordinate to the
registration rights granted to Holders herein.
18
<PAGE>
Section 6. Termination of Certain Covenants. The obligations of the
--------------------------------
Company under Sections 2, 3 and 4 of this Agreement, notwithstanding any
provisions hereof apparently to the contrary, shall terminate and shall be of no
further force or effect (i) immediately prior to the closing date of a
consolidation with or merger of the Company into another company or entity if
such merger or consolidation would result in the shareholders of the Company
immediately prior to such consolidation or merger holding less than a majority
of the voting power of the stock of the surviving corporation (or its parent
corporation if the surviving corporation is wholly owned by the parent
corporation) immediately after such consolidation or merger or (ii) on the
closing date of a Qualified Public Offering. The term "Qualified Public
Offering" means a bona fide, firm commitment underwriting pursuant to a
registration statement on Form S-1 under the Securities Act, the public offering
price of which is not less than $6.18 per share (as adjusted for any stock
dividends, recapitalizations, combinations or splits with respect to such
shares) with gross proceeds to the Company of $20,000,000 in the aggregate
before deduction of underwriters commissions and expenses.
Section 7. Miscellaneous.
--------------
7.1. Waivers, Amendments and Approvals. In each case in which approval of
---------------------------------
the Holders is required by the terms of this Agreement, such requirement shall
be satisfied by a vote or the written action of Holders owning at least two-
thirds (2/3rds) of the Registrable Common, voting together on an as-if-converted
basis and as a separate class, unless otherwise provided herein. Unless
otherwise provided herein, any term or provision of this Agreement requiring
performance by or binding upon the Company or Holders may be amended, and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only by a
writing signed by the Company and the Holders of at least two-thirds (2/3rds) of
the Registrable Common, voting together on an as-if-converted basis and as a
separate class. Notwithstanding the previous sentence and in lieu of the vote
required therein, no such amendment or waiver shall (i) adversely affect the
rights of a Holder, to (A) attend Board meetings pursuant to Section 2.5 or (B)
receive expense reimbursement pursuant to Section 3.3 without the written
consent of the affected Holder, or (ii) adversely affect the rights of the
Holders of Series E Preferred to make a Registration Request pursuant to
Sections 5.1.1 and 5.1.2 without the written consent of four-fifths (4/5ths) of
the Series E Preferred. Any amendment or waiver effected in accordance with
this Section 7.1 shall be binding upon the Holders (including permitted assigns
pursuant to Section 7.10 hereof). Written notice of any such waiver, consent or
agreement of amendment, modification or supplement shall be given to the Holders
who have not previously consented thereto in writing.
7.2. Written Changes, Waivers, Etc. Neither this Agreement nor any
------------------------------
provision hereof may be changed, waived, discharged or terminated orally, but
only by a statement in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought, except to the extent
provided in Section 7.1.
7.3. Notices. All notices, requests, consents and other communications
-------
required or permitted hereunder shall be in writing and shall be personally
delivered or mailed first-class
19
<PAGE>
postage prepaid, registered or certified mail or dispatched by a recognized
delivery service or via facsimile, as follows:
7.3.1. to a Holder, addressed to such Holder at the address(es) set
forth on Schedule 1 as to the Shareholders and Schedule 2 as to the
---------- ----------
Investors; and
7.3.2. to the Company, to:
Lexar Media, Inc.
47421 Bayside Parkway
Fremont, California 94538
Attention: President
Fax: 510-413-1255
and such notices and other communications shall for all purposes of this
Agreement be treated as being effective or having been given if delivered
personally, or, if sent by mail, when received. Any party may change its
address for such communications by giving notice thereof to the other parties in
conformity with this Section.
7.4. Survival of Representations, Warranties, Agreements, Etc. All
--------------------------------------------------------
representations, warranties, covenants and agreements contained herein or in any
certificate delivered pursuant to this Agreement shall survive the execution and
delivery of this Agreement or such certificate, as the case may be, any
investigation at any time made by the Holders or on their behalf, and the
closing of the transactions contemplated by the Purchase Agreement. All
statements contained in any certificate, instrument or other writing prepared by
or on behalf of the Company and delivered by the Company pursuant to this
Agreement (other than legal opinions) or in connection with or in contemplation
of the transactions herein contemplated shall constitute representations and
warranties by the Company hereunder.
7.5. Delays or Omissions. Except as expressly provided herein, no delay
-------------------
or omission to exercise any right, power or remedy accruing to any party under
this Agreement shall impair any such right, power or remedy of such party nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence thereto, or of a similar breach of 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 party
hereto of any breach of default under the Agreement, or any waiver on the part
of any party 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.
7.6. Other Remedies. Any and all remedies herein expressly conferred upon
--------------
a party shall be deemed cumulative with, and not exclusive of, any other remedy
conferred hereby or by law on such party, and the exercise of any one remedy
shall not preclude the exercise of any other.
20
<PAGE>
7.7. Attorneys' Fees. Should suit be brought to enforce or interpret any
---------------
part of this Agreement, the prevailing party shall be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including, without limitation, costs, expenses and fees
on any appeal). The prevailing party shall be the party entitled to recover its
costs of suit, regardless of whether such suit proceeds to final judgment. A
party not entitled to recover its costs shall not be entitled to recover
attorneys' fees. No sum for attorneys' fees shall be counted in calculating the
amount of a judgment for purposes of determining if a party is entitled to
recover costs or attorneys' fees.
7.8. Entire Agreement. This Agreement, the schedules hereto, the Purchase
----------------
Agreement and the exhibits thereto, including the Right of First Refusal and Co-
Sale Agreement attached thereto as Exhibit E and the Voting Agreement attached
thereto as Exhibit F, constitute the entire understanding and agreement of the
parties hereto with respect to the subject matter hereof and thereof and
supersede all prior and contemporaneous agreements or understandings,
inducements or conditions, express or implied, written or oral, between the
parties with respect hereto and thereto, including, without limitation, (i) the
Investors' Rights Agreement dated November 18, 1998, among the Company and the
investor parties thereto and (ii) the Summary of Proposed Principal Terms dated
August 18, 1999. The express terms hereof control and supersede any course of
performance or usage of the trade inconsistent with any of the terms hereof.
7.9. Severability. Should any one or more of the provisions of this
------------
Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this Agreement,
shall be given effect separately from the provision or provisions determined to
be illegal or unenforceable and shall not be affected thereby.
7.10. Successors and Assigns. The terms and conditions of this Agreement
----------------------
shall inure to the benefit of and be binding upon and be enforceable by the
successors and assigns of the parties hereto; provided, however, that the rights
of a Holder under this Agreement may be assigned only (i) to a partner or
retired partner of the assigning Holder if such assigning Holder is a
partnership, provided that such assignee is an accredited investor within the
meaning of the Securities Act, (ii) to any Affiliate of the assigning Holder, if
such assignee is an accredited investor within the meaning of the Securities
Act, (iii) to any family member of, or trust for the benefit of, the assigning
Holder or (iv) concurrent with the sale or transfer to such assignee of at least
250,000 shares (subject to adjustment for any stock dividend, stock split,
subdivision, combination or other recapitalization of the Company) of the
Preferred Stock (including, for such purpose, on a proportionate basis, any
shares of Common Stock into which any shares of Preferred Stock have been
converted) or Registrable Common then held by such Holder. Unless otherwise
provided in this Agreement, any Holder making an assignment in connection with
the sale or transfer of only a portion of its shares shall retain its rights
under this Agreement for the shares not sold or transferred; provided that GE
Capital shall not make an assignment of its rights under Section 5.1.1 or 5.1.2
of this Agreement except upon the sale or transfer of all of the shares of
Registrable Common held by GE Capital. Nothing in this Agreement, express or
implied, is intended to confer upon any party, other than the parties hereto or
their respective successors and
21
<PAGE>
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement. Notwithstanding
any provision contained elsewhere in this Agreement, upon the transfer of shares
by any of the parties hereto, no claims or causes of action arising out of or
related to this Agreement existing as of the transfer date shall be transferred
by such party to any respective heir, successor, assign or permitted transferee,
provided that the transfer of shares shall not be deemed a waiver by the
transferring party of any such claim or cause of action.
7.11. Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California.
7.12. Counterparts. This Agreement may be executed concurrently in two
------------
(2) or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
7.13. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO KNOWINGLY,
--------------------
VOLUNTARILY, AND INTENTIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF THE PARTIES. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
INVESTORS ENTERING INTO THIS AGREEMENT.
7.14. New Investors. Notwithstanding anything herein to the contrary, if
-------------
pursuant to Section 3.2 of the Purchase Agreement, additional parties purchase
shares of Series E Preferred as "New Investors" thereunder, then each such new
Investor shall become a party to this Agreement as an "Investor" hereunder,
without the need for any consent, approval or signature of any Investor;
provided, however, that such New Investor has: (i) purchased shares of Series E
Preferred under the Purchase Agreement and paid the Company all consideration
payable for such shares and (ii) executed one or more counterpart signature
pages to this Agreement as an "Investor", with the Company's consent.
(Balance of Page intentionally left blank.)
22
<PAGE>
IN WITNESS WHEREOF, this Agreement is hereby executed as of the date first
written above.
COMPANY: LEXAR MEDIA, INC.
By: ____________________________________________
Name: Mr. John Reimer
Title: President and Chief Executive Officer
HOLDERS: GE CAPITAL EQUITY INVESTMENTS, INC.
a Delaware corporation
By: ____________________________________________
Name: _______________________________________
Title: ______________________________________
VAN WAGONER CAPITAL MANAGEMENT
By: _____________________________________________
Name: Mr. Garret Van Wagoner
Title: _______________________________________
LAGUNITAS PARTNER, LP ($700,000)
By: _____________________________________________
Name: Mr. Jon D. Gruber
Title: _______________________________________
(Signature Page to Investors Rights Agreement)
23
<PAGE>
GRUBER & McBAINE INTERNATIONAL
($200,000)
By: _____________________________________________
Name: Mr. Jon D. Gruber
Title: _______________________________________
JON D. GRUBER ($100,000)
By: _____________________________________________
Name: Mr. Jon D. Gruber
Title: _______________________________________
SUN AMERICA INC.
By OKGBD & Co.
Its Nominee
By: _____________________________________________
Name: Mr. Rafael Fogel
Title: _______________________________________
OLYMPUS OPTICAL CO., LTD.
By: _____________________________________________
Name: Masanori Tom Nakashima
Title:________________________________________
(Second Signature Page to Investors Rights Agreement)
24
<PAGE>
MELLON VENTURES, L.P.
By MVMA, L.P.
Its General Partner
By MVMA, Inc.
Its General Partner
By: _______________________________________
Name: Mr. Jeffrey H. Anderson
Title: __________________________________
1267104 ONTARIO, LTD.
By: _____________________________________________
Name: ________________________________________
Title: _______________________________________
ST. PAUL VENTURE CAPITAL V, LLC
By: _____________________________________________
Name: ________________________________________
Title: _______________________________________
(Third Signature Page to Investors Rights Agreement)
25
<PAGE>
ST. PAUL VENTURE CAPITAL AFFILIATES
FUND I, LLC
By St. Paul Venture Capital, Inc.
Its Manager
By: ____________________________________________
Name: _______________________________________
Title: ______________________________________
APV TECHNOLOGY PARTNERS II, L.P.
By APV Management Co. II, LLC,
Its Managing General Partner
By: ____________________________________________
Name: _______________________________________
Title: ______________________________________
THOMVEST HOLDINGS, INC.
By: ____________________________________________
Name: _______________________________________
Title: ______________________________________
THE JOHN TU AND MARY TU TRUST,
DATED JUNE 16, 1995
By: ____________________________________________
Name: John Tu
Title: Trustee
(Fourth Signature Page to Investors Rights Agreement)
26
<PAGE>
DECLARATION OF TRUST OF DAVID
SUN AND DIANA SUN,
DATED FEBRUARY 26, 1986
By: _____________________________________________
Name: David Sun
Title: Co-Trustee
By: _____________________________________________
Name: Diana Sun
Title: Co-Trustee
TOSHIBA AMERICA ELECTRONIC
COMPONENTS, INC.
By: _____________________________________________
Name: ________________________________________
Title: _______________________________________
JOHN A. ROLLWAGEN REVOCABLE
TRUST U/A DATED SEPTEMBER 13, 1991
By: _____________________________________________
Name: John A. Rollwagen
Title: Co-Trustee
By: _____________________________________________
Name: Beverly J. Rollwagen
Title: Co-Trustee
(Fifth Signature Page to Investors Rights Agreement
27
<PAGE>
SCHEDULE 1
List of Shareholders
--------------------
Toshiba America Electronic Components, Inc.
9775 Toledo Way
Irvine, CA 92718
F&W Investments 1997
c/o Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94806
Norwest Bank Minnesota, N.A.
fbo John Rollwagen SEP IRA
Sixth and Marquette
Minneapolis, MN 55402
Attn: William Bard
1267104 Ontario, Ltd.
65 Queen Street West, Suite 2400
Toronto M5H ZM8
Canada
SIP Global I, L.P.
c/o Maples and Calder
P.O. Box 309 Ugland House
South Church Street, Grand Cayman
Cayman Islands, British West Indies
<PAGE>
SCHEDULE 2
List of Investors
-----------------
GE Capital Equity Investments, Inc.
c/o GE Equity Investments, Inc.
185 Berry Street
Suite 3600
San Francisco, CA 94107
Van Wagoner Capital Management
345 California Street
Suite 2450
San Francisco, CA 94104
Lagunitas Partner, LP
c/o Jon D. Gruber
50 Osgood Place
Penthouse
San Francisco, CA 94133
Gruber & McBaine International
c/o Jon D. Gruber
50 Osgood Place
Penthouse
San Francisco, CA 94133
Jon D. Gruber
c/o Jon D. Gruber
50 Osgood Place
Penthouse
San Francisco, CA 94133
SunAmerica Investments Inc.
c/o OKGBD & Co.
1999 Avenue of the Stars
Suite 3800
Los Angeles, CA 90067
Olympus Optical Co., Ltd.
San-Ei Building
22-2 Nishi-Shinjuku 1-chome
Shinjuku-ku
Tokyo 163-8610 Japan
<PAGE>
Mellon Ventures, L.P.
c/o MVMA, Inc.
400 S. Hope Street
5th Floor
Los Angeles, CA 90071-2806
St. Paul Venture Capital V, LLC
c/o St. Paul Venture Capital, Inc.
10400 Viking Drive,
Suite 550
Eden Prairie, MN 55344
St. Paul Venture Capital Affiliates Fund I, LLC
c/o St. Paul Venture Capital, Inc.
10400 Viking Drive
Suite 550
Eden Prairie, MN 55344
APV Technology Partners II, L.P.
c/o APV Management Co. II, LLC
535 Middlefield Road, Suite 150
Menlo Park, CA 94025
The John Tu and Mary Tu Trust, dated June 16, 1995
c/o Kingston Technology Corporation
17150 Newhope Street
Suite 503
Fountain Valley, CA 92708
Declaration of Trust of David Sun and Diana Sun,
dated February 26, 1986
c/o Kingston Technology Corporation
17150 Newhope Street
Suite 503
Fountain Valley, CA 92708
Thomvest Holdings, Inc.
65 Queen Street West, Suite 2400
Toronto, Ontario
Canada
M5H 2M8
John Rollwagen Revocable Trust U/A
dated September 13, 1991
c/o John A. Rollwagen
1315 Foshay Tower
Minneapolis, MN 55402
<PAGE>
AMENDMENT NO. 1 TO
INVESTORS RIGHTS AGREEMENT
This AMENDMENT NO. 1 TO INVESTORS RIGHTS AGREEMENT dated December __, 1999
(this "Amendment") amends a certain Investors Right Agreement dated as of
---------
September 28, 1999 by and among Lexar Media, Inc., a California corporation (the
"Company"), certain existing shareholders of the Company who are listed on
-------
Schedule 1 attached thereto and certain investors listed on Schedule 2 thereto
- ---------- ----------
(the "Investors Rights Agreement"). Capitalized terms not otherwise defined
--------------------------
herein have the respective meanings given them in the Investors Rights
Agreement.
RECITALS
A. Section 7.1 of the Investor Rights Agreement states in part that any
term or provision of the Investors Rights Agreement may be amended by
a writing signed by the Company and holders of at least two-thirds
(2/3rds) of the Registrable Common.
B. The undersigned parties include the Company and the holders of at
least two-thirds (2/3rds) of the Registrable Common.
C. The Board of Directors of the Company has approved this Amendment at a
meeting of the Board of Directors on December __, 1999.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual promises made herein and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree to amend the Investors Rights
Agreement as follows:
1. Section 1.22 of the Investors Rights Agreement is amended by adding a
reference to the Warrant to Purchase Common Stock of the Company granted to
Fenwick and West LLP as of an even date herewith. Section 1.22 shall read in
its entirety as follows:
1.22. "Warrants" means the warrants to purchase 125,000 shares of the
--------
Company's Common Stock granted to certain of the Investors as of January
16, 1998, the warrant granted to SMART Modular Technologies, Inc. as of an
even date herewith to purchase up to a certain number of shares of the
Company's Common Stock as set forth in the warrant and the warrant granted
to Fenwick & West LLP as of December __, 1999 to purchase up to a certain
number of shares of the Company's Common Stock as set forth in the warrant.
<PAGE>
2. Section 4.2(i) is amended to exclude certain securities from the
definition of the "New Securities" that are subject to each Holders' right of
first refusal. Section 4.2(i) shall read in its entirety as follows:
(i) any shares of the Company's Common Stock (and/or options, warrants
or rights therefor) issued or issuable to employees, officers, or
directors, or bona fide contractors, consultants or legal, financial
or other advisers to, the Company or any of its subsidiaries pursuant
to stock purchase or stock option plans, stock bonuses or awards,
warrants, contracts or other arrangements that are approved by a
majority of the disinterested members of the Board of Directors of the
Company.
3. Except as expressly modified by this Amendment, all terms of the
Investors Rights Agreement shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
COMPANY: LEXAR MEDIA, INC.
By: ___________________________________________
Name: Mr. John Reimer
Title: President and Chief Executive Officer
SHAREHOLDERS:
_______________________________________________
John Reimer
_______________________________________________
Petro Estakhri
_______________________________________________
Mahmud ("Mike") Assar
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTORS RIGHTS AGREEMENT
<PAGE>
INVESTORS: GE CAPITAL EQUITY INVESTMENTS, INC.
a Delaware corporation
By: _________________________________________
Name: ____________________________________
Title: ___________________________________
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTORS RIGHTS AGREEMENT
<PAGE>
ST. PAUL VENTURE CAPITAL IV, LLC
By: __________________________________
Name: _____________________________
Title: ____________________________
ST. PAUL VENTURE CAPITAL V, LLC
By: __________________________________
Name: _____________________________
Title: ____________________________
ST. PAUL VENTURE CAPITAL AFFILIATES
FUND I, LLC
By St. Paul Venture Capital, Inc.,
Its Manager
By: __________________________________
Name: _____________________________
Title: ____________________________
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTORS RIGHTS AGREEMENT
<PAGE>
APV TECHNOLOGY PARTNERS II, L.P.
By APV Management Co. II, LLC,
Its Managing General Partner
By: _________________________________
Name: ____________________________
Title: ___________________________
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTORS RIGHTS AGREEMENT
<PAGE>
THE JOHN TU AND MARY TU TRUST,
DATED JUNE 16, 1995
By: ________________________________________
Name: John Tu
Title: Trustee
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTORS RIGHTS AGREEMENT
<PAGE>
DECLARATION OF TRUST OF DAVID SUN
AND DIANA SUN, DATED FEBRUARY 26, 1986
By: _____________________________________________
Name: David Sun
Title: Co-Trustee
By: _____________________________________________
Name: Diana Sun
Title: Co-Trustee
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTORS RIGHTS AGREEMENT
<PAGE>
THOMVEST HOLDINGS, INC.
By: __________________________________________
Name: ____________________________________
Title: ___________________________________
SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTORS RIGHTS AGREEMENT
<PAGE>
EXHIBIT 10.1
INDEMNITY AGREEMENT
This Indemnity Agreement (this "Agreement"), dated as of February ___,
2000, is made by and between Lexar Media, Inc. (Delaware), a Delaware
corporation (the "Company"), and _________________________, a director and/or
officer of the Company (the "Indemnitee").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance and/or indemnification,
due to increased exposure to litigation costs and risks resulting from their
service to such corporations, and due to the fact that the exposure frequently
bears no reasonable relationship to the compensation of such directors and
officers;
B. Based on their experience as business managers, the Board of Directors
of the Company (the "Board of Directors") has concluded that, to retain and
attract talented and experienced individuals to serve as officers and directors
of the Company, and to encourage such individuals to take the business risks
necessary for the success of the Company, it is necessary for the Company
contractually to indemnify officers and directors and to assume for itself
maximum liability for expenses and damages in connection with claims against
such officers and directors in connection with their service to the Company;
C. Section 145 of the General Corporation Law of Delaware, under which the
Company is organized (the "Delaware Law"), empowers the Company to indemnify by
agreement its officers, directors, employees, agents and persons who serve, at
the request of the Company, as directors, officers, employees or agents of other
corporations or enterprises, and expressly provides that the indemnification
provided by the Law is not exclusive; and
D. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company free from undue
concern for claims for damages arising out of or related to such services to the
Company.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions.
-----------
1.1 Agent. For the purposes of this Agreement, "agent" of the
-----
Company means any person who (a) is or was a director or officer of the Company
or a subsidiary of the Company, (b) is or was serving at the request of, for the
convenience of, or to represent the interest of the Company or a subsidiary of
the Company as a director or officer of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or an affiliate of the
Company; or (c) was a director or officer of a foreign or domestic corporation
which was a predecessor corporation of the Company, including, without
limitation, Lexar Media, Inc., a California corporation, or was a director or
officer of another enterprise or affiliate of the Company at the request of, for
the convenience of, or to represent the interests of such
1
<PAGE>
predecessor corporation. The term "enterprise" includes any employee benefit
plan of the Company, its subsidiaries, affiliates and predecessor corporations.
1.2 Expenses. For purposes of this Agreement, "expenses" includes
--------
all direct and indirect costs of any type or nature whatsoever, including,
without limitation, all attorneys' fees and related disbursements and other out-
of-pocket costs actually and reasonably incurred by the Indemnitee in connection
with the investigation, defense or appeal of a proceeding or establishing or
enforcing a right to indemnification or advancement of expenses under this
Agreement, Section 145 or otherwise; provided, however, that expenses shall not
-------- -------
include any judgments, fines, ERISA excise taxes or penalties or amounts paid in
settlement of a proceeding.
1.3 Proceeding. For the purposes of this Agreement, "proceeding"
----------
means any threatened, pending or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever arising on or after the date of this Agreement, regardless of when
the act of Indemnities or failure to act occurred.
1.4 Subsidiary. For purposes of this Agreement, "subsidiary" means
----------
any corporation of which more than fifty percent (50%) of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more of its subsidiaries or by one or more subsidiaries of the Company.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to
------------------
serve as an agent of the Company, at the will of the Company, or under separate
agreement, if such agreement exists, in the capacity the Indemnitee currently
serves as an agent of the Company, faithfully and to the best of his ability, so
long as he is duly appointed or elected and qualified in accordance with the
applicable provisions of the charter documents of the Company or any subsidiary
of the Company; provided, however, that the Indemnitee may at any time and for
-------- -------
any reason resign from such position, subject to any contractual obligation that
the Indemnitee may have assumed apart from this Agreement, and the Company or
any subsidiary shall have no obligation under this Agreement to continue the
Indemnitee in any such position.
3. Directors' and Officers' Insurance. The Company shall, to the extent
----------------------------------
that the Board of Directors determines it to be economically reasonable,
maintain a policy of directors' and officers' liability insurance ("Director and
Officer Insurance"), on such terms and conditions as may be approved by the
Board of Directors, but in no event less than $[ ].
4. Mandatory Indemnification. Subject to Section 9 below, the Company
-------------------------
shall indemnify the Indemnite as provided in this Agreement, and to the fullest
extent permitted by law.
4.1 Third Party Actions. If the Indemnitee is a person who was or is
-------------------
a party or is threatened to be made a party to any proceeding other than an
action by or in the right of the Company, by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, the Company shall indemnify Indemnitee against any and all
expenses and liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding if he acted in
good faith and in a manner he reasonably believed to
2
<PAGE>
be in, or not opposed to, the best interests of the Company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. Notwithstanding the preceding, it is the intention of the
parties hereto that Indemnitee shall be indemnified to the full extent
authorized or permitted by Delaware Law and, therefore, to the extent Delaware
Law shall permit broader contractual indemnification, this contract shall be
deemed amended to incorporate such broader indemnification.
4.2 Derivative Actions. If the Indemnitee is a person who was or is
------------------
a party or is threatened to be made a party to any proceeding by or in the right
of the Company to procure a judgment in its favor by reason of the fact that he
is or was an agent of the Company, or by reason of anything done or not done by
him in any such capacity, the Company shall indemnify the Indemnitee against any
amounts paid in settlement of any such proceeding and all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement or appeal of such proceeding 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 Company; provided, however, that no indemnification under this subsection
-------- -------
shall be made in respect of any claim, issue or matter as to which such person
shall have been finally adjudged to be liable to the Company by a court of
competent jurisdiction due to willful misconduct of a culpable nature in the
performance of his duty to the Company, unless and only to the extent that the
Court of Chancery or the court in which such proceeding was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such amounts which the Court of Chancery or such other
court shall deem proper. Notwithstanding the preceding, it is the intention of
the parties hereto that Indemnitee shall be indemnified to the full extent
authorized or permitted by Delaware Law and, therefore, to the extent Delaware
Law shall permit broader contractual indemnification, this contract shall be
deemed amended to incorporate such broader indemnification.
4.3 Exception for Amounts Covered by Insurance. Notwithstanding the
------------------------------------------
foregoing, the Company shall not be obligated to indemnify the Indemnitee for
expenses or liabilities of any type whatsoever, including, but not limited to,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement, to the extent such have been paid directly to the Indemnitee by
Director and Officer Insurance.
5. Partial Indemnification and Contribution.
----------------------------------------
5.1 Partial Indemnification. If the Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding but is not entitled, however, to indemnification for all
of the total amount thereof, then the Company shall nevertheless indemnify the
Indemnitee for such total amount except as to the portion thereof to which the
Indemnitee is not entitled to indemnification.
5.2 Contribution. If the Indemnitee is not entitled to the
------------
indemnification provided in Section 4 for any reason other than the statutory
limitations set forth in the Delaware Law, then in respect of any threatened,
pending or completed proceeding in which the Company
3
<PAGE>
is jointly liable with the Indemnitee, or would be if joined in such proceeding,
the Company shall contribute to the amount of expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred and paid or payable by the Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and the Indemnitee on the other hand from the transaction from which
such proceeding arose and (ii) the relative fault of the Company on the one hand
and of the Indemnitee on the other hand in connection with the events which
resulted in such expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of the Indemnitee on the other hand shall be determined by
reference to, among other things, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent the circumstances
resulting in such expenses, judgments, fines or settlement amounts. The Company
agrees that it would not be just and equitable if contribution pursuant to this
Section 5 were determined by pro rata allocation or any other method of
allocation which does not take account of the foregoing equitable
considerations.
6. Mandatory Advancement of Expenses.
---------------------------------
6.1 Advancement. Subject to Section 9 below, the Company shall
-----------
advance all expenses incurred by the Indemnitee in connection with the
investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Company or by reason of anything
done or not done by him in any such capacity. The Indemnitee hereby undertakes
to promptly repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that the Indemnitee is not entitled to be
indemnified by the Company under the provisions of this Agreement, the
Certificate of Incorporation or Bylaws of the Company, the Delaware Law or
otherwise. The advances to be made hereunder shall be paid by the Company to
the Indemnitee within thirty (30) days following delivery of a written request
therefor by the Indemnitee to the Company.
6.2 Exception. Notwithstanding the foregoing provisions of this
---------
Section 6, the Company shall not be obligated to advance any expenses to the
Indemnitee arising from a lawsuit filed directly by the Company against the
Indemnitee if an absolute majority of the members of the Board reasonably
determines in good faith, within thirty (30) days of the Indemnitee's request to
be advanced expenses, that the facts known to them at the time such
determination is made demonstrate clearly and convincingly that the Indemnitee
acted in bad faith. If such a determination is made, the Indemnitee may have
such decision reviewed by another forum, in the manner set forth in Sections
8.3, 8.4 and 8.5 hereof, with all references therein to "indemnification" being
deemed to refer to "advancement of expenses," and the burden of proof shall be
on the Company to demonstrate clearly and convincingly that, based on the facts
known at the time, the Indemnitee acted in bad faith. The Company may not avail
itself of this Section 6.2 as to a given lawsuit if, at any time after the
occurrence of the activities or omissions that are the primary focus of the
lawsuit, the Company has undergone a change in control. For this purpose, a
change in control shall mean a given person or group of affiliated persons or
groups increasing their beneficial ownership interest in the Company by at least
twenty (20) percentage points without advance approval by the Board of
Directors.
4
<PAGE>
7. Notice and Other Indemnification Procedures.
-------------------------------------------
7.1 Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
7.2 If, at the time of the receipt of a notice of the commencement of
a proceeding pursuant to Section 7.1 hereof, the Company has Director and
Officer Insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such D&O Insurance policies.
7.3 In the event the Company shall be obligated to advance the
expenses for any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee, which approval shall not be unreasonably withheld,
upon the delivery to the Indemnitee of written notice of its election to do so.
After delivery of such notice, approval of such counsel by the Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
the Indemnitee under this Agreement for any fees of counsel subsequently
incurred by the Indemnitee with respect to the same proceeding, provided,
--------
however, that: (a) the Indemnitee shall have the right to employ his own
- -------
counsel in any such proceeding at the Indemnitee's expense; (b) the Indemnitee
shall have the right to employ his own counsel in connection with any such
proceeding, at the expense of the Company, if such counsel serves in a review,
observer, advice and counseling capacity and does not otherwise materially
control or participate in the defense of such proceeding; and (c) if (i) the
employment of counsel by the Indemnitee has been previously authorized by the
Company, (ii) the Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and the Indemnitee in the conduct of
any such defense or (iii) the Company shall not, in fact, have employed counsel
to assume the defense of such proceeding, then the fees and expenses of the
Indemnitee's counsel shall be at the expense of the Company.
8. Determination of Right to Indemnification.
-----------------------------------------
8.1 To the extent the Indemnitee has been successful on the merits or
otherwise in defense of any proceeding referred to in Section 4.1 or 4.2 of this
Agreement or in the defense of any claim, issue or matter described therein, the
Company shall indemnify the Indemnitee against expenses actually and reasonably
incurred by him in connection with the investigation, defense or appeal of such
proceeding, or such claim, issue or matter, as the case may be.
8.2 In the event that Section 8.1 is inapplicable, or does not apply
to the entire proceeding, the Company shall nonetheless indemnify the Indemnitee
unless the Company shall prove by clear and convincing evidence to a forum
listed in Section 8.3 below that the Indemnitee has not met the applicable
standard of conduct required to entitle the Indemnitee to such indemnification.
5
<PAGE>
8.3 The Indemnitee shall be entitled to select the forum in which the
validity of the claim under Section 8.2 hereof that the Indemnitee is not
entitled to indemnification will be heard from among the following, provided,
--------
however, that the Indemnitee can select a forum consisting of the stockholders
- -------
of the Company only with the approval of the Company: (a) a quorum of the Board
of Directors consisting of directors who are not parties to the proceeding for
which indemnification is being sought; (b) the stockholders of the Company; (c)
independent legal counsel mutually agreed upon by the Indemnitee and the Board
of Directors, which counsel shall make such determination in a written opinion;
(d) a panel of three arbitrators, one of whom is selected by the Company,
another of whom is selected by the Indemnitee and the last of whom is selected
by the first two arbitrators so selected; or (e) the Court of Chancery of
Delaware or other court having jurisdiction of subject matter and the parties.
8.4 As soon as practicable, and in no event later than thirty (30)
days after the forum has been selected pursuant to Section 8.3 above, the
Company shall, at its own expense, submit to the selected forum its claim that
the Indemnitee is not entitled to indemnification, and the Company shall act in
the utmost good faith to assure the Indemnitee a complete opportunity to defend
against such claim.
8.5 If the forum selected in accordance with Section 8.3 hereof is
not a court, then after the final decision of such forum is rendered, the
Company or the Indemnitee shall have the right to apply to the Court of Chancery
of Delaware, the court in which the proceeding giving rise to the claim for
indemnification by the Indemnitee is or was pending or any other court of
competent jurisdiction, for the purpose of appealing the decision of such forum,
provided, however, that such right is executed within sixty (60) days after the
- -------- -------
final decision of such forum is rendered. If the forum selected in accordance
with Section 8.3 hereof is a court, then the rights of the Company or the
Indemnitee to appeal any decision of such court shall be governed by the
applicable laws and rules governing appeals of the decision of such court.
8.6 Notwithstanding any other provision in this Agreement to the
contrary, the Company shall indemnify the Indemnitee against all expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section 8 involving the Indemnitee and against all expenses incurred by the
Indemnitee in connection with any other proceeding between the Company and the
Indemnitee involving the interpretation or enforcement of the rights of the
Indemnitee under this Agreement, unless a court of competent jurisdiction finds
that each of the material claims and/or defenses of the Indemnitee in any such
proceeding was frivolous or not made in good faith.
9. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
9.1 Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, other than with respect
to proceedings specifically authorized by the Board of Directors or brought to
establish or enforce a right to indemnification and/or advancement of expenses
arising under this Agreement, the charter documents of the Company or any
subsidiary or any statute or law or otherwise, but such indemnification or
6
<PAGE>
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate; or
9.2 Unauthorized Settlements. To indemnify the Indemnitee hereunder
------------------------
for any amounts paid in settlement of a proceeding unless the Company consents
in advance in writing to such settlement, which consent shall not be
unreasonably withheld; or
9.3 Securities Law Actions. To indemnify the Indemnitee on account
----------------------
of any suit in which judgment is rendered against the Indemnitee for an
accounting of profits made from the purchase or sale by the Indemnitee of
securities of the Company pursuant to the provisions of Section l6(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; or
9.4 Unlawful Indemnification. To indemnify the Indemnitee if a final
------------------------
decision by a court having jurisdiction in the matter shall determine that such
indemnification is not lawful. In this respect, the Company and the Indemnitee
have been advised that the Securities and Exchange Commission takes the position
that indemnification for liabilities arising under the federal securities laws
is against public policy and, therefore, is unenforceable and that claims for
indemnification should be submitted to appropriate courts for adjudication.
10. Non-Exclusivity. The provisions for indemnification and advancement
---------------
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Certificate of Incorporation or Bylaws of the Company, the vote of the
stockholders or disinterested directors of the Company, other agreements or
otherwise, both as to action in the official capacity of the Indemnitee and to
action in another capacity while occupying his position as an agent of the
Company, and the rights of the Indemnitee hereunder shall continue after the
Indemnitee has ceased acting as an agent of the Company and shall inure to the
benefit of the heirs, executors and administrators of the Indemnitee.
11. General Provisions.
------------------
11.1 Interpretation of Agreement. It is understood that the parties
---------------------------
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification and advancement of expenses to the Indemnitee to the fullest
extent now or hereafter permitted by law, except as expressly limited herein.
11.2 Severability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
then: (a) the validity, legality and enforceability of the remaining provisions
of this Agreement, including, without limitation, all portions of any paragraphs
of this Agreement containing any such provision held to be invalid, illegal or
unenforceable that are not themselves invalid, illegal or unenforceable, shall
not in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement, including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable that are not themselves invalid, illegal
or unenforceable, shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 11.1 hereof.
7
<PAGE>
11.3 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 provision hereof,
whether or not similar, nor shall such waiver constitute a continuing waiver.
11.4 Subrogation. In the event of full payment under this Agreement,
-----------
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all documents required
and shall do all acts that may be necessary or desirable to secure such rights
and to enable the Company effectively to bring suit to enforce such rights.
11.5 Counterparts. This Agreement may be executed in one or more
------------
counter-parts, which shall together constitute one agreement.
11.6 Successors and Assigns. The terms of this Agreement shall bind,
----------------------
and shall inure to the benefit of, the successors and assigns of the parties
hereto.
11.7 Notice. All notices, requests, demands and other communications
------
under this Agreement shall be in writing and shall be deemed duly given (a) if
delivered by hand and signed for by the party addressee or (b) if mailed by
certified or registered mail, with postage prepaid, on the third business day
after the mailing date. The addresses for notice to either party are as shown
on the signature page of this Agreement or as subsequently modified by written
notice.
11.8 Governing Law. This Agreement shall be governed exclusively by
-------------
and construed according to the laws of the State of California, as applied to
contracts between California residents entered into and to be performed entirely
within California.
11.9 Consent to Jurisdiction. The Company and the Indemnitee each
-----------------------
hereby irrevocably consent to the jurisdiction of the courts of the State of
California for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement.
11.10 Attorneys' Fees. In the event Indemnitee is required to bring
---------------
any action to enforce rights under this Agreement, including, without
limitation, the expenses of any proceeding described in Section 3, the
Indemnitee shall be entitled to all reasonable fees and expenses in bringing and
pursuing such action, unless a court of competent jurisdiction finds each of the
material claims of the Indemnitee in any such action was frivolous and not made
in good faith.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity
Agreement effective as of the date first written above.
LEXAR MEDIA, INC. (DELAWARE) INDEMNITEE:
By:____________________________ ______________________________
Name: John Reimer
Title: President
Address:______________________
______________________________
9
<PAGE>
EXHIBIT 10.2
LEXAR MEDIA, INC.
1996 STOCK OPTION/STOCK ISSUANCE PLAN
-------------------------------------
(As Adopted December 18, 1996 and Amended May 9, 1997, October 30, 1998,
September 15, 1999 and December 8, 1999)
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1996 Stock Option/Stock Issuance Plan is intended to promote the
interests of Lexar Media, Inc., a California corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for them
to remain in the service of the Corporation.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two (2) separate equity programs:
(i) the Option Grant Program under which eligible persons may,
at the discretion of the Plan Administrator, be granted options to purchase
shares of Common Stock, and
(ii) the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common
Stock directly, either through the immediate purchase of such shares or as
a bonus for services rendered the Corporation (or any Parent or
Subsidiary).
B. The provisions of Articles One and Four shall apply to both equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such
<PAGE>
interpretations of, the Plan and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Pan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any option or stock issuance thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are as follows:
(i) Employees,
(ii) non-employee members of the Board or the non-employee
members of the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to determine, (i)
with respect to the option grants under the Option Grant Program, which eligible
persons are to receive option grants the time or times when such option grants
are to be made, the number of shares to be covered by each such grant, the
status of the granted options as either an Incentive Option or a Non-Statutory
Option, the time or times at which each option is to become exercisable, the
vesting schedule (if any) applicable to the option shares and the maximum term
for which the option is to remain outstanding, and (ii) with respect to stock
issuances under the Stock Issuance Program, which eligible persons are to
receive stock issuances, the time or times when such issuances are to be made,
the number of shares to be issued to each Participant, the vesting schedule (if
any) applicable to the issued shares and the consideration to be paid by the
Participant for such shares.
C. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Option Grant Program or to effect stock
issuances in accordance with the Stock Issuance Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed Thirteen
Million Thirty-Eight Thousand Eighty-Two (13,038,082) shares.
B. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reasons prior to exercise in full or (ii) the
options are cancelled in accordance with the cancellation-regrant provisions of
Article Two. Unvested shares issued under the Plan and subsequently repurchased
by the Corporation, at the option exercise price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the number
of shares of Common Stock reserved for issuance under the Pan and shall
accordingly be available for reissuance through one or more subsequent option
grants or direct stock issuances under the Plan.
2
<PAGE>
C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class securities issuable under
the Plan and (ii) the number and/or class of securities and the exercise price
per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive. In no event shall
any such adjustments be made in connection with the conversion of one of more
outstanding shares of the Corporation's preferred stock into shares of Common
Stock.
ARTICLE TWO
OPTION GRANT PROGRAM
--------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
--------
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) The exercise price per share shall not be less than
eighty-five percent (85%) of the Fair Market Value per share of Common
Stock on the option grant date.
(ii) If the person to whom the option is granted is a 10%
Shareholder, then the exercise price per share shall not be less than one
hundred ten percent (110%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Four
and the documents evidencing the option, be payable in cash or check made
payable to the Corporation. Should the Common Stock be registered under Section
12(g) of the 1934 Act at the time the option is exercised, then the exercise
price may also be paid as follows:
(i) in shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
(ii) to the extent the option is exercised for vested shares,
through all special sale and remittance procedure pursuant to which the
Optionee shall
3
<PAGE>
concurrently provide irrevocable written instructions (A) to the
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (B) to the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at
----------------------------
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option grant. However, no option shall have a term in excess of ten (10)
years measured from the option grant due.
C. Effect of Termination of Services.
---------------------------------
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Should the Optionee cease to remain in Service for any
reason other than Disability or death, then the Optionee shall have a
period of three (3) months following the date of such cessation of Service
during which to exercise each outstanding option held by such Optionee.
(ii) Should Optionee's Service terminate by reason of
Disability, then the Optionee shall have a period of twelve (12) months
following the date of such cessation of Service during which to exercise
each outstanding option held by such Optionee.
(iii) If the Optionee dies while holding an outstanding
option, then the personal representative of his or her estate or the person
or persons to whom the option is transferred pursuant to the Optionee's
will or the laws of inheritance shall have a twelve (12)-month period
following the date of the Optionee's death to exercise such option.
(iv) Under no circumstances, however, shall any such option
be exercisable after the specified expiration of the option term.
(v) During the application post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and cease
to be
4
<PAGE>
outstanding with respect to any and all option shares for which the option
is not otherwise at the time exercisable or in which the Optionee is not
otherwise at the time vested.
2. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following Optionee's cessation of Service or death from the
limited period otherwise in effect for that option to such greater period
of time as the Plan Administrator shall deem appropriate, but in no event
beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time of
the Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested under the
option had the Optionee continued in Service.
D. Shareholder Rights. The holder of an option shall have no
------------------
shareholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Unvested Shares. The Plan Administrator shall have the discretion
---------------
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, all or (at the discretion of the Corporation and with the consent of the
Optionee) any of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right. The Plan Administrator may not impose a vesting schedule upon
any option grant or any shares of Common Stock subject to the option which is
more restrictive than twenty percent (20%) per year vesting, with the initial
vesting to occur not later than one (1) year after the option grant date.
However, this minimum vesting requirement shall not be applicable with respect
to any options granted to an officer or Board member.
F. First Refusal Rights. Until such time as the Common Stock is
--------------------
first registered under Section 12(g) of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Plan. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set froth in the
document evidencing such right.
G. Limited Transferability by Options. During the lifetime of the
----------------------------------
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death.
5
<PAGE>
H. Withholding. The Corporation's obligation to deliver shares of
-----------
Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of the Plan shall be applicable to Incentive Options. Options which
are specifically designated as Non-Statutory Options shall not be subject to the
---
terms of this Section II.
I. Eligibility. Incentive Options may only be granted to Employees.
-----------
J. Exercise Price. The exercise price per share shall not be less
--------------
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
K. Dollar Limitation. The aggregate Fair Market Value of the shares
-----------------
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one (1) calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Shareholder. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Shareholder, then the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION
A. The shares subject to each option outstanding under the Plan at
the time of a Corporate Transaction shall automatically vest in full so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all of the shares of Common Stock at
the time subject to that option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, the shares subject to
an outstanding option shall not vest on such an accelerated basis if and to the
extent: (i) such option is assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and the Corporation's repurchase rights
with respect to the unvested option shares are concurrently assigned to such
successor corporation (or parent thereof) or (ii) such option is to be replaced
with a cash incentive program of the successor corporation which preserves the
spread existing on the unvested option shares at the time of the Corporate
Transaction and provides for subsequent payout in accordance with the same
vesting schedule applicable to those unvested option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
6
<PAGE>
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction, had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
--------
securities shall remain the same.
E. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration (in whole or in part) of
one or more outstanding options (and the automatic termination of one or more
outstanding repurchase rights, with the immediate vesting of the shares of
Common Stock subject to those terminated rights) upon the occurrence of a
Corporate Transaction, whether or not those options are to be assumed or
replaced (or those repurchase rights are to be assigned) in the Corporate
Transaction.
F. The Plan Administrator shall also have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to structure such option so that the shares subject
to that option will automatically vest on an accelerated basis should the
Optionee's Service terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which the option is assumed and the
repurchase rights applicable to those shares do not otherwise terminate. Any
such option shall remain exercisable for the fully-vested option shares until
the earlier of (i) the expiration of the option term or (ii) the expiration of
-------
the one (1)-year period measured from the effective date of the Involuntary
Termination. In addition, the Plan Administrator may provide that one or more
of the outstanding repurchase rights with respect to shares held by the Optionee
at the time of such Involuntary Termination shall immediately terminate on an
accelerated basis, and the shares subject to those terminated rights shall
accordingly vest.
G. The portion of any Incentive Option accelerated in connection with
a Corporate Transaction shall remain exercisable as an Incentive Option only to
the extent the applicable One Hundred Thousand Dollar limitation is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a Non-Statutory Option under the
Federal tax laws.
7
<PAGE>
H. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
ARTICLE THREE
STOCK ISSUANCE PROGRAM
----------------------
I. STOCK ISSUANCE TERMS
Shares of Common Stock maybe issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
A. Purchase Price.
--------------
1. The purchase price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the issue date. However, the purchase
price per share of Common Stock issued to a 10% Shareholder shall not be less
than one hundred and ten percent (110%) of such Fair Market Value.
2. Subject to the provisions of Section I of Article Four, shares
of Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent
or Subsidiary).
B. Vesting Provisions.
------------------
1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. However, the Plan Administrator may not
8
<PAGE>
impose a vesting schedule upon any stock issuance effected under the Stock
Issuance Program which is more restrictive than twenty percent (20%) per year
vesting, with initial vesting to occur not later than one (1) year after the
issuance date. However, this minimum vesting requirement shall not be applicable
with respect to any stock issued to an officer or Board member.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full shareholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further shareholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the non-
completion of the vesting schedule applicable to such shares. Such waiver shall
result in the immediate vesting of the Participant's interest in the shares of
Common Stock as to which the waiver applies. Such waiver may be effected at any
time, whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
C. First Refusal Rights. Until such time as the Common Stock is
--------------------
first registered under Section 12(g) of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Participant (or any successor in interest) of any shares of Common Stock issued
under the Stock Issuance Program. Such right of first refusal shall be
exercisable in accordance with the terms established by the Plan Administrator
and set forth in the document evidencing such right.
9
<PAGE>
II. CORPORATE TRANSACTION
A. Upon the occurrence of a Corporate Transaction, all outstanding
repurchase rights under the Stock Issuance Program shall terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, except to the extent: (i) those repurchase
rights are assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding, to provide that those rights shall automatically terminate on an
accelerated basis, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those repurchase rights are assigned
to the successor corporation (or parent thereof).
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
ARTICLE FOUR
MISCELLANEOUS
-------------
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price or the purchase price for shares issued to such person
under the Plan by delivering a full-recourse, interest-bearing promissory note
payable in one or more installments and secured by the purchased shares.
However, any promissory note delivered by a consultant must be secured by
property in addition to the purchased shares of Common Stock. In no event shall
the maximum credit available to the Optionee or Participant exceed the sum of
---
(i) the aggregate option exercise price or purchase price payable for the
purchased shares plus (ii) any Federal, state and local income and employment
tax liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
II. EFFECTIVE DATA AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board, but not
option granted under the Plan may be exercised, and no shares shall be issued
under the Plan, until the Plan is approved by the Corporation's shareholders.
If such shareholder approval is not obtained within twelve (12) months after the
date of the Board's adoption of the Plan, then all options previously granted
under the Plan shall terminate and cease to be outstanding, and no further
options shall be granted and no shares shall be issued under the Plan. Subject
to such
10
<PAGE>
limitation, the Plan Administrator may grant options and issue shares under the
Plan at any time after the effective date of the Plan and before the date fixed
herein for termination of the Plan.
B. The Plan shall terminate upon the earliest of (i) the expiration
--------
of the ten (10)-year period measured from the date the Plan is adopted by the
Board, (ii) the date on which all shares available for issuance under the Plan
shall have been issued or (iii) the termination of all outstanding options in
connection with a Corporate Transaction. All options and unvested stock
issuances outstanding at the time under the Plan shall continue to have full
force and effect in accordance with the provisions of the documents evidencing
such options or issuances.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require shareholder approval
pursuant to applicable laws and regulations.
B. Options may be granted under the Option Grant Program and shares
may be issued under the Stock Issuance Program which are in each instance in
excess of the number of shares of Common Stock then available for issuance under
the Plan, provided any excess shares actually issued under those programs shall
be held in escrow until there is obtained shareholder approval of an amendment
sufficiently increasing the number of shares of Common Stock available for
issuance under the Plan. If such shareholder approval is not obtained within
twelve (12) months after the date first such excess issuances are made, then (i)
any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess share issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
V. WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon
the exercise of any options or upon the issuance or vesting of any shares issued
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under the
Plan and the issuance of any shares of Common Stock (i) upon the exercise of any
option or (ii) under the
11
<PAGE>
Stock Issuance Program shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it and the shares of Common Stock
issued pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
VIII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless such individual is a key Employee whose duties in
connection with the Corporation (or any Parent or Subsidiary) assure such
individual access to equivalent information.
12
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
-----
B. Code shall mean the Internal Revenue Code of 1986, as amended.
----
C. Committee shall mean a committee of two (2) or more Board members
---------
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. Common Stock shall mean the Corporation's common stock.
------------
E. Corporate Transaction shall mean either of the following shareholder-
---------------------
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifth percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. Corporation shall mean Lexar Media, Inc., a California corporation.
-----------
G. Disability shall mean the inability of the Optionee or the Participant
----------
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment and shall be determined by the Plan
Administrator on the basis of such medical evidence as the Plan Administrator
deems warranted under the circumstances.
H. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. Exercise Date shall mean the date on which the Corporation shall have
-------------
received written notice of the option exercise.
J. Fair Market Value per share of Common Stock on any relevant date shall
-----------------
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question,
A-1
<PAGE>
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem appropriate.
K. Incentive Option shall mean an option which satisfies the requirements
----------------
of Code Section 422.
L. Involuntary Termination shall mean the termination of the Service of
-----------------------
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces
his or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and target bonuses
under any corporate-performance based bonus or incentive programs) by more
than fifteen percent (15%) of (C) a relocation of such individual's place
of employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected without the individual's
consent.
M. Misconduct shall mean the commission of any act of fraud, embezzlement
----------
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee, Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary).
N. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
--------
O. Non-Statutory Option shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
A-2
<PAGE>
P. Option Grant Program shall mean the option grant program in effect
--------------------
under the Plan.
Q. Optionee shall mean any person to whom an option is granted under the
--------
Plan.
R. Parent shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
S. Participant shall mean any person who is issued shares of Common Stock
-----------
under the Stock Issuance Program.
T. Plan shall mean the Corporation's 1996 Stock Option/Stock Issuance
----
Plan, as set forth in this document.
U. Plan Administrator shall mean either the Board or the Committee acting
------------------
in its capacity as administrator of the Plan.
V. Service shall mean the provision of services to the Corporation (or any
-------
Parent or Subsidiary) by a person in the capacity of an Employee, a non-employee
member of the board of directors or a consultant or independent advisor, except
to the extent otherwise specifically provided in the documents evidencing the
option grant.
W. Stock Exchange shall mean either the American Stock Exchange or the New
--------------
York Stock Exchange.
X. Stock Issuance Agreement shall mean the agreement entered into by the
------------------------
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
Y. Stock Issuance Program shall mean the stock issuance program in effect
----------------------
under the Plan.
Z. Subsidiary shall mean any corporation (other than the Corporation) in
----------
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
AA. 10% Shareholder shall mean the owner of stock (as determined under
---------------
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
A-3
<PAGE>
LEXAR MEDIA, INC.
NOTICE OF GRANT OF STOCK OPTION
-------------------------------
Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of Lexar Media, Inc. (the "Corporation"):
Optionee:
--------
Grant Date:
----------
Vesting Commencement Date:
-------------------------
Exercise Price:
--------------
Number of Option Shares:
-----------------------
Expiration Date:
---------------
Type of Option:
--------------
Date Exercisable: Immediately Exercisable
----------------
Vesting Schedule: The Option Shares shall be unvested and subject to
----------------
repurchase by the Corporation at the Exercise Price paid per share.
Optionee shall acquire a vested interest in, and the Corporation's
repurchase right will accordingly lapse with respect to, (i) twenty-
five percent (25%) of the Option Shares upon Optionee's completion of
one (1) year of Service measured from the Vesting Commencement Date
and (ii) the balance of the Option Shares in a series of thirty-six
(36) successive equal monthly installments upon Optionee's completion
of each additional month of Service over the thirty-six (36)-month
period measured from the first anniversary of the Vesting Commencement
Date. In no event shall any additional Option Shares vest after
Optionee's cessation of Service.
Optionee understands and agrees that the Option is granted subject to
and in accordance with the terms of the Lexar Media, Inc. 1996 Stock
Option/Stock Issuance Plan (the "Plan"). Optionee further agrees to be bound by
the terms of the Plan and the terms of the Option as set forth in the Stock
Option Agreement attached hereto as Exhibit A. Optionee understands that any
Option Shares purchased under the Option will be subject to the terms set forth
in the Stock Purchase Agreement attached hereto as Exhibit B.
Optionee hereby acknowledges receipt of a copy of the Plan in the form
attached hereto as Exhibit C.
<PAGE>
REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES
-----------------
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN REPURCHASE
RIGHTS AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS
ASSIGNS. THE TERMS OF SUCH RIGHTS ARE SPECIFIED IN THE ATTACHED STOCK PURCHASE
AGREEMENT.
No Employment or Service Contract: Nothing in this Notice or in the
---------------------------------
attached Stock Option Agreement or Plan shall confer upon Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of Optionee, which rights are
hereby expressly reserved by each, to terminate Optionee's Service at any time
for any reason, with or without cause.
Definitions: All capitalized terms in this Notice shall have the
-----------
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
- --------------
Date
LEXAR MEDIA, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
-------------------------------------
Optionee
Address:
-----------------------------
-------------------------------------
ATTACHMENTS
- -----------
Exhibit A - Stock Option Agreement
Exhibit B - Stock Purchase Agreement
Exhibit C - 1996 Stock Option/Stock Issuance Plan
2
<PAGE>
EXHIBIT A
---------
STOCK OPTION AGREEMENT
----------------------
<PAGE>
EXHIBIT B
---------
STOCK PURCHASE AGREEMENT
------------------------
<PAGE>
EXHIBIT C
---------
1996 STOCK OPTION/STOCK ISSUANCE PLAN
-------------------------------------
<PAGE>
LEXAR MEDIA, INC.
STOCK OPTION AGREEMENT
----------------------
RECITALS
- --------
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or the board
of directors of any Parent or Subsidiary and consultants and other independent
advisors in the service of the Corporation (or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a Parent
or Subsidiary), and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Corporation's grant
of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning assigned
to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. The Corporation hereby grants to Optionee, as of
---------------
the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. Option Term. This option shall have a term of ten (10) years
-----------
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. Limited Transferability. During Optionee's lifetime, this option
-----------------------
shall be exercisable only by Optionee and shall not be assignable or
transferable other than by will or by the laws of descent and distribution
following Optionee's death.
4. Dates of Exercise. This option shall become exercisable for the
-----------------
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. Cessation of Service. The option term specified in Paragraph 2
--------------------
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(a) Should Optionee cease to remain in Service for any reason (other
than death or Disability) while this option is outstanding, then Optionee shall
have a period of
<PAGE>
three (3) months (commencing with the date of such cessation of
Service) during which to exercise this option, but in no event shall this option
be exercisable at any time after the Expiration Date.
(b) Should Optionee die while this option is outstanding, then the
personal representative of Optionee's estate or the person or persons to whom
the option is transferred pursuant to Optionee's will or in accordance with the
laws of inheritance shall have the right to exercise this option. Such right
shall lapse, and this option shall cease to be outstanding, upon the earlier of
-------
(i) the expiration of the twelve (12)-month period measured from the date of
Optionee's death or (ii) the Expiration Date.
(c) Should Optionee cease Service by reason of Disability while this
option is outstanding, then Optionee shall have a period of twelve (12) months
(commencing with the date of such cessation of Service) during which to exercise
this option. In no event shall this option be exercisable at any time after the
Expiration Date.
Note: Exercise of this option on a date later than three (3) months
----
following cessation of Service due to Disability will result in loss
of favorable Incentive Option treatment, unless such Disability
------
constitutes Permanent Disability. In the event that Incentive Option
treatment is not available, this option will be taxed as a Non-
Statutory Option upon exercise.
(d) During the limited period of post-Service exercisability, this
option may not be exercised in the aggregate for more than the number of Option
Shares in which Optionee is, at the time of Optionee's cessation of Service,
vested pursuant to the Vesting Schedule specified in the Grant Notice or the
special vesting acceleration provisions of Paragraph 6. Upon the expiration of
such exercise period or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding for any vested Option Shares for which the
option has not been exercised. To the extent Optionee is not vested in the
Option Shares at the time of Optionee's cessation of Service, this option shall
immediately terminate and cease to be outstanding with respect to those shares.
6. Accelerated Vesting.
-------------------
(a) In the event of any Corporate Transaction, the Option Shares at
the time subject to this option but not otherwise vested shall automatically
vest in full so that this option shall, immediately prior to the effective date
of the Corporate Transaction, become fully exercisable for all of those Option
Shares and may be exercised for any or all of those Option Shares as fully-
vested shares of Common Stock. However, the Option Shares shall not vest on
such an accelerated basis if and to the extent: (i) this option is assumed by
the successor corporation (or parent thereof) in the Corporate Transaction and
the Corporation's repurchase rights with respect to the unvested Option Shares
are assigned to such successor corporation (or parent thereof) or (ii) this
option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing on the unvested Option Shares at
the time of the Corporate Transaction (the excess of the Fair Market Value of
those Option Shares over the
2
<PAGE>
Exercise Price payable for such shares) and provides for subsequent payout in
accordance with the same Vesting Schedule applicable to those unvested Option
Shares as set forth in the Grant Notice.
(b) Immediately following the Corporate Transaction, this option
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with the Corporate
Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
--------
(d) This option may also become exercisable upon an accelerated basis
in accordance with the terms and conditions of any special addendum attached to
this Agreement.
(e) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. Adjustment in Option Shares. Should any change be made to the
---------------------------
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. Shareholder Rights. The holder of this option shall not have any
------------------
shareholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
9. Manner of Exercising Option.
---------------------------
(a) In order to exercise this option with respect to all of any part
of the Option Shares for which this option is at the time exercisable, Optionee
(or any other person or person exercising the option) must take the following
actions:
(i) Execute and deliver to the Corporation a Purchase Agreement
for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased shares
in one or more of the following forms:
3
<PAGE>
(A) cash or check made payable to the Corporation; or
(B) a promissory note payable to the Corporation, but
only to the extent authorized by the Plan Administrator in accordance
with Paragraph 14 .
Should the Common Stock be registered under Section 12(g) of the
1934 Act at the time the option is exercised, then the Exercise Price
may also be paid as follows:
(C) in shares of Common Stock held by Optionee (or any
other person or persons exercising the option) for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date; or
(D) to the extent the option is exercised for vested
Option Shares, through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons exercising
the option) shall concurrently provide irrevocable written
instructions (a) to a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate Exercise Price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation
by reason of such exercise and (b) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Purchase Agreement delivered to the
Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate documentation that
the person or persons exercising the option (if other than Optionee) have
the right to exercise this option.
(iv) Execute and deliver to the Corporation such written
representations as may be requested by the Corporation in order for it to
comply with the applicable requirements of Federal and state securities
laws.
(v) Make appropriate arrangements with the Corporation (or
Parent or Subsidiary employing or retaining Optionee) for the satisfaction
of all Federal, state and local income and employment tax withholding
requirements applicable to the option exercise.
4
<PAGE>
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional
shares.
10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE EXERCISE
-----------------
OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION AND ITS
ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS SPECIFIED IN THE
PURCHASE AGREEMENT.
11. Compliance with Laws and Regulations.
------------------------------------
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
12. Successors and Assigns. Except to the extent otherwise provided
----------------------
in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's assigns and the legal representatives, heirs and
legatees of Optionee's estate.
13. Notices. Any notice required to be given or delivered to the
-------
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to
be given or delivered to Optionee shall be in writing and addressed to Optionee
at the address indicated below Optionee's signature line on the Grant Notice.
All notices shall be deemed effective upon personal delivery or upon deposit in
the U.S. mail, postage prepaid and properly addressed to the party to be
notified.
14. Financing. The Plan Administrator may, in its absolute
---------
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased Option Shares by delivering a full-recourse,
interest-bearing promissory note secured by those Option Shares. The payment
schedule in effect for any such promissory note shall be established by the Plan
Administrator in its sole discretion.
5
<PAGE>
15. Construction. This Agreement and the option evidenced hereby
------------
are made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
16. Governing Law. The interpretation, performance and enforcement
-------------
of this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
17. Shareholder Approval. If the Option Shares covered by this
--------------------
Agreement exceed, as of the Grant Date, the number of shares of Common Stock
which may be issued under the Plan as last approved by the shareholders, then
this option shall be void with respect to such excess shares, unless shareholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock issuable under the Plan is obtained in accordance with the provisions of
the Plan.
18. Additional Terms Applicable to an Incentive Option. In the
--------------------------------------------------
event this option is designated an Incentive Option in the Grant Notice, the
following terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is exercised
for one or more Option Shares: (i) more than three (3) months after the date
Optionee ceases to be an Employee for any reason other than death or Permanent
Disability or (ii) more than twelve (12) months after the date Optionee ceases
to be an Employee by reason of Permanent Disability.
(b) This option shall not become exercisable in the calendar
year in which granted if (and to the extent) the aggregate Fair Market Value
(determined at the Grant Date) of the Common Stock for which this option would
otherwise first become exercisable in such calendar year would, when added to
the aggregate value (determined as of the respective date or dates of grant) of
the Common Stock and any other securities for which one or more other Incentive
Options granted to Optionee prior to the Grant Date (whether under the Plan or
any other option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. To the extent the exercisability of this
option is deferred by reason of the foregoing limitation, the deferred portion
shall become exercisable in the first calendar year or years thereafter in which
the One Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18(b)
would not be contravened, but such deferral shall in all events end immediately
prior to the effective date of a Corporate Transaction in which this option is
not to be assumed, whereupon the option shall become immediately exercisable as
a Non-Statutory Option for the deferred portion of the Option Shares.
6
<PAGE>
(c) Should Optionee hold, in addition to this option, one or
more other options to purchase Common Stock which become exercisable for the
first time in the same calendar year as this option, then the foregoing
limitations on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
7
<PAGE>
APPENDIX
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Option Agreement.
---------
B. Board shall mean the Corporation's Board of Directors.
-----
C. Code shall mean the Internal Revenue Code of 1986, as amended.
----
D. Common Stock shall mean the Corporation's common stock.
------------
E. Corporate Transaction shall mean either of the following shareholder
---------------------
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. Corporation shall mean Lexar Media, Inc., a California corporation.
-----------
G. Disability shall mean the inability of Optionee to engage in any
----------
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Plan Administrator on the basis
of such medical evidence as the Plan Administrator deems warranted under the
circumstances. Disability shall be deemed to constitute Permanent Disability in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of twelve (12) months or more.
H. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. Exercise Date shall mean the date on which the option shall have been
-------------
exercised in accordance with Paragraph 9 of the Agreement.
J. Exercise Price shall mean the exercise price payable per Option Share
--------------
as specified in the Grant Notice.
A-1
<PAGE>
K. Expiration Date shall mean the date on which the option expires as
---------------
specified in the Grant Notice.
L. Fair Market Value per share of Common Stock on any relevant date shall
-----------------
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as the price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem appropriate.
M. Grant Date shall mean the date of grant of the option as specified in
----------
the Grant Notice.
N. Grant Notice shall mean the Notice of Grant of Stock Option
------------
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
O. Incentive Option shall mean an option which satisfies the requirements
----------------
of Code Section 422.
P. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
--------
Q. Non-Statutory Option shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
R. Option Shares shall mean the number of shares of Common Stock subject
-------------
to the option.
A-2
<PAGE>
S. Optionee shall mean the person to whom the option is granted as
--------
specified in the Grant Notice.
T. Parent shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. Plan shall mean the Corporation's 1996 Stock Option/Stock Issuance
----
Plan.
V. Plan Administrator shall mean either the Board or a committee of the
------------------
Board acting in its capacity as administrator of the Plan.
W. Purchase Agreement shall mean the stock purchase agreement in
------------------
substantially the form of Exhibit B to the Grant Notice.
X. Service shall mean the Optionee's performance of services for the
-------
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-
employee member of the board of directors or an independent consultant.
Y. Stock Exchange shall mean the American Stock Exchange or the New York
--------------
Stock Exchange.
Z. Subsidiary shall mean any corporation (other than the Corporation) in
----------
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
AA. Vesting Schedule shall mean the vesting schedule specified in the
----------------
Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a
series of installments over his or her period of Service.
A-3
<PAGE>
LEXAR MEDIA, INC.
STOCK PURCHASE AGREEMENT
------------------------
AGREEMENT made this ___ day of ___________ ______, by and between Lexar
Media, Inc., a California corporation, and _________________, Optionee under the
Corporation's 1996 Stock Option/Stock Issuance Plan.
All capitalized terms in this Agreement shall have the meaning assigned to
them in this Agreement or in the attached Appendix.
A. EXERCISE OF OPTION
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1. Exercise. Optionee hereby purchases _______ shares of Common
--------
Stock (the "Purchased Shares") pursuant to that certain option (the "Option")
granted Optionee on _____________, _____ (the "Grant Date") to purchase up to
_________ shares of Common Stock (the "Option Shares") under the Plan at the
exercise price of $__________ per share (the "Exercise Price").
2. Payment. Concurrently with the delivery of this Agreement to the
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Corporation, Optionee shall pay the Exercise Price for the Purchased Shares in
accordance with the provisions of the Option Agreement and shall deliver
whatever additional documents may be required by the Option Agreement as a
condition for exercise, together with a duly-executed blank Assignment Separate
from Certificate (in the form attached hereto as Exhibit I) with respect to the
Purchased Shares.
3. Shareholder Rights. Until such time as the Corporation exercises
------------------
the Repurchase Right or the First Refusal Right, Optionee (or any successor in
interest) shall have all the rights of a shareholder (including voting, dividend
and liquidation rights) with respect to the Purchased Shares, subject, however,
to the transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
-------------------------
1. Restricted Securities. The Purchased Shares have not been
---------------------
registered under the 1933 Act and are being issued to Optionee in reliance upon
the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Optionee hereby
confirms that Optionee has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available. Accordingly,
Optionee hereby acknowledges that Optionee is prepared to hold the Purchased
Shares for an indefinite period and that Optionee is aware that SEC Rule 144
issued under the 1933 Act which exempts certain resales of unrestricted
securities is not presently available to exempt the resale of the Purchased
Shares from the registration requirements of the 1933 Act.
<PAGE>
2. Restrictions on Disposition of Purchased Shares. Optionee shall
-----------------------------------------------
make no disposition of the Purchased Shares (other than a Permitted Transfer)
unless and until there is compliance with all of the following requirements:
(i) Optionee shall have provided the Corporation with a written
summary of the terms and conditions of the proposed disposition.
(ii) Optionee shall have complied with all requirements of this
Agreement applicable to the disposition of the Purchased Shares.
(iii) Optionee shall have provided the Corporation with written
assurances, in form and substance satisfactory to the Corporation, that (a) the
proposed disposition does not require registration of the Purchased Shares under
the 1933 Act or (b) all appropriate action necessary for compliance with the
registration requirements of the 1933 Act or any exemption from registration
available under the 1933 Act (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its books any
---
Purchased Shares which have been sold or transferred in violation of the
provisions of this Agreement or (ii) to treat as the owner of the Purchased
--
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. Restrictive Legends. The stock certificates for the Purchased
-------------------
Shares shall be endorsed with one or more of the following restrictive legends:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be
sold or offered for sale in the absence of (a) an effective
registration statement for the shares under such Act, (b) a "no
action" letter of the Securities and Exchange Commission with respect
to such sale or offer or (c) satisfactory assurances to the
Corporation that registration under such Act is not required with
respect to such sale or offer."
"The shares represented by this certificate are subject to
certain repurchase rights and rights of first refusal granted to the
Corporation and accordingly may not be sold, assigned, transferred,
encumbered, or in any manner disposed of except in conformity with the
terms of a written agreement between the Corporation and the
registered holder of the shares (or the predecessor in interest to the
shares). A copy of such agreement is maintained at the Corporation's
principal corporate offices."
2
<PAGE>
C. TRANSFER RESTRICTIONS
---------------------
1. Restriction on Transfer. Except for any Permitted Transfer,
-----------------------
Optionee shall not transfer, assign, encumber or otherwise dispose of any of the
Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right or the Market Stand-Off.
2. Transferee Obligations. Each person (other than the Corporation)
----------------------
to whom the Purchased Shares are transferred by means of a Permitted Transfer
must, as a condition precedent to the validity of such transfer, acknowledge in
writing to the Corporation that such person is bound by the provisions of this
Agreement and that the transferred shares are subject to (i) the Repurchase
Right, (ii) the First Refusal Right and (iii) the Market Stand-Off, to the same
extent such shares would be so subject if retained by Optionee.
3. Market Stand-Off.
----------------
(a) In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market Stand-Off")
shall be in effect for such period of time from and after the effective date of
the final prospectus for the offering as may be requested by the Corporation or
such underwriters. In no event, however, shall such period exceed one hundred
eighty (180) days and the Market Stand-Off shall in all events terminate two (2)
years after the effective date of the Corporation's initial public offering.
(b) Owner shall be subject to the Market Stand-Off provided and
------------
only if the officers and directors of the Corporation are also subject to
- ----
similar restrictions.
(c) Any new, substituted or additional securities which are by
reason of any Recapitalization or Reorganization distributed with respect to the
Purchased Shares shall be immediately subject to the Market Stand-Off, to the
same extent the Purchased Shares are at such time covered by such provisions.
(d) In order to enforce the Market Stand-Off, the Corporation may
impose stop-transfer instructions with respect to the Purchased Shares until the
end of the applicable stand-off period.
3
<PAGE>
D. REPURCHASE RIGHT
----------------
1. Grant. The Corporation is hereby granted the right (the
-----
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Optionee ceases for any reason to remain in Service or (if
later) during the sixty (60)-day period following the execution date of this
Agreement, to repurchase at the Exercise Price all or (at the discretion of the
Corporation and with the consent of Optionee) any portion of the Purchased
Shares in which Optionee is not, at the time of his or her cessation of Service,
vested in accordance with the Vesting Schedule (such shares to be hereinafter
referred to as the "Unvested Shares").
2. Exercise of the Repurchase Right. The Repurchase Right shall be
--------------------------------
exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested
Shares to be repurchased shall be delivered to the Corporation on or before the
close of business on the date specified for the repurchase. Concurrently with
the receipt of such stock certificates, the Corporation shall pay to Owner, in
cash or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Exercise Price previously paid for the
Unvested Shares which are to be repurchased from Owner.
3. Termination of the Repurchase Right. The Repurchase Right shall
-----------------------------------
terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall
terminate and cease to be exercisable with respect to any and all Purchased
Shares in which Optionee vests in accordance with the Vesting Schedule. All
Purchased Shares as to which the Repurchase Right lapses shall, however, remain
subject to (i) the First Refusal Right and (ii) the Market Stand-Off.
4. Aggregate Vesting Limitation. If the Option is exercised in more
----------------------------
than one increment so that Optionee is a party to one or more other Stock
Purchase Agreements (the "Prior Purchase Agreements") which are executed prior
to the date of this Agreement, then the total number of Purchased Shares as to
which Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which Optionee would otherwise at the time be
vested, in accordance with the Vesting Schedule, had all the Purchased Shares
(including those acquired under the Prior Purchase Agreements) been acquired
exclusively under this Agreement.
5. Recapitalization. Any new, substituted or additional securities
----------------
or other property (including cash paid other than as a regular cash dividend)
which is by reason of any Recapitalization distributed with respect to the
Purchased Shares shall be immediately subject to the Repurchase Right and any
escrow requirements hereunder, but
4
<PAGE>
only to the extent the Purchased Shares are at the time covered by such right or
escrow requirements. Appropriate adjustments to reflect such distribution shall
be made to the number and/or class of Purchased Shares subject to this Agreement
and to the price per share to be paid upon the exercise of the Repurchase Right
in order to reflect the effect of any such Recapitalization upon the
Corporation's capital structure; provided, however, that the aggregate purchase
--------
price shall remain the same.
6. Corporate Transaction.
---------------------
(a) The Repurchase Right shall automatically terminate in its
entirety, and all the Purchased Shares shall vest in full, immediately prior to
the consummation of any Corporate Transaction, except to the extent the
Repurchase Right is to be assigned to the successor entity in such Corporate
Transaction.
(b) To the extent the Repurchase Right remains in effect following
a Corporate Transaction, such right shall apply to any new securities or other
property (including any cash payments) received in exchange for the Purchased
Shares in consummation of the Corporate Transaction, but only to the extent the
Purchased Shares are at the time covered by such right. Appropriate adjustments
shall be made to the price per share payable upon exercise of the Repurchase
Right to reflect the effect of the Corporate Transaction upon the Corporation's
capital structure; provided, however, that the aggregate purchase price shall
--------
remain the same. The new securities or other property (including any cash
payments) issued or distributed with respect to the Purchased Shares in
consummation of the Corporate Transaction shall be immediately deposited in
escrow with the Corporation (or the successor entity) and shall not be released
from escrow until Optionee vests in such securities or other property in
accordance with the same Vesting Schedule in effect for the Purchased Shares.
(c) The Repurchase Right may also terminate on an accelerated
basis, and the Purchased Shares shall immediately vest in full, in accordance
with the terms and conditions of any special addendum attached to this
Agreement.
E. RIGHT OF FIRST REFUSAL
----------------------
1. Grant. The Corporation is hereby granted the right of first
-----
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which Optionee has vested in accordance with
the Vesting Schedule. For purposes of this Article E, the term "transfer" shall
include any sale, assignment, pledge, encumbrance or other disposition of the
Purchased Shares intended to be made by Owner, but shall not include any
Permitted Transfer.
2. Notice of Intended Disposition. In the event any Owner of
------------------------------
Purchased Shares in which Optionee has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the
5
<PAGE>
offer, including the purchase price and the identity of the third-party offeror,
and (ii) provide satisfactory proof that the disposition of the Target Shares to
such third-party offeror would not be in contravention of the provisions set
forth in Articles B and C.
3. Exercise of the First Refusal Right. The Corporation shall, for a
-----------------------------------
period of twenty-five (25) days following receipt of the Disposition Notice,
have the right to repurchase any or all of the Target Shares subject to the
Disposition Notice upon the same terms as those specified therein or upon such
other terms (not materially different from those specified in the Disposition
Notice) to which Owner consents. Such right shall be exercisable by delivery of
written notice (the "Exercise Notice") to Owner prior to the expiration of the
twenty-five (25)-day exercise period. If such right is exercised with respect
to all the Target Shares, then the Corporation shall effect the repurchase of
such shares, including payment of the purchase price, not more than five (5)
business days after delivery of the Exercise Notice; and at such time the
certificates representing the Target Shares shall be delivered to the
Corporation.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within twenty (20) days after the Corporation's receipt of
the Disposition Notice, each shall select an appraiser of recognized standing
and the two (2) appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The cost of
such appraisal shall be shared equally by Owner and the Corporation. The
closing shall then be held on the later of (i) the fifth (5th) business day
-----
following delivery of the Exercise Notice or (ii) the fifth (5th) business day
after such valuation shall have been made.
4. Non-Exercise of the First Refusal Right. In the event the
---------------------------------------
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
--------
disposition must not be effected in contravention of the provisions of Articles
B and C. The third-party offeror shall acquire the Target Shares free and clear
of the Repurchase Right and the First Refusal Right, but the acquired shares
shall remain subject to the provisions of Article B and Paragraph C.3. In the
event Owner does not effect such sale or disposition of the Target Shares within
the specified thirty (30)-day period, the First Refusal Right shall continue to
be applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses.
6
<PAGE>
5. Partial Exercise of the First Refusal Right. In the event the
-------------------------------------------
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within five (5) business days after Owner's receipt of the Exercise
Notice, to effect the sale of the Target Shares pursuant to either of the
following alternatives:
(i) sale or other disposition of all the Target Shares to the
third-party offeror identified in the Disposition Notice, but in full compliance
with the requirements of Paragraph E.4, as if the Corporation did not exercise
the First Refusal Right; or
(ii) sale to the Corporation of the portion of the Target Shares
which the Corporation has elected to purchase, such sale to be effected in
substantial conformity with the provisions of Paragraph E.3. The First Refusal
Right shall continue to be applicable to any subsequent disposition of the
remaining Target Shares until such right lapses.
Owner's failure to deliver timely notification to the Corporation shall be
deemed to be an election by Owner to sell the Target Shares pursuant to
alternative (i) above.
6. Recapitalization/Reorganization.
-------------------------------
(a) Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the First Refusal Right,
but only to the extent the Purchased Shares are at the time covered by such
right.
(b) In the event of a Reorganization, the First Refusal Right
shall remain in full force and effect and shall apply to the new capital stock
or other property received in exchange for the Purchased Shares in consummation
of the Reorganization, but only to the extent the Purchased Shares are at the
time covered by such right.
7. Lapse. The First Refusal Right shall lapse upon the earliest to
----- --------
occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred (500) persons, (ii) a determination is made by
the Board that a public market exists for the outstanding shares of Common Stock
or (iii) a firm commitment underwritten public offering, pursuant to an
effective registration statement under the 1933 Act, covering the offer and sale
of the Common Stock in the aggregate amount of at least ten million dollars
($10,000,000). However, the Market Stand-Off shall continue to remain in full
force and effect following the lapse of the First Refusal Right.
7
<PAGE>
F. SPECIAL TAX ELECTION
--------------------
The acquisition of the Purchased Shares may result in adverse tax
consequences which may be avoided or mitigated by filing an election under Code
Section 83(b). Such election must be filed within thirty (30) days after the
date of this Agreement. A description of the tax consequences applicable to the
acquisition of the Purchased Shares and the form for making the Code Section
83(b) election are set forth in Exhibit II. OPTIONEE SHOULD CONSULT WITH HIS OR
HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED
SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b)
ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY, AND
NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN
IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING
ON HIS OR HER BEHALF.
G. GENERAL PROVISIONS
------------------
1. Assignment. The Corporation may assign the Repurchase Right
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and/or the First Refusal Right to any person or entity selected by the Board,
including (without limitation) one or more shareholders of the Corporation.
If the assignee of the Repurchase Right is other than (i) a wholly
owned subsidiary of the Corporation or (ii) the parent corporation owning one
hundred percent (100%) of the Corporation's outstanding capital stock, then such
assignee must make a cash payment to the Corporation, upon the assignment of the
Repurchase Right, in an amount equal to the excess (if any) of (i) the Fair
Market Value of the Purchased Shares at the time subject to the assigned
Repurchase Right over (ii) the aggregate repurchase price payable for the
Purchased Shares.
2. No Employment or Service Contract. Nothing in this Agreement or
---------------------------------
in the Plan shall confer upon Optionee any right to continue in Service for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Optionee) or of Optionee, which rights are hereby expressly reserved
by each, to terminate Optionee's Service at any time for any reason, with or
without cause.
3. Notices. Any notice required to be given under this Agreement
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shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
<PAGE>
4. No Waiver. The failure of the Corporation in any instance to
---------
exercise the Repurchase Right or the First Refusal Right shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and Optionee. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
5. Cancellation of Shares. If the Corporation shall make available,
----------------------
at the time and place and in the amount and form provided in this Agreement, the
consideration for the Purchased Shares to be repurchased in accordance with the
provisions of this Agreement, then from and after such time, the person from
whom such shares are to be repurchased shall no longer have any rights as a
holder of such shares (other than the right to receive payment of such
consideration in accordance with this Agreement). Such shares shall be deemed
purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
H. MISCELLANEOUS PROVISIONS
------------------------
1. Optionee Undertaking. Optionee hereby agrees to take whatever
--------------------
additional action and execute whatever additional documents the Corporation may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Optionee or the Purchased Shares
pursuant to the provisions of this Agreement.
2. Agreement is Entire Contract. This Agreement constitutes the
----------------------------
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
3. Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the State of California without resort to that
State's conflict-of-laws rules.
4. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
5. Successors and Assigns. The provisions of this Agreement shall
----------------------
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and upon Optionee, Optionee's permitted assigns and the legal
representatives, heirs and legatees of Optionee's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
LEXAR MEDIA, INC.
By: ________________________
Title: ________________________
Address: _____________________
_______________________________
_______________________________
OPTIONEE
Address: _____________________
_______________________________
10
<PAGE>
SPOUSAL ACKNOWLEDGMENT
----------------------
The undersigned spouse of Optionee has read and hereby approves the
foregoing Stock Purchase Agreement. In consideration of the Corporation's
granting Optionee the right to acquire the Purchased Shares in accordance with
the terms of such Agreement, the undersigned hereby agrees to be irrevocably
bound by all the terms of such Agreement, including (without limitation) the
right of the Corporation (or its assigns) to purchase any Purchased Shares in
which Optionee is not vested at time of his or her cessation of Service.
______________________________
OPTIONEE'S SPOUSE
Address: _____________________
______________________________
11
<PAGE>
EXHIBIT I
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ________________ hereby sell(s), assign(s), and
transfer(s) unto Lexar Media, Inc. (the "Corporation"), _______________ (____)
shares of the Common Stock of the Corporation standing in his or her name on the
books of the Corporation represented by Certificate No. ____________ herewith
and do(es) hereby irrevocably constitute and appoint _______________ Attorney to
transfer the said stock on the books of the Corporation with full power of
substitution in the premises.
Dated: ______________
Signature _________________________
Instruction: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Optionee.
<PAGE>
EXHIBIT II
----------
FEDERAL INCOME TAX CONSEQUENCES AND
SECTION 83(b) TAX ELECTION
I. Federal Income Tax Consequences and Section 83(b) Election For Exercise
-----------------------------------------------------------------------
of Non-Statutory Option. If the Purchased Shares are acquired pursuant to the
- -----------------------
exercise of a Non-Statutory Option, as specified in the Grant Notice, then under
Code Section 83, the excess of the Fair Market Value of the Purchased Shares on
the date any forfeiture restrictions applicable to such shares lapse over the
Exercise Price paid for such shares will be reportable as ordinary income on the
lapse date. For this purpose, the term "forfeiture restrictions" includes the
right of the Corporation to repurchase the Purchased Shares pursuant to the
Repurchase Right. However, Optionee may elect under Code Section 83(b) to be
taxed at the time the Purchased Shares are acquired, rather than when and as
such Purchased Shares cease to be subject to such forfeiture restrictions. Such
election must be filed with the Internal Revenue Service within thirty (30) days
after the date of the Agreement. Even if the Fair Market Value of the Purchased
Shares on the date of the Agreement equals the Exercise Price paid (and thus no
tax is payable), the election must be made to avoid adverse tax consequences in
the future. The form for making this election is attached as part of this
exhibit. FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY (30)-DAY
PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME BY OPTIONEE AS THE
FORFEITURE RESTRICTIONS LAPSE.
II. Federal Income Tax Consequences and Conditional Section 83(b) Election
----------------------------------------------------------------------
For Exercise of Incentive Option. If the Purchased Shares are acquired pursuant
- --------------------------------
to the exercise of an Incentive Option, as specified in the Grant Notice, then
the following tax principles shall be applicable to the Purchased Shares:
(i) For regular tax purposes, no taxable income will be recognized
at the time the Option is exercised.
(ii) The excess of (a) the Fair Market Value of the Purchased Shares
on the date the Option is exercised or (if later) on the date any forfeiture
restrictions applicable to the Purchased Shares lapse over (b) the Exercise
Price paid for the Purchased Shares will be includible in Optionee's taxable
income for alternative minimum tax purposes.
(iii) If Optionee makes a disqualifying disposition of the Purchased
Shares, then Optionee will recognize ordinary income in the year of such
disposition equal in amount to the excess of (a) the Fair Market Value of the
Purchased Shares on the date the Option is exercised or (if later) on the date
any forfeiture restrictions applicable to the Purchased Shares lapse over (b)
the Exercise Price paid for the Purchased Shares. Any additional gain recognized
upon the disqualifying disposition will be either short-
<PAGE>
term or long-term capital gain depending upon the period for which the Purchased
Shares are held prior to the disposition.
(iv) For purposes of the foregoing, the term "forfeiture
restrictions" will include the right of the Corporation to repurchase the
Purchased Shares pursuant to the Repurchase Right. The term "disqualifying
disposition" means any sale or other disposition/1/ of the Purchased Shares
within two (2) years after the Grant Date or within one (1) year after the
exercise date of the Option.
(v) In the absence of final Treasury Regulations relating to
Incentive Options, it is not certain whether Optionee may, in connection with
the exercise of the Option for any Purchased Shares at the time subject to
forfeiture restrictions, file a protective election under Code Section 83(b)
which would limit (a) Optionee's alternative minimum taxable income upon
exercise and (b) Optionee's ordinary income upon a disqualifying disposition to
the excess of the Fair Market Value of the Purchased Shares on the date the
Option is exercised over the Exercise Price paid for the Purchased Shares.
Accordingly, such election if properly filed will only be allowed to the extent
the final Treasury Regulations permit such a protective election. Page 2 of the
attached form for making the election should be filed with any election made in
connection with the exercise of an Incentive Option.
- ----------------------
/1/ Generally, a disposition of shares purchased under an Incentive Option
includes any transfer of legal title, including a transfer by sale, exchange or
gift, but does not include a transfer to the Optionee's spouse, a transfer into
joint ownership with right of survivorship if Optionee remains one of the joint
owners, a pledge, a transfer by bequest or inheritance or certain tax free
exchanges permitted under the Code.
2
<PAGE>
SECTION 83(b) 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:
-----------------------------------------------------------
Address:
--------------------------------------------------------
Taxpayer Ident. No.:
--------------------------------------------
(2) The property with respect to which the election is being made is ________
shares of the common stock of Lexar Media, Inc.
(3) The property was issued on _____________, _____.
(4) The taxable year in which the election is being made is the calendar year
_____.
(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 in a series of installments over a four
(4)-year period ending on _____________, 200__.
(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 $__________ per share.
(7) The amount paid for such property is $___________ per share.
(8) A copy of this statement was furnished to Lexar Media, Inc. for whom
taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on _____________, ______.
_______________________ _________________________
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Purchase Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Optionee must retain
<PAGE>
two (2) copies of the completed form for filing with his or her Federal and
state tax returns for the current tax year and an additional copy for his or her
records.
The property described in the above Section 83(b) election is comprised of
shares of common stock acquired pursuant to the exercise of an incentive stock
option under Section 422 of the Internal Revenue Code (the "Code").
Accordingly, it is the intent of the Taxpayer to utilize this election to
achieve the following tax results:
1. The purpose of this election is to have the alternative minimum taxable
income attributable to the purchased shares measured by the amount by which the
fair market value of such shares at the time of their transfer to the Taxpayer
exceeds the purchase price paid for the shares. In the absence of this
election, such alternative minimum taxable income would be measured by the
spread between the fair market value of the purchased shares and the purchase
price which exists on the various lapse dates in effect for the forfeiture
restrictions applicable to such shares. The election is to be effective to the
full extent permitted under the Code.
2. Section 421(a)(1) of the Code expressly excludes from income any excess
of the fair market value of the purchased shares over the amount paid for such
shares. Accordingly, this election is also intended to be effective in the
event there is a "disqualifying disposition" of the shares, within the meaning
of Section 421(b) of the Code, which would otherwise render the provisions of
Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer
hereby elects to have the amount of disqualifying disposition income measured by
the excess of the fair market value of the purchased shares on the date of
transfer to the Taxpayer over the amount paid for such shares. Since Section
421(a) presently applies to the shares which are the subject of this Section
83(b) election, no taxable income is actually recognized for regular tax
purposes at this time, and no income taxes are payable, by the Taxpayer as a
result of this election.
THIS PAGE 2 IS TO BE ATTACHED TO ANY SECTION 83(b) ELECTION FILED IN CONNECTION
WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION UNDER THE FEDERAL TAX LAWS.
2
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Purchase Agreement.
---------
B. Board shall mean the Corporation's Board of Directors.
-----
C. Code shall mean the Internal Revenue Code of 1986, as amended.
----
D. Common Stock shall mean the Corporation's common stock.
------------
E. Corporate Transaction shall mean either of the following shareholder-
---------------------
approved transactions:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of the
Corporation.
F. Corporation shall mean Lexar Media, Inc., a California corporation.
-----------
G. Disposition Notice shall have the meaning assigned to such term in
------------------
Paragraph E.2.
H. Exercise Notice shall have the meaning assigned to such term in
---------------
Paragraph E.3.
I. Exercise Price shall have the meaning assigned to such term in
--------------
Paragraph A.1.
J. Fair Market Value of a share of Common Stock on any relevant date,
-----------------
prior to the initial public offering of the Common Stock, shall be determined by
the Plan Administrator after taking into account such factors as it shall deem
appropriate.
K. First Refusal Right shall mean the right granted to the Corporation in
-------------------
accordance with Article E.
L. Grant Date shall have the meaning assigned to such term in Paragraph
----------
A.1.
M. Grant Notice shall mean the Notice of Grant of Stock Option pursuant to
------------
which Optionee has been informed of the basic terms of the Option.
<PAGE>
N. Incentive Option shall mean an option which satisfies the requirements
----------------
of Code Section 422.
O. Market Stand-Off shall mean the market stand-off restriction specified
----------------
in Paragraph C.3.
P. 1933 Act shall mean the Securities Act of 1933, as amended.
--------
Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
--------
R. Non-Statutory Option shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
S. Option shall have the meaning assigned to such term in Paragraph A.1.
------
T. Option Agreement shall mean all agreements and other documents
----------------
evidencing the Option.
U. Optionee shall mean the person to whom the Option is granted under the
--------
Plan.
V. Owner shall mean Optionee and all subsequent holders of the Purchased
-----
Shares who derive their chain of ownership through a Permitted Transfer from
Optionee.
W. Parent shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
X. Permitted Transfer shall mean (i) a gratuitous transfer of the
------------------
Purchased Shares, provided and only if Optionee obtains the Corporation's prior
written consent to such transfer, (ii) a transfer of title to the Purchased
Shares effected pursuant to Optionee's will or the laws of intestate succession
following Optionee's death or (iii) a transfer to the Corporation in pledge as
security for any purchase-money indebtedness incurred by Optionee in connection
with the acquisition of the Purchased Shares.
Y. Plan shall mean the Corporation's 1996 Stock Option Plan.
----
Z. Plan Administrator shall mean either the Board or a committee of the
------------------
Board acting in its capacity as administrator of the Plan.
AA. Prior Purchase Agreement shall have the meaning assigned to such term
------------------------
in Paragraph D.4.
AB. Purchased Shares shall have the meaning assigned to such term in
----------------
Paragraph A.1.
2
<PAGE>
AC. Recapitalization shall mean any stock split, stock dividend,
----------------
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
AD. Reorganization shall mean any of the following transactions:
--------------
(i) a merger or consolidation in which the Corporation is not the
surviving entity,
(ii) a sale, transfer or other disposition of all or substantially
all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities are
transferred in whole or in part to a person or persons different from the
persons holding those securities immediately prior to the merger, or
(iv) any transaction effected primarily to change the state in which
the Corporation is incorporated or to create a holding company structure.
AE. Repurchase Right shall mean the right granted to the Corporation in
----------------
accordance with Article D.
AF. SEC shall mean the Securities and Exchange Commission.
---
AG. Service shall mean the Optionee's performance of services for the
-------
Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or an independent consultant.
AH. Subsidiary shall mean any corporation (other than the Corporation) in
----------
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
AI. Target Shares shall have the meaning assigned to such term in
-------------
Paragraph E.2.
AJ. Vesting Schedule shall mean the vesting schedule specified in the
----------------
Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a
series of installments over his or her period of Service.
AK. Unvested Shares shall have the meaning assigned to such term in
---------------
Paragraph D.1.
3
<PAGE>
LEXAR MEDIA, INC.
-----------------
NOTE SECURED BY STOCK PLEDGE AGREEMENT
--------------------------------------
$_________________ _____________,_____
Fremont, California
FOR VALUE RECEIVED, ("Maker") promises to pay to the order of Lexar Media,
Inc. (the "Corporation"), at its corporate offices at 47421 Bayside Parkway,
Fremont, California, the principal sum of
_________________________________________ Dollars ($__________), together with
all accrued interest thereon, upon the terms and conditions specified below.
1. Principal. The principal balance of this Note shall become due and
---------
payable in one installment on __________, 200__ (the "Maturity Date").
2. Interest. Interest shall accrue on the unpaid balance outstanding
--------
from time to time under this Note at the rate of _____% per annum, which
rate is not less than the minimum rate established pursuant to Section 1274(d)
of the Internal Revenue Code of 1986, as amended, compounded ________;
provided, however, that the rate at which interest will accrue on unpaid
- -------- -------
principal under this Note will not exceed the highest rate permitted by
applicable law. Accrued interest shall become due and payable on the Maturity
Date.
3. Payment. Payment shall be made in lawful tender of the United States
-------
and shall be applied first to the payment of all accrued and unpaid interest and
then to the payment of principal. Prepayment of the principal balance of this
Note, together with all accrued and unpaid interest, may be made in whole or in
part at any time without penalty.
4. Events of Acceleration. The entire unpaid principal balance of this
----------------------
Note, together with all accrued and unpaid interest, shall become immediately
due and payable prior to the specified due date of this Note upon the occurrence
of one or more of the following events:
A. the failure of the Maker to pay any installment of principal or
accrued interest under this Note when due and the continuation of such
default for more than thirty (30) days; or
B. the expiration of the thirty (30)-day period following the date
the Maker ceases for any reason to remain in the Corporation's employ; or
C. the insolvency of the Maker, the commission of any act of
bankruptcy by the Maker, the execution by the Maker of a general assignment
for the benefit of creditors, the filing by or against the Maker of any
petition in bankruptcy or any petition for relief under the provisions of
the Federal bankruptcy act or any other state or Federal law for the relief
of debtors and the continuation of such petition without dismissal for a
period of thirty (30) days or more, the appointment of a receiver or
trustee to take possession of any property or assets of the Maker or the
attachment of or execution against any property or assets of the Maker;
<PAGE>
D. the occurrence of any event of default under the Stock Pledge
Agreement securing this Note or any obligation secured thereby; or.
E. the consolidation or merger of the Corporation with or into
another corporation or corporations in which holders of the Corporation's
outstanding shares immediately before such consolidation or merger will
not, immediately after such consolidation or merger, retain stock
representing a majority of the voting power of the surviving corporation of
such consolidation or merger; or the sale of all, or substantially all, of
the assets of the Corporation.
5. Special Acceleration Event. In the event the Maker sells or
--------------------------
otherwise transfers for value one or more shares of the Corporation's common
stock purchased with the proceeds of this Note, then the portion of the
principal balance of this Note attributable to the purchase price of those
shares shall become immediately due and payable, together with all accrued and
unpaid interest on that principal portion.
6. Employment. For purposes of applying the provisions of this Note,
----------
the Maker shall be considered to remain in the Corporation's employ for so long
as the Maker renders services as a full-time employee of the Corporation, any
successor entity or one or more of the Corporation's fifty percent (50%)-or-more
owned subsidiaries.
7. Security. The proceeds of the loan evidenced by this Note shall be
--------
applied solely to the payment of the purchase price of shares of the
Corporation's common stock, and payment of this Note shall be secured by a
pledge of those shares with the Corporation pursuant to the Stock Pledge
Agreement to be executed this date by the Maker. The Maker, however, shall
remain personally liable for payment of this Note and assets of the Maker, in
addition to the collateral under the Stock Pledge Agreement, may be applied to
the satisfaction of the Maker's obligations hereunder.
8. Collection. If action is instituted to collect this Note, the Maker
----------
promises to pay all costs and expenses (including reasonable attorney fees)
incurred in connection with such action.
9. Waiver. A waiver of any term of this Note, the Stock Pledge
------
Agreement or any obligations secured thereby must be made in writing and signed
by a duly-authorized officer of the Corporation and any such waiver shall be
limited to its express terms. No delay by the Corporation in acting with
respect to the terms of this Note or the Stock Pledge Agreement shall constitute
a waiver of any breach, default, or failure of a condition under this Note, the
Stock Pledge Agreement or the obligations secured thereby.
The Maker waives presentment, demand, notice of dishonor, notice of default
or delinquency, notice of acceleration, notice of protest and nonpayment, notice
of costs, expenses or losses and interest thereon, notice of interest on
interest and diligence in taking any action to collect any sums owing under this
Note or in proceeding against any of the rights or interests in or to properties
securing payment of this Note.
2
<PAGE>
10. Conflicting Agreements. In the event of any inconsistencies between
----------------------
the terms of this Note and the terms of any other document related to the loan
evidenced by the Note, the terms of this Note shall prevail.
11. Rule 144 Holding Period. PURCHASER UNDERSTANDS THAT THE HOLDING
-----------------------
PERIOD SPECIFIED UNDER RULE 144(d) OF THE SECURITIES AND EXCHANGE COMMISSION
WILL NOT BEGIN TO RUN WITH RESPECT TO SHARES PURCHASED WITH THIS NOTE UNTIL
EITHER (A) THE PURCHASE PRICE OF SUCH SHARES IS PAID IN FULL IN CASH OR BY OTHER
PROPERTY ACCEPTED BY THE COMPANY, OR (B) THIS NOTE IS SECURED BY COLLATERAL,
OTHER THAN THE SHARES THAT HAVE NOT BEEN FULLY PAID FOR IN CASH, HAVING A FAIR
MARKET VALUE AT LEAST EQUAL TO THE AMOUNT OF PURCHASER'S THEN OUTSTANDING
OBLIGATION UNDER THIS NOTE (INCLUDING ACCRUED INTEREST).
12. Governing Law. This Note shall be construed in accordance with the
-------------
laws of the State of California without resort to that State's conflict-of-
laws rules.
________________________________
MAKER
3
<PAGE>
LEXAR MEDIA, INC.
-----------------
STOCK PLEDGE AGREEMENT
----------------------
AGREEMENT made as of this __ day of ________, _____ by and between
Lexar Media, Inc., a California corporation (the "Corporation"), and
____________ ("Pledgor").
RECITALS
- --------
A. In connection with the purchase of ________ shares of the
Corporation's Common Stock (the "Purchased Shares") on the date of this
Agreement from the Corporation, Pledgor has issued that certain promissory note
(the "Note") dated ___________, _____ payable to the order of the Corporation in
the principal amount of _________________ Dollars ($_____).
B. Such Note is secured by the Purchased Shares and other collateral
upon the terms set forth in this Agreement.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Security Interest. Pledgor hereby grants the Corporation
--------------------------
a security interests in, and assigns, transfers to and pledges with the
Corporation, the following securities and other property (collectively, the
"Collateral"):
(i) the Purchased Shares delivered to and deposited with the
Corporation as collateral for the Note;
(ii) any and all new, additional or different securities or other
property subsequently distributed with respect to the Purchased Shares which are
to be delivered to and deposited with the Corporation pursuant to the
requirements of Paragraph 3 of this Agreement;
(iii) any and all other property and money which is delivered to
or comes into the possession of the Corporation pursuant to the terms of this
Agreement; and
(iv) the proceeds of any sale, exchange or disposition of the
property and securities described in subparagraphs (i), (ii) or (iii) above.
2. Warranties. Pledgor hereby warrants that Pledgor 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
(other than those created hereby).
3. Duty to Deliver. Any new, additional or different securities or
---------------
other property (other than regular cash dividends) which may now or hereafter
become distributable with respect to the Collateral by reasons of (i) any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the Common Stock as a class without the
Corporation's receipt of consideration or (ii) any merger,
<PAGE>
consolidation or other organization affecting the capital structure of the
Corporation shall, upon receipt by Pledgor be promptly delivered to and
deposited with the Corporation as part of the Collateral hereunder. Any such
securities shall be accompanied by one or more properly-endorsed stock power
assignments.
4. Payment of Taxes and Other Charges. Pledgor shall pay, prior to
-----------------------------------
the delinquency date, all taxes, liens, assessments and other charges against
the Collateral, and in the event of Pledgor's failure to do so, the Corporation
may at its election pay any or all of such taxes and other charges without
contesting the validity or legality thereof. The payments so made shall become
part of the indebtedness secured hereunder and until paid shall bear interest at
the minimum per annum rate, compounded quarterly, required to avoid the
imputation of interest income to the Corporation and compensation income to
Pledgor under the Federal tax laws.
5. Shareholder Rights. So long as there exists no event of default
-------------------
under Paragraph 10 of this Agreement, Pledgor may exercise all shareholder
voting rights and be entitled to receive any and all regular cash dividends paid
on the Collateral and all proxy statements and other shareholder materials
pertaining to the Collateral.
6. Rights and Powers of Corporation. The Corporation 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:
(i) subject to the applicable limitations of Paragraph 9, accept
in its discretion other property of Pledgor in exchange for all or part of the
Collateral and release Collateral to Pledgor to the extent necessary to effect
such exchange, and in such event the other property received in the exchange
shall become part of the Collateral hereunder;
(ii) perform such acts as are necessary to preserve and protect
the Collateral and the rights, powers ad remedies granted with respect to such
Collateral by this Agreement; and
(iii) transfer record ownership of the Collateral to the
Corporation 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 Paragraph 10 of this Agreement. Any cash sums
which the Corporation may so receive shall be applied to the payment of the Note
and any other indebtedness secured hereunder, in such order of application as
the Corporation deems appropriate. Any remaining cash shall be paid over to
Pledgor.
Any action by the Corporation pursuant to the provisions of this
Paragraph 6 may be taken without notice to Pledgor. Expenses reasonably
incurred in connection with such action shall be payable by Pledgor and form
part of the indebtedness secured hereunder as provided in Paragraph 12.
7. Care of Collateral. The Corporation shall exercise reasonable
------------------
care in the custody and preservation of the Collateral. However, the
Corporation shall have no
2
<PAGE>
obligation to (i) initiate any action with respect to, or otherwise inform
Pledgor of, any conversation, call, exchange right, preemptive right,
subscription right, purchase offer or other right or privilege relating to or
affecting the Collateral, (ii) preserve the rights of Pledgor against adverse
claims or protect the Collateral against the possibility of a decline in market
value or (iii) take any action with respect to the Collateral requested by
Pledgor unless the request is made in writing and the Corporation determines
that the requested action will not unreasonably jeopardize the value of the
Collateral as security for the Note and other indebtedness secured hereunder.
Subject to the limitations of Paragraph 9, the Corporation may at any
time release and deliver all or part of the Collateral to Pledgor, and the
receipt thereof by Pledgor shall constitute a complete and full acquittance for
the Collateral so released and delivered. The Corporation shall accordingly be
discharged from any further liability or responsibility for the Collateral, and
the released Collateral shall no longer be subject to the provisions of this
Agreement.
8. Transfer of Collateral. In connection with the transfer or
----------------------
assignments of the Note (whether by negotiation, discount or otherwise), the
Corporation may transfer all or any part of the Collateral, and the transferee
shall thereupon succeed to all the rights, powers and remedies granted the
Corporation hereunder with respect to the Collateral so transferred. Upon such
transfer, the Corporation shall be fully discharged from all liability and
responsibility for the transferred Collateral.
9. Release of Collateral. Provided all indebtedness secured
---------------------
hereunder (other than payments not yet due and payable under the Note) shall at
the time have been paid in full and there does not otherwise exist any event of
default under Paragraph 10, the Purchased Shares, together with any additional
Collateral which may hereafter be pledged and deposited hereunder, shall be
released from pledge and returned to Pledgor in accordance with the following
provisions:
(i) Upon payment or prepayment of principal under the Note,
together with payment of all accrued interest to date, one or more of the
Purchased Shares held as Collateral hereunder shall (subject to the applicable
limitations of Paragraph 9(iii) and 9(v) below) be released at the time of such
payment or prepayment. The number of the shares to be so released shall be equal
to the number obtained by multiplying (i) the total number of Purchased Shares
held under this Agreement at the time of the payment or prepayment, by (ii) a
fraction, the numerator of which shall be the amount of the principal paid or
prepaid and the denominator of which shall be the unpaid principal balance of
the Note immediately prior to such payment or prepayment. In no event, however,
shall any fractional shares be released.
(ii) Any additional Collateral which may hereafter be pledged and
deposited with the Corporation (pursuant to the requirements of Paragraph 3)
with respect to the Purchased Shares shall be released at the same time the
particular shares of Common Stock to which the additional Collateral relates are
to be released in accordance with the applicable provisions of Paragraph 9(i).
3
<PAGE>
(iii) Under no circumstances, however, shall any Purchased Shares
or any other Collateral be released if previously applied to the payment of any
indebtedness secured hereunder. In addition, in no event shall any Purchased
Shares or other Collateral be released pursuant to the provisions of Paragraph
9(i) or 9(ii) if, and to the extent, the fair market value of the Common Stock
and all other Collateral which would otherwise remain in pledge hereunder after
such release were effected would be less than the unpaid principal and accrued
interest under the Note.
(iv) For all valuation purposes under this Agreement, the fair
market value per share of Common Stock on any relevant date shall be determined
in accordance with the following provisions:
(A) If the Common Stock is at the time traded on the
Nasdaq National Market, the fair market value shall be the closing selling price
per share of Common Stock on the date in question, as such prices are reported
by the National Association of Securities Dealers on its Nasdaq system or any
successor system. If there is no reported closing selling price for the Common
Stock on the date in question, then the closing selling price on the last
preceding date for which such quotation exists shall be determinative of fair
market value.
(B) If the Common Stock is at the time listed on the
American Stock Exchange or the New York Stock Exchange, then the fair market
value shall be the closing selling price per share of Common Stock on the date
in question on the securities exchange serving as the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common Stock on
such exchange on the date in question, then the fair market value shall be the
closing selling price on the exchange on the last preceding date for which such
quotation exists.
(C) If the Common Stock is at the time neither listed on
any securities exchange nor traded on the Nasdaq National Market, the fair
market value shall be determined by the Corporation's Board of Directors after
taking into account such factors as the Board shall deem appropriate.
(v) In the event the Collateral becomes in whole or in part
comprised of "margin securities" within the meaning of Section 207.2(i) of
Regulation G of the Federal Reserve Board, then no Collateral shall thereafter
be substituted for any Collateral under the provisions of Paragraph 6(i) or be
released under Paragraph 9(i) or (ii), unless there is compliance with each of
the following additional requirements:
(A) The substitution or release must not increase the
amount by which the indebtedness secured hereunder at the time of such
substitution or release exceeds the maximum loan value (as defined below) of the
Collateral immediately prior to such substitution or release.
(B) The substitution or release must not cause the amount
of indebtedness secured hereunder at the time of such substitution or release to
exceed the maximum loan value of the Collateral remaining after such
substitution or release is effected.
4
<PAGE>
(C) For purpose of this Paragraph 9(v), the maximum
loan value of each item of Collateral shall be determined on the day the
substitution or release is to be effected and shall, in the case of the shares
of Common Stock and any additional Collateral (other than margin securities),
equal the good faith loan value thereof (as defined in Section 207.2(e)(1) of
Regulation G) and shall, in the case of all margin securities (other than the
Common Stock), equal fifty percent (50%) of the current market value of such
securities.
10. Events of Default. The occurrence of one or more of the
-----------------
following events shall constitute an event of default under this Agreement:
(i) the failure of Pledgor to pay, when due under the Note, any
installment of principal or accrued interest; or
(ii) the occurrence of any other acceleration event specified in
the Note; or
(iii) the failure of Pledgor to perform any obligation
imposed upon Pledgor by reason of this Agreement; or
(iv) the breach of any warranty of Pledgor contained in this
Agreement.
Upon the occurrence of any such event of default, the Corporation 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 foregoing power of sale shall be applied first to the payment of expenses
incurred by the Corporation in connection with the disposition, then to the
payment of the Note and finally to any other indebtedness secured hereunder.
Any surplus proceeds shall be paid over to Pledgor. However, in the event such
proceeds prove insufficient to satisfy all obligations of Pledgor under the
Note, then Pledgor shall remain personally liable for the resulting deficiency.
11. Other Remedies. The rights, powers and remedies granted to the
--------------
Corporation pursuant to the provisions of this Agreement shall be in addition to
all rights, powers and remedies granted to the Corporation under any statute or
rule of law. Any forbearance, failure or delay by the Corporation in exercising
any right, power or remedy under this Agreement shall not be deemed to be a
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 the Corporation under
this Agreement shall continue in full force and effect unless such right, power
or remedy is specifically waived by an instrument executed by the Corporation.
5
<PAGE>
12. Costs and Expenses. All costs and expenses (including reasonable
------------------
attorneys fees) incurred by the Corporation 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 constitute a personal liability of
Pledgor payable immediately upon demand and bearing interest until paid at the
minimum per annum rate, compounded quarterly, required to avoid the imputation
of interest income to the Corporation and compensation income to Pledgor under
the Federal tax laws.
13. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of California without resort
to that State's conflict-of-laws rules.
14. Successors. This Agreement shall be binding upon the Corporation
----------
and its successors and assigns and upon Pledgor and the executors, heirs and
legatees of Pledgor's estate.
15. 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 Pledgor and
the Corporation on this ____ day of _____________, _____.
LEXAR MEDIA, INC. ____________________________________
PLEDGOR
By: ______________________________ Address:____________________________
Title:____________________________ ____________________________
6
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED _____________ hereby sell(s), assign(s) and
transfer(s) unto Lexar Media, Inc. (the "Corporation"), ________________________
(_______) shares of the Common Stock of the Corporation standing in his or her
name on the books of the Corporation represented by Certificate No. _______
herewith and do(es) hereby irrevocably constitute and appoint
_____________________ Attorney to transfer the said stock on the books of the
Corporation with full power of substitution in the premises.
Dated: ______________________, ____
Signature: _______________________
Instruction: Please do not fill in any blanks other than the signature line.
--------------------------------------------------------------
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Optionee.
<PAGE>
EXHIBIT 10.4
LEXAR MEDIA, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
1. Establishment of Plan. Lexar Media, Inc. (the "Company") proposes to
grant options for purchase of the Company's Common Stock to eligible employees
of the Company and its Participating Subsidiaries (as hereinafter defined)
pursuant to this Employee Stock Purchase Plan (this "Plan"). For purposes of
this Plan, "Parent Corporation" and "Subsidiary" shall have the same meanings as
"parent corporation" and "subsidiary corporation" in Sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "Code").
"Participating Subsidiaries" are Parent Corporations or Subsidiaries that the
Board of Directors of the Company (the "Board") designates from time to time as
corporations that shall participate in this Plan. The Company intends this Plan
to qualify as an "employee stock purchase plan" under Section 423 of the Code
(including any amendments to or replacements of such Section), and this Plan
shall be so construed. Any term not expressly defined in this Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein.
A total of 1,000,000 shares of the Company's Common Stock is reserved for
issuance under this Plan. In addition, on each January 1, the aggregate number
of shares of the Company's Common Stock reserved for issuance under the Plan
shall be increased automatically by a number of shares equal to 1% of the total
number of outstanding shares of the Company Common Stock on the immediately
preceding December 31; provided, that the Board or the Committee may in its sole
---------
discretion reduce the amount of the increase in any particular year; and,
provided further, that the aggregate number of shares issued over the term of
- ----------------
this Plan shall not exceed 10,000,000 shares. Such number shall be subject to
adjustments effected in accordance with Section 14 of this Plan.
2. Purpose. The purpose of this Plan is to provide eligible employees of
the Company and Participating Subsidiaries with a convenient means of acquiring
an equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. Administration. This Plan shall be administered by the Compensation
Committee of the Board (the "Committee"). Subject to the provisions of this
Plan and the limitations of Section 423 of the Code or any successor provision
in the Code, all questions of interpretation or application of this Plan shall
be determined by the Committee and its decisions shall be final and binding upon
all participants. Members of the Committee shall receive no compensation for
their services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.
4. Eligibility. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or a Participating
Subsidiary prior to the beginning of such Offering Period or prior to such other
time period as specified by the Committee, except that employees who are
employed on the Effective Date of the Registration Statement filed by the
Company with the Securities and Exchange Commission ("SEC") under the Securities
Act of 1933, as amended (the "Securities Act") registering the initial public
offering of the Company's Common Stock shall be eligible to participate in the
first Offering Period under the Plan;
(b) employees who are customarily employed for twenty (20) hours or
less per week;
(c) employees who are customarily employed for five (5) months or
less in a calendar year;
<PAGE>
Lexar Medica, Inc.
2000 Employee Stock Purchase Plan
(d) employees who, together with any other person whose stock would be
attributed to such employee pursuant to Section 424(d) of the Code, own stock or
hold options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Subsidiaries or who, as a result of being granted an option
under this Plan with respect to such Offering Period, would own stock or hold
options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Subsidiaries; and
(e) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any reason except for federal income and employment tax
------ ---
purposes.
5. Offering Dates. The offering periods of this Plan (each, an "Offering
Period") shall be of twenty-four (24) months duration commencing on February 1
and August 1 of each year and ending on January 31 and July 31 of each year;
provided, however, that the first such Offering Period shall commence on the
- -----------------
first business day on which price quotations for the Company's Common Stock are
available on the Nasdaq National Market (the "First Offering Date") and shall
end on January 31, 2002. Except for the first Offering Period, each Offering
Period shall consist of four (4) six month purchase periods (individually, a
"Purchase Period") during which payroll deductions of the participants are
accumulated under this Plan. The first Offering Period shall consist of no more
than five and no fewer than three Purchase Periods, any of which may be greater
or less than six months as determined by the Committee. The first business day
of each Offering Period is referred to as the "Offering Date". The last
business day of each Purchase Period is referred to as the "Purchase Date". The
Committee shall have the power to change the Offering Dates, the Purchase Dates
and the duration of Offering Periods or Purchase Periods without stockholder
approval if such change is announced prior to the relevant Offering Period or
prior to such other time period as specified by the Committee.
6. Participation in this Plan. Eligible employees may become
participants in an Offering Period under this Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company prior to such Offering Date, or such other time period
as specified by the Committee. Notwithstanding the foregoing, the Committee may
set a later time for filing the subscription agreement authorizing payroll
deductions for all eligible employees with respect to a given Offering Period.
An eligible employee who does not deliver a subscription agreement to the
Company by such date after becoming eligible to participate in such Offering
Period shall not participate in that Offering Period or any subsequent Offering
Period unless such employee enrolls in this Plan by filing a subscription
agreement with the Company prior to such Offering Date, or such other time
period as specified by the Committee. 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 Section
11 below. Such participant is not required to file any additional subscription
agreement in order to continue participation in this Plan.
7. Grant of Option on Enrollment. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i) eighty-
five percent (85%) of the fair market value of a share of the Company's Common
Stock on the Offering Date (but in no event less than the par value of a share
of the Company's Common Stock), or (ii) eighty-five percent (85%) of the fair
market value of a share of the Company's Common Stock on the Purchase Date (but
in no event less than the par value of a share of the Company's Common Stock),
provided, however, that the number of shares of the Company's Common Stock
- -----------------
subject to any option granted pursuant to this Plan shall not exceed the lesser
of (x) the maximum number of shares set by the Committee pursuant to Section
10(c) below with respect to the applicable Purchase Date, or (y) the maximum
number of shares which may be purchased pursuant to Section 10(b) below with
respect to the applicable Purchase Date. The fair market value of a share of
the Company's Common Stock shall be determined as provided in Section 8 below.
2
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Lexar Medica, Inc.
2000 Employee Stock Purchase Plan
8. Purchase Price. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
For purposes of this Plan, the term "Fair Market Value" means, as of
any date, the value of a share of the Company's Common Stock determined as
follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of determination on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading as reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices on the date
of determination as reported in The Wall Street Journal; or
-----------------------
(d) if none of the foregoing is applicable, by the Board in good
faith, which in the case of the First Offering Date will be the price per share
at which shares of the Company's Common Stock are initially offered for sale to
the public by the Company's underwriters in the initial public offering of the
Company's Common Stock pursuant to a registration statement filed with the SEC
under the Securities Act.
9. Payment Of Purchase Price; Changes In Payroll Deductions; Issuance Of
Shares.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made as
a percentage of the participant's compensation in one percent (1%) increments
not less than one percent (1%), nor greater than fifteen percent (15%) or such
lower limit set by the Committee. Compensation shall mean all W-2 cash
compensation, including, but not limited to, base salary, wages, commissions,
overtime, shift premiums, bonuses and incentive compensation, plus draws against
commissions, provided, however, that for purposes of determining a participant's
-------- -------
compensation, any election by such participant to reduce his or her regular cash
remuneration under Sections 125 or 401(k) of the Code shall be treated as if the
participant did not make such election. Payroll deductions shall commence on
the first payday of the Offering Period and shall continue to the end of the
Offering Period unless sooner altered or terminated as provided in this Plan.
(b) A participant may increase or decrease the rate of payroll
deductions during an Offering Period by filing with the Company a new
authorization for payroll deductions, in which case the new rate shall become
effective for the next payroll period commencing after the Company's receipt of
the authorization and shall continue for the remainder of the Offering Period
unless changed as described below. Such change in the rate of payroll
deductions may be made at any time during an Offering Period, but not more than
one (1) change may be made effective during any Purchase Period. A participant
may increase or decrease the rate of payroll deductions for any subsequent
Offering Period by filing with the Company a new authorization for payroll
deductions prior to the beginning of such Offering Period, or such other time
period as specified by the Committee.
(c) A participant may reduce his or her payroll deduction percentage
to zero during an Offering Period by filing with the Company a request for
cessation of payroll deductions. Such reduction shall be effective beginning
with the next payroll period after the Company's receipt of the request and no
further payroll deductions will be made for the duration of the Offering Period.
Payroll deductions credited to the participant's account prior to the effective
date of the request shall be used to purchase shares of Common Stock of the
Company in accordance
3
<PAGE>
Lexar Medica, Inc.
2000 Employee Stock Purchase Plan
with Section (e) below. A participant may not resume making payroll deductions
during the Offering Period in which he or she reduced his or her payroll
deductions to zero.
(d) All payroll deductions made for a participant are credited to his
or her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(e) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under the option granted to such participant with respect
to the Offering Period to the extent that such option is exercisable on the
Purchase Date. The purchase price per share shall be as specified in Section 8
of this Plan. Any cash remaining in a participant's account after such purchase
of shares shall be refunded to such participant in cash, without interest;
provided, however that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Purchase Period or Offering Period, as the case may be. In the event
that this Plan has been oversubscribed, all funds not used to purchase shares on
the Purchase Date shall be returned to the participant, without interest. No
Common Stock shall be purchased on a Purchase Date on behalf of any employee
whose participation in this Plan has terminated prior to such Purchase Date.
(f) As promptly as practicable after the Purchase Date, the Company
shall issue shares for the participant's benefit representing the shares
purchased upon exercise of his or her option.
(g) During a participant's lifetime, his or her option to purchase
shares hereunder is exercisable only by him or her. The participant will have
no interest or voting right in shares covered by his or her option until such
option has been exercised.
10. Limitations on Shares to be Purchased.
(a) No participant shall be entitled to purchase stock under this
Plan at a rate which, when aggregated with his or her rights to purchase stock
under all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan. The Company shall automatically suspend
the payroll deductions of any participant as necessary to enforce such limit
provided that when the Company automatically resumes such payroll deductions,
the Company must apply the rate in effect immediately prior to such suspension.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator may
be purchased by a participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the
Maximum Share Amount (as defined below) on any single Purchase Date. Prior to
the commencement of any Offering Period or prior to such time period as
specified by the Committee, the Committee may, in its sole discretion, set a
maximum number of shares which may be purchased by any employee at any single
Purchase Date (hereinafter the "Maximum Share Amount"). Until otherwise
determined by the Committee, there shall be no Maximum Share Amount. In no
event shall the Maximum Share Amount exceed the amounts permitted under Section
10(b) above. If a new Maximum Share Amount is set, then all participants must
be notified of such Maximum Share Amount prior to the commencement of the next
Offering Period. The Maximum Share Amount shall continue to apply with respect
to all succeeding Purchase Dates and Offering Periods unless revised by the
Committee as set forth above.
4
<PAGE>
Lexar Medica, Inc.
2000 Employee Stock Purchase Plan
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Company will make a pro rata allocation
of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Committee shall determine to be equitable. In such
event, the Company shall give written notice of such reduction of the number of
shares to be purchased under a participant's option to each participant
affected.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. Withdrawal.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Company a written notice to that effect on
a form provided for such purpose. Such withdrawal may be elected at any time
prior to the end of an Offering Period, or such other time period as specified
by the Committee.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in this Plan shall terminate. In the event a 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 by filing a new authorization for payroll
deductions in the same manner as set forth in Section 6 above for initial
participation in this Plan.
(c) If the Fair Market Value on the first day of the current Offering
Period in which a participant is enrolled is higher than the Fair Market Value
on the first day of any subsequent Offering Period, the Company will
automatically enroll such participant in the subsequent Offering Period. Any
funds accumulated in a participant's account prior to the first day of such
subsequent Offering Period will be applied to the purchase of shares on the
Purchase Date immediately prior to the first day of such subsequent Offering
Period, if any.
12. Termination of Employment. Termination of a participant's
employment for any reason, including retirement, death or the failure of a
participant to remain an eligible employee of the Company or of a Participating
Subsidiary, immediately terminates his or her participation in this Plan. In
such event, the payroll deductions credited to the participant's account will be
returned to him or her or, in the case of his or her death, to his or her legal
representative, without interest. For purposes of this Section 12, an employee
will not be deemed to have terminated employment or failed to remain in the
continuous employ of the Company or of a Participating Subsidiary in the case of
sick leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than ninety (90) days or
- --------
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. Return of Payroll Deductions. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall deliver to the participant all payroll deductions credited to such
participant's account. No interest shall accrue on the payroll deductions of a
participant in this Plan.
14. Capital Changes. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "Reserves"), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
consideration by the Company; provided, however, that conversion of any
-----------------
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
Committee, whose determination shall be final, binding and conclusive. Except
as expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
5
<PAGE>
Lexar Medica, Inc.
2000 Employee Stock Purchase Plan
In the event of the proposed dissolution or liquidation of the
Company, the Offering Period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee. The Committee may, in the exercise of its sole discretion in such
instances, declare that this Plan shall terminate as of a date fixed by the
Committee and give each participant the right to purchase shares under this Plan
prior to such termination. In the event of (i) a merger or consolidation in
which the Company is not the surviving corporation (other than a merger or
consolidation with a wholly-owned subsidiary, a reincorporation of the Company
in a different jurisdiction, or other transaction in which there is no
substantial change in the stockholders of the Company or their relative stock
holdings and the options under this Plan are assumed, converted or replaced by
the successor corporation, which assumption will be binding on all
participants), (ii) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (iii) the sale of all or
substantially all of the assets of the Company or (iv) the acquisition, sale, or
transfer of more than 50% of the outstanding shares of the Company by tender
offer or similar transaction, the Plan will continue with regard to Offering
Periods that commenced prior to the closing of the proposed transaction and
shares will be purchased based on the Fair Market Value of the surviving
corporation's stock on each Purchase Date, unless otherwise provided by the
Committee consistent with pooling of interests accounting treatment.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
15. Nonassignability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 below) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. Reports. Individual accounts will be maintained for each
participant in this Plan. Each participant shall receive promptly after the end
of each Purchase Period a report of his or her account setting forth the total
payroll deductions accumulated, the number of shares purchased, the per share
price thereof and the remaining cash balance, if any, carried forward to the
next Purchase Period or Offering Period, as the case may be.
17. Notice of Disposition. Each participant shall notify the Company in
writing if the participant disposes of any of the shares purchased in any
Offering Period pursuant to this Plan if such disposition occurs within two (2)
years from the Offering Date or within one (1) year from the Purchase Date on
which such shares were purchased (the "Notice Period"). The Company may, at any
time during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. No Rights to Continued Employment. Neither this Plan nor the grant
of any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
6
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Lexar Medica, Inc.
2000 Employee Stock Purchase Plan
19. Equal Rights And Privileges. All eligible employees shall have
equal rights and privileges with respect to this Plan so that this Plan
qualifies as an "employee stock purchase plan" within the meaning of Section 423
or any successor provision of the Code and the related regulations. Any
provision of this Plan which is inconsistent with Section 423 or any successor
provision of the Code shall, without further act or amendment by the Company,
the Committee or the Board, be reformed to comply with the requirements of
Section 423. This Section 19 shall take precedence over all other provisions in
this Plan.
20. Notices. All notices or other communications by a participant to
the Company under or in connection with this Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Term; Stockholder Approval. After this Plan is adopted by the
Board, this Plan will become effective on the First Offering Date (as defined
above). This Plan shall be approved by the stockholders of the Company, in any
manner permitted by applicable corporate law, within twelve (12) months before
or after the date this Plan is adopted by the Board. No purchase of shares
pursuant to this Plan shall occur prior to such stockholder approval. This Plan
shall continue until the earlier to occur of (a) termination of this Plan by the
Board (which termination may be effected by the Board at any time), (b) issuance
of all of the shares of Common Stock reserved for issuance under this Plan, or
(c) ten (10) years from the adoption of this Plan by the Board.
22. Designation of Beneficiary.
(a) 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
this Plan in the event of such participant's death subsequent to the end of an
Purchase Period but prior to delivery to him 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 this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the participant
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 this Plan who is living
at the time of such participant's death, the Company shall deliver such shares
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 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.
23. Conditions Upon Issuance of Shares; Limitation on Sale of Shares.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange or automated quotation system upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
24. Applicable Law. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. Amendment or Termination of this Plan. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 above within twelve (12) months of the adoption of such amendment (or
earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this Plan;
or
7
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Lexar Medica, Inc.
2000 Employee Stock Purchase Plan
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
Notwithstanding the foregoing, the Board may make such amendments to
the Plan as the Board determines to be advisable, if the continuation of the
Plan or any Offering Period would result in financial accounting treatment for
the Plan that is different from the financial accounting treatment in effect on
the date this Plan is adopted by the Board.
8
<PAGE>
EXHIBIT 10.5
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
EITHER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE BLUE
SKY LAWS, AND ARE SUBJECT TO CERTAIN INVESTMENT REPRESENTATIONS. THESE
SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION UNDER THE ACT AND SUCH APPLICABLE BLUE SKY LAWS, OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
LEXAR MICROSYSTEMS, INC.
WARRANT TO PURCHASE COMMON STOCK
January 16, 1997
THIS CERTIFIES THAT, ____________________________________________, or
any registered assigns (the "Holder") having its principal place of business at
_______________________________________________, is entitled to subscribe for
and purchase from Lexar Microsystems, Inc., a California corporation (the
"Company"), at any time on or before the Expiration Date (as defined below),
___________________________________ (_____) fully paid and nonassessable shares
(the "Shares") of the Company's Common Stock, no par value (the "Common Stock")
at the Exercise Price (as defined below) on the terms and conditions specified
herein. This Warrant is being issued in connection with the issuance of an
aggregate principal amount of $_______ of 10% Convertible Notes. Capitalized
terms not defined herein shall have the meanings set forth in the 10%
Convertible Note.
This Warrant is subject to the following provisions, terms and
conditions:
1. Expiration of the Warrant. The Warrant shall be exercised, if at
-------------------------
all, on or prior to December 31, 2002 (the "Expiration Date").
2. Exercise Price. Subject to the adjustments provided herein, the
--------------
Exercise Price of this Warrant shall be Eighty Cents ($.80) per share.
3. Exercise of the Warrant. The purchase rights under this Warrant
-----------------------
may be exercised, in whole or in part, at any time on or after the date hereof,
by the Holder surrendering this Warrant with the form of notice attached hereto
duly executed by such Holder, to the Company at its principal office,
accompanied by payment, in cash, by wire transfer to an account of the Company,
or by check payable to the order of the Company, of the aggregate Exercise Price
payable in respect of the Shares of Common Stock being purchased. If less than
all of the Shares of Common Stock are purchased, the Company will, upon such
exercise, execute and deliver to the Holder hereof a new Warrant (dated the date
hereto) evidencing the number of Shares of Common Stock not so purchased. As
soon as practicable after the exercise of this Warrant and payment of the
aggregate Exercise Price, the Company will cause to be issued in the
<PAGE>
name of and delivered to the Holder hereof, or as such Holder may direct, a
certificate or certificates representing the Shares purchased upon exercise.
The Company may require that such certificate or certificates contain
on the face thereof a legend substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER EITHER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE BLUE SKY LAWS, AND ARE SUBJECT TO CERTAIN INVESTMENT
REPRESENTATIONS. THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACT
AND SUCH APPLICABLE BLUE SKY LAWS, OR AN OPINION OR COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
Prior to any such exercise, neither the Holder, nor any person
entitled to receive Shares issuable upon exercise of the Warrant, shall be or
have any rights of a shareholder of the Company.
4. Stock Fully Paid: Reservation of Shares. The Company covenants
----------------------------------------
and agrees that this Warrant and the 10% Convertible Note issued in connection
herewith have been duly authorized by all necessary corporate action of the
Company and all Shares of Common Stock that may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable and free from all liens. The Company also covenants and agrees
that, during the period with which the rights represented by this Warrant may be
exercised, it shall reserve, for the purpose of the issuance upon exercise of
the purchase rights evidenced by this Warrant, at least the maximum number of
Shares of Common Stock as are issuable upon the exercise of the rights
represented by this Warrant.
5. Negotiability and Transfer. This Warrant is issued upon the
--------------------------
following terms, to which the Holder consents and agrees:
(a) Title to this Warrant may be transferred in whole or in part
only by endorsement (by the Holder hereof executing the form of
assignment attached hereto) and delivery in the same manner as in the
case of a negotiable instrument transferable by endorsement and
delivery; and
(b) Until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder of this Warrant
as absolute owner hereof for all purposes without being affected by
any notice to the contrary.
6. Adjustment of Exercise Price and Number of Shares. The number and
-------------------------------------------------
kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
occurrence of certain events as follows:
(a) Reclassification or Merger. In case of any reclassification,
--------------------------
change or conversion of Common Stock issuable upon exercise of this
Warrant (other than a change
2
<PAGE>
in par value, or as a result of a subdivision or combination), or in
case of any merger or consolidation of the Company with or into
another corporation (other than a merger with another corporation in
which the Company is a continuing corporation and which does not
result in any reclassification, exchange or change of outstanding
securities issuable upon exercise of this Warrant), or in case of any
sale of all or substantially all of the assets of the Company, the
Company, or such successor or purchasing corporation, as the case may
be, shall execute and deliver to the Holder a new Warrant (in form and
substance reasonably satisfactory to the Holder) providing that the
Holder shall have the right to exercise such new Warrant and upon such
exercise to receive, in lieu of the amount of shares of stock, other
securities, money and property receivable upon such reclassification,
change or merger had the Warrant been exercised immediately prior to
such event. Such new Warrant shall provide for adjustments that shall
be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 6 to pursue the economic benefit intended
to be conferred upon the Holder by this Warrant. The provisions of
this Section 6(a) shall similarly apply to successive
reclassification, changes, mergers and transfers.
(b) Subdivisions or Combination of Shares. If the Company, at
-------------------------------------
any time while this Warrant remains outstanding and unexpired, shall
subdivide or combine its Common Stock, the number of shares of Common
Stock issuable upon exercise hereof shall be proportionately adjusted
and the Exercise Price shall be increased or decreased, as the case
may be, so that the aggregate Exercise Price of this Warrant shall at
all times remain unchanged.
(c) No Impairment. The Company will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization,
recapitalization, 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 Company, but
will at all times in good faith assist in carrying out of all the
provisions of this Section 5 and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the
Holders as the holder of this Warrant against impairment.
(d) Notices of Record Date. In the event of any taking by the
----------------------
Company of a record of its stockholders for the purpose of determining
stockholders who are entitled to received payment of any dividend
(other than a cash divided) or other distribution, any right to
subscribe for, purchase or otherwise acquire any share of any class or
any other securities or property, or to receive any other right, or
for the purpose of determining stockholders who are entitled to vote
in connection with any proposed merger or consolidation of the Company
with or into any other corporation, or any proposed sale, lease or
conveyance of all of substantially all of the assets of the Company,
or any proposed liquidation, dissolution or winding up of the Company,
the Company shall mail to the Holder, as the holder of the Warrant, at
least ten (10) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the
purpose of such dividend distribution or right and the amount and
character of such dividend, distribution or right.
3
<PAGE>
(e) Notice of Adjustments. Whenever the Exercise Price shall be
---------------------
adjusted pursuant to the provisions hereof, the Company shall within
thirty (30) days of such adjustment deliver a certificate signed by
its chief financial officer to the Holder as the registered holder
hereof setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Exercise Price after giving effect
to such adjustment.
7. Registration Rights. The Holder of this Warrant shall be provided
-------------------
registration rights with respect to the Common Stock issuable upon exercise of
this Warrant on the same terms as provided to the holders of the Financing Stock
or such terms provided to the holders of the Series A Preferred Stock of the
Company if the financing does not close on or before the Maturity Date.
8. Notices. The Company shall mail to the registered holder of the
-------
Warrant, at its last known post office address appearing on the books of the
Company, not less than ten (10) days prior to the date on which (a) a record
will be taken for the purpose of determining the holders of Common Stock
entitled to dividends or subscription rights, or (b) a record will be taken (or
in lieu thereof, the transfer books will be closed) for the purpose of
determining the holders of Common Stock entitled to notice of and to vote at a
meeting of stockholders at which any capital reorganization, reclassification of
shares of Common Stock, consolidation, merger, dissolution, liquidation, winding
up or sale of substantially all of the Company's assets shall be considered and
acted upon.
9. Converted Warrant. At its option, the Holder may request pursuant
-----------------
to this Section 9 that the Company exchange the Warrant for a particular number
of shares subject to the Warrant (the "Converted Warrant Shares") by delivering
to the Holder, without payment by the Holder of the Exercise Price per Share of
any cash or other consideration, that number of shares of Common Stock equal to
the quotient obtained by dividing the Net Value (as hereinafter defined) of the
Converted Warrant Shares by the Fair Market Value (as determined (i) by
reference to the current market price based upon the last sales price, or bid
price if there was no sale, if the Common Stock is publicly traded or (ii) by
the Board of Directors acting in good faith if the Common Stock is not publicly
traded) of a single share of Common Stock, determined in each case as of the
close of business on the date of exercise of the Warrant. The "Net Value" of the
Converted Warrant Shares shall be determined by subtracting the aggregate
Exercise Price of the Converted Warrant Shares from the aggregate Fair Market
Value of the Converted Warrant Shares. All other provisions of the Warrants
shall apply to any such exchange of the Warrants pursuant to the terms of this
Section 9.
10. Miscellaneous. The representations, warranties and agreements
-------------
herein contained shall survive the exercise of this Warrant. References to the
"Holder of" include the immediate holders of shares purchased on the exercise of
this Warrant, and the word "Holder" shall include the plural thereof.
All shares of Common Stock or other securities issued upon the
exercise of the Warrant shall be validly issued, fully paid and nonassessable,
and the Company will pay all taxes in
4
<PAGE>
respect of the issuance thereof (other than any income or capital gain taxes
payable by the holder.)
11. Acknowledgement of the Holder. The Holder hereby represents and
-----------------------------
warrants as follows:
(a) To the extent requested, it has provided the Company with
complete and accurate information concerning its knowledge, experience
and financial condition;
(b) The undersigned has experience as an investor in securities
of companies in the developments and acknowledges that it is able to
fend for itself, can bear the economic risk this Warrant and the
Shares and the undersigned has such knowledge and experience in
financial business matters that the undersigned believes it is capable
of evaluating the merits and risks of the prospective investment in
this Warrant and the Shares;
(c) The undersigned recognizes that investment in the Warrant
and the Shares may involve a high degree of risk, that transferability
and resale is restricted and that, in the event of disposition of the
underlying Common Stock, the undersigned could sustain a loss; and
(d) In connection with its purchase of the Warrant and the
Shares, the undersigned represents and warrants that it intends to
acquire the Warrant and the Shares for investment purposes and not
with a view to or for resale in connection with any distribution
thereof, and agrees that it will not sell or assign the Warrant and
the Shares without registration under all applicable securities laws
or appropriate exemption therefrom. The undersigned understands and
acknowledges that the Warrant has not been registered under the
Securities Act of 1933, as amended, nor under applicable Blue Sky
laws, pursuant to exemptions therefrom, which depend upon its
investment intention. The undersigned also understands and
acknowledges that the underlying Common Stock has not been, nor will
be registered under applicable securities laws and therefore will not
be freely transferable and that the shares of Common Stock will be
marked with an appropriate legend reciting the resale restrictions.
(e) The undersigned represents that it qualifies as an
"Accredited Investor" for purposes of Regulation D promulgated under
the Securities Act.
5
<PAGE>
IN WITNESS WHEREOF, this Warrant has been duly executed by the
undersigned, as of this ___ day of January, 1998.
LEXAR MICROSYSTEMS, INC.
By:_________________________________
Its:_____________________________
HOLDER
By:_________________________________
Its:_____________________________
6
<PAGE>
SUBSCRIPTION FORM
To be signed only upon exercise of Warrant.
The undersigned, the Holder of the within Warrant, hereby irrevocably
elects to exercise the purchase price right represented by such Warrant for, and
to purchase thereunder, of the shares of Common Stock of Lexar Microsystems,
Inc. (the "Company") to which such Warrant relates and herewith makes payment of
$______ therefor in cash or by certified check and requests to be delivered to
the undersigned, the address for which is set forth below the signature of the
undersigned.
Dated:___________________________
___________________________________
By:________________________________
Its:____________________________
7
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ("Assignee") the undersigned's entire right, title and interest in and to
the Warrant to Purchase Common Stock of Lexar Microsystems, Inc. (the
"Company"), and hereby irrevocably appoints ___________________________ as
attorney-in-fact to transfer such Warrant on the books of the Company.
Dated:___________________________
___________________________________
Signature of Assignor
By:________________________________
Its:____________________________
The Assignee represents that this Warrant and the Shares issuable upon
exercise hereof or conversion thereof are being acquired for investment and that
the Assignee will not offer, sell or otherwise dispose of this Warrant or any
Shares issuable upon exercise hereof or conversion thereof except under
circumstances which will not result in a violation of the Securities Act of
1933, as amended, or any state securities laws. Further, the Assignee
acknowledges that upon exercise of this Warrant, the Assignee shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Shares so purchased are being acquired for investment and not
with a view toward distribution or resale.
Dated:___________________________ ___________________________________
Signature of Assignee
8
<PAGE>
EXHIBIT 10.6
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT HAS NOT BEEN
QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND
THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS WARRANT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT
THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION
OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
ANY. PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS
WARRANT TO PURCHASE SERIES E PREFERRED STOCK
OF
LEXAR MEDIA, INC.
No. ____ Void after August _, 2003
This certifies that in consideration of the sum of _____________
___________________________________________________________________________
previously paid to Lexar Media, Inc., a California corporation (the "Company"),
_________________ (___) with principal offices at 47421 Bayside Parkway,
Fremont, California 94538, receipt of which is hereby acknowledged,
_______________________________ is entitled, subject to the terms and conditions
of this Warrant, to purchase from the Company at any time after the earlier to
occur to (i) the closing of the Next Financing (as defined below) or (ii) the
date on which the Note (as defined below) becomes due, and prior to 5:00 p.m.
Pacific time on August _, 2003, (the "Expiration Date"), up to that number of
Warrant Stock (as defined below) as may be purchased for the Maximum Purchase
Amount (as defined below) at a price per share equal to the Warrant Price (as
defined below), upon surrender of this Warrant at the principal offices of the
Company, together with a duly executed subscription form in the form attached
hereto as Exhibit 1 and simultaneous payment of the full Warrant Price for the
---------
shares of Warrant Stock so purchased in lawful money of the United States. The
Warrant
<PAGE>
Price and the number and character of shares of Warrant Stock purchasable under
this Warrant are subject to adjustment as provided herein.
This Warrant is issued pursuant to that certain Note and Warrant Purchase
Agreement dated as of August 6, 1999 (the "Purchase Agreement"), by and among
the Company, the original holder of this Warrant and certain other investors
listed on the Schedule of Investors attached to the Purchase Agreement as
Exhibit A, and is subject to the provisions thereof.
1. Definitions. The following definitions shall apply for purposes of
-----------
this Warrant:
1.1 "Change of Control" means the consummation of any transaction or
series of related transactions that results in the holders of record of the
Company's capital stock immediately prior to the transaction or transactions
holding less than fifty percent (50%) of the voting power of the Company
immediately after the transaction or transactions, including the acquisition of
the Company by another entity and any reorganization, merger, consolidation or
share exchange, or which results in the sale of all or substantially all of the
assets of the Company.
1.2 "Company" means the "Company" as defined above and includes any
corporation which shall succeed to or assume the obligations of the Company
under this Warrant.
1.3 "Holder" means any person who shall at the time be the registered
holder of this Warrant.
1.4 "Initial Public Offering" means a firm commitment underwritten
public offering pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended, covering the offer and sale of the Company's
Common Stock for the account of the Company in which the aggregate public
offering price (before deduction of underwriters' discounts and commissions)
equals or exceeds $10,000,000.
1.5 "Maximum Purchase Amount" means ten percent (10%) of the
principal amount of the Note.
1.6 "Next Financing" means the Company's next sale of its Common
Stock or Preferred Stock in one transaction or series of related transactions
occurring on or before the date the Note becomes due for an aggregate purchase
price paid to the Company of no less than Ten Million Dollars ($10,000,000)
(including the principal amount of any Notes converted into capital stock and
issued therein).
1.7 "Note" means the Convertible Promissory Note of even date
herewith initially payable to the initial Holder hereof.
1.8 "Notes" means a series of convertible promissory notes
aggregating up to $2,400,000 in principal amount issued under the Purchase
Agreement, of which the Note is one, each such note containing substantially
identical terms and conditions as the Note.
-2-
<PAGE>
1.9 "Purchase Amount" means, at a given time, an amount equal to the
Maximum Purchase Amount less the aggregate amount previously paid to the Company
for the purchase of Warrant Stock upon exercise of this Warrant.
1.10 "Warrant" means this Warrant and any warrant(s) delivered in
substitution or exchange therefor, as provided herein.
1.10 "Warrants" means a series of warrants to purchase the Company's
Series E Preferred Stock dated of even date herewith issued under the Purchase
Agreement, of which this Warrant is one, each such warrant containing
substantially identical terms and conditions as this Warrant.
1.11 "Warrant Price" means (a) if the Warrant Stock is the type of
capital stock of the Company sold in the Next Financing, an amount equal to the
lowest per share selling price of shares of that stock issued in the Next
Financing and (b) if the Warrant Stock is Series D Stock of the Company,
($1.685) per share. The Warrant Price is subject to adjustment as provided
herein.
1.12 "Warrant Stock" means the Company's capital stock sold in the
Next Financing, but if the Next Financing does not occur by the date the Note
becomes due, then the term "Warrant Stock" means the Series D Preferred Stock of
the Company ("Series D Stock"). The number and character of shares of Warrant
Stock are subject to adjustment as provided herein and the term "Warrant Stock"
shall include stock and other securities and property at any time receivable or
issuable upon exercise of this Warrant in accordance with its terms.
2. Exercise.
--------
2.1 Method of Exercise. Subject to the terms and conditions of this
------------------
Warrant, the Holder may exercise this Warrant in whole or in part, at any time
or from time to time, on any business day following the earlier of (i) the first
closing of the Next Financing, or (ii) the date on which the Note becomes due,
and before the Expiration Date, for up to that number of shares of Warrant Stock
that is obtained by dividing (a) the Maximum Purchase Amount by (b) the then
effective Warrant Price, by surrendering this Warrant at the principal offices
of the Company, with the subscription form attached hereto duly executed by the
Holder, and payment of an amount equal to the product obtained by multiplying
(i) the number of shares of Warrant Stock to be purchased by the Holder by (ii)
the Warrant Price or adjusted Warrant Price therefor, if applicable, as
determined in accordance with the terms hereof.
2.2 Form of Payment. Payment may be made by (i) a check payable to
---------------
the Company's order, (ii) wire transfer of funds to the Company, (iii)
cancellation of indebtedness of the Company to the Holder, or (iv) any
combination of the foregoing.
2.3 Partial Exercise. Upon a partial exercise of this Warrant: (i)
----------------
the Purchase Amount immediately prior to such exercise shall be reduced by the
aggregate amount paid to the Company upon such exercise of this Warrant, and
(ii) this Warrant shall be surrendered by the Holder and replaced with a new
Warrant of like tenor in which the Maximum Purchase Amount is the Purchase
Amount as so reduced. In no event may the cumulative aggregate purchase price
paid to the Company upon all exercises of the Warrant exceed the Maximum
Purchase Amount.
-3-
<PAGE>
2.4 No Fractional Shares. No fractional shares may be issued upon
--------------------
any exercise of this Warrant, and any fractions shall be rounded down to the
nearest whole number of shares. If upon any exercise of this Warrant a fraction
of a share results, the Company will pay the cash value of any such fractional
share, calculated on the basis of the Warrant Price.
2.5 Restrictions on Exercise. This Warrant may not be exercised if
------------------------
the issuance of the Warrant Stock upon such exercise would constitute a
violation of any applicable federal or state securities laws or other laws or
regulations. As a condition to the exercise of this Warrant, the Holder shall
execute the subscription form attached hereto, confirming and acknowledging that
the representations and warranties of the Holder set forth in Section 4 of the
Purchase Agreement are true and correct as of this date of exercise.
2.6 Net Exercise Election. The Holder may elect to convert all or a
---------------------
portion of this Warrant, without the payment by the Holder of any additional
consideration, by the surrender of this Warrant [or such portion] to the
Company, with the net exercise election selected in the subscription form
attached hereto duly executed by the Holder, into up to the number of shares of
Warrant Stock that is obtained under the following formula:
X = Y (A-B)
-------
A
where X = the number of shares of Warrant Stock to be issued to the Holder
pursuant to this Section 2.6.
Y = the Maximum Purchase Amount divided by the Warrant Price.
A = the fair market value of one share of Warrant Stock, as determined
in good faith by the Company's Board of Directors, as at the time the
net exercise election is made pursuant to this Section 2.6.
B = the Warrant Price.
The Company will promptly respond in writing to an inquiry by the
Holder as to the then current fair market value of one share of Warrant Stock.
3. Issuance of Stock. This Warrant shall be deemed to have been exercised
-----------------
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares of
Warrant Stock issuable upon such exercise shall be treated for all purposes as
the holder of record of such shares as of the close of business on such date.
As soon as practicable on or after such date, the Company shall issue and
deliver to the person or persons entitled to receive the same a certificate or
certificates for the number of whole shares of Warrant Stock issuable upon such
exercise.
4. Early Expiration. This Warrant shall be deemed exercised without any
----------------
action by the Holder upon (i) the effective date of a Change of Control, or (ii)
the effective date of the Initial Public Offering. The Holder may deliver the
subscription form attached hereto duly executed by the Holder in order to
exercise this Warrant pursuant to Section 2.1 above, with the
-4-
<PAGE>
exercise and payment to be contingent upon consummation of the transaction;
otherwise, this Warrant will be deemed exercised pursuant to Section 2.6 above.
5. Adjustment Provisions. The number and character of shares of Warrant
---------------------
Stock issuable upon exercise of this Warrant (or any shares of stock or other
securities or property at the time receivable or issuable upon exercise of this
Warrant) and the Warrant Price therefor, are subject to adjustment upon the
occurrence of the following events between the date this Warrant is issued and
the date it is exercised:
5.1 Adjustment for Stock Splits, Stock Dividends, Recapitalizations,
----------------------------------------------------------------
etc. The Warrant Price of this Warrant and the number of shares of Warrant
- ---
Stock issuable upon exercise of this Warrant (or any shares of stock or other
securities at the time issuable upon exercise of this Warrant) shall each be
proportionally adjusted to reflect any stock dividend, stock split, reverse
stock split, combination of shares, reclassification, recapitalization or other
similar event affecting the number of outstanding shares of Warrant Stock (or
such other stock or securities).
5.2 Adjustment for Other Dividends and Distributions. In case the
------------------------------------------------
Company shall make or issue, or shall fix a record date for the determination of
eligible holders entitled to receive, a dividend or other distribution payable
respect to the Warrant Stock that is payable in (a) securities of the Company
(other than issuances with respect to which adjustment is made under Section
5.1), or (b) assets (other than cash dividends paid or payable solely out of
retained earnings), then, and in each such case, the Holder, upon exercise of
this Warrant at any time after the consummation, effective date or record date
of such event, shall receive, in addition to the shares of Warrant Stock
issuable upon such exercise prior to such date, the securities or such other
assets of the Company to which the Holder would have been entitled upon such
date if the Holder had exercised this Warrant immediately prior thereto (all
subject to further adjustment as provided in this Warrant).
5.3 Adjustment for Reorganization, Consolidation, Merger. Except as
----------------------------------------------------
provided in Section 4 (Early Expiration), in case of any reorganization of the
Company (or of any other corporation, the stock or other securities of which are
at the time receivable on the exercise of this Warrant), after the date of this
Warrant, or in case, after such date, the Company (or any such corporation)
shall consolidate with or merge into another corporation or convey all or
substantially all of its assets to another corporation, then, and in each such
case, the Holder, upon the exercise of this Warrant (as provided in Section 2),
at any time after the consummation of such reorganization, consolidation, merger
or conveyance, shall be entitled to receive, in lieu of the stock or other
securities and property receivable upon the exercise of this Warrant prior to
such consummation, the stock or other securities or property to which the Holder
would have been entitled upon the consummation of such reorganization,
consolidation, merger or conveyance if the Holder had exercised this Warrant
immediately prior thereto, all subject to further adjustment as provided in this
Warrant, and the successor or purchasing corporation in such reorganization,
consolidation, merger or conveyance (if other than the Company) shall duly
execute and deliver to the Holder a supplement hereto acknowledging such
corporation's obligations under this Warrant; and in each such case, the terms
of this Warrant shall be applicable to the shares of stock or other securities
or property receivable upon the exercise of this Warrant after the consummation
of such reorganization, consolidation, merger or conveyance.
-5-
<PAGE>
5.4 Conversion of Stock. In case all the authorized Warrant Stock of
-------------------
the Company is converted, pursuant to the Company's Articles of Incorporation,
into Common Stock or other securities or property, or the Warrant Stock
otherwise ceases to exist, then, in such case, the Holder, upon exercise of this
Warrant at any time after the date on which the Warrant Stock is so converted or
ceases to exist (the "Termination Date"), shall receive, in lieu of the number
of shares of Warrant Stock that would have been issuable upon such exercise
immediately prior to the Termination Date (the "Former Number of Shares of
Warrant Stock"), the stock and other securities and property to which the Holder
would have been entitled to receive upon the Termination Date if the Holder had
exercised this Warrant with respect to the Former Number of Shares of Warrant
Stock immediately prior to the Termination Date (all subject to further
adjustment as provided in this Warrant).
5.5 Notice of Adjustments. The Company shall promptly give written
---------------------
notice of each adjustment or readjustment of the Warrant Price or the number of
shares of Warrant Stock or other securities issuable upon exercise of this
Warrant. The notice shall describe the adjustment or readjustment and show in
reasonable detail the facts on which the adjustment or readjustment is based.
5.6 No Change Necessary. The form of this Warrant need not be
-------------------
changed because of any adjustment in the Warrant Price or in the number of
shares of Warrant Stock issuable upon its exercise.
5.7 Reservation of Stock. If at any time the number of shares of
--------------------
Warrant Stock or other securities issuable upon exercise of this Warrant shall
not be sufficient to effect the exercise of this Warrant, the Company will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Warrant Stock or other securities
issuable upon exercise of this Warrant as shall be sufficient for such purpose.
6. No Rights or Liabilities as Shareholder. This Warrant does not by
---------------------------------------
itself entitle the Holder to any voting rights or other rights as a shareholder
of the Company. In the absence of affirmative action by the Holder to purchase
Warrant Stock by exercise of this Warrant, no provisions of this Warrant, and no
enumeration herein of the rights or privileges of the Holder, shall cause the
Holder to be a shareholder of the Company for any purpose.
7. No Impairment. The Company will not, by amendment of its Articles of
-------------
Incorporation or Bylaws, or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, willfully avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder against
wrongful impairment. Without limiting the generality of the foregoing, the
Company will take all such action as may be necessary or appropriate in order
that the Company may duly and validly issue fully paid and nonassessable shares
of Warrant Stock upon the exercise of this Warrant.
8. Attorneys' Fees. In the event any party is required to engage the
---------------
services of any attorneys for the purpose of enforcing this Warrant, or any
provision thereof, the prevailing party
-6-
<PAGE>
shall be entitled to recover its reasonable expenses and costs in enforcing this
Warrant, including attorneys' fees.
9. Transfer. Neither this Warrant nor any rights hereunder may be
--------
assigned, conveyed or transferred, in whole or in part, without the Company's
prior written consent, which the Company may withhold in its sole discretion;
provided, however, that this Warrant may be assigned, conveyed or transferred
without the prior written consent of the Company to any person that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with the Holder. The rights and obligations of the Company
and the Holder under this Warrant and the Purchase Agreement shall be binding
upon and benefit their respective permitted successors, assigns, heirs,
administrators and transferees.
10. Governing Law. This Warrant shall be governed by and construed under
-------------
the internal laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California, without reference to principles of conflict of laws or choice of
laws.
11. Headings. The headings and captions used in this Warrant are used for
--------
convenience only and are not to be considered in construing or interpreting this
Warrant. All references in this Warrant to sections and exhibits shall, unless
otherwise provided, refer to sections hereof and exhibits attached hereto, all
of which exhibits are incorporated herein by this reference.
12. Notices. Unless otherwise provided, any notice required or permitted
-------
under this Warrant shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or upon deposit with
the United States Post Office, by registered or certified mail, postage prepaid
and addressed to the Holder at the last address furnished to the Company by the
Holder in writing or, in the case of the Company, at the principal offices of
the Company, or at such other address as any party or the Company may designate
by giving ten (10) days' advance written notice to all other parties.
13. Amendment; Waiver. Any term of this Warrant may be amended, and the
-----------------
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of the Company and the holders of Warrants representing at least
a majority of the aggregate shares of Warrant Stock issuable upon exercise of
all the Warrants at the time outstanding. Any amendment or waiver effected in
accordance with this Section shall be binding upon each holder of any Warrants
at the time outstanding, each future holder of such securities, and the Company.
14. Severability. If one or more provisions of this Warrant are held to
------------
be unenforceable under applicable law, such provision(s) shall be excluded from
this Warrant and the balance of the Warrant shall be interpreted as if such
provision(s) were so excluded and shall be enforceable in accordance with its
terms.
15. Terms Binding. By acceptance of this Warrant, the Holder accepts and
-------------
agrees to be bound by all the terms and conditions of this Warrant.
-7-
<PAGE>
16. "Market Stand-Off" Agreement. Each Holder hereby agrees that,
---------------------------
following the effective date of a registration statement of the Company's
initial sale of securities under the Securities Act, for the period of time and
to the extent reasonably requested by the underwriter(s) and the Company, such
Investor shall not sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of any securities of the Company held by such Holder, directly or
indirectly, except securities covered by the registration statement and
transfers to donees who agree to be similarly bound) for the period; provided
however, that (i) the executive officers and directors of the Company, as well
as any Holder of at least five percent (5%) of the Company's Preferred Stock or
Common Stock, shall have agreed to be bound by substantially the same terms and
conditions, (ii) the time period requested for such market stand-off shall not
exceed one hundred eighty (180) days, and (iii) the restriction shall not apply
to a registration relating solely to employee, consultant or advisor benefit
plans on Form S-1 or Form S-8 (or similar forms promulgated after the date
hereof) or a registration relating solely to a transaction pursuant to Rule 145
promulgated under the Securities Act on Form S-4 (or similar forms promulgated
after the date hereof). The Company may impose stop-transfer instructions
during such stand-off period with respect to the securities of each Investor
subject to this restriction if necessary to enforce such restrictions.
17. Purchase Agreement. This Warrant incorporates by reference all the
------------------
terms of the Purchase Agreement.
THE COMPANY:
- -----------
By: ________________________________
Name: ______________________________
Title: _____________________________
AGREED AND ACKNOWLEDGED:
THE HOLDER:
- -----------
By: ________________________________
Name: ______________________________
Title: _____________________________
[SIGNATURE PAGE TO WARRANT]
-8-
<PAGE>
Exhibit 1
---------
FORM OF SUBSCRIPTION
--------------------
(To be signed only upon exercise of Warrant)
To: Lexar Media
(1) The undersigned Holder hereby elects to purchase ______ shares of
Series __ Preferred Stock of (the "Warrant Stock"), pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price for such
shares in full.
[(1) Net Exercise Election. The undersigned Holder elects to convert the
---------------------
Warrant into shares of Warrant Stock by net exercise election pursuant to
Section 2.6 of the Warrant. This conversion is exercised with respect to _____
shares of Series __ Preferred Stock of __________ (the "Warrant Stock") covered
by the Warrant.]
[STRIKE PARAGRAPH ABOVE THAT DOES NOT APPLY]
(2) In exercising the Warrant, the undersigned Holder hereby confirms and
acknowledges that the representations and warranties set forth in Section 4 of
the Purchase Agreement (as defined in the Warrant) as they apply to the
undersigned Holder continue to be true and correct as of this date.
(3) Please issue a certificate or certificates representing such shares of
Warrant Stock in the name or names specified below:
___________________________________ ___________________________________
(Name) (Name)
___________________________________ ___________________________________
(Address) (Address)
___________________________________ ___________________________________
(City, State, Zip Code) (City, State, Zip Code)
___________________________________ ___________________________________
(Federal Tax Identification Number) (Federal Tax Identification Number)
___________________________________ ___________________________________
(Date) (Signature of Holder)
-9-
<PAGE>
EXHIBIT 10.7
Renco
Renco Properties, Inc.
October 3, 1996
Mr. Michael Liccardo
Lexar Micro Systems
47421 Bayside Parkway
Fremont, California 94538
Re: Renco 36
Bayside Technology Park
Fremont, California
Dear Mike:
I enjoyed the opportunity to meet you and learn a little about your
new venture. You asked for a formal written proposal; so here it is:
Renco Properties is pleased to make the following proposal to Lexar
Micro Systems to lease space in Bayside Technology Park in Fremont, California.
LANDLORD: Renco Investment Company
a California partnership
TENANT: Lexar Micro Systems, Inc.
PREMISES: Approximately 22,788 square feet of space in the building
identified as Renco 36 located at 47421 Bayside Parkway,
Fremont, California.
LEASE TERM: The term of the Lease shall be two (2) years.
COMMENCEMENT: The lease shall commence on January 1, 1997, upon the
expiration of the existing lease with Cirrus Logic.
RENTAL: The Base Monthly Rent during the term of the lease
shall be as follows:
$21,649.00 per month for the first twelve months,
$25,668.00 per month for the next twelve months.
As Additional Rent, Lexar Micro Systems shall pay the actual
operating costs for the building including but not limited
to: taxes, assessments, insurance, and maintenance costs.
1
<PAGE>
INTERIOR IMPROVEMENTS: Lexar Micro Systems shall accept the building in its
current condition, "As Is", with the exception that
Cirrus Logic will be required to place the mechanical
systems in good operating condition and otherwise
satisfy the conditions in its lease to leave the
premises in good condition and repair.
SECURITY DEPOSIT: Upon signing the Lease, Lexar Micro Systems shall
post a Security Deposit equal to the last month's
base monthly rent and shall repay the first
month's rent.
APPROVAL OF FINANCIAL
CONDITION: This proposal and the execution of a Lease are
conditioned upon Renco's approval of Lexar Micro
System's current financial condition at the time
of Lease execution.
LEASE FORM: Lexar Micro Systems shall use substantially the
same lease form as the current Cirrus Logic lease
with the exception that the management fee shall
be 3% of the base monthly rent.
BROKER: The parties acknowledge that no real estate broker
was involved in this transaction and no commission
shall be due.
TERM OF PROPOSAL: This proposal will remain in full force and effect
for five days from the date of this proposal,
subject to prior proposals and subject to the
execution of a lease within two weeks from the
date of this letter.
We look forward to working with you to continue your occupancy in Bayside
Technology Park.
Sincerely,
Renco Properties, Inc.
William N. Neidig
Executive Vice President
Accepted for Lexar Micro Systems
By:_________________________________________
Michael Liccardo
2
<PAGE>
Office Space Lease Summary/Lease
3
<PAGE>
File No. ________________
INDUSTRIAL SPACE LEASE
(MULTI-TENANT NET)
THIS LEASE, dated 10/25/96 for reference purposes only, is made by and
between Renco Investment Company, a California Partnership ("Landlord"), and
Lexar Micro Systems, a California Corporation ("Tenant"), to be effective and
binding upon the parties as of the date the last of the designated signatories
to this Lease shall have executed this Lease (the "Effective Date of this
Lease").
ARTICLE 1
REFERENCES
1.1 REFERENCES: All references in this Lease (subject to any further
clarifications contained in this Lease) to the following terms shall have the
following meaning or refer to the respective address, person, date, time period,
amount, percentage, calendar year or fiscal year as below set forth:
A. Tenant's Address for Notices: 47421 Bayside Parkway
Fremont, CA 94538
B. Tenant's Representative:
Phone Number:
C. Landlord's Address for Notice: 1285 Oakmead Parkway
Sunnyvale, CA 94086
D. Landlord's Representative: William F. Neidig
Phone Number: (408) 730-5500
E. Intended Commencement Date: January 1, 1997
F. Intended Term: Two (2) Years
G. Lease Expiration Date: December 31, 1998
H. Tenant's Punchlist Period: One (1) Day
I. First Month's Prepaid Rent: $21,649.00
J. Last Month's Prepaid Rent: -0-
K. Tenant's Security Deposit: $25,668.00
L. Late Charge Amount: Ten percent (10%) of the delinquent
amount
M. Tenant's Required Liability
Coverage: $3,000,000 Single limit
N. Tenant's Number of Parking
Spaces: 88
O. Brokers: None
<PAGE>
P. Project or Property: That certain real property situated in the
City of Fremont, County of Alameda, State of California, as presently improved
with Two (2) buildings, which real property is shown on the Site Plan attached
hereto as Exhibit "A" and is commonly known as or otherwise described as
follows: Renco 36 and Renco 37.
Q. Building: That certain Building within the Project in which the
Leased Premises are located, which Building is shown outlined in red on Exhibit
"A" hereto.
R. Common Areas: The "Common Areas" shall mean those areas within
the Project which are located outside the buildings and which are provided and
designated by Landlord from time to time for general use by tenants of the
Project including driveways, pedestrian walkways, parking spaces, landscaped
areas and enclosed trash disposal areas.
S. Leased Premises: That certain space which is a portion of the
Building, which space is shown outlined in red on the Floor Plan attached hereto
as Exhibit "B" consisting of approximately 22,788 square feet of gross leasable
area and, for purposes of this Lease, agreed to contain said number of square
feet. The Leased Premises are commonly known as or otherwise described as
follows:
47421 Bayside Parkway
Fremont
T. Base Monthly Rent: The term "Base Monthly Rent" shall mean the
following: Twenty One Thousand Six Hundred Forty-nine dollars ($21,649,000) for
each of the first twelve months of the lease term. Twenty Five Thousand Six
Hundred Sixty-eight dollars ($25,668.00) for each of the next twelve months of
the lease term.
U. Permitted Use: The term "Permitted Use" shall mean the
following: Office, Research and Development, Light assembly and the storage of
tenant's own material.
V. Exhibits. The term "Exhibits" shall mean the Exhibits to this
Lease which are described as follows:
Exhibit "A" -- Site Plan showing the Project and delineating the
Building in which the Leased Premises are located.
Exhibit "B" -- Floor Plan outlining the Leased Premises.
Exhibit "D" -- Acceptance Agreement.
W. Addenda. The term "Addenda" shall mean the Addendum (or Addenda)
to this Lease which is (or are) described as follows: First Addendum to Lease
ARTICLE 2
LEASED PREMISES, TERM AND POSSESSION
2.1 DEMISE OF LEASED PREMISES: Landlord hereby leases to Tenant and
Tenant hereby leases from Landlord for Tenant's own use in the conduct of
Tenant's business and not for purposes of speculation in real estate, for the
Lease Term and upon the terms and subject to the condition of this Lease, that
certain interior space described in Article 1(s) as the Leased Premises,
reserving and excepting to Landlord the exclusive right to one-half of all
excess rentals and assignment considerations (as defined in Section 7.5), all
profits to be derived from any assignments or sublettings by Tenant during the
Lease Term by reason of the appreciation in the
<PAGE>
fair market rental value of the Leased Premises, Landlord further reserves the
right to install, maintain, use and replace ducts, wires, conduits and pipes
leading through the Leased Premises in locations which will not materially
interfere with Tenant's use of the Leased Premises. Tenant's lease of the
Leased Premises, together with the appurtenant right to use the Common Areas as
described in Article 2.2 below, shall be conditioned upon and be subject to the
continuing compliance by Tenant with (i) all the terms and conditions of the
Lease, (ii) all Laws governing the use of the Leased Premises and the Project,
(iii) all Private Restrictions, easements and other matters now of public record
respecting the use of the Leased Premises and the Project, and (iv) all
reasonable rules and regulations from time to time established by Landlord. See
Addendum Paragraph 2.1.
2.2 RIGHT TO USE COMMON AREAS: As an appurtenant right to Tenant's right
to the use of the Leased Premises, Tenant shall have the non-exclusive right to
use the Common Areas in conjunction with other tenants of the Project and their
invitees, subject to the limitations on such use as set forth in Article 4, and
solely for the purpose for which they were designed and intended. Tenant's
right to use the Common Areas shall terminate concurrently with any termination
of this Lease.
2.3 LEASE COMMENCEMENT DATE AND LEASE TERM: The term of this Lease shall
begin, and the Lease Commencement Date shall be deemed to have occurred, on the
Intended Commencement Date (as set forth in Article 1) unless either (i)
Landlord is unable to deliver possession of the Leased Premises to Tenant on the
Intended Commencement Date, in which case the Lease Commencement Date shall be
as determined pursuant to Article 2.4 below or (ii) Tenant enters into
possession of the Leased Premises prior to the Intended Commencement Date, in
which case the Lease Commencement Date shall be as determined pursuant to
Article 2.7 below (the "Lease Commencement Date"). The term of this Lease shall
end on the Lease Expiration Date (as set forth in Article 1), irrespective of
whatever date the Lease Commencement Date is determined to be pursuant to the
foregoing sentence. The Lease Term shall be the period of time commencing on
the lease Commencement Date and ending on the Lease Expiration Date (the "Lease
Term").
2.4 DELIVERY OF POSSESSION: Landlord shall deliver to Tenant possession
of the Leased Premises on or before the Intended Commencement Date (as set forth
in Article 1) in their presently existing condition, broom clean, unless
Landlord shall have agreed, as a condition to Tenant's obligation to accept
possession of the Leased Premises, pursuant to an Exhibit or Addends attached to
and made a part of this Lease to modify existing interior improvements or to
make, construct and/or install additional specified improvements within the
Leased Premises, in which case Landlord shall deliver to Tenant possession of
the Leased Premises on or before the Intended Commencement Date as so modified
and/or improved. If Landlord is unable to so deliver possession of the Leased
Premises to Tenant on or before the Intended Commencement Date, for whatever
reason other than Landlord's failure to commence construction of diligently
pursue it to completion to the extent it is within Landlord's reasonable control
to do so. Landlord shall not be in default under this Lease, nor shall this
Lease be void, voidable or cancelable by Tenant until the lapse of one hundred
twenty days after the Intended Commencement Date (the "delivery grace period";
however, the Lease Commencement Date shall not be deemed to have occurred until
such date as Landlord notifies Tenant that the Leased Premises are Ready for
Occupancy. Additionally, the delivery grace period above set forth shall
1
<PAGE>
be extended for such number of days as Landlord may be delayed in delivering
possession of the Leased Premises to Tenant by reason of Force Majeure or the
actions of Tenant. If Landlord is unable to deliver possession of the Leased
Premises to Tenant within the described delivery grace period (including any
extensions thereof by reason of Force Majeure or the actions of Tenant), then
Tenant's sole remedy shall be to cancel and terminate this Lease, and in no
event shall Landlord be liable to Tenant for such delay. Tenant may not cancel
this Lease at nay time after the date Landlord notifies Tenant the Leased
Premises are Ready for Occupancy unless Landlord's notice is not given in good
faith.
2.5 ACCEPTANCE OF POSSESSION: Tenant acknowledges that it has inspected
the Leased Premises and is willing to accept them in their existing condition,
broom clean, unless Landlord shall have agreed, as a condition to Tenant's
obligation to accept possession of the Leased Premises, pursuant to an Exhibit
or Addenda attached to and made part of this Lease to modify existing interior
improvements or to make, construct and/or install additional specified
improvements within the Leased Premises, in which case Tenant agrees to accept
possession of the Leased Premises when Landlord has substantially completed such
modifications or improvements and the Leased Premises are Ready for Occupancy.
If Landlord shall have so modified existing improvements or constructed
additional improvements within the Leased Premises for Tenant, Tenant shall,
within Tenant's Punchlist Period (as set forth in Article 1) which shall
commence on the date that Landlord notifies Tenant that the Leased Premises are
Ready for Occupancy, subject to Landlord as signed copy of the Acceptance
Agreement attached hereto as Exhibit "D" together with a punchlist of all
incomplete and/or improper work performed by Landlord. Upon the expiration of
Tenant's Punchlist Period, Tenant shall be conclusively deemed to have accepted
the Leased Premises in their then-existing condition as so delivered by Landlord
to Tenant, except as to those items reasonably set forth in the punchlist
submitted to Landlord prior to the expiration of said period. Landlord agrees
to correct all items reasonably set forth in Tenant's punchlist, provided that
such punchlist was submitted to Landlord within Tenant's Punchlist Period.
Additionally, Landlord agrees to place in good working order all existing
plumbing, lighting, heating, ventilating and air conditioning systems within the
Leased Premises and all man doors and roll-up truck doors serving the Leased
Premises to the extent that such systems and/or items are not in good operating
condition as of the date Tenant accepts possession of the Leased Premises;
provided that, and only if, Tenant notifies Landlord in writing of such failures
or deficiencies within 15 business days from the date Tenant so accepts
possession of the Leased Premises. See Addendum Paragraph 2.5.
2.6 SURRENDER OF POSSESSION: Immediately prior to the expiration or upon
the sooner termination of this Lease, Tenant shall remove all of Tenant's signs
from the exterior of the Building and shall remove all of Tenant's equipment,
trade fixtures, furniture, supplies, wall decorations and other personal
property from the Leased Premises, and shall vacate and surrender the Leased
Premises to Landlord in the same condition, broom clean, as existed at the Lease
Commencement Date. Landlord, at Tenant's expense, shall retain a mechanical
contractor to serve all heating, ventilation and air conditioning equipment, and
Tenant shall pay the cost to restore (or replace a required), said equipment to
good working order. Tenant shall pay the cost of restoring or replacing all
trees, shrubs, plants, lawn and ground cover, and repair (or replace as
required) all paved surfaces of the Property, and otherwise satisfy all
requirements to repair any damage or wear to the Leased Premises, Building,
Common Areas, Outside Areas, and/or
2
<PAGE>
Property. Tenant shall repair all damage to the Leased Premises caused by Tenant
or by Tenant's removal of Tenant's property and all damage to the exterior of
the Building caused by Tenant's removal of Tenant's signs. Tenant shall patch
and refinish, to Landlord's reasonable satisfaction, all penetrations made by
Tenant or its employees to the floor, walls or ceiling of the Lease Premises,
whether such penetrations were made with Landlord's approval or not Tenant shall
clean, repair or replace all stained or damaged ceiling tiles, wall coverings
and clean or replace as my be required floor coverings to [illegible] all burned
out light bulbs and damaged light lenses, and clean and repaint all painted
walls. Tenant shall repair all damage caused by Tenant to the exterior surface
of the Building and the paved surfaces of the outside areas adjoining the Leased
Premises and, where necessary, replace or resurface same. Additionally, Tenant
shall, prior to the expiration or sooner termination of this Lease, remove any
improvements constructed or installed by Tenant which Landlord requests be so
removed by Tenant and repair all damage caused by such removal. If the Leased
Premises are not surrendered to Landlord in the condition required by this
Article at the expiration or sooner termination of this Lease, Landlord may, at
Tenant's expense, so remove Tenant's signs, property and/or improvements not so
removed and make such repairs and replacements not so made or hire, at Tenant's
expense, independent contractors to perform such work. Tenant shall be liable to
Landlord for all costs incurred by Landlord in returning the Leased Premises to
the required condition, plus interest on all costs incurred from the date paid
by Landlord at the then maximum rate of interest not prohibited by Law until
paid, payable by Tenant to Landlord within ten days after receipt of a statement
therefore from Landlord, and Tenant be deemed to have impermissibly held over
until such time as such required work is completed, and Tenant shall pay Base
Monthly Rent and Additional Rent in accordance with the terms of Section 13.2
(Holding Over) until such work is completed. Tenant shall indemnify Landlord
against loss or liability resulting from delay by Tenant in surrendering the
Leased Premises, including, without limitation, any claims made by any
succeeding tenant or any losses to Landlord due to lost opportunities to lease
to succeeding tenants.
2.7 EARLY OCCUPANCY: If Tenant's enters into possession of the Leased
Premises prior to the Intended Commencement Date (or permits its contractors to
enter the Leased Premises prior to the Intended Commencement Date), unless
otherwise agreed in writing by landlord, the Lease Commencement Date shall be
deemed to have occurred on such sooner date, and Tenant shall be obligated to
perform all its obligations under this Lease, including the obligation to pay
rent, from that sooner date.
ARTICLE 3
RENT, LATE CHARGES AND SECURITY DEPOSITS
3.1 BASE MONTHLY RENT: Commencing on the Lease Commencement Date (as
determined pursuant to Article 2.3 above) and continuing throughout the Lease
Term, Tenant shall pay to Landlord, without prior demand therefore, in advance
on the first day of each calendar month, as base monthly rent, the amount set
forth as "Base Monthly Rent" in Article 1 (the "Base Monthly Rent").
3.2 ADDITIONAL RENT: Commencing on the Lease Commencement Date (as
determined pursuant to Article 2.3 above) and continuing throughout the Lease
Term, in addition
3
<PAGE>
to the Base Monthly Rent, Tenant shall pay to Landlord as additional rent (the
"Additional Rent") the following amounts:
A. Tenant's Proportionate Share of all Building Operating Expenses
(as defined in Article 13). Payment shall be made by whichever of the following
methods (or combination of methods) is (are) from time to time designated by
Landlord:
(1) Landlord may bill to Tenant, on a periodic basis not more
frequently than monthly, Tenant's Proportionate Share of such expenses (or group
of expenses) as paid or incurred by Landlord, and Tenant shall pay such share of
such expenses within ten days after receipt of a written bill therefore from
Landlord; and/or
(2) Landlord may deliver to Tenant Landlord's reasonable
estimate of any given expense (or group of expenses, such as Landlord's
Insurance Costs or Real Property Taxes) which it anticipates will be paid or
incurred for the ensuing calendar or fiscal year, as Landlord may determine, and
Tenant shall pay its Proportionate Share of such expenses for such year in equal
monthly installments during such year with the installments of Base Monthly
Rent. Landlord reserves the right to change from time to time the method of
billing Tenant its Proportionate Share of such expenses or the periodic basis on
which such expenses are billed.
B. Landlord's share of the consideration received by Tenant upon
certain assignments and sublettings as required by Article 7;
C. Any legal fees and costs that Tenant is obligated to pay or
reimburse to Landlord pursuant to Article 13; and
D. Any other shares or reimbursements due Landlord from Tenant
pursuant to the terms of this Lease. See Addendum Paragraph 3.2.
3.3 YEAR-END ADJUSTMENTS: If Landlord shall have elected to charge Tenant
its Proportionate Share of the Building Operating Expenses (or any group of such
expenses) on an estimated basis in accordance with the provisions of Article
3.2A(2) above, Landlord shall furnish to Tenant within three months following
the end of the applicable calendar or fiscal year, as the case may be, a
statement setting forth (i) the amount of such expenses paid or incurred during
the just ended calendar or fiscal year, as appropriate, and (ii) Tenant's
Proportionate Share of such expenses for such period. If Tenant shall have paid
more than its Proportionate Share of such expenses for the stated period,
Landlord shall, at its election, either (i) credit the amount of such
overpayment toward the next ensuing payment or payments of Additional Rent that
would otherwise be due or (ii) refund in cash to Tenant the amount of such
overpayment. If such year-end statement shall show that Tenant did not pay its
Proportionate Share of any such expenses in full, then Tenant shall pay to
Landlord the amount of such underpayment within ten days from Landlord's billing
of same to Tenant. The provisions of this Article shall survive the expiration
or sooner termination of this Lease. See Addendum Paragraph 3.3.
3.4 LATE CHARGE AND INTEREST ON RENT IN DEFAULT: Tenant acknowledges that
the late payment by Tenant of any monthly installment of Base Monthly Rent or
any Additional Rent will cause Landlord to incur certain costs and expenses not
contemplated under this Lease, the exact amounts of which are extremely
difficult or impractical to fix. Such
4
<PAGE>
costs and expenses will include, without limitation, administration and
collection costs and processing and accounting expenses. Therefore, if any
installment of Base Monthly Rent is not received by Landlord from Tenant within
six calendar days after the same becomes due, Tenant shall immediately pay to
Landlord a late charge in an amount equal to the amount set forth in Article 1
as the "Late Charge Amount", and if any Additional Rent is not received by
Landlord within six calendar days after same becomes due, Tenant shall
immediately pay to Landlord a late charge in an amount equal to 57 percent of
the Additional Rent not so paid. Landlord and Tenant agree that this late charge
represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for its loss suffered by reason of [illegible]
provision for a late charge be deemed to grant to Tenant a grace period
extension of time within which to pay any rental installment or prevent Landlord
from exercising any right or remedy available to Landlord upon Tenant's failure
to pay each rental installment due under this Lease when due, including the
right to terminate this Lease. If any rent remains delinquent for a period in
excess of 10 calendar days, then, in addition to such late charge, Tenant shall
pay to Landlord interest on any rent that is not so paid from said tenth day at
the then maximum rate of interest not prohibited by Law until paid. See Addendum
Paragraph 3.4.
3.5 PAYMENT OF RENT: Except an specifically provided otherwise in this
Lease all rent shall be paid in lawful money of the United States, without any
abatement, deduction or offset for any reason whatsoever, to Landlord at such
address as Landlord may designate from time to time. Tenant's obligation to pay
Base Monthly Rent and all Additional Rent shall be prorated at the commencement
and expiration of Lease Term. The failure by Tenant to pay any Additional Rent
as when due, and Landlord shall have the same rights and remedies against Tenant
as landlord would have if Tenant failed to pay the Base Monthly Rent when due.
3.6 PREPAID RENT: Upon signing this Lease, Tenant shall immediately pay
to Landlord the amount set forth in Article 1 as "First Month's Prepaid Rent" as
prepayment of rent for credit against the first installment(s) of Base Monthly
Rent due hereunder.
3.7 SECURITY DEPOSIT: Upon signing this Lease, Tenant shall immediately
deposit with Landlord the amount set forth in Article 1 as the "Security
Deposit" as security for the performance by Tenant of the terms of this Lease to
be performed by Tenant, and not as prepayment of rent. Landlord may apply such
portion or portions of the Security Deposit as are reasonably necessary for the
following purposes: (i) to remedy any default by Tenant in the payment of Base
Monthly Rent or Additional Rent or a late charge or interest on defaulted rent:
(ii) to repair damage to the Leased Premises caused by Tenant; (iii) to clean
and repair the Leased Premises following their surrender to Landlord if not
surrendered in the condition required pursuant to the provisions of Article 2;
and (iv) to remedy any other default of Tenant to the extent permitted by Law
including, without limitation, paying in full on Tenant's behalf any sums
claimed by materialmen or contractors of Tenant to be owing to them by Tenant
for work done or improvements made at Tenant's request to the Leased Premises.
In this regard, Tenant hereby waives any restriction on the uses to which the
Security Deposit may be applied as contained in Section 1950.7(c) of the
California Civil Code and/or any successor statute. In the event the Security
Deposit or any portion thereof is so used, Tenant shall pay to Landlord,
promptly upon demand, an amount in cash sufficient to restore the Security
Deposit to the full original sum. if Tenant fails to promptly restore the
Security Deposit and if Tenant shall have paid to Landlord any sums as "Last
Month's Prepaid Rent", Landlord may, in addition to any
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other remedy Landlord may have under this Lease, reduce the amount of Tenant's
Last Month's Prepaid Rent by transferring all or portions of such Last Month's
Prepaid Rent to Tenant's Security Deposit until such Security Deposit is
restored to the amount set forth in Article 1. Landlord shall not be deemed a
trustee of the Security Deposit. Landlord may use the Security Deposit in
Landlord's ordinary business and shall not be required to segregate it from its
general accounts. Tenant shall not be entitled to any interest on the Security
Deposit. If Landlord transfers the Building during the Lease Term, Landlord may
pay the Security Deposit to any subsequent owner in conformity with the
provisions of Section 1950.7 of the California Civil Code and/or any successor
statute, in which event the transferring landlord shall be released from all
liability for the return of the Security Deposit. Tenant specifically grants to
Landlord (and hereby waives the provisions of California Civil Code Section
1950.7 to the contrary) a period of sixty days following a surrender of the
Leased Premises by Tenant to Landlord within which to return the Security
Deposit (less permitted deductions) to Tenant, it being agreed between Landlord
and Tenant that sixty days is a reasonable period of time within which to
inspect the Leased Premises, make required repairs, receive and verify workmen's
billings therefore, and prepare a final accounting with respect to such deposit.
In no event shall the Security Deposit, or any portion thereof, be considered
prepaid rent. See Addendum Paragraph 3.7.
ARTICLE 4
USE OF LEASED PREMISES AND COMMON AREAS
4.1 PERMITTED USE: Tenant shall be entitled to use the Leased Premises
solely for the "Permitted Use" as set forth in Article 1 and for no other
purpose whatsoever. Tenant shall continuously and without interruption use the
Leased Premises for such purpose for the entire Lease Term. Any discontinuance
of such use for a period of thirty consecutive calendar days shall be, at
Landlord's election, a default by Tenant under the terms of this Lease. Subject
to the limitations contained in this Article 4. Tenant shall have the right to
use the Common Areas, in conjunction with other tenants and during normal
business hours, solely for the purposes for which they were intended and for no
other purposes whatsoever. Tenant shall not have the right to use the exterior
surfaces of exterior walls, the area beneath the floor or the area above the
ceiling of the Leased Premises. See Addendum Paragraph 4.1.
4.2 GENERAL LIMITATIONS ON USE: Tenant shall not do or permit anything to
be done in or about the Leased Premises, the Building, the Common Area or the
Project which does or could (i) interfere with the rights of other tenants or
occupants of the Building or the Project, (ii) jeopardize the structural
integrity of the Building or (iii) cause damage to any part of the Building or
the Project. Tenant shall not operate any equipment within the Leased Premises
which does or could (i) injure, vibrate or shake the Leased Premises or the
Building, (ii) damage, overload, corrode, or impair the efficient operation of
any electrical, plumbing, sewer, heating, ventilating or air conditioning
systems within or servicing the Leased Premises or the Building or (iii) damage
or impair the efficient operation of the sprinkler system (if any) within or
servicing the Leased Premises or the Building. Tenant shall not install any
equipment or antennas on or make any penetrations of the exterior walls or roof
of the Building. Tenant shall not affix any equipment to or make any
penetrations or cuts in the floor, ceiling or walls of the Leased Premises.
Tenant shall not place any loads upon the floors, foundations or supporting
structural components. Tenant shall place any explosive, flammable or harmful
fluids, including Hazardous Materials, or other waste materials in the drainage
systems of the Building or the
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Project. Tenant shall not drain or discharge any fluids in the landscaped areas
or across the paved areas of the Project. Tenant shall not use any area located
outside the Leased Premises for the storage of its materials, supplies,
inventory or equipment, and all such materials, supplies, inventory and
equipment shall at all times be stored within the Leased Premises. Tenant shall
not commit nor permit to be committed any waste in or about the Leased Premises,
the Common Areas or the Project. The provisions of this Section 4.2 shall not
prohibit Tenant's installation of equipment within Premises. See Addendum
Paragraph 6.1.
4.3 NOISE AND EMISSIONS: all noise generated by Tenant in its use of the
Leased Premises shall be confined or muffled so that is does not interfere with
the businesses of or annoy other tenants of the Building or the Project. All
dust, fumes, odors and other emissions generated by Tenant's use of the Leased
Premises shall be sufficiently dissipated in accordance with sound environmental
practices and exhausted from the Leased Premises in such a manner so as not to
interfere with the businesses of or annoy other tenants of the Building or the
Project, or cause any damage to the Lease Premises or the Building or any
component part thereof or the property of other tenants of the Building or the
Project.
4.4. TRASH DISPOSAL: Tenant shall provide trash and garbage disposal
facilities inside the Leased Premises for all of its trash, garbage and waster
requirements and shall cause such trash garbage and waster to be regularly
removed from the Leased Premises at Tenant's sole cost. Tenant shall deep all
outside the Leased Premises and all firm corridors and mechanical equipment
rooms in or about the Leased Premises free and clear of all trash, garbage,
waste and boxes containing same at all times.
4.5 PARKING: Tenant is allocated, and Tenant and its employees and
invitees shall have the non-exclusive right to use, not more than the number of
parking spaces set forth in Article 1 as "Tenant's Number of Parking Spaces".
Tenant shall not, at any time, use or permit its employees or invitees to use
more parking spaces than the number so allocated to Tenant. Tenant shall not
have the exclusive right to use any specific parking spaces, and Landlord
reserves the right to designate from time to time the location of the parking
spaces allocated for Tenant's use. In the event Landlord elects or is so
required by any Law to limit or control parking within the Project, whether by
validation of parking tickets or any other method, Tenant agrees to participate
in such validation or other program as reasonably established by Landlord.
Tenant shall not, at any time, park or permit to be parked any trucks or
vehicles adjacent to entryways or lading areas within the Project so as to
interfere in any way with the use of such areas, nor shall Tenant, at any time,
park or permit the parking of Tenant's trucks or other vehicles, or the trucks
and vehicles of Tenant's suppliers or others, in any portion of the Common Areas
not designated by Landlord for such use by Tenant. Tenant shall not, at any
time, park or permit to be parked any recreational vehicles, inoperative
vehicles or equipment on any portion of the common parking area or other Common
Areas of the Project. Tenant agrees to assume responsibility for compliance by
its employees and invitees with the parking provisions contained herein. if
Tenant or its employees park any vehicle within the Project in violation of
these provisions, then Landlord may charge Tenant, as Additional Rent, and
Tenant agrees to pay, as Additional Rent, Fifty Dollars per day for each day or
partial day that each such vehicle is illegally parked, or parked in any area
other than that designated. Tenant hereby authorizes Landlord, at Tenant's sole
expense, to tow away from the Project and store until
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redeemed by its owner any vehicle belonging to Tenant or Tenant's employees
parked in violation of these provisions.
4.6 SIGNS: Tenant shall not place or install on or within any portion of
the Leased Premises, the Building, the Common Areas or the Project any sign
(other than a business identification sign first approved by Landlord in
accordance with this Article), advertisements, banners, placards or pictures
which are visible from the exterior of the Leased Premises. Tenant shall not
place or install on or within any portion of the Leased Premises, the Building,
the Common Areas or the Project any business identification sign which is
visible from the exterior of the Leased Premises until Landlord shall have first
approved in writing the location, size, content, design, method of attachment
and material to be used in the making of such sign. Any signs, once approved by
Landlord, shall be installed only in strict compliance with Landlord's approval,
at Tenant's expense, using a person first approved by Landlord to install same.
Landlord may remove any signs (not first approved in writing by Landlord),
advertisements, banners, placards or pictures so placed by Tenant on or with the
Leased Premises, the Building, the Common Areas or the Project and charge to
Tenant the cost of such removal, together with any costs incurred by Landlord to
repair any damage caused thereby, including any cost incurred to restore the
surface upon which such sign was so affixed to its original condition. Tenant
shall remove any such signs, repair any damage caused thereby, and restore the
surface upon which the sign was affixed to its original condition, all to
Landlord's reasonable satisfaction, upon the termination of this Lease.
Landlord's approval of Tenant's Business name signage shall not be unreasonably
withheld.
4.7 COMPLIANCE WITH LAWS AND PRIVATE RESTRICTIONS: Tenant shall not use
or permit any person to use the Leased Premises in any manner which violates any
Laws or Private Restrictions. Tenant shall abide by and shall promptly observe
and comply with, at its sole cost and expense, of record as of the date of this
Lease or amendments to Private restrictions approved by Tenant all Laws and
Private Restrictions respecting the use and occupancy of the Leased Premises,
the Building, the Common Areas or the Project and shall defend with competent
counsel, indemnify and hold Landlord harmless from any claims, damages or
liability resulting from Tenant's failure to do so. Addendum Paragraph 4.7.
4.8 COMPLIANCE WITH INSURANCE REQUIREMENTS: With respect to any insurance
policies carried by Landlord in accordance with the provisions of this Lease,
Tenant shall not conduct (nor permit any other person to conduct) any activities
within the Leased Premises, or store, keep or use anything within the Leased
Premises which (i) is prohibited under the terms of any of such policies, (ii)
could result in the termination of the coverage afforded under any of such
policies, (iii) could give to the insurance carrier the right to cancel any of
such policies, or (iv) could cause an increase in the rates (over standard
rates) charged for the coverage afforded under any of such policies. Tenant
shall comply with all requirements of any insurance company, insurance
underwriter, or Board of First Underwriter which are necessary to maintain, at
standard rates, the insurance coverages carried by either Landlord or Tenant
pursuant to this Lease. See Addendum Paragraph 4.8.
4.9 LANDLORD'S RIGHT TO ENTER: Landlord and its agents shall have the
right to enter the Leased Premises during normal business hours and subject to
Tenant's reasonable security measures for the purpose of (i) inspecting the
same; (ii) supplying any services to be
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provided by Landlord to Tenant; (iii) showing the Leased Premises to prospective
purchasers, mortgagees or tenants; (iv) making necessary alterations, additions
or repairs; (v) performing any of Tenant's obligations when Tenant has failed to
do so after giving Tenant reasonable written notice of its intent to do so; and
(vi) posting notices of non-responsibility for "For Lease" or "For Sale" signs.
Additionally, Landlord shall have the right to enter the Leased Premises at
times of emergency. Any entry into the Leased Premises or portions thereof
obtained by Landlord in accordance with this Article shall not under any
circumstances be construed or deemed to be a forcible or unlawful entry into, or
a detainer of, the Leased Premises or an eviction, actual or constructive, of
Tenant from the Leased Premises or any portion thereof. See Addendum Paragraph
4.9.
4.10 CONTROL OF COMMON AREAS: Landlord shall at all times have exclusive
control of the Common Areas. Landlord shall have the right, without the same
constituting an actual or constructive eviction and without entitling Tenant to
any reduction in or abatement of rent, to: (i) temporarily close any part of the
Common Areas to whatever extent required in the opinion of Landlord's counsel to
prevent a dedication thereof or the accrual of any prescriptive rights therein:
(ii) temporarily close all or any part of the Common Areas to perform
maintenance or for any other reason deemed sufficient by Landlord; (iii) change
the shape, size, location of driveways, entrances, exits, parking spaces,
parking areas sidewalks, directional or locator signs, or the direction of the
flow of traffic, and (iv) to make additions to the Common Areas including,
without limitation, the construction of parking structures. Landlord shall have
the right to change the name or address of the Building. Tenant, in its use of
the Common Areas, shall keep he Common Areas free and clear of all obstructions
created or permitted by Tenant. If, in the opinion of Landlord, unauthorized
persons are using any of the Common Areas by reason of, or under claim of, the
express or implied authority or consent of Tenant, then Tenant, upon demand of
Landlord, shall restrain, to the fullest extent then allowed by Law, such
unauthorized use, and shall initiate such appropriate proceedings as may be
required to so restrain such use. Nothing contained herein shall affect the
right of Landlord at any time to remove any unauthorized person from the Common
Areas or to prohibit the use of the Common Areas by unauthorized persons,
including, without limitation, the right to prohibit mobile food and beverage
vendors. in exercising any such right regarding the Common Areas, Landlord
shall make a reasonable effort to minimize any disruption to Tenant's business.
4.11 ENVIRONMENTAL PROTECTION: Landlord may voluntarily cooperate in a
reasonably manner with the efforts of all governmental agencies in reducing
actual or potential environmental damage. Tenant shall not be entitled to
terminate this Lease or to any reduction in or abatement of rent by reason of
such compliance or cooperation. Tenant agrees at all times to cooperate fully
with Landlord and to abide by all rules and regulations and requirements which
Landlord may reasonably prescribe in order to comply with the requirements and
recommendations of governmental agencies regulating, or otherwise involved in,
the protection of the environment. See Addendum Paragraph 4.12.
4.12 OUTSIDE AREAS: No materials, pallets, supplies, tanks or containers
whether above or below ground level, equipment, finished products or semi-
finished products, raw materials, inoperable vehicles or articles of any nature
shall be stored upon or permitted to remain outside of the Leased Premises
expect in fully fenced and screened areas outside the
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Building which have been designated for such purpose and have been approved in
writing by landlord for such use by Tenant.
4.14 HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with
respect to the existence or use of Hazardous Materials on the Property:
A. Any handling, transportation, storage, treatment, disposal or use
of Hazardous Materials by Tenant, Tenant's Agents, or any other party after the
Effective Date of this Lease in or about the Property shall strictly comply with
all applicable Hazardous Materials Laws. Tenant shall indemnify, defend upon
demand with counsel reasonably acceptable to Landlord, and hold harmless
Landlord from and against any and all liabilities, losses, claims, damages, lost
profits, consequential damages, interests, penalties, fines, court costs,
remediation costs, investigation costs, and other expenses which result from or
arise in any manner whatsoever out of the use, storage, treatment,
transportation, release, or disposal of Hazardous Materials on or about the
Property by tenant, Tenant's Agents, Permitees, or Invitees after the Effective
Date.
B. If the presence of Hazardous Materials on the Property caused or
permitted by Tenant, Tenant's Agents, Permittees, or Invitees after the
Effective Date of this Lease results in contamination or deterioration of water
or soil or any other part of the Property, then Tenant shall promptly take any
and all action necessary or investigate and premeditate such contamination.
Tenant shall further be solely responsible for, and shall defend, indemnify and
hold Landlord and its agents harmless from and against all claims, costs and
liabilities, including attorney's fees and costs, arising out of or in
connection with any investigation and remediation (including investigative
analysis, removal, cleanup, and/or restoration work) required hereunder to
return the Leased Premises, Building, Common Areas, Outside Areas, and/or
Property and any other property of whatever nature to their condition existing
prior to the appearance of such Hazardous Materials.
C. Landlord and Tenant shall each give written notice to the other
as soon as reasonably practicable of (i) any communication received from any
governmental authority concerning Hazardous Materials which relates to the
Property, and (ii) any contamination or the Property by Hazardous Materials
which constitutes a violation of any Hazardous Materials Law. Tenant
acknowledges that Landlord, as the owner of the Property, at Landlord, as the
owner of the Property, at Landlord's election, shall have the sole right at
Tenant's expense to negotiate, defend, approve, and/or appeal any action taken
or order issued with regard to Hazardous Materials by any applicable
governmental authority. Tenant may use small quantities of household chemicals
such as adhesive, lubricants, and cleaning fluids in order to conduct its
business at the Premises and such other Hazardous materials as are necessary to
the operation of Tenant's business of which Landlord receives notice prior to
such Hazardous Materials being brought onto the Property (or any portion
thereof) and which Landlord consents in writing may be brought onto the
Property. In granting Landlord's consent, Landlord may specify the location and
manner of use, storage, or handling of any Hazardous Material. Landlord's
consent shall in no way relieve Tenant from any of its obligations as contained
herein. Tenant shall notify Landlord in writing at least ten (10) days prior to
the first appearance of any Hazardous Material on the Leased Premises, Building,
Common Areas, Outside Areas, and/or Property. Tenant shall provide Landlord
with a list of all Hazardous Materials and the quantities of each Hazardous
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Material to be stored, or used, on any portion of the Property, and upon
Landlord's request Tenant shall provide Landlord with copies of any and all
hazardous materials Management Plans, Material Safety Data Sheets, Hazardous
Waste Manifests, and other documentation maintained or received by Tenant
pertaining to the Hazardous Materials used, stored, or transported on any
portion of the Property. At any time during the Lease Term, Tenant shall,
within five days after written request therefore received from Landlord,
disclose in writing all Hazardous Materials that are being used by Tenant on the
Property (or have been used on the Property), the nature of such use, and the
manner of storage and disposal.
D. Landlord may cause testing wells to be installed on the Property
and may cause the ground water to be tested to detect the presence of Hazardous
Material by the use of such tests as are then customarily used for such
purposes. If Tenant so requests, Landlord shall supply Tenant with copies of
such test results. The cost of such tests and of the installation, maintenance,
repair and replacement of such wells shall be paid by Tenant if such tests
disclose the existence of facts which give rise to liability of Tenant pursuant
to its indemnity given in A and/or B above. Landlord may retain consultants to
inspect the Property, conduct periodic environmental audits, and review any
information provided by Tenant. Tenant shall pay the reasonable cost of fees
charged by Landlord and/or Landlord's consultants as a Project maintenance Cost.
E. Upon the expiration or earlier termination of the Lease, Tenant,
at its sole cost shall remove all Hazardous Materials from the Property and
shall provide a certificate to Landlord from a registered consultant
satisfactory to Landlord, certifying that Tenant has caused no contamination of
building9s), soil or groundwater in or about the Leased Premises, Building,
Common Areas, Outside Areas, or Property. If Tenant fails to so surrender the
Property, Tenant shall indemnify and hold Landlord harmless from all damages
resulting from Tenant's failure to surrender the Property as required by this
Subsection, including without limitation, any claims or damages in connection
with the condition of the Property including, without limitation, damages
occasioned by the inability to Lease the Property (or any portion thereof) or a
reduction in the fair market and/or rental value of the Property, Building,
Common Areas, Outside Areas, and/or Property by reason of the existence of any
Hazardous Materials in or around the Leased Premises, Building, Common Areas,
Outside Areas, and/or Property. If any action is required to be taken by a
governmental authority to test, monitor, and/or clean up Hazardous Materials
from the Leased Premises, Building, Common Areas, Outside Areas, and/or Property
and such action is not completed prior to the expiration or earlier termination
of the Lease, Tenant shall be deemed to have impermissibly held over until such
time as required action is completed, and Tenant shall pay Base Monthly Rent and
Additional Rent in accordance with the terms of Section 13.2 (Holding Over). In
addition, Landlord shall be entitled to all damages directly or indirectly
incurred in connection with such holding over, including without limitation,
damages occasioned by the inability to Lease the Property or a reduction of the
fair market and/or rental value of the Leased Premises, Building, Common Areas,
Outside Areas, and/or Property.
F. As used herein, the term "Hazardous Materials(s)" means any hazardous
or toxic substance, material or waste, which is or becomes regulated by any
federal, state, regional or local governmental authority because it is in any
way hazardous, toxic, carcinogenic, mutagenic or otherwise adversely affects any
part of the environment or creates risks of any such hazards or effects,
including, but not limited to, petroleum; asbestos, and polychlorinated bipheyls
and any
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material, substance, or waste (a) defined as a "hazardous waste," "extremely
hazardous waste" or "restricted hazardous waste" under Sections 25115, 25117 or
25122.7, or listed pursuant to Section 25140 of the California Health and Safety
Code, division 20, Chapter 6.5 (Hazardous Waste Control Law); (b) defined as a
"hazardous substance" under Section 25316 of the California Health and Safety
Code, Division 20, Chapter 6.8 (Carpenter-Presley Tanner Hazardous Substance
Account Act); (c) defined as a "hazardous material," "hazardous substance" or
"hazardous waste" under Section 25501 of the California Health and Safety Code,
Division 20, Chapter 6.98 (Hazardous Materials Release Response Plans and
Inventory); (d) defined as a "hazardous substance" under Section 25281 of the
California Health and Safety Code, Division 20, Chapter 6.7 (Underground Storage
of Hazardous Substances); (e) defined as a "hazardous substance" pursuant to
Section 311 of the Clean Water Act, 33 United States Code Sections 1251 et seq.
-- ---
(33 U.S.C. 1321) or listed pursuant to Section 307 of the Clean Water Act (33
U.S.C. 1317); (f) defined as a "hazardous waste" pursuant to Section 1004 of the
Resource Conservation and Recovery Act, 42 United States Code Section 6901 et
--
seq. (42 U.S.C. 6903); or (g) defined as a "hazardous substance" pursuant to
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Section 101 of the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 United States Code Section 9601 et seq. (41 U.S.C. 9601) or
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(h) defined as a "hazardous substance" pursuant to Section 311 of the Federal
Water Pollution Control Act, 33 U.S.C. 1251 et seq. or (i) listed pursuant to
-- ---
Section 307 of the Federal Water Pollution Control Act (33 U.S.C. 1317) or (j)
regulated under the Toxic Substances Control Act (15 U.S.C. 2601 et seq.) or (k)
-- ---
defined as a "hazardous material" under Section 66680 or 66084 of Title 22 of
the California Code of Regulations (Administrative Code) (l) listed in the
United States Department of Transportation Hazardous Materials Table (49 C.F.R.
172.101) or (m) listed by the Environmental Protection Agency as "hazardous
substances" (40 C.F.R. Part 302) and amendments thereto. The term "Hazardous
Material Laws" shall mean (i) all the foregoing laws as amended form time to
time and (ii) any other federal, state, or local law, ordinance, regulation, or
order regulating Hazardous Materials.
G. Tenant's failure to comply with any of the requirements of this
Section regarding the storage, use, disposal or transportation of Hazardous
Materials, or the appearance of any Hazardous Materials on the Leased Premises,
Building, Common Area, Outside Area, and/or the Property without Landlord's
consent shall be an Event of Default as defined in this Lease. The obligations
of Landlord and Tenant under this Section shall survive the expiration or
earlier termination of the Lease Term. The rights and obligations of Landlord
and Tenant within respect to issues relating to Hazardous Materials are
exclusively established by this section. In the event of any inconsistency
between any other part of this Lease and this Section, the terms of this Section
shall control.
ARTICLE 5
REPAIRS, MAINTENANCE, SERVICES AND UTILITIES
5.1 REPAIR AND MAINTENANCE: Except in the case of damage to or
destruction of the Leased Premises, the Building or the Project caused by an Cat
of God or other peril, in which case the provisions of Article 10 shall control,
the parties shall have the following obligations and responsibilities with
respect to the repair and maintenance of the Leased Premises, the Building and
the Common Areas. See Addendum Paragraph 5.1.
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A. Tenants Obligation: Tenant shall, at all times during the Lease
Term and at its sole cost and expense, regularly clean and continuously keep and
maintain in good order, condition and repair the Leased Premises and every part
thereof and all appurtenances thereto, including, without limiting the
generality of the foregoing, (i) all interior walls, floors and ceilings, (ii)
all windows, doors and skylights, (iii) all electrical wiring, conduits,
connectors and fixtures, (iv) all plumbing, pipes, sinks, toilets, faucets and
drains, (v) all lighting fixtures, bulbs and lamps, (vi) all heating,
ventilating and air conditioning equipment located within the Leased Premises or
located outside the Leased premises (e.g. rooftop compressors) and serving the
Leased Premises (_____________________ defined in Subarticle B below), and (vii)
all entranceways to the Leased Premises, Tenant, if requested to do so by
Landlord, shall hire, at Tenant's sole cost and expense, a licensed heating,
ventilating and air conditioning contractor to regularly, and periodically
inspect (not less frequently than every three months) and perform required
maintenance on the heating, ventilating and air conditioning equipment and
systems serving the Leased Premises, or alternatively, Landlord may, at its
election, contract in its own name for such regular and periodic inspections of
and maintenance on such heating, ventilating and air conditioning equipment and
systems and charge to Tenant, as Additional Rent, the cost thereof. Subject to
Section 9.2 of this Lease, Tenant shall, at its sole cost and expense, repair
all damage to the Building, the Common Areas or the Project caused by the
activities of Tenant, its employees, invitees or contractors promptly following
written notice from Landlord to so repair such damage, provided that Landlord
shall make available to Tenant any insurance proceeds (if any) available for
said repairs. If Tenant shall fail to perform the required maintenance or fail
to make repairs required of it pursuant to this Article within a reasonable
period of time following notice from Landlord to do so, then Landlord may, at
its election and without waiving any other remedy it may otherwise have under
this Lease or at Law, perform such maintenance or make such repairs and charge
to Tenant, as Additional Rent, the costs so incurred by Landlord for same. All
glass within or a part of the Leased Premises, both interior and exterior, is at
the sole risk of Tenant and any broken glass shall promptly be replaced by
Tenant at Tenant's expense with glass of the same kind, size and quality.
B. Landlord's Obligation: Landlord shall, at all times during the
Lease Term, maintain in good condition and repair: (i) the exterior and
structural parts of the Building (including the foundation, subflooring, load-
bearing and exterior walls, and roof); (ii) the Common Areas; and (iii) the
electrical and plumbing systems located outside the Leased Premises which
service the Building. Additionally, to the extent that the Building contains
central heating, ventilating and/or air conditioning systems located outside the
Leased Premises which are designed to service, and are then servicing, more than
a single tenant within the Building ("Common HVAC"), Landlord shall maintain in
good operating condition and repair such Common HVAC equipment and systems. The
provisions of this Subarticle B shall in no way limit the right of Landlord to
charge to tenants of the Project, as Additional Rent pursuant to Article 3, the
costs incurred by Landlord in making such repairs and/or performing such
maintenance.
5.2 SERVICES AND UTILITIES: The parties shall have the following
responsibilities and obligations with respect to obtaining and paying the cost
of providing the following utilities and other services to the Leased Premises.
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A. Gas and Electricity. Tenant shall arrange, at its sole cost and
expense and in its own name, for the supply of gas and electricity to the Leased
Premises. In the event that such services are not separately metered, Tenant
shall, at its sole expense, cause such meters to be installed. Tenant shall be
responsible for determining if the local supplier of gas and/or electricity can
supply the needs of Tenant and whether or not the existing gas and/or electrical
distribution systems within the Building and the Leased Premises are adequate
for Tenant's needs. Tenant shall pay all charges for gas and electricity as so
supplied to the Leased Premises.
B. Water: Landlord shall provide the Leased Premises with water for
lavatory and drinking purposes only. Tenant shall pay, as Additional Rent, the
cost to Landlord of providing water to the Leased Premises. In the event
Landlord believes that Tenant is using more water than what normally would be
required for lavatory and drinking purposes, Landlord at its election may (i)
periodically charge Tenant, as Additional Rent, a sum equal to Landlord's
estimate of the cost of Tenant's excess water usage or (ii) install (or require
Tenant to install at Tenant's sole cost) a separate meter for purposes of
measuring Tenant's water usage and, based upon such meter readings, periodically
charge Tenant, as Additional Rent, a sum equal to Landlord's estimate of the
cost of Tenant's excess water usage. In the event that Landlord shall so
install such a separate meter, Tenant shall pay to Landlord, upon demand, the
costs incurred by Landlord in purchasing and installing such meter and
thereafter all costs incurred by Landlord in maintaining said meter. The cost
of Tenant's water usage shall include any costs to Landlord in keeping account
of such usage and all governmental fees, public charges or the like attributable
to or based upon (such as sewer usage fees) the use of water to the extent of
such usage.
C. Security Service: Tenant acknowledges that Landlord is not
responsible for the security of the Leased Premises or the protection of
Tenant's property or Tenant's employees, invitees or contractors, and that to
the extent Tenant determines that such security or protection services are
advisable or necessary, Tenant shall arrange for and pay the costs of providing
same.
D. Trash Disposal: Tenant acknowledges that Landlord is not
responsible for the disposal of Tenant's waste, garbage or trash and that Tenant
shall arrange, in its own name and at its sole cost, for the regular and
periodic removal of such waste, garbage or trash from the Leased Premises. In
no event shall Landlord be required to provide trash bins for the disposal of
Tenant's waste, garbage or trash.
5.3 ENERGY AND RESOURCE CONSUMPTION: Landlord may voluntarily cooperate
in a reasonable manner with the efforts of governmental agencies and/or utility
suppliers in reducing energy or other resource consumption within the Project.
Tenant shall not be entitled to terminate this Lease or to any reduction in or
abatement of rent by reason of such compliance or cooperation. Tenant agrees at
all times to cooperate fully with Landlord and to abide by all reasonable rules
established by Landlord (i) in order to maximize the efficient operation of the
electrical, heating, ventilating and air conditioning systems and all other
energy or other resource consumption systems within the Project and/or (ii) in
order to comply with the requirements and recommendations of utility suppliers
and governmental agencies regulating the consumption of energy and/or other
resources. See Addendum Paragraph 5.4.
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5.4 LIMITATION OF LANDLORD'S LIABILITY: Landlord shall not be liable to
Tenant for injury to Tenant, its employees, agents, invitees or contractors,
damage to Tenant's property or loss of Tenant's business or profits, nor shall
Tenant be entitled to terminate this Lease or to any reduction in or abatement
of rent by reason of (i) Landlord's failure to perform any maintenance or
repairs to the Project until Tenant shall have first notified Landlord, in
writing, of the need for such maintenance or repairs, and then only after
Landlord shall have had a reasonable period of time following its receipt of
such notice within which to perform such maintenance or repairs, or (ii) any
failure, interruption, rationing or other curtailment in the supply of water,
electric current, gas or other utility service to the Leased Premises, the
Building or the Project from whatever cause (other than Landlord's active
negligence or willful misconduct), or (iii) the unauthorized intrusion or entry
into the Leased Premises by third parties (other than Landlord). See Addendum
Paragraph 5.5.
ARTICLE 6
ALTERATIONS AND IMPROVEMENTS
6.1 BY TENANT: Tenant shall not make any alterations to or modifications
of the Leased Premises or construct any improvements to or within the Leased
Premises without Landlord's prior written approval, and then not until Landlord
shall have first approved, in writing, the plans and specifications therefore,
which approval shall not be unreasonably withheld. All such modifications,
alterations or improvements, once so approved, shall be made, constructed or
installed by Tenant at Tenant's expense, using a licensed contractor first
approved by Landlord, in substantial compliance with the Landlord-approved plans
and specifications therefore. All work undertaken by Tenant shall be done in
accordance with all Laws and in a good and workmanlike manner using new
materials of good quality. Tenant shall not commence the making of any such
modifications or alterations or the construction of any such improvements until
(i) all required governmental approvals and permits shall have been obtained,
(ii) all requirements regarding insurance imposed by this Lease have been
satisfied, (iii) Tenant shall have given Landlord at least five business days
prior written notice of its intention to commence such work so that Landlord may
post and file notices of non-responsibility, and (iv) if requested by Landlord,
Tenant shall have obtained contingent liability and broad form builder's risk
insurance in an amount satisfactory to Landlord to cover any perils relating to
the proposed work not covered by insurance carried by Tenant pursuant to Article
9. In no event shall Tenant make any modifications, alterations or improvements
to the Common Areas or any areas outside of the Leased Premises. As used in
this Article, the term "modifications, alterations and/or improvements" shall
include, without limitation, the installation of additional electrical outlets,
overhead lighting fixtures, drains, sinks, partitions, doorways or the like.
See Addendum Paragraph 6.1.
6.2 OWNERSHIP OF IMPROVEMENTS: All modifications, alterations or
improvements made or added to the Leased Premises by Tenant (other than Tenant's
inventory, equipment, movable furniture, wall decorations and trade fixtures)
shall be deemed real property and a part of the Leased Premises, but shall
remain the property of Tenant during the Lease Term. Any such modifications,
alterations or improvements, once completed, shall not be altered or removed
from the Leased Premises during the Lease Term without Landlord's written
approval first obtained in accordance with the provisions of Article 6.1 above.
At the expiration or sooner termination of the Lease, all such modifications,
alterations and improvements (other
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than Tenant's inventory, equipment, movable furniture, wall decorations and
trade fixtures) if not removed by Tenant shall automatically become the property
of Landlord and shall be surrendered to Landlord as a part of the Leased Premise
as required pursuant to Article 2, unless Landlord shall require Tenant to
remove any of such modifications, alterations or improvements in accordance with
the provisions of Article 2, in which case Tenant shall so remove same. Landlord
shall have no obligation to reimburse to Tenant all or any portion of the cost
or value of any such modifications, alterations or improvements so surrendered
to Landlord. All modifications, alterations or improvements which are installed
or constructed on or attached to the Leased Premises by Landlord at Landlord's
expense shall be deemed real property, and a part of the Leased Premises and
shall be the property of Landlord. All lighting, plumbing, electrical, heating,
ventilating and air conditioning fixtures, partitioning, window coverings, wall
coverings and floor coverings installed by Tenant shall be deemed improvements
to the Leased Premises and not trade fixtures of Tenant. See Addendum Paragraphs
2.6 and 6.2.
6.3 ALTERATIONS: Tenant may remove its trade fixtures and leasehold
improvement constructed by Tenant at its expense. At its sole cost, Tenant
shall make all modifications, alterations and improvements to the Leased
Premises that are required by any Law because of (i) Tenant's use or occupancy
of the Leased Premises, the Building, the Outside Areas, or the Property, (ii)
Tenant's application for any permit or governmental approval, or (iii) Tenant's
making of any modifications, alterations or improvements to or within the Leased
Premises. If Landlord shall, at any time during the Lease Term, (i) be required
by any governmental authority to make any modifications, alterations or
improvements to the Building or the Project, (ii) modify the existing (or
construct additional) capital improvements or provide building service equipment
for the purpose of reducing the consumption of utility services or project
maintenance costs for the property, the cost incurred by Landlord in making such
modifications, alterations or improvements, interest at a rate equal to
____________ quoted by Wells Fargo Bank, N.T. & S.A. from time to time as its
prime rate (2%) ("Wells Prime Plus Two"), cost of money factor, shall be
amortized by Landlord over the useful life of such modifications, alterations or
improvements, as determined in accordance with generally accepted accounting
standards, and the monthly amortized cost of such modifications, alterations and
improvements as so amortized shall be considered a Project Maintenance Cost.
6.4 LIENS: Tenant shall keep the Leased Premises, the Building and the
Property free from any liens and shall pay when due all bills arising out of any
work performed, materials furnished, or obligations incurred by Tenant, its
agents, employees or contractors relating to the Leased Premises. If any such
claim of lien is recorded against Tenant's interest in this Lease, the Leased
Premises, the Building or the Project, Tenant shall bond against, discharge or
otherwise cause such lien to be entirely released within ten days after receipt
of written notice from Landlord.
ARTICLE 7
ASSIGNMENT AND SUBLETTING BY TENANT
7.1 BY TENANT: Tenant shall not sublet the Leased Premises (or any
portion which shall not be unreasonably withheld thereof) or assign or encumber
its interest in this Lease, whether voluntarily or by operation of Law, without
Landlord's prior written consent first obtained in accordance with the
provisions of this Article 7. Any attempted subletting,
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assignment or encumbrance without Landlord's prior written consent, at
Landlord's election, shall constitute a default by Tenant under the terms of
this Lease. The acceptance of rent by Landlord from any person or entity other
than Tenant, or the acceptance of rent by Landlord from Tenant with knowledge of
a violation of the provisions of this Article, shall not be deemed to be a
waiver by Landlord of any provision of this Article or this Lease or to be a
consent to any subletting by Tenant or any assignment or encumbrance of Tenant's
interest in this Lease. See Addendum Paragraph 7.1.
7.2 MERGER OR REORGANIZATION: If Tenant is a corporation, any
dissolution, merger, consolidation or other reorganization of Tenant, or the
sale or other transfer in the aggregate over the Lease Term of a controlling
percentage of the capital stock of Tenant, shall be deemed a voluntary
assignment of Tenant's interest in this Lease. The phrase "controlling
percentage" means the ownership of and the right to vote stock possessing more
than fifty percent 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. If Tenant is a partnership, a withdrawal or change, whether
voluntary, involuntary or by operation of Law, of any general partner, or the
dissolution of the partnership, shall be deemed a voluntary assignment of
Tenant's interest in this Lease. See Addendum Paragraph 7.2.
7.3 LANDLORD'S ELECTION: If Tenant shall desire to assign its interest
under this Lease or to sublet the Leased Premises. Tenant must first notify
Landlord, in writing, of its intent to so assign or sublet, at least fifteen
(15) days in advance of the date it intends to so assign its interest in this
Lease or sublet the Leased Premises but not sooner than one hundred eighty days
in advance of such date, specifying in detail the terms of such proposed
assignment or subletting, including the name of the proposed assignee or
sublessee, the proposed assignee's or Sublessee's intended use of the Leased
Premises, a current financial statement of such proposed assignee or sublessee
and the form of documents to be used in effectuating such assignment or
subletting. Landlord shall have a period of ten (10) days following receipt of
such notice within which to do one of the following: (i) on the condition that
the proposed Transferee immediately enter into a direct lease of the Leased
Premises with Landlord (or, in the case of a partial sublease, a lease for the
portion proposed to be so sublet) on the same terms and conditions contained in
Tenant's notice, or (ii) so that Landlord is thereafter free to lease the Leased
Premises (or, in the case of a partial sublease, the portion proposed to be so
sublet) to whomever it pleases on whatever terms are acceptable to Landlord. In
the event Landlord elects to so terminate this Lease, then (i) if such
termination is conditioned upon the execution of a lease between Landlord and
the proposed Transferee, Tenant's obligations under this Lease shall not be
terminated until such Transferee executes a new lease with Landlord, enters into
possession, and commences the payment of rent, and (ii) if Landlord elects
simply to terminate this Lease (or, in the case of a partial sublease, terminate
this Lease as to the portion to be so sublet), the Lease shall so terminate in
its entirety (or as to the space to be so sublet) fifteen (15) days after
Landlord has notified Tenant in writing of such election. In the case of a
partial termination of the Lease, the Base Monthly Rent and Tenant's
proportionate share shall be reduced to an amount which bears the same
relationship to the original amount thereof as the area of that part of the
Leased Premises which remains subject to the Lease bears to the original area of
the Leased Premises. Landlord and Tenant shall execute a cancellation agreement
with respect to the Lease to effect such termination or partial termination, or
(b) if Landlord shall not have elected to cancel and terminate this Lease, to
either (i) consent to such requested assignment or
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subletting subject to Tenant's compliance with the conditions set forth in
Article 7.4 below or (ii) refuse to so consent to such requested assignment or
subletting, provided that such consent shall not be unreasonably refused. It
shall not be unreasonable for Landlord to withhold its consent to any proposed
assignment or subletting if (i) the proposed assignee's or subtenant's
anticipated use of the Premises involves the storage, use or disposal of a
Hazardous Material; (ii) if the proposed assignee or subtenant has been required
by any prior landlord, lender or governmental authority to clean up Hazardous
Materials unlawfully discharged by the proposed assignee or subtenant; or (iii)
if the proposed assignee or subtenant is subject to investigation or enforcement
order or proceeding by any governmental authority in connection with the use,
disposal or storage of a Hazardous Material. During such ten (10) business day
period, Tenant covenants and agrees to supply to Landlord, upon request, all
necessary or relevant information which Landlord may reasonably request
respecting such proposed assignment or subletting and/or the proposed assignee
or sublessee.
7.4 CONDITIONS TO LANDLORD'S CONSENT. If Landlord elects to consent, or
shall have been ordered to so consent by a court of competent jurisdiction, to
such requested assignment, subletting or encumbrance, such consent shall be
expressly conditioned upon the occurrence of each of the conditions below set
forth, and any purported assignment, subletting or encumbrance made or ordered
prior to the full and complete satisfaction of each of the following conditions
shall be void and, at the election of the Landlord, which election may be
exercised at any time following such a purported assignment, subletting or
encumbrance but prior to the satisfaction of each of the stated conditions,
shall constitute a material default by Tenant under this Lease giving Landlord
the absolute right to terminate this Lease unless such default is promptly cured
by satisfying in full each such condition by the assignee, sublessee or
encumbrances. The conditions are as follows: See Addendum Paragraph 7.4.
A. Landlord having approved in form and substance the assignment or
sublease agreement (or the encumbrance agreement), which approval shall not be
unreasonably withheld by Landlord if the requirements of this Article 7 are
otherwise complied with.
B. Each such sublessee or assignee having agreed, in writing
satisfactory to Landlord and its counsel and for the benefit of Landlord, to
assume, to be bound by, and to perform the obligations of this Lease to be
performed by Tenant (or, in the case of an encumbrance, each such encumbrancer
having similarly agreed to assume, be bound by and to perform Tenant's
obligations upon a foreclosure or transfer in lieu thereof), which relate to
space their subleased.
C. Tenant having reimbursed to Landlord all reasonable costs and
reasonable attorneys fees incurred by Landlord in conjunction with the
processing and documentation of any such requested subletting, assignment or
encumbrance.
D. Tenant having delivered to Landlord a complete a fully-executed
duplicate original of such sublease agreement, assignment agreement or
encumbrance (as applicable) and all related agreements.
E. Tenant having paid, or having agreed in writing to pay as to
future payments, to Landlord fifty (50%) percent of all assignment consideration
or excess rentals to be
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paid to Tenant or to any other on Tenant's behalf or for Tenant's benefit for
such assignment or subletting as follows:
(1) If Tenant assigns its interest under the Lease and if all or
a portion of the consideration for such assignment is to be paid by the assignee
at the time of the assignment, that Tenant shall have paid to Landlord and
Landlord shall have received an amount equal to fifty (50%) percent of the
assignment consideration so paid or to be paid whichever is the greater) at the
time of the assignment by the assignee; or
(2) If Tenant assigns its interest under this Lease and if
Tenant is to receive all or a portion of the consideration for such assignment
in future installments, that Tenant and Tenant's assignee shall have entered
into a written agreement with and for the benefit of Landlord satisfactory to
Landlord and its counsel whereby Tenant and Tenant's assignee jointly agree to
pay to Landlord an amount equal to fifty (50%) percent of all such future
assignment consideration installments to be paid by such assignee as and when
such assignment consideration is so paid.
(3) If Tenant subleases the Leased Premises, that Tenant and
Tenant's sublessee shall have entered into a written agreement with and for the
benefit of Landlord satisfactory to landlord and its counsel whereby Tenant and
Tenant's sublessee jointly agree to pay to Landlord fifty (50%) percent of all
excess rentals to be paid by such sublessee as and when such excess rentals are
so paid.
7.5 ....: this Article, the term "assignment consideration" shall mean
all consideration to be paid by the assignee to Tenant or to any other on
Tenant's behalf or for Tenant's benefit as consideration for such assignment,
less any commissions paid by Tenant to a licensed real estate broker for
arranging such assignment (not to exceed then standard rates), and the term
"excess rentals" shall mean all consideration to be paid by the sublessee to
Tenant or to any other on Tenant's behalf or for Tenant's benefit for the
sublease of the Leased Premises in excess of the rent due Landlord under the
terms of this Lease for the same period, less any commissions paid by Tenant to
a licensed real estate broker for arranging such sublease (not to exceed then
standard rates). Tenant agrees that the portion of any assignment consideration
and/or excess rentals arising from and assignment or subletting by Tenant which
is to be paid to Landlord pursuant to this Article now is and shall then be the
property of Landlord and not the property of Tenant. See Addendum Paragraph 7.2
and Paragraph 7.5.
7.6 PAYMENTS: All payments required by this Article to be made to
Landlord shall be made in cash in full as and when they become due. At the time
Tenant, Tenant's assignee or sublessee makes each such payment to Landlord,
Tenant or Tenant's assignee or sublessee, as the case may be, shall deliver to
Landlord an itemized statement in reasonable detail showing the method by which
the amount due Landlord was calculated and certified by the party making such
payment as true and correct.
7.7 GOOD FAITH: The rights granted to Tenant by this Article are granted
in consideration of Tenant's express covenant that all pertinent allocations
which are made by Tenant between the rental value of the Leased Premises and the
value of any of Tenant's personal property which may be conveyed or leased
concurrently with and which may
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reasonably be considered a part of the same transaction as the permitted
assignment or subletting shall be made fairly, honestly and in good faith. If
Tenant shall breach this Covenant of Good Faith, Landlord may immediately
declare Tenant to be in default under the terms of this Lease and terminate this
Lease and/or exercise any other rights and remedies Landlord would have under
the terms of this Lease in the case of a material default by Tenant under this
Lease.
7.8 EFFECT OF LANDLORD'S CONSENT: No subletting, assignment or
encumbrance, even with the consent of Landlord, shall relieve Tenant of its
personal and primary obligation to pay rent and to perform all of the
obligations to be performed by Tenant hereunder. Consent by Landlord to one or
more assignments or encumbrances of Tenant's interest in this Lease or to one or
more sublettings of the Leased Premises shall not be deemed to be a consent to
any subsequent assignment, encumbrance or subletting. If Landlord shall have
been ordered by a court of competent jurisdiction to consent to a requested
assignment or subletting, or such an assignment or subletting shall have been
ordered over the objection of Landlord, such assignment or subletting shall not
be binding between the assignee (or sublessee) and Landlord until such time as
all conditions set forth in Article 7.4 above have been fully satisfied (to the
extent not then satisfied) by the assignee or sublessee, including, without
limitation, the payment to Landlord of all agreed assignment considerations
and/or excess rentals then due Landlord.
7.9 PROHIBITED FINANCIAL TRANSACTIONS: Tenant shall not, without
Landlord's consent, enter into or do any of the following acts if to do so would
result in Tenant having a net worth or net income after such action or event
that is less than Tenant's net worth and/or net income as of the date of this
Lease: (i) make any distribution or declare or pay any cash dividends on, or
purchase, acquire, redeem or retire any of its capital stock, of any class,
whether now or hereafter outstanding, (ii) acquire, merge, or consolidate with
or into any other business organization, (iii) make any changes in Tenant's
financial structure or (iv) borrow funds, pledge assets, or lease or sell
equipment or other property. Landlord and Tenant understand and agree that the
value of the Leased Premises is influenced by Tenant that are not conducted in
the normal course of its business which would reduce Tenant's net worth and/or
net income and thereby would adversely effect the value of the Leased Premises.
ARTICLE 8
LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY
8.1 LIMITATION ON LANDLORD'S LIABILITY AND RELEASE: Landlord shall not be
liable to Tenant for, and Tenant hereby releases Landlord and its partners and
officers from, any and all liability, whether in contract, tort or on any other
basis, for any injury to or any damage sustained by Tenant, its agents,
employees, contractors or invitees; any damages to Tenant's property; or any
loss to Tenant's business, loss of Tenant's profits or other financial loss of
Tenant resulting from or attributable to the condition of, the management of,
the maintenance of, or the protection of the Leased Premises, the Building, the
Project or the Common Areas, including, without limitation, any such injury,
damage or loss resulting from (i) the failure, interruption, rationing or other
curtailment or cessation in the supply of electricity, water, gas or other
utility service to the Project, the Building or the Leased Premises: (ii) the
vandalism or forcible entry into the Building or the Leased Premises; (iii) the
penetration of water into or onto any portion of the Leased Premises through
roof leaks or otherwise; (iv) the failure to provide security and/or adequate
lighting in or about the Project, the Building or the
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Leased Premises; (v) the existence of any design or construction defects within
the Project, the Building or the Leased Premises; (vi) the failure of any
mechanical systems to function properly (such as the HVAC systems); or (vii) the
blockage of access to any portion of the Project, the Building or the Leased
Premises, except to the extent such damage was proximately caused by the
Landlord's active negligence or willful misconduct, or Landlord's failure to
perform an obligation expressly undertaken pursuant to this Lease but only if
Tenant shall have given Landlord prior written notice to perform such obligation
and Landlord shall have failed to perform such obligation within a reasonable
period of time following receipt of written notice from Tenant to so perform
such obligation. In this regard, Tenant acknowledges that it is fully apprised
of the provisions of Law relating to releases, and particularly to those
provisions contained in Section 1542 of the California Civil Code which read as
follows: A general release does not extent to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor. Notwithstanding such statutory provision, and for the purpose of
implementing a full and complete release and discharge, Tenant hereby (i) waives
the benefit of such statutory provision and (ii) acknowledges that, subject to
the exceptions specifically set forth herein, the release and discharge set
forth in this Article is a full and complete settlement and release and
discharge of all claims and is intended to include in its effect, without
limitation, all claims which Tenant, as of the date hereof, does not know of or
suspect to exist in its favor.
8.2 TENANT'S INDEMNIFICATION OF LANDLORD: Tenant shall defend, with
_______ ______ satisfactory to Landlord, any claims made or legal actions filed
or threatened by third parties against Landlord which result in the death,
bodily injury, personal injury, damage to property or interference with
contractual or other rights suffered by any third party, (including other
Tenants within the Project) which (i) occurred within the Leased Premises or
(ii) resulted from Tenant's use or occupancy of the Leased Premises or the
Common Areas or (iii) resulted from Tenant's activities in or about the Leased
Premises, the Building or the Project, and Tenant shall indemnify and hold
Landlord, Landlord's principals, employees and agents harmless from any loss
(including loss of rents by reason of vacant space which otherwise would have
been leased but for such activities), liabilities, penalties, or expense
whatsoever (including all legal fees incurred by Landlord with respect to
defending such claims) resulting therefrom, except to the extent proximately
cause by the active negligence or willful misconduct of Landlord. This
indemnity agreement shall survive the expiration or sooner termination of this
Lease, provided that Tenant shall not be required to indemnify Landlord under
this section 8.2 with respect to events that first occur after the later of (a)
the date of the expiration, or sooner termination, of this Lease, or (b) the
date Tenant actually vacates the Premises, provided that Landlord has actual
notice of such vacation. Tenant shall not be obligated to indemnify Landlord
against loss resulting from the negligence of Landlord or its agents, employees
or contractors.
ARTICLE 9
INSURANCE
9.1 TENANT'S INSURANCE: Tenant shall maintain insurance complying with
all of the following:
A. Tenant shall procure, pay for and keep in full force and effect,
at all times during the Lease Term, the following:
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(1) Commercial General Liability insurance insuring Tenant
against liability for bodily injury, death, property damage and personal injury
occurring at the Leased Premises, or resulting from Tenant's use or occupancy of
the Leased Premises or the Building, Outside Areas, Property, or Common Areas or
resulting from Tenant's activities in or about the Leased Premises. Such
insurance shall be on an occurrence basis with a combined single limit of
liability of not less than the amount of Tenant's Required Liability Coverage
(as set forth in Article 1). The policy or policies shall be endorsed to name
Landlord and such others as are designated by Landlord as additional insured in
the form equivalent to CG20111185 or successor and shall contain the following
additional endorsement: "The insurance afforded to the additional insured is
primary insurance. If the additional insured have other insurance which is
applicable to the loss on a contributing, excess or contingent basis, the amount
of this insurance company's liability under this policy shall not be reduced by
the existence of such other insurance. Any insurance carried by the additional
insureds shall be excess and non contributing with the insurance provided by the
Tenant." The policy shall not canceled or reduced without at least 30 days
written notice to additional insureds. If the policy insurers more than one
location, it shall be endorsed to show that the limits and aggregate apply per
location using endorsement CG25041185 or successor. Tenant's policy shall also
contain the severability of interest and cross-liability endorsement or clauses.
(2) Fire and property damage insurance in so-called Special Form
plus earthquake and flood insuring Tenant against loss from physical damage to
Tenant's personal property, inventory, stock, trade fixtures and improvements
within the Leased Premises with coverage for the full actual replacement cost
thereof:
(3) Plate-glass insurance, at actual replacement cost;
(4) Boiler and Machinery insurance, if applicable;
(5) Liability insurance to cover sale or distribution of food
and beverages arising out of the distribution, sale, or consumption of food
and/or beverages including alcoholic beverages at the Leased Premises for not
less than the Tenant's Required Liability Coverage as set forth in Article1;
(6) Workers' compensation insurance and any other employee
benefit insurance sufficient to comply with all Laws which policy shall be
endorsed to provide thirty (30) days written notice of cancellation to Landlord;
(7) With respect to making alterations or the construction of
improvements or the like undertaken by Tenant, contingent liability and
builder's risk insurance, in an amount and with coverage satisfactory to
Landlord;
(8) Business Income Insurance at a minimum of 50% co-insurance
including coverage for loss of business income due to damage to equipment from
perils covered under the so-called Special Form plus perils of earthquake and
flood; and
(9) Comprehensive Auto Liability insurance with a combined
single limit coverage of not less than the amount of Tenant's Required Liability
Coverage (as set forth in Article 1) for bodily injury and/or property damage
liability for: a) Owned autos; b) Hired or
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borrowed autos; c) Non-owned autos; d) Auto blanket contractual form CA0029. The
policy shall be endorsed to provide 30 days written notice of cancellation to
Landlord.
B. Each policy of liability insurance required to be carried by
Tenant pursuant to this Article or actually carried by Tenant with respect to
the Leased Premises or the Property (i) shall be in a form satisfactory to
Landlord, (ii) shall be provided by carriers admitted to do business in the
state of California, with a Best rating of "A/VI" or better and/or acceptable to
Landlord. Property insurance shall contain a waiver and/or a permission to waive
by the insurer any right of subrogation against Landlord, its principals,
employees, agents and contractors which might arise by reason of any payment
under such policy or by reason of any act or omission of Landlord, its
principals, employees, agents or contractors.
C. Prior to the time Tenant or any of its contractors enters the
Leased Premises, Tenant shall deliver to the Landlord with respect to each
policy of insurance required to be carried by Tenant pursuant to this Article, a
certificate of the insurer certifying, in a form satisfactory to the Landlord,
that the policy has been issued and premium paid providing the coverage required
by this Article and containing the provisions herein. Attached to such a
certificate shall be endorsements naming Landlord as additional insured, and
including the wording under primary insurance above. With respect to each
renewal or replacement of any such insurance, the requirements of this Article
must be complied with not less than 30 days prior to the expiration or
cancellation of the policy being renewed or replaced. Landlord may at any time
and from time-to-time inspect and/or copy any and all insurance policies
required to be carried by Tenant pursuant to this article. If Landlord's
lender, insurance broker or advisor or counsel reasonably determines at any time
that the form or amount of coverage set forth in Article 9.1(A) for any policy
of insurance Tenant is required to carry pursuant to this Article is not
adequate, then Tenant shall increase the amount of coverage for such insurance
to such greater amount or change the form as Landlord's lender, insurance broker
or advisor or counsel reasonably deems adequate (provided however such increase
level of coverage may not exceed the level of coverage for such insurance
commonly carried by comparable businesses similarly situated and operating under
similar circumstances).
D. The Commercial General Liability insurance carried by Tenant
shall specifically insure the performance by Tenant of the Indemnification
provisions set forth in Article 8.2 of this lease provided, however, nothing
contained in this Article 9 shall be construed to limit the liability of Tenant
under the Indemnification provisions set forth in said Article 8.2.
9.2 LANDLORD'S INSURANCE: With respect to insurance maintained by
Landlord:
A. Landlord shall maintain, as the minimum coverage required of it
by this Lease, property insurance in so-called "Special" form insuring Landlord
(and such others as Landlord may designate) against loss from physical damage to
the Building with coverage of not less than one hundred percent of the full
actual replacement cost thereof and against loss of rents for a period of not
less than twelve months. Such property damage insurance, at Landlord's election
but without any requirement on Landlord's behalf to do so, (i) may be written in
so-called Special Form, excluding only those perils commonly excluded from such
coverage by Landlord's then property damage insurer; (ii) may provide coverage
for physical damage to the
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improvements so insured for up to the entire full actual replacement cost
thereof; (iii) may be endorsed to include (or separate policies which may be
carried to cover) loss or damage caused by any additional perils against which
Landlord may elect to insure, including earthquake and/or flood; (iv) may
provide coverage for loss of rents for a period of up to twelve months; and/or
(v) may contain "deductibles" per occurrence in an amount reasonably acceptable
to Landlord. Landlord shall not be required to cause such insurance to cover any
of Tenant's personal property, inventory and trade fixtures, or any
modifications, alterations or improvements made or constructed by Tenant to or
within the Leased Premises.
B. Landlord shall maintain Commercial General Liability insurance
insuring Landlord (and such others as are designated by Landlord) against
liability for personal injury, bodily injury, death, and damage to property
occurring in, on or about, or resulting from the use or occupancy of the
Project, or any portion thereof, with combined single limit coverage of at least
Two Million Dollars. Landlord may carry such greater coverage as Landlord or
Landlord's Lender, insurance broker or advisor or counsel may from time to time
determine is reasonably necessary for the adequate protection of Landlord and
the Project.
C. Landlord may maintain any other insurance which in the opinion of
its lender, insurance broker or advisor, or legal counsel is prudent to carry
under this given circumstances provided such insurance is commonly carried by
owners of property similarly situated and operation under similar circumstances,
and cost thereof is customarily paid by tenants pursuant to industrial triple
net leases.
9.3 MUTUAL WAIVER OF SUBROGATION: Landlord hereby releases Tenant, and
Tenant hereby releases Landlord and its respective partners and officers,
agents, employees and servants, from any and all liability for loss, damage or
injury to the property of the other in or about the Leased Premises which is
caused by or results from a peril or event or happening which would be covered
by insurance required to be carried under the terms of this Lease, or is covered
by insurance actually carried and in force at the time of the loss, by the party
sustaining such loss; provided, however, that such waiver shall be effective
only to the extent permitted by the insurance covering such loss and to the
extent such insurance is not prejudiced thereby.
ARTICLE 10
DAMAGE TO LEASED PREMISES
10.1 LANDLORD'S DUTY TO RESTORE: If the Leased Premises are damaged by any
peril after the Effective Date of this Lease, Landlord shall restore the Leased
Premises, as and when required by this Article, unless this Lease is terminated
by Landlord pursuant to Article 10.2 or by Tenant pursuant to Article 10.3. All
insurance proceeds available from the fire and property damage insurance carried
by Landlord shall be paid to and become the property of Landlord. If this Lease
is terminated pursuant to either Article 10.2 and 10.3, all insurance proceeds
available from insurance carried by Tenant which cover loss to property that is
Landlord's property or would become Landlord's property on termination of this
Lease shall be paid to and become the property of Landlord, and the remainder of
such proceeds shall be paid to and become the property of Tenant. If this Lease
is not terminated pursuant to either Article 10.2 or 10.3, all insurance
proceeds available from insurance carried by Tenant which cover loss to property
that is Landlord's property shall be paid to and become the property of
Landlord, and
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all proceeds available which cover loss to property which would become the
property of Landlord upon the termination of this Lease shall be paid to and
remain the property of Tenant. If this Lease is not so terminated, then upon
receipt of the insurance proceeds (if the loss is covered by insurance) and the
issuance of all necessary governmental permits, Landlord shall commence and
diligently prosecute to completion the restoration of the Leased Premises, to
the extent then allowed by Law, to substantially the same condition in which the
Leased Premises existed as of the Lease Commencement Date. Landlord's obligation
to restore shall be limited to the Leased Premises and interior improvements
constructed by Landlord. Landlord shall have no obligation to restore any other
improvements to the Leased Premises or any of the Tenant's personal property,
inventory or trade fixtures. Upon completion of the restoration by Landlord,
Tenant shall forthwith replace or fully repair all of Tenant's personal
property, inventory, trade fixtures and other improvements constructed by Tenant
to like or similar condition as existed at the time of such damage or
destruction.
10.2 LANDLORD'S RIGHT TO TERMINATE: Landlord shall have the option to
terminate this Lease in the event any of the following occurs, which option may
be exercised only by delivery to Tenant of a written notice of election to
terminate within thirty days after the date of such damage or destruction:
A. The Building is damaged by any peril covered by valid and
collectible insurance actually carried by Landlord and in force at the time of
such damage or destruction (and "insured peril") to such an extent that the
estimated cost to restore the Building exceeds the lesser of (i) the insurance
proceeds available from insurance actually carried by Landlord, or (ii) seventy-
five percent of the then actual replacement cost thereof;
B. The Building is damaged by an uninsured peril, which peril
Landlord was required to insure against pursuant to the provisions of Article 9
of this Lease, to such an extent that the estimated cost to restore the Building
exceeds the lesser of (i) the insurance proceeds which would have been available
had Landlord carried such required insurance, or (ii) seventy-five percent of
the then actual replacement cost thereof;
C. The Building is damaged by an uninsured peril, which peril
Landlord was not required to insure against pursuant to the provisions of
Article 9 of this Lease, to any extent.
D. The Building is damaged by any peril and, because of the Laws
then in force, the Building (i) can not be restored at reasonable cost or (ii)
if restored, can not be used for the same use being made thereof before such
damage.
The determination of Landlord's property and Tenant's Property shall
be made pursuant to Paragraph 6.2.does not elect to terminate this Lease or is
_________________________________ as reasonably practicable, Landlord shall
furnish Tenant with the written opinion of Landlord's architect or construction
consultant as to when the restoration work required of Landlord may be complete.
Tenant shall have the option to terminate this Lease in the event any of the
following occurs, which option may be exercised in the case of A or B below only
by delivery to Landlord of a written notice of election to terminate within
seven days after Tenant receives from Landlord the estimate of the time needed
to complete such restoration:
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A. The Leased Premises are damaged by any peril and, in the
reasonable opinion of Landlord's architect or construction consultant, the
restoration of the Leased Premises cannot be substantially completed within
twelve months after the date of such notice from Landlord; or
B. The Leased Premises are damaged by any peril within nine months
of the last day of the Lease Term and, in the reasonable opinion of Landlord's
architect or construction consultant, the restoration of the Leased Premises
cannot be substantially completed within ninety days after the date such
restoration is commenced.
See Addendum Paragraph 10.3
10.4 TENANT'S WAIVER: Landlord and Tenant agree that the provisions of
Article 10.3 above, captioned "Tenant's Right to Terminate", are intended to
supersede and replace the provisions contained in California Civil Code, Section
1932, Subdivision 2, and California Civil Code, Section 1934, and accordingly,
Tenant hereby waives the provisions of said Civil Code Sections and the
provisions of any successor Code Sections or similar Laws hereinafter enacted.
10.5 ABATEMENT OF RENT: In the event of damage to the Leased Premises
which does not result in the termination of this Lease, the Base Monthly Rent
(and any Additional Rent) shall be temporarily abated during the period of
restoration in proportion to the degree to which Tenant's use of the Leased
Premises is impaired by such damage.
ARTICLE 11
CONDEMNATION
11.1 LANDLORD'S RIGHT TO TERMINATE: Subject to Article 11.3, Landlord
shall have the option to terminate this Lease if, as a result of a taking by
means of the exercise of the power of eminent domain (including inverse
condemnation and/or a voluntary sale or transfer by Landlord under threat of
condemnation to an entity having the power of eminent domain), (i) all or any
part of the Leased Premises is so taken, (ii) twenty (20%) percent of the
Buildings leasable area is so taken, (iii) more than eighty-five (85%) percent
of the Common Area is so taken, or (iv) because of the Laws then in force, the
Leased Premises may not be used for the same use being made thereof before such
taking, whether or not restored as required by Article 11.4 below. Any such
option to terminate by Landlord must be exercisable within a reasonable period
of time, to be effective as of the date possession is taken by the condemnor.
11.2 TENANT'S RIGHT TO TERMINATE: Subject to Article 11.3, Tenant shall
have the option to terminate this Lease if, as a result of any taking by means
of the exercise of the power of eminent domain (including inverse condemnation
and/or a voluntary sale or transfer by Landlord to an entity having the power of
eminent domain under threat of condemnation), (i) substantially all of the
Leased Premises is so taken, (ii) thirty-three and one-third percent or more of
the Leased Premises is so taken and the part of the Leased Premises that remains
cannot, within a reasonable period of time, be made reasonably suitable for the
continued operation of the Tenant's business, or (iii) there is a taking of a
portion of the Common Area and, as a result of such taking, Landlord cannot
provide parking spaces within the Project (or within a
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reasonable distance therefrom) equal in number to at least sixty-six and two-
thirds percent of Tenant's Number of Parking Spaces (as set forth in Article 1),
whether by rearrangement of the remaining parking areas in the Common Area
(including, if Landlord elects, construction of multi-dock parking structures or
re-striping for compact cars where permitted by Law), or by providing
alternative parking facilities on other land within reasonable walking distance
of the Leased Premises. Tenant must exercise such option within a reasonable
period of time, to be effective on the later to occur of (i) the date that
possession of that portion of the Common Area or the Leased Premises that is
condemned is taken by the condemnor or (ii) the date Tenant vacates the Leased
Premises.
11.3 TEMPORARY TAKING: If any portion of the Leased Premises is
temporarily less, this Lease shall remain in effect except that if any portion
of the Leased Premises is temporarily taken for a period which either exceeds 9
months or which extends beyond the natural expiration of the Lease Term, then
Landlord and Tenant shall have the option to terminate this Lease, effective on
the date possession is taken by the condemnor.
11.4 RESTORATION AND ABATEMENT OF RENT: If any part of the Leased Premises
is taken by condemnation and this Lease is not terminated, then Landlord shall
repair any damage occasioned thereby to the remainder of the Leased Premises to
a condition reasonably suitable for Tenant's continued operations and otherwise,
to the extent practicable, in the manner and to the extent provided in Article
10.1 As of the date possession is taken by the condemning authority, (i) the
Base Monthly Rent shall be reduced in the same proportion that the area of that
part of the Leased Premises so taken (less any addition to the area of the
Leased Premises by reason of any reconstruction) bears to the area of the Leased
Premises immediately prior to such taking, and (ii) Tenant's Proportionate Share
shall be appropriately adjusted.
11.5 DIVISION OF CONDEMNATION AWARD: Any award made for any condemnation
of the Project, the Building, the Common Areas or the Leased Premises, or any
portion thereof, shall belong to and be paid to Landlord, and Tenant hereby
assigns to Landlord all of its right, title and interest in any such award;
provided, however, that Tenant shall be entitled to receive any condemnation
award that is made directly to Tenant (i) for the taking of personal property,
inventory or trade fixtures belonging to Tenant, (ii) for the interruption of
Tenant's business or its moving costs, (iii) for loss of Tenant's goodwill, or
(iv) for any temporary taking where this Lease is not terminated as a result of
such taking, or (v) for the value of any leasehold improvements installed by
Tenant at its cost that Tenant could remove pursuant to Paragraph 6.2. The
rights of Landlord and Tenant regarding any condemnation shall be determined as
provided in this Article, and each party hereby waives the provisions of Section
1265.130 of the California Code of Civil Procedure, and the provisions of any
similar law hereinafter enacted, allowing either party to petition the Superior
Court to terminate this Lease and/or allocating condemnation awards between
Landlord and Tenant in the event of a taking of the Leased Premises.
ARTICLE 12
DEFAULT AND REMEDIES
12.1 EVENTS OF TENANT'S DEFAULT: Tenant shall be in default of its
obligations under this Lease if any of the following events occur:
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A. Tenant shall have failed to pay Base Monthly Rent or any
Additional Rent within six days after receiving written notice from Landlord; or
B. Tenant shall have done or permitted to have been done any act,
use or thing in its use, occupancy or possession of the Leased Premises or in
its use of the Common Areas which is prohibited by the terms of this Lease; or
C. Tenant shall have failed to perform any term, covenant or
condition of this Lease, except those requiring the payment of Base Monthly Rent
or Additional Rent, within 30 days after written notice from Landlord to Tenant
specifying the nature of such failure and requesting Tenant to perform same.
D. Tenant shall have sublet the Leased Premises or assigned or
encumbered its interest in this Lease in violation of the provisions contained
in Article 7, whether voluntarily or by operation of Law; or
E. Tenant shall have failed to continuously occupy the Leased
Premises for a period of 10 consecutive days; or
F. Tenant or any Guarantor of this Lease shall have permitted or
suffered the sequestration or attachment of, or execution on, or the appointment
of a custodian or receiver with respect to, all or any substantial part of the
property or assets of Tenant (or such Guarantor) or any property or asset
essential to the conduct of Tenant's (or such Guarantor's) business, and Tenant
(or such Guarantor) shall have failed to obtain a return or release of the same
within thirty days thereafter, or prior to sale pursuant to such sequestration,
attachment or levy, whichever is earlier; or
G. Tenant or any Guarantor of this Lease shall have made a general
assignment of all or a substantial part of its assets for the benefit of its
creditors; or
H. Tenant or any Guarantor of this Lease shall have allowed (or
sought) to have entered against it a decree or order which: (i) grants or
constitutes an order for relief, appointment of a trustee, or confirmation of a
reorganization plan under the bankruptcy laws of the United States; (ii)
approves as properly filed a petition seeking liquidation or reorganization
under said bankruptcy laws or any other debtor's relief law or similar statute
of the United States or any state thereof; or (iii) otherwise directs the
winding up or liquidation of Tenant; provided, however, if any decree or order
was entered without Tenant's consent or over Tenant's objection, Landlord may
not terminate this Lease pursuant to this Subarticle if such decree or order is
rescinded or reversed within thirty days after its original entry.
I. Tenant or any Guarantor of this Lease shall have availed itself
of the protection of any debtor's relief law, moratorium law or other similar
Law which does not require the prior entry of a decree of order.
12.2 LANDLORD'S REMEDIES: In the event of any default by Tenant, and
without limiting Landlord's right to indemnification as provided in Article 8.2,
Landlord shall have the following remedies, in addition to all other rights and
remedies provided by Law or otherwise provided in this Lease, to which Landlord
may resort cumulatively, or in the alternative:
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A. Landlord may, at Landlord's election, keep this Lease in effect
and enforce, by an action at law or in equity all of its rights and remedies
under this Lease including, without limitation, (i) the right to recover the
rent and other sums as they become due by appropriate legal action, (ii) the
right to make payments required of Tenant, or perform Tenant's obligations and
be reimbursed by Tenant for the cost thereof with interest at the then maximum
rate of interest not prohibited by Law from the date the sum is paid by Landlord
until Landlord is reimbursed by Tenant, and (iii) the remedies of injunctive
relief and specific performance to prevent Tenant from violating the terms of
this Lease and/or to compel Tenant to perform its obligations under this Lease,
as the case may be.
B. Landlord may, at Landlord's election, terminate this Lease by
giving Tenant written notice of termination, in which event this Lease shall
terminate on the date set forth for termination in such notice. Any termination
under this Subarticle shall not relieve Tenant from its obligation to pay to
Landlord all Base Monthly Rent and Additional Rent then or thereafter due, or
any other sums due or thereafter accruing to Landlord, or from any claim against
Tenant for damages previously accrued or then or thereafter accruing. In no
event shall any one or more of the following actions by Landlord, in the absence
of a written election by Landlord to terminate this Lease, constitute a
termination of this Lease:
(1) Appointment of a receiver or keeper in order to protect
Landlord's interest hereunder;
(2) Consent to any subletting of the Leased Premises or
assignment of this Lease by Tenant, whether pursuant to the provisions hereof,
or otherwise; or
(3) Any other action by Landlord or Landlord's agents intended
to mitigate the adverse effects of any breach of this Lease by Tenant,
including, without limitation, any action taken to maintain and preserve the
Leased Premises or any action taken to relet the Leased Premises, or any portion
thereof, for the account of Tenant and in the name of Tenant.
C. In the event Tenant breaches this Lease and abandons the Leased
Premises, Landlord may terminate this Lease, but this Lease shall not terminate
unless Landlord gives Tenant written notice of termination. No act by or on
behalf of Landlord intended to mitigate the adverse effect of such breach,
including those described by Subarticles B(1), (2) and (3) immediately
preceding, shall constitute a termination of Tenant's right to possession unless
Landlord gives Tenant written notice of termination. If Landlord does not
terminate this Lease by giving written notice of termination, Landlord may
enforce all its rights and remedies under this Lease, including the right to
recover rent as it becomes due under this Lease as provided in California Civil
Code Section 1951.4, as in effect on the Effective Date of this Lease.
D. In the event Landlord terminates this Lease, Landlord shall be
entitled, at Landlord's election, to damages in an amount as set forth in
California Civil Code Section 1951.2, as in effect on the Effective Date of this
Lease. For purposes of computing damages pursuant to said Section 1951.2, an
interest rate equal to the maximum rate of interest then not prohibited by Law
shall be used where permitted. Such damages shall include, without limitation:
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(1) The worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided,
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent; and
(2) Any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease, or which in the ordinary course of things would be likely to
result therefrom, including, without limitation, the following: (i) expenses for
cleaning, repairing or restoring the Leased Premises; (ii) expenses for
altering, remodeling or otherwise improving the Leased premises for the purpose
of reletting, including removal of existing leasehold improvements but excluding
installation of additional leasehold improvements (regardless of how the same is
funded, including reduction of rent, a direct payment or allowance to a new
tenant, or otherwise); (iii) broker's fees, advertising costs and other expenses
of reletting the Leased Premises; (iv) costs of carrying the Leased Premises,
which costs would have been billed to Tenant as Additional Rent had Tenant not
defaulted and which include, but are not limited to: taxes, insurance premiums,
landscape maintenance, HVAC maintenance, utility charges and security
precautions; (v) expenses incurred in removing, disposing of and/or storing any
of Tenant's personal property, inventory or trade fixtures remaining therein;
(vi) attorneys' fees, expert witness fees, court costs and other reasonable
expenses incurred by Landlord (but not limited to taxable costs) in retaking
possession of the Leased Premises, establishing damages hereunder, and re-
leasing the Leased Premises; and (vii) any other expenses, costs or damages
otherwise incurred or suffered as a result of Tenant's default. [allowable to
the remainder of the term of this Lease -- unsure where this text goes above]
12.3 LANDLORD'S DEFAULT AND TENANT'S REMEDIES: In the event Landlord fails
to perform any of its obligations under this Lease, Landlord shall nevertheless
not be in default under the terms of this Lease until such time as Tenant shall
have first given Landlord written notice specifying the nature of such failure
to perform its obligations, and then only after Landlord shall have had a
reasonable period of time following its receipt of such notice within which to
perform such obligations. In the event of Landlord's default as above set
forth, then, and only then, Tenant shall have the following remedies only:
A. Tenant may then proceed in equity or at law to compel Landlord to
perform its obligations and/or to recover damages proximately caused by such
failure to perform (except as and to the extent Tenant has waived its right to
damages as provided in this Lease).
B. Tenant, at its option, may then cure any default of Landlord at
Landlord's cost. If, pursuant to this Subarticle, Tenant reasonably pays any
sum to any third party or docs any act that requires the payment of any sum to
any third party at any time by reason of Landlord's default, the sum paid by
Tenant shall be immediately due from Landlord to Tenant at the time Tenant
supplies Landlord with an invoice therefore (provided such invoice sets forth
and is accompanied by a written statement of Tenant setting forth in reasonable
detail the amount paid, the party to whom it was paid, the date it was paid, and
the reasons giving rise to such payment), together with interest at twelve
percent per annum from the date of such invoice until Tenant is reimbursed by
Landlord. Tenant may not offset such sums against any installment of rent due
Landlord under the terms of this Lease.
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C. The remedies afforded Tenant in this Section 12.3 are granted in
addition to any and all remedies afforded Tenant at law or in equity.
12.4 LIMITATION ON TENANT'S RECOURSE: If Landlord is a corporation, trust,
partnership, joint venture, unincorporated association, or other form of
business entity, Tenant agrees that (i) the obligations of Landlord under this
Lease shall not constitute personal obligations of the officers, directors,
trustees, partners, joint venturers, members, owners, stockholders, or other
principals of such business entity and (ii) Tenant shall have recourse only to
Landlord's then equity interest, if any, in the Property for the satisfaction of
such obligations and not against the assets of such officers, directors,
trustees, partners, joint venturers, members, owners, stockholders or principals
(other than to the extent of their interest in the Property). Tenant shall look
exclusively to such equity interest of Landlord, if any, in the Property for
payment and discharge of any obligations imposed upon Landlord hereunder, and
Landlord is hereby released and relieved of any other obligations hereunder.
Additionally, if Landlord is a partnership, then Tenant covenants and agrees:
A. No partner of Landlord shall be sued or named as a party in any
suit or action brought by Tenant with respect to any alleged breach of this
Lease (except to the extent necessary to secure jurisdiction over the
partnership and then only for that sole purpose);
B. No service of process shall be made against any partner of
Landlord except for the sole purpose of securing jurisdiction over the
partnership; and
C. No writ of execution shall be levied against the assets of any
partner of Landlord other than to the extent of his interest in Property.
Tenant further agrees that each of the foregoing covenants and agreements shall
be enforceable by Landlord and by any partner of Landlord and shall be
applicable to any actual or alleged misrepresentation or non-disclosure made
respecting this Lease or the Leased Premises or any actual or alleged failure,
default or breach of any covenant or agreement either expressly or implicitly
contained in this Lease or imposed by statute or at common law.
12.5 TENANT'S WAIVER: Landlord and Tenant agree that the provisions of
Article 12.3 above are intended to supersede and replace the provisions of
California Civil Code 1932(l), 1941 and 1942, and accordingly, Tenant hereby
waives the provisions of Section 1932(l), 1941 and 1942 of the California Civil
Code and/or any similar or successor Law regarding Tenant's right to terminate
this Lease or to make repairs and deduct the expenses of such repairs from the
rent due under this Lease.
ARTICLE 13
GENERAL PROVISIONS
13.1 TAXES ON TENANT'S PROPERTY. Tenant shall pay before delinquency any
and all taxes, assessments, license fees, use fees, permit fees and public
charges of whatever nature or description levied, assessed or imposed against
Tenant or Landlord by a governmental agency arising out of, caused by reason of
or based upon Tenant's estate in this Lease, Tenant's ownership of property,
improvements made by Tenant to the Leased Premises, improvements made by
Landlord for Tenant's use within the Leased Premises, Tenant's use (or estimated
use)
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of public facilities or services or Tenant's consumption (or estimated
consumption) of public utilities, energy, water or other resources. On demand by
Landlord, Tenant shall furnish Landlord with satisfactory evidence of these
payments. If any such taxes, assessments, fees or public charges are levied
against Landlord, Landlord's property, the Building or the Project, or if the
assessed value of the Building or the Project is increased by the inclusion
therein of a value placed upon same, then Landlord, after giving written notice
to Tenant, shall have the right, regardless of the validity taxes, assessment,
fee or public charge so paid on Tenant's (unable to read) receives an invoice
from Landlord setting forth the amount of such taxes, assessment, fee or public
charge so levied, pay to Landlord, as Additional Rent, the amount set forth in
said invoice. Failure by Tenant to pay the amount so invoiced within said ten
day period shall be conclusively deemed a default by Tenant under this Lease.
Tenant shall have the right, and with Landlord's full cooperation if Tenant is
not then in default under the terms of this Lease, to bring suit in any court of
competent jurisdiction to recover from the taxing authority the amount of any
such taxes, assessment, fee or public charge so paid.
13.2 HOLDING OVER: This Lease shall terminate without further notice on
the Lease Expiration Date (as set forth in Article 1). Any holding over by
Tenant after expiration of the Lease Term shall neither constitute a renewal nor
extension of this Lease nor give Tenant any rights in or to the Leased Premises
except as expressly provided in this Article. Any such holding over shall be
deemed an unlawful detainer of the Leased Premises unless Landlord has consented
to same. Any such holding over to which Landlord has consented shall be
construed to be a tenancy from month to month, on the same terms and conditions
herein specified insofar as applicable, except that the Base Monthly Rent shall
be increased to an amount equal to one hundred fifty percent of the Base Monthly
Rent payable during the last full month immediately preceding such holding over.
13.3 SUBORDINATION TO MORTGAGES: This Lease is subject and subordinate to
all underlying ground leases and to all mortgages and deed of trust which affect
the Building and are of public record as of the Effective Date of this Lease,
and to all renewals, modifications, consolidations, replacements and extensions
thereof. However, if the lessor under any such ground lease or any Lender
holding any such mortgage or deed of trust shall advise Landlord that it desires
or requires this Lease to be made prior and superior thereto, then, upon written
request of Landlord to Tenant, Tenant shall promptly execute, acknowledge and
deliver any and all documents or instruments which Landlord and such lessor or
Lender deem necessary or desirable to make this Lease prior thereto. Tenant
hereby consents to Landlord's ground leasing the land underlying the Building
and/or encumbering the Building as security for future loans on such terms as
Landlord shall desire, all of which future ground leases, mortgages or deeds of
trust shall be subject and subordinate to this Lease. However, if any lessor
under any such future ground lease or any Lender holding such future mortgage or
deed of trust shall desire or require that this Lease be made subject and
subordinate to such future ground lease, mortgage or deed of trust, then Tenant
agrees, within ten days after Landlord's written request therefore, to execute,
acknowledge and deliver to Landlord any and all documents or instruments
requested by Landlord or such lessor or Lender as may be necessary or proper to
assure the subordination of this Lease to such future ground lease, mortgage or
deed of trust; but only if such lessor or Lender agrees to recognize Tenant's
rights under this Lease and not to disturb Tenant's quiet possession of the
Leased Premises so long as Tenant is not in default under this Lease.
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13.4 TENANT'S ATTORNMENT UPON FORECLOSURE: Tenant shall, upon request,
attorn (i) to any purchaser of the Building at any foreclosure sale or private
sale conducted pursuant to any security instrument encumbering the Building,
(ii) to any grantee or transferee designated in any deed given in lieu of
foreclosure of any security interest encumbering the Building, or (iii) to the
lessor under any underlying ground lease of the land underlying the Building,
should such ground lease be terminated; provided that such purchaser, grantee or
lessor recognizes Tenant's rights under this Lease.
13.5 MORTGAGEE PROTECTION: In the event of any default on the part of
Landlord, Tenant will give notice by registered mail to any Lender or lessor
under any underlying ground lease who shall have requested, in writing, to
Tenant that it be provided with such notice, and Tenant shall offer such Lender
or lessor a reasonable opportunity to cure the default, including time to obtain
possession of the Leased Premises by power of sale or judicial foreclosure or
other appropriate legal proceedings if reasonably necessary to effect a cure.
13.6 ESTOPPEL CERTIFICATES: Tenant will, following any request by
Landlord, promptly execute and deliver to Landlord an estoppel certificate (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, (ii) stating the date to
which the rent and other charges are paid in advance, if any, (iii)
acknowledging that there are not, to Tenant's knowledge, any uncured defaults on
the part of Landlord hereunder, or specifying such defaults if any are claimed,
and (iv) certifying such other information about this Lease as may be reasonably
requested by Landlord. Tenant's failure to execute and deliver such estoppel
certificate within ten days after Landlord's request therefore shall be a
material default by Tenant under this Lease, and Landlord shall have all of the
rights and remedies available to Landlord as Landlord would otherwise have in
the case of any other material default by Tenant, including the right to
terminate this Lease and sue for damages proximately caused thereby, it being
agreed and understood by Tenant that Tenant's failure to so deliver such
estoppel certificate in a timely manner could result in Landlord being unable to
perform committed obligations to other third parties which were made by Landlord
in reliance upon this covenant of Tenant. Landlord and Tenant intend that any
statement delivered pursuant to this Article may be relied upon by any Lender or
purchaser or prospective Lender or purchaser of the Building, the Project, or
any interest therein. See Addendum Paragraph 13.6
13.7 TENANT'S FINANCIAL INFORMATION: Tenant shall, within ten business
days after Landlord's request therefore, deliver to Landlord a copy of a current
financial statement, including an income statement and balance sheet, and any
such other information reasonably requested by Landlord regarding Tenant's
financial condition. Tenant acknowledges that Landlord has and will rely on the
truth and accuracy of the information provided by Tenant to Landlord both prior
to and during the term of the Lease. Landlord shall be entitled to disclose
such financial statements or other information to its Lender, to any present or
prospective principal of or investor in Landlord, or to any prospective Lender
or purchaser of the Building, the Project or any portion thereof or interest
therein. Any such financial statement or other information which is marked
"confidential" or "company secrets" (or is otherwise similarly marked by Tenant)
shall be confidential and shall not be disclosed by Landlord to any third party
except as specifically provided in this Article, unless the same becomes a part
of the public domain without the fault of Landlord.
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13.8 TRANSFER BY LANDLORD: Landlord and its successors in interest shall
have the right to transfer their interest in the Building, the Project, or any
portion thereof at any time and to any person or entity. In the event of any
such transfer, the Landlord originally named herein (and in the case of any
subsequent transfer, the transferor), from the date of such transfer, (i) shall
be automatically relieved, without any further act by any person or entity, of
all liability for the performance of the obligations of the Landlord hereunder
which may accrue after the date of such transfer and (ii) shall be relieved of
all liability for the performance of the obligations of the Landlord hereunder
which have accrued before the date of transfer if its transferee agrees to
assume and perform all such prior obligations of the Landlord hereunder. Tenant
shall attorn to any such transferee. After the date of any such transfer, the
term "Landlord" as used herein shall mean the transferee of such interest in the
Building or the Project.
13.9 FORCE MAJEURE: The obligations of each of the parties under this
Lease (other than the obligation to pay money) shall be temporarily excused if
such party is prevented or delayed in performing such obligation by reason of
any strikes, lockouts or labor disputes; inability to obtain labor, materials,
fuels or reasonable substitutes therefore; governmental restrictions,
regulations, controls, action or inaction; civil commotion; inclement weather,
fire or other acts of God; or other causes (except financial inability) beyond
the reasonable control of the party obligated to perform (including acts or
omissions of the other party for a period equal to the period of any such
prevention, delay or stoppage.
13.10 NOTICES: Any notice required or desired to be given by a party
regarding this Lease shall be in writing and shall be personally served, or in
lieu of personal service may be given by: (i) delivery by Federal Express,
United Parcel Service or similar commercial service, (ii) electronic facsimile
transmission, or (iii) by depositing such notice in the United States mail,
postage prepaid, addressed to the other party as follows:
A. If addressed to Landlord, to Landlord at its Address for Notices
(as set forth in Article 1).
B. If addressed to Tenant, to Tenant at its Address for Notices (as
set forth in Article 1).
Any notice given by registered mail shall be deemed to have been given on the
third business day after its deposit in the United States mail. Any notice
given by certified mail shall be deemed given on the date receipt was
acknowledged to the postal authorities. Any notice given by mail other than
registered or certified mail shall be deemed given only if received by the other
party, and then on the date of receipt. In the event of notice by electronic
facsimile transmission or commercial carrier, notice shall be deemed received on
the date of confirmation documented by the transmission or carrier. Each party
may, by written notice to the other in the manner aforesaid, change the address
to which notices addressed to it shall thereafter be mailed.
13.11 ATTORNEYS' FEES: In the event any party shall bring any action,
arbitration proceeding or legal proceeding alleging a breach of any provision of
this Lease to recover rent, to terminate this Lease, or to enforce, protect,
determine or establish any term or covenant of this Lease or rights or duties
hereunder of either party, the prevailing party shall be entitled to recover
from the non-prevailing party as a part of such action or proceeding, or in a
separate
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action for that purpose brought within one year from the determination of such
proceeding, reasonable attorneys' fees, expert witness fees, court costs and
other reasonable expenses incurred by the prevailing party. In the event that
Landlord shall be required to retain counsel to enforce any provision of this
Lease, and if Tenant shall thereafter cure (or desire to cure) such default,
Landlord shall be conclusively deemed the prevailing party, and Tenant shall pay
to Landlord all attorneys' fees, expert witness fees, court costs and other
reasonable expenses so incurred by Landlord promptly upon demand provided that
Landlord has first notified Tenant in writing that Landlord was retaining
counsel in connection with such matter prior to Landlord's retention of counsel.
Landlord may enforce this provision by either (i) requiring Tenant to pay such
fees and costs as a condition to curing its default or (ii) bringing a separate
action to enforce such payment, it being agreed by and between Landlord and
Tenant that Tenant's failure to pay such fees and costs upon demand shall
constitute a breach of this Lease in the same manner as a failure by Tenant to
pay the Base Monthly Rent, giving Landlord the same rights and remedies as if
Tenant failed to pay the Base Monthly Rent.
13.12 DEFINITIONS: Any term that is given a special meaning by any
provision in this Lease shall, unless otherwise specifically stated, have such
meaning whenever used in this Lease or in any Addenda or amendment hereto. In
addition to the terms defined in Article 1, the following terms shall have the
following meanings: See Addendum Paragraph 13.12
A. REAL PROPERTY TAXES: The term "Real Property Tax" or "Real
Property Taxes" shall each mean (i) all taxes, assessments, levies and other
charges of any kind or nature whatsoever, general and special, foreseen and
unforeseen (including all installments of principal and interest required to pay
any general or special assessments for public improvements and any increases
resulting from reassessments caused by any change in ownership or new
construction), now or hereafter imposed by any governmental or quasi-
governmental authority or special district having the direct or indirect power
to tax or levy assessments, which are levied or assessed for whatever reason
against the Project or any portion thereof, or Landlord's interest therein, or
the fixtures, equipment and other property of Landlord that is an integral part
of the Project and located thereon, or Landlord's business of owning, leasing or
managing the Project or the gross receipts, income or rentals from the Project;
(ii) all charges, levies or fees imposed by any governmental authority against
Landlord by reason of or based upon the use of or number of parking spaces
within the Project, the amount of public services or public utilities used or
consumed (e.g. water, gas, electricity, sewage or surface water disposal) at the
Project, the number of persons employed by tenants of the Project, the size
(whether measured in area, volume, number of tenants or whatever) or the value
of the Project, or the type of use or uses conducted within the Project; and
(iii) all costs and fees (including attorneys' fees) incurred by Landlord in
contesting any Real Property Tax and in negotiating with public authorities as
to any Real Property Tax. If, at any time during the Lease Term, the taxation
or assessment of the Project prevailing as of the Effective Date of this Lease
shall be altered so that in lieu of or in addition to any Real Property Tax
described above there shall be levied, assessed or imposed (whether by reason of
a change in the method of taxation or assessment, creation of a new tax or
charge, or any other cause) an alternate, substitute, or additional tax or
charge (i) on the value, size, use or occupancy of the Project or Landlord's
interest therein or (ii) on or measured by the gross receipts, income or rentals
from the Project, or on Landlord's business of owning, leasing or managing the
Project or (iii) computed in any manner with respect to the operation of the
Project, then any such tax or charge, however designated, shall be included
within the meaning
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of the terms "Real Property Tax" or "Real Property Taxes" for purposes of this
Lease. If any Real Property Tax is partly based upon property or rents unrelated
to the Project, then only that part of such Real Property Tax that is fairly
allocable to the Project shall be included within the meaning of the terms "Real
Property Tax" or "Real Property Taxes". Notwithstanding the foregoing, the terms
"Real Property Tax" or "Real Property Taxes" shall not include estate,
inheritance, transfer, gift or franchise taxes of Landlord or the federal or
state income tax imposed on Landlord's income from all sources. Notwithstanding
the above, Tenant shall only be liable for Real Property taxes which relate to
the Lease Term.
B. LANDLORD'S INSURANCE COSTS: The term "Landlord's Insurance
Costs" shall mean the costs to Landlord to carry and maintain the policies of
fire and property damage insurance, including quake and flood, for the Project
and general liability insurance required, or permitted, to be carried by
Landlord pursuant to Article 9, together with any deductible amounts paid by
Landlord upon the occurrence of any insured casualty or loss, which are
recoverable by Landlord from Tenant pursuant to this Lease
C. PROJECT MAINTENANCE COSTS: The term "Project Maintenance Costs"
shall mean all costs and expenses (except Landlord's Insurance Costs and Real
Property Taxes) paid or incurred by Landlord in protecting, operating,
maintaining, repairing and preserving the Project and all parts thereof,
including without limitation, (i) professional management fees (equal to five
percent of annualized Base Monthly Rent), (ii) the amortizing portion of any
costs incurred by Landlord in the making of any modifications, alterations or
improvements as set forth in Article 6, which are so amortized during the Lease
Term, (iii) costs of complying with governmental regulations governing Tenant's
use of Hazardous Materials, and Landlord's costs of monitoring Tenant's use of
Hazardous Materials including fees charged by Landlord's consultants to
periodically inspect the Premises and the Property, and (iv) such other costs as
may be paid or incurred with respect to operating, maintaining and preserving
the Project, such as repairing, replacing and resurfacing the exterior surfaces
of the buildings (including roofs), repairing, replacing, and resurfacing paved
areas, repairing structural parts of the buildings, cleaning, maintaining,
repairing, or replacing the interior of the Leased Premises both during the
Lease Term and upon the termination of the Lease, and maintaining, repairing or
replacing, when necessary electrical, plumbing, sewer, drainage, heating,
ventilating and air conditioning systems serving the buildings, providing
utilities to the common areas, maintenance, repair, replacement or installation
of lighting fixtures, directional or other signs and signals, irrigation or
drainage systems, trees, shrubs, materials, maintenance of all landscaped areas,
and depreciation and financing costs on maintenance and operating machinery and
equipment (if owned) and rental paid for such machinery and equipment (if
leased).
D. READY FOR OCCUPANCY: The term "Ready for Occupancy" shall mean
the date upon which (i) the Leased Premises are available for Tenant's occupancy
in a broom clean condition and (ii) the improvements, if any, to be made to the
Leased Premises by Landlord as a condition to Tenant's obligation to accept
possession of the Leased Premises have been substantially completed and the
appropriate governmental building department (i.e. the City building department,
if the Project is located within a City, or otherwise the County building
department) shall have approved the construction of the improvements as
substantially complete or is willing to so approve the construction of such
improvements as substantially complete subject only to compliance with specified
conditions which are the responsibility of Tenant to
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satisfy or is willing to allow Tenant to occupy subject to its receiving
assurances that specified work will be completed.
E. TENANT'S PROPORTIONATE SHARE: The term "Tenant's Proportionate
Share" or "Tenant's Share", as used with respect to an item pertaining to the
Building, shall each mean that percentage obtained by dividing the leasable
square footage contained within the Leased Premises (as set forth in Article 1)
by the total leasable square footage contained within the Building as the same
from time to time exists or, as used with respect to an item pertaining to the
Project, shall each mean that percentage obtained by dividing the leasable
square footage contained within the Leased Premises (as set forth in Article 1)
by the total leasable square footage contained within the Project as the same
from time to time exists, unless, as to any given item, such a percentage
allocation unfairly burdens or benefits a given tenant(s), in which case
Landlord shall have the exclusive right to equitably allocate such item so as to
not unfairly burden or benefit any given tenant(s). Landlord's determination of
any such special allocation shall be final and binding upon Tenant unless made
in bad faith.
F. BUILDING'S PROPORTIONATE SHARE: The term "Building's
Proportionate Share" or "Building's Share" shall each mean that percentage which
is obtained by dividing the leasable square footage contained within the
Building by the leasable square footage contained within all buildings located
within the Project, unless, as to any given item, such a percentage allocation
unfairly burdens or benefits a given building(s), in which case Landlord shall
have the exclusive right to equitably allocate such item so as to not unfairly
burden or benefit any given building(s). Landlord's determination of any such
special allocation shall be final and binding upon Tenant unless made in bad
faith.
G. BUILDING OPERATING EXPENSES: The term "Building Operating
Expenses" shall mean and include the Building's Share of all Real Property
Taxes, plus the Building's Share of all Landlord's Insurance Costs, plus the
Building's Share of all Project Maintenance Costs, plus an accounting fee equal
to five percent of all such costs.
H. LAW: The term "Law" shall mean any judicial decision and any
statute, constitution, ordinance, resolution, regulation, rule, administrative
order, or other requirement of any municipal, county, state, federal, or other
governmental agency or authority having jurisdiction over the parties to this
Lease, the Leased Premises, the Building or the Project, or any of them in
effect either at the Effective Date of this Lease or at any time during the
Lease Term, including, without limitation, any regulation, order, or policy of
any quasi-official entity or body (e.g. a board of fire examiners or a public
utility or special district).
I. LENDER: The term "Lender" shall mean the holder of any Note or
other evidence of indebtedness secured by the Project or any portion thereof.
J. PRIVATE RESTRICTIONS: The term "Private Restrictions" shall mean
all recorded covenants, conditions and restrictions, private agreements,
easements, and any other recorded instruments affecting the use of the Project,
as they may exist from time to time.
K. RENT: The term "rent" shall mean collectively Base Monthly Rent
and all Additional Rent.
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13.13 GENERAL WAIVERS: One party's consent to or approval of any act by
the other party, requiring the first party's consent or approval shall not be
deemed to waive or render unnecessary the first party's consent to or approval
of any subsequent similar act by the other party. No waiver of any provision
hereof or any breach of any provision hereof shall be effective unless in
writing and signed by the waiving party. The receipt by Landlord of any rent or
payment with or without knowledge of the breach of any other provision hereof
shall not be deemed a waiver of any such breach. No waiver of any provision of
this Lease shall be deemed a continuing waiver unless such waiver specifically
states so in writing and is signed by both Landlord and Tenant. No delay or
omission in the exercise of any right or remedy accruing to either party upon
any breach by the other party under this Lease shall impair such right or remedy
or be construed as a waiver of any such breach theretofore or thereafter
occurring. The waiver by either party of any breach of any provision of this
Lease shall not be deemed to be a waiver of any subsequent breach of the same or
any other provisions herein contained.
13.14 MISCELLANEOUS: Should any provision of this Lease prove to be
invalid or illegal, such invalidity or illegality shall in no way affect, impair
or invalidate any other provision hereof, and such remaining provisions shall
remain in full force and effect. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor. Any copy of this Lease which is executed by the parties shall be deemed
an original for all purposes. This Lease shall, subject to the provisions
regarding assignment, apply to and bind the respective heirs, successors,
executors, administrators and assigns of Landlord and Tenant. The term "party"
shall mean Landlord or Tenant as the context implies. If Tenant consists of
more than one person or entity, then all members of Tenant shall be jointly and
severally liable hereunder. This Lease shall be construed and enforced in
accordance with the Laws of the State in which the Leased Premises are located.
The language in all parts of this Lease shall in all cases be construed as a
whole according to its fair meaning, and not strictly for or against either
Landlord or Tenant. The captions used in this Lease are for convenience only
and shall not be considered in the construction or interpretation of any
provision hereof. When the context of this Lease requires, the neuter gender
includes the masculine, the feminine, a partnership or corporation or joint
venture, and the singular includes the plural. The terms "must", "shall",
"will" and "agree" are mandatory. The term "may" is permissive. When a party
is required to do something by this Lease, it shall do so at its sole cost and
expense without right of reimbursement from the other party unless specific
provision is made therefor. Where Tenant is obligated not to perform any act or
is not permitted to perform any act, Tenant is also obligated to restrain any
others reasonably within its control, including agents, invitees, contractors,
subcontractors and employees, from performing said act. Landlord shall not
become or be deemed a partner or a joint venturer with Tenant by reason of any
of the provisions of this Lease. See Addendum Paragraph 13.14
ARTICLE 14
CORPORATE AUTHORITY
BROKERS AND ENTIRE AGREEMENT
14.1 CORPORATE AUTHORITY: If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
Tenant is validly formed and duly authorized and existing, that Tenant is
qualified to do business in the State in which the Lease Premises are located,
that Tenant has the full right and legal authority to enter
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into this Lease, that he or she is duly authorized to execute and deliver this
Lease on behalf of Tenant in accordance with the bylaws and/or a board of
directors' resolution of Tenant, and that this Lease is binding upon Tenant in
accordance with its terms. Tenant shall, within thirty days after execution of
this Lease, deliver to Landlord a certified copy of the resolution of its board
of directors authorizing or ratifying the execution of this Lease, and if Tenant
fails to do so, Landlord at its sole election may elect to (i) extend the
Intended Commencement Date by such number of days that Tenant shall have delayed
in so delivering such corporate resolution to Landlord or (ii) terminate this
Lease.
14.2 BROKERAGE COMMISSIONS: Tenant warrants that it has not had any
dealings with any real estate broker(s), leasing agent(s), finder(s) or
salesmen, other than those persons or entities named in Article 1 as the
"Brokers" with respect to the lease by it of the Leased Premises pursuant to
this Lease, and that it will indemnify, defend with competent counsel, and hold
Landlord harmless from any liabilities for the payment of any real estate
brokerage commissions, leasing commissions or finder's fees claimed by any other
real estate broker(s), leasing agent(s), finder(s) or salesmen to be earned or
due and payable by reason of Tenant's agreement or promise (implied or
otherwise) to pay (or have Landlord pay) such a commission or finder's fee by
reason of its leasing the Leased Premises pursuant to this Lease.
14.3 ENTIRE AGREEMENT: This Lease, the Exhibits (as described in Article
1) and the Addenda (as described in Article 1), which Exhibits and Addenda are
by this reference incorporated herein, constitute the entire agreement between
the parties, and there are no other agreements, understandings or
representations between the parties relating to the lease by Landlord of the
Leased Premises to Tenant, except as expressed herein. No subsequent changes,
modifications or additions to this Lease shall be binding upon the parties
unless in writing and signed by both Landlord and Tenant.
14.4 LANDLORD'S REPRESENTATIONS: Tenant acknowledges that neither Landlord
nor any of its agents made any representations or warranties respecting the
Project, the Building or the Leased Premises, upon which Tenant relied in
entering into this Lease, which are not expressly set forth in this Lease.
Tenant further acknowledges that neither Landlord nor any of its agents made any
representations as to (i) whether the Leased Premises may be used for Tenant's
intended use under existing Law or (ii) the suitability of the Leased Premises
for the conduct of Tenant's business or (iii) the exact square footage of the
Leased Premises, and that Tenant relied solely upon its own investigations
representing said matters. Tenant expressly waives any and all claims for
damage by reason of any statement, representation, warranty, promise or other
agreement of Landlord or Landlord's agent(s), if any, not contained in this
Lease or in any Addenda hereto.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
respective dates below set forth with the intent to be legally bound thereby as
of the Effective Date of this Lease.
AS LANDLORD: AS TENANT:
_____________________________ _____________________________
_____________________________ _____________________________
By:__________________________ By:__________________________
Title:_______________________ Title:_______________________
By:__________________________ By:__________________________
Title:_______________________ Title:_______________________
Dated:_______________________ Dated:_______________________
If Tenant is a CORPORATION, the authorized officers must sign on behalf of
the corporation and indicate the capacity in which they are signing. This Lease
must be executed by the chairman of the board, president or vice president, and
the secretary, assistant secretary, the chief financial officer or assistant
treasurer, unless the bylaws or a resolution of the board of directors shall
otherwise provide, in which event a certified copy of the bylaws or a certified
copy of the resolution, as the case may be, must be attached to this Lease.
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FIRST ADDENDUM TO LEASE
Renco 36
THIS FIRST ADDENDUM TO LEASE ("Addendum") is dated for reference purposes as of
____________, and is made between RENCO INVESTMENT COMPANY, California general
partnership ("Landlord") and LEXAR MICROSYSTEMS, INC., a California corporation
("Tenant") to be a part of that certain Industrial Space Lease of even date
herewith between Landlord and Tenant (herein the "Lease Form"), with respect to
the building (the "Building") commonly known as Renco 36 , located at 47421
Bayside Parkway, Fremont, California. Such property, together with the Building
and all improvements located thereon during the term, including any extended
term, are referred to collectively herein as the "Property." Terms defined in
the Lease Form shall have the same meaning when used herein unless specifically
defined otherwise herein. Landlord and Tenant agree that the Lease Form is
hereby modified and supplemented as follows:
1.1 S. Base Monthly Rent: Intentionally omitted.
2.1 Demise of Leased Premises. Notwithstanding anything to the
-------------------------
contrary in Section 2.1 of the Lease Form, Tenant's compliance with Laws
concerning hazardous materials, whether governing the use of the Leased Premises
or the Property or not, shall be governed solely and exclusively by Paragraph 16
of this Addendum.
2.5 Acceptance of Possession: Notwithstanding anything to the
------------------------
contrary in Section 2.5 of the Lease Form: Landlord warrants that the
construction of the Tenant Improvements will be performed substantially in
accordance with the Construction Drawings (as defined in Exhibit C) and; in
compliance with all laws, codes, ordinances, rules and regulations, in a good
and workmanlike manner, and that all materials and equipment furnished will
substantially conform to said drawings and will be new and otherwise of good
quality. This warranty does not extend to, and Landlord shall not be liable for,
any defect in construction or equipment which is discovered more than one year
after the recordation of a notice of completion for the Building. Tenant shall
promptly notify Landlord in writing of any defect in construction or equipment
covered within such one-year period, and promptly thereafter Landlord shall
commence the cure of each such defect and complete such cure with diligence at
Landlord's cost and expense, not to be passed through to Tenant.
With respect to defects discovered after the expiration of such one-year
period, Landlord and Tenant acknowledge that they intend that Tenant shall have
the benefit of any express or implied construction or equipment warranties
existing in favor of Landlord which would assist Tenant in correcting such
defects and in discharging its obligations regarding the repair and maintenance
of the Leased Premises. Upon request by Tenant following the expiration of such
one-year period, Landlord shall inform Tenant of all written construction and
equipment warranties existing in favor of Landlord which affect the Building or
equipment. Landlord shall cooperate with Tenant in enforcing such warranties and
in bringing any suit that maybe necessary to enforce liability with regard to
any defective construction or equipment which is discovered or of which Landlord
receives notice after the expiration of said one-year warranty
<PAGE>
First Addendum to Lease
Renco 36
Page 2
period, so long as Tenant pays all costs reasonably incurred by Landlord in
connection therewith. This warranty applies only to construction performed by
Landlord for Tenant after the date of this Lease.
2.6 Surrender of Possession: Notwithstanding anything to the contrary
-----------------------
in Sections 2.6 and 6.2 of the Lease Form: Tenant shall have the right to
remove all trade fixtures and any leasehold improvements installed at Tenant's
expense (together the "Tenant's Property") so long as it repairs all damage
caused by the installation thereof and returns the Leased Premises to
substantially the condition existing prior to the installation of such Tenant's
Property. At the expiration or sooner termination of the Lease Term, all
Tenant's Property which Tenant does not elect to remove shall be surrendered to
Landlord as a part of the Leased Premises and shall then become Landlord's
property, and Landlord shall have no obligation to reimburse Tenant for all or
any portion of the value or cost thereof. If Landlord so requires, at the
expiration or earlier termination of the Lease Term, Tenant shall remove any
Tenant's Property designated for removal by Landlord and shall restore the
Leased Premises to the condition existing prior to the installation of such
Tenant's Property.
2.6 Surrender of Possession: In consideration of the short term of
this Lease, Tenant agrees to return the Leased Premises in the same condition as
received by Tenant. Tenant shall paint all walls that require paint to appear in
the same condition as initially delivered to Tenant. Tenant shall clean, repair,
or replace the carpet and other floor covering to restore same to the condition
as initially delivered to Tenant. It is understood that Tenant shall return the
Leased Premises to a condition so that it may be leased to a third party with no
additional work or expense to Landlord as if Landlord had leased the Leased
Premises to the third party as of the commencement date of this Lease.
3.2 Additional Rent: Notwithstanding anything to the contrary in
---------------
Section 3.2 of the Lease Form, Tenant shall pay Real Property Taxes (as defined
in Article 13 of the Lease form) no later than ten (10) days before Real
----------
Property Taxes become delinquent, and Tenant shall not be required to pay Real
Property Taxes prior to such date.
3.3 Year End Adjustments: Notwithstanding anything to the contrary in
--------------------
Section 3.3 of the Lease Form:
A. Tenant shall have the right, at its expense, exercisable upon
reasonable prior written notice to Landlord, to audit Landlord's books and
records for Property Operating Expenses provided such audit is conducted during
normal business hours and within six (6) months following the Lease year subject
to audit.
B. Landlord shall pay the cost of such audit if it is determined that
Tenant has been overcharged for Property Operating Expenses by more than five
percent (5%) and shall promptly refund the amount of such overpayment to Tenant.
<PAGE>
First Addendum to Lease
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3.4 Late Charge and Interest on Rent in Default: Notwithstanding
anything to the contrary in Section 3.4 of the Lease Form:
A. No late charge shall become due and payable until Tenant has
received written notice that a payment of Base Monthly Rent or Additional Rent
is delinquent and Tenant fails to pay such delinquent amount within six (6) days
after receipt of Landlord's written notice, provided that, after Landlord
provides Tenant with one (1) such delinquency notice in any one calendar year,
for the remainder of such calendar year, late charges shall be due and payable
after the applicable six (6)-day grace period described in Section 3.4 of the
Lease Form without the requirement that Landlord first deliver a delinquency
notice to Tenant.
B. Interest on delinquent rent payments shall not commence until ten
(10) days after Tenant's receipt of Landlord's written notice that rent has not
been paid.
4.1 Permitted Use: Notwithstanding anything to the contrary in
-------------
Section 4.1 of the Lease Form, Tenant shall not be required to continuously and
without interruption occupy or use the Leased Premises, and Tenant may vacate
the Leased Premises so long as it provides notice to Landlord and safeguards the
Leased Premises in a manner reasonably satisfactory to Landlord and Landlord's
insurance carrier.
4.7 Compliance with Laws and Private Restrictions: Notwithstanding
---------------------------------------------
anything to the contrary in Section 4.7 of the Lease Form:
A. Landlord, at its sole cost and expense, shall remain liable for
the correction of any violations of law or private restrictions for Landlord's
work which existed as of the Lease Commencement Date and was performed after the
date of this Lease.
B. Tenant's compliance with Laws governing the use and/or disposal of
hazardous materials and Tenant's obligation to defend Landlord with competent
counsel, indemnify and hold Landlord harmless from any claims, damages or
liabilities resulting from Tenant's failure to do so shall be governed solely
and exclusively pursuant to Paragraph 16 of this Addendum.
4.8 Compliance with Insurance Requirements: Notwithstanding anything
--------------------------------------
to the contrary in Section 4.8 of the Lease Form, Tenant shall be permitted to
conduct any activities or keep, store or use any item or thing within the Leased
Premises, the Building, the Outside Areas or the Property which is reasonably
necessary to Tenant's business even if it causes an increase in the rates
charged for coverage afforded under any insurance policies required or permitted
to be carried by Landlord, so long as Tenant is willing to pay any increase in
insurance rates so caused, and such activities do not constitute an unreasonable
danger to the Leased Premises or any part thereof or otherwise materially
interfere with Landlord's ability to obtain insurance for the Leased Premises
and Landlord's other buildings. If Tenant's activities cause an increase in
insurance rates for Landlord's other buildings, Tenant shall pay the entire
amount of such increase to the extent caused solely by Tenant's activities.
<PAGE>
First Addendum to Lease
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Page 4
4.9 Landlord's Right to Enter: Notwithstanding anything to the
-------------------------
contrary in Section 4.9 of the Lease Form, Landlord shall enter the Leased
Premises only in a manner which will not unreasonably interfere with Tenant's
use of the Leased Premises.
4.12 Environmental Protection: Notwithstanding anything to the
------------------------
contrary in Section 4.12 of the Lease Form, Landlord may voluntarily cooperate
in reducing actual or potential environmental damage so long as such cooperation
is required by law or does not unreasonably interfere with Tenant's use of the
Leased Premises or increase Tenant's costs.
5.1 Repair and Maintenance: Notwithstanding anything to the contrary
----------------------
in Section B of Section 5.1 of the Lease Form, with respect to all repairs or
maintenance undertaken by Landlord, the cost of which is a Property Operating
Expense which is to be charged back to Tenant, Landlord shall use reasonable
efforts to obtain services and materials at fair market value.
5.4 Energy and Resource Consumption: Notwithstanding anything to the
-------------------------------
contrary in Section 5.4 of the Lease Form, Landlord shall not reduce energy or
other resource consumption in a manner which unreasonably interferes with
Tenant's use of the Leased Premises, and Tenant shall not be required to
cooperate in any reduction of energy which unreasonably interferes with Tenant's
use of the Leased Premises or increases Tenant's costs unless such cooperation
is required by law.
5.5 Limitation of Landlord's Liability: Notwithstanding anything to
----------------------------------
the contrary in Section 5.5 of the Lease Form, Landlord shall be liable for any
loss or liability incurred by Tenant as a result of the negligence or misconduct
of Landlord, its agents, employees, or contractors.
6.1 By Tenant: Notwithstanding anything to the contrary in Section
---------
4.2 or Section 6.1 of the Lease Form:
A. Tenant shall have the right to make interior alterations which cost,
in the aggregate, less that $15,000 per Lease year without Landlord's prior
consent provided that such alterations do not affect the structural parts of the
Building or involve the demolition of Landlord's property. Tenant shall,
however, deliver to Landlord a copy of any plans and specifications for any
leasehold improvement made by Tenant to the Leased Premises.
B. The threshold amount of $15,000 described in subparagraph A
immediately above will be increased $1,000 per Lease year for the initial Lease
Term and any extended term.
C. Tenant shall have the right to make modifications, alterations or
improvements to the Outside Areas, the exterior of the Building and structural
components of the Building only with Landlord's prior written consent, which
shall not be unreasonably withheld.
<PAGE>
First Addendum to Lease
Renco 36
Page 5
6.2 Ownership of Improvements: Notwithstanding anything to the
-------------------------
contrary in Section 6.2 of the Lease Form, with respect to Tenant's Property (as
defined in Paragraph 2.6 above), Landlord shall, upon Tenant's request, execute
a lien waiver in a form reasonably acceptable to Tenant's lender or equipment
lessor, so long as such waiver does not alter the terms of the Lease.
7.1 By Tenant: Notwithstanding anything to the contrary in Section
---------
7.1 of the Lease Form, Landlord shall not unreasonably withhold its consent to
any assignment or sublease.
7.2 Merger or Reorganization: Notwithstanding anything to the
------------------------
contrary in Section 7.2 of the Lease Form:
A. If Tenant is a publicly traded corporation, or Tenant is not a
publicly traded corporation but the Lease does not represent substantially all
of the assets of Tenant, then Landlord's consent shall not be required for any
assignment or sublease (i) made in connection with a merger, consolidation, or
other reorganization of Tenant, (ii) made in connection with a sale of
substantially all of the assets of Tenant, or (iii) involving any corporation
which controls, is controlled by, or is under common control with Tenant. For
the purpose of the Lease if Tenant is a corporation, the sale, or other transfer
of Tenant's capital stock shall not be deemed an assignment, subletting, or any
other transfer of the Lease or the Lease Premises. Notwithstanding any provision
to the contrary in Article 7 of the Lease Form, in the case of any of the above
described transfers, Tenant shall not be obligated to pay any assignment
consideration or excess rentals to Landlord.
B. If Tenant or Landlord assigns the Lease as security for a loan,
Landlord and Tenant agree to execute such documents as are reasonably requested
by the lender and to provide reasonable provisions in the Lease protecting such
lender's security interest which are customarily required by institutional
lenders making loans secured by a deed of trust or a leasehold mortgage, so long
as such provisions do not alter the benefits of Landlord or Tenant or the
obligations of Tenant or Landlord under the Lease.
7.4 Conditions to Landlord's Consent: Notwithstanding anything to the
--------------------------------
contrary in Section 7.4 of the Lease Form, if Tenant is in the process of curing
a default under the Lease, the sublease or assignment may become effective
following the completion of the cure of such default; provided, however, that it
the default cannot be cured and the default is not material and Landlord does
not terminate the Lease or commence termination proceedings because of such
default, the sublease or assignment may become effective notwithstanding such
uncured non-material default.
7.5 Assignment Consideration and Excess Rentals Defined:
Notwithstanding anything to the contrary in Section 7.5 of the Lease Form:
<PAGE>
First Addendum to Lease
Renco 36
Page 6
A. Tenant may sublease up to seventeen percent (17%) of the Leased
Premises without the obligation to pay excess rentals to Landlord.
B. The following costs shall be deducted from (a) all consideration
received by Tenant with respect to an assignment and (b) all consideration in
excess of rent due to Landlord under the Lease for the same period with respect
to subletting, to determine the meaning of the terms "assignment consideration"
or "excess rentals": (i) any commissions paid by Tenant to a licensed real
estate broker for arranging such sublease or assignment (not to exceed then
standard rates); (ii) any costs of retro-fit or restoration necessary for a
subtenant or assignee; (iii) any other reasonable expense of Tenant attributable
to locating and preparing the Leased Premises for the use and occupancy of such
subtenant or assignee; and (iv) a deduction for vacancy costs calculated from
the time that the space is vacant of Tenant's employees and has been offered for
lease with a licensed real estate broker.
8.1 Limitation on Landlord's Liability and Release: Notwithstanding
anything to the contrary in Section 8.1 of the Lease Form, Tenant shall not
release Landlord, and Landlord shall remain liable to Tenant for the following:
(i) Landlord's liability to repair code violations in Landlord's
work existing as of the Lease Commencement Date;
(ii) Loss resulting from the negligence (whether active or
passive) or misconduct of Landlord, its agents, employees, or contractors,
provided, however, that Landlord shall not be liable to Tenant unless Tenant
shall have first provided Landlord with written notice of any known or suspected
code violation or negligence and given Landlord reasonable time to correct said
defect or negligence; and
(iii) Liability for hazardous materials other than liability
assumed by Tenant pursuant to Paragraph 16 of this Addendum.
9.2 Landlord's Insurance: Notwithstanding anything to the contrary
--------------------
in Section 9.2 of the Lease Form:
A. Tenant's obligation to pay for the cost of any earthquake and/or
flood insurance premiums is limited to the obligation to pay an amount which is
equal to or less than five (5) times the cost of fire insurance premiums for the
Leased Premises.
B. Uninsured losses and earthquake and/or flood insurance deductibles
shall be handled in the following manner:
(i) Tenant shall pay for the uninsured loss or earthquake and/or
flood insurance deductible up to an amount equal to one dollar ($1.00) per
square foot of Rentable Area.
<PAGE>
First Addendum to Lease
Renco 36
Page 7
(ii) If Tenant's contribution of an amount equal to one dollar ($1.00)
per square foot of Rentable Area is not sufficient to cover an uninsured loss or
earthquake and/or flood insurance deductible, Landlord shall pay the balance up
to an amount equal to ten percent (10%) of the replacement cost of the Building.
If an uninsured loss or earthquake and/or flood insurance deductible exceeds ten
percent (10%) of the Building replacement cost, Landlord may terminate the Lease
unless Tenant agrees to pay the entire amount which is in excess of ten percent
(10%) of the Building replacement cost.
(iii) If Landlord contributes to payment for an uninsured loss or
earthquake and/or flood insurance deductible, such amount shall be repaid and
amortized by Tenant over the remaining term of the Lease together with interest
at Wells Prime Plus Two, and Tenant shall pay same as Additional Rent. However,
Tenant shall in no event be required to pay an amount in excess the product of
six and one-half cents ($0.065) times the Rentable Area of the Building in
square feet per month (the "Ceiling Amount"). All amortization will terminate on
the expiration of Tenant's occupancy of the Building.
(iv) If the Ceiling Amount is not adequate to amortize Landlord's
contribution to an uninsured loss or earthquake and/or flood insurance
deductible over the initial Lease Term, and Tenant exercises an option to renew
the Lease or otherwise remains in possession of the Premises, Tenant's payment
shall continue at the Ceiling Amount during any period of Tenant's occupancy of
the Premises until Landlord's contribution is amortized with interest as
provided above.
10.3 Landlord's Right to Terminate: Notwithstanding anything to the
-----------------------------
contrary in Section 10.3 of the Lease Form:
A. If more than three (3) years remain of the Lease Term then in
effect, Landlord will rebuild the Leased Premises provided that the casualty was
caused by either a loss which Landlord was required to insure against under the
Lease or a loss which Landlord actually insured against, even if such insurance
was not required (an "Insured Loss").
B. If fewer than three (3) years remain of the Lease term then in
effect, Landlord's obligation to rebuild after an Insured Loss shall be governed
by the following: (i) if 36-24 months remain of such Lease term, Landlord will
rebuild provided that the cost of rebuilding does not exceed an amount equal to
50% of the replacement cost of the Building; (ii) if 23-7 months remain of such
Lease term, Landlord will rebuild provided that the cost of rebuilding does not
exceed an amount equal to 30% of the replacement cost of the Building: and (iii)
if fewer than six (6) months remain of such Lease term, Landlord will rebuild
provided that the cost of rebuilding does not exceed an amount equal to 10% of
the replacement cost of the Building.
C. Notwithstanding the above, in the event of an Insured Loss at a
time when fewer than three (3) years remain of the Lease term then in effect,
Landlord must rebuild following an
<PAGE>
First Addendum to Lease
Renco 36
Page 8
Insured Loss if Tenant exercises an option to renew within fifteen (15) days
after the date of damage.
11.6 Abatement of Rent: Intentionally Omitted.
-----------------
12.1 Events of Tenant's Default: Notwithstanding anything to the
--------------------------
contrary in Section 12.1 of the Lease Form, Tenant shall not be in default for
any of the reasons specified in Sections (B) and (C) of Section 12.1 unless
Tenant has failed to cure a default within thirty (30) days after written notice
from Landlord (or such longer period of time if reasonably necessary to cure the
default so long as Tenant begins the cure within such thirty (30)-day period and
prosecutes it with due diligence and best faith efforts to completion).
13.6 Estoppel Certificates: Notwithstanding anything to the contrary
---------------------
in Section 13.6 of the Lease Form, Landlord shall, upon the same terms and
conditions applicable to Tenant, give an estoppel certificate to Tenant for the
benefit of any lender taking a security interest in the Lease or for the benefit
of a purchaser of Tenant's assets.
13.12 Definitions: Notwithstanding anything to the contrary in
-----------
SubSection C of Section 13.12 of the Lease Form:
A. The term "Property Maintenance Costs" shall not include any of the
following:
(i) The cost to correct code violations in work constructed by
Landlord existing as of the Lease Commencement Date;
(ii) The cost to correct defects in design or construction of
structural components of the Building;
(iii) The cost to correct defects in design or construction of non
structural components of the Building or structural and non structural
components of other improvements located on the Property, if such defect is (i)
discovered within two (2) years of the Lease Commencement Date or (ii)
discovered more than two (2) years after the Lease Commencement Date if such
defect is material and could not reasonably have been discovered by Tenant
within two (2) years of the Lease Commencement Date;
(iv) The cost of repairs necessitated by the active negligence or
misconduct of Landlord, its agents, employees or contractors;
(v) The cost of repairs which are covered by insurance or
required to be covered by insurance under the Lease; and
(vi) Any cost or expense related to or incurred in connection with
hazardous materials unless Landlord incurs such cost or expense as a result of
Tenant's failure to comply with its obligations under Paragraph 16 of this
Addendum.
<PAGE>
First Addendum to Lease
Renco 36
Page 9
B. Any single item of Property Maintenance Cost under Subparagraph
(C) which exceeds $25,000, is incurred with respect to an item with a useful
life not less than five (5) years and would be defined as a capital expenditure
under generally accepted accounting principles, shall be amortized over the
useful life of the improvement, and Tenant shall pay such amortization on a
monthly basis together with interest at Wells Prime Plus Two.
C. In calculating the scheduled gross rental income for purposes of
the "professional management fees" in SubSection C, amortization of improvements
required by law pursuant to Section 6.3 shall be excluded.
13.12 C. Landlord has agreed to use this form at Tenant's request.
This form was drafted for use with a single tenant building. The. Leased
Premises is a part of a multi tenant building. Landlord and Tenant agree to
prorate Property Maintenance Costs based on the relative size of the space
occupied by Tenant when compared to the total floor area of the Building, Tenant
shall not be required to pay for services provided to another tenant in the
Building as a result of that tenant's disproportionate use of services, In
addition, Tenant agrees to use no more than its prorata share of any service or
facility existing or provided to the Building, specifically including parking
and loading facilities. Landlord agrees not to permit any other tenant in the
Building to use a disproportionate share of any service or facility existing or
provided to the Building.
13.14 Miscellaneous: Notwithstanding anything to the contrary in
-------------
Section 13.14 of the Lease Form:
Whenever the Lease requires an approval, consent, designation,
determination or Judgment by either Landlord or Tenant, such approval, consent,
designation, determination or judgment shall not be unreasonably withheld or
delayed and in exercising any remedy or right hereunder, each party shall at all
times act reasonably and in good faith.
15. Cross Default: Landlord and Tenant have previously entered into
-------------
the Building 59 Lease. The lease provides for Tenant's occupancy of a building
identified as Renco 59, 47341 Bayside parkway, Fremont, California. A default by
Tenant (as defined in the Article entitled "Default and Remedies") under such
lease or under this Lease shall be considered to be a default under the Renco 59
lease as well as this Lease. In the event of a default by Tenant under the Renco
59 lease or this Lease, Landlord may pursue the remedies permitted by law or
pursuant to the terms of any, either or all of such leases, as if Tenant had
defaulted under any one or all of such leases. If Tenant and Landlord enter into
any other Leases, the immediately preceding cross default provisions shall apply
to all such leases.
16. Hazardous Materials: Notwithstanding anything to the contrary in
-------------------
the Lease:
A. Landlord represents that, to the best of its knowledge, any
handling, transportation, storage, treatment or use of Hazardous Materials (as
defined below) that has occurred on the property prior to the date of the Lease
has been done in compliance with all laws
<PAGE>
First Addendum to Lease
Renco 36
Page 10
and that the property is, to the best of Landlord's knowledge, presently in
compliance with all laws which relate to Hazardous Materials.
B. Tenant, at its sole cost, shall comply with all Laws relating to
the storage, use and disposal of hazardous, toxic or radioactive matter
including those materials identified in Section 66630 through 66685 of Title 22
of the California Administrative Code, Division 4, Chapter 30 ("Title 22") as
they may be amended from time to time (collectively "Hazardous Materials");
provided, however, that Tenant shall not be responsible for contamination of the
Leased Premises by Hazardous Materials existing as of the Lease/Commencement
Date (unless caused by Tenant) or by any release of Hazardous Materials
occurring off-site on adjacent or neighboring property (but not caused by
Tenant) which migrates onto the Leased Premises. If Tenant does store, use or
dispose of any Hazardous Materials, Tenant shall notify Landlord in writing at
least ten (10) days prior to their first appearance on the Leased Premises.
Tenant shall be solely responsible for and shall defend, indemnify, and hold
Landlord and its agents harmless form and against all claims, costs and
liabilities, including attorneys' fees and costs, arising out of or in
connection with Tenant's storage, use and/or disposal of Hazardous Materials. If
the presence of Hazardous Materials on the Leased Premises caused or permitted
by Tenant results in contamination or deterioration of water or soil resulting
in a level of contamination greater than the levels established by any
governmental agency having jurisdiction over such contamination, then Tenant
shall Promptly take any and all action necessary to clean up such contamination
if required by Law or as a condition to the issuance or continuing effectiveness
of any governmental approval which relates to the use of the Leased Premises. At
any time prior to the expiration of the Lease Term, Tenant shall have the right
to conduct appropriate tests of water and soil and to deliver to Landlord the
results of such tests to demonstrate that no contamination in excess of
permitted levels has occurred as a result of Tenant's use of the Leased
Premises. Tenant shall further be solely responsible for, and shall defend,
indemnify, and hold Landlord and its agents harmless from and against all
claims, costs and liabilities, including attorneys' fees and costs, arising out
of or in connection with any removal, cleanup and restoration work and materials
required hereunder to return the Leased Premises and any other property of
whatever nature to their condition existing prior to the appearance of the
Hazardous Materials. Notwithstanding the preceding sentence, Tenant shall only
be required to clean up the deterioration or contamination of water or soil to a
level of contamination less, than or equal to the levels established by any
governmental agency having jurisdiction over such contamination. Tenant's
obligation hereunder shall survive the termination of the Lease.
17. Limitations on Liability. Intentionally Omitted.
------------------------
<PAGE>
First Addendum to Lease
Renco 36
Page 11
20. General. In the event of any inconsistency between this First
-------
Addendum and the Lease Form, the terms of this First Addendum shall prevail. As
used herein, the term "Lease" shall mean the Lease Form, this Addendum and all
riders, Exhibit s, rules, regulations, covenants, conditions and restrictions
referred to in the Lease Form or this Addendum.
LANDLORD: TENANT:
RENCO INVESTMENT COMPANY LEXAR MICROSYSTEMS, INC.
a California General Partnership a California Corporation
By:_____________________________ By:_________________________
General Partner
Title:______________________
By:_____________________________
General Partner
By:_________________________
By:_____________________________ Title:______________________
General Partner
Dated:__________________________ Dated:______________________
<PAGE>
EXHIBIT A
<PAGE>
EXHIBIT B
<PAGE>
FIRST AMENDMENT OF LEASE
This First Amendment of Lease ("Amendment") is made and entered into this the
15th day of July, 1998 by and between RENCO INVESTMENT COMPANY, a California
Partnership ("Landlord") and LEXAR MEDIA, INC., a California Corporation
("Tenant").
RECITALS
A. Landlord and Tenant entered into a Lease dated October 25, 1996
("Lease"), for the lease of approximately 22,788 gross square feet of space in
the building located at 47421 Bayside Parkway, Fremont, Alameda County,
California ("Premises").
B. Landlord and Tenant now desire to extend the lease term by five
years, such that the lease termination date would be December 31, 2003.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt of which is hereby acknowledged, Landlord
and Tenant agree as follows:
1. Unless otherwise expressly provided herein, all terms which are
given a special definition by the Lease, that are used herein, are intended to
be used with the definition given to them in the Lease. The provisions of the
Lease shall remain in full force and effect except as specifically amended
hereby. In the event of any inconsistency between the Lease and this Amendment,
the terms of this Amendment shall prevail.
2. Paragraph 1.1.G. is hereby amended to extend the Lease term by
five (5) years and to provide for a lease termination date of December 31, 2003
("First Extended Term").
3. Paragraph 1.1.K. is hereby amended to increase tenant's Security
Deposit from $25,668.00 to the sum of $37,322.23. Payment of the additional sum,
in the amount of $11,654.23, shall be made upon execution of this Amendment, and
shall be held by Landlord as security under the terms of the Lease.
4. Paragraph 1. 1. S. is amended as follows:
Commencing on January 1, 1999, and continuing through the month of
December, 1999, the Base Monthly Rent shall be $31,903.20.
Commencing on January 1, 2000, and continuing through the month of
December, 2000, the Base Monthly Rent shall be $33,179.33.
Commencing on January 1, 2001, and continuing through the month of
December, 2001, the Base Monthly Rent shall be $34,506.50.
Commencing on January 1, 2002 and continuing through the month of
December, 2002, the Base Monthly Rent shall be $35,886.76.
<PAGE>
Lexar Micro Systems, Inc.
First Amendment of Lease
Page 2
Commencing on January 1, 2003, and continuing through the month of
December, 2003, the Base Monthly Rent shall be $37,322.23.
5. Throughout the First Extended Term of the Lease, Tenant shall
continue to pay all sums of Additional Rent, as set forth in the Lease.
6. Tenant agrees, as of the date of the execution of this Amendment,
to lease the Premises, in its "as is" condition.
7. Landlord and Tenant each agree to pay their own broker for
services provided. Neither Landlord nor Tenant shall be obligated to pay the
other party's real estate brokerage fees. Landlord and Tenant each agree to
indemnify, defend and hold the other party harmless from and against any and all
liability, damages and costs (including attorneys' fees) incurred by the other
as a result of a claim made by the other party's real estate broker.
8. For and in consideration of Tenant entering into the Amendment,
and other valuable consideration, Landlord hereby grants Tenant one option
("Option") to renew the Lease for an additional term of five (5) years ("Renewal
Term"), with the Option commencing on January 1, 2004 (the "First Renewal
Commencement Date") and ending five (5) years thereafter (the "First Renewal
Expiration Date").
The lease of the Premises for the Renewal Term shall be on the same
terms and conditions as set forth in the Lease and Amendment, except:
a. That the rental for the Premises during the Renewal Term shall
be as set forth below.
b. The Security Deposit shall be increased such that it shall not
be less than the rental amount determined below (the "Increased Security Deposit
Amount").
c. Provided that Tenant is not in default (following the passage
of the notice and cure periods described in Article 12) as of the exercise of
the Option, Tenant shall notify Landlord of Tenant's exercise of its right to
renew the Lease for the Renewal Term only by giving to Landlord written notice
not later than December 31, 2002. Time is expressly of the essence to Landlord.
Any attempted exercise of this Option made other than within the time period set
forth above or in the manner stated, shall be void and of no force or effect.
d. If Tenant shall have properly and timely exercised its right to
extend the term of the Lease, provided that Tenant is not in default (following
the passage of notice and cure periods described in Article 12), as of the first
renewal commencement date, the term of the Lease shall be so extended for such
renewal term on the same terms and conditions contained in the Lease; provided,
however, the Base Monthly Rent for each month of the Renewal Term shall be
calculated as follows:
<PAGE>
Lexar Micro Systems, Inc.
First Amendment of Lease
Page 3
The new Base Monthly Rent for each month of the Renewal Term shall be
the greater of:
(i) the Base Monthly Rent being paid by Tenant to Landlord
during the final full month of the final year of the initial lease term, or
(ii) the Then Market Rental Rate for the Premises.
e. The term "Then Market Rental Rate" shall mean the Base Monthly
Rent that a ready and willing nonrenewal, new, prospective tenant would pay, as
of the applicable date, to a ready and willing landlord for property comparable
to the Premises in the Bayside Technology Park, Fremont, California, if such
property were exposed for lease on the open market, for a term of five (5)
years.
f. The Then Market Rental Rate shall be determined by mutual
agreement between Landlord and Tenant or, in the event such agreement cannot be
made within ten (10) days from the date Tenant shall have exercised this Option,
Landlord and Tenant shall each appoint a real estate appraiser with at least
five (5) years full time commercial/industrial experience in Santa Clara or
Alameda county, to appraise and determine the Then Market Rental Rate for the
Premises. If either party does not appoint an appraiser within ten (10) days
after the other party has given notice of the name of its appraiser, the other
party can then apply to the President of the Santa Clara County Real Estate
Board or presiding judge of the Superior Court of Alameda County for the
selection of a second appraiser that meets the qualifications stated above. The
failing party shall bear the cost of appointing the second appraiser and paying
the second.
g. appraiser's fee. Two appraisers shall attempt to establish the
Then Market Rental Rate for the Premises. If the two appraisers are unable to
agree on the Then Market Rental Rate for the Premises within ten (10) days after
the second appraiser has been selected or appointed, then the two appraisers
shall attempt to select a third appraiser meeting the qualifications stated
above. If they fail to agree on a third appraiser, either party can follow the
above procedure for having an appraiser appointed by the Real Estate Board or a
judiciary. Each of the parties shall bear one half (1/2) the cost of appointing
the third appraiser and of paying the third appraiser's fee. Unless the three
appraisers are able to agree on the Then Market Rental Rate for the Premises
within ten (10) days after the selection or appointment of the third appraiser,
the two appraisals being calculated most closely together, after having
discarded the appraisal amount which most greatly varies from the other two
appraisal amounts, shall be added together, then divided by two (2). The
resulting rental amount shall be defined as the Then Market Rental Rate for the
Premises.
h. In no event, however, shall the resulting Then Market Rental Rate
for the Renewal Term be less than the Base Monthly Rent paid during the full
final month of the initial Lease term.
<PAGE>
Lexar Micro Systems, Inc.
First Amendment of Lease
Page 4
9. Except as herein modified or amended, the Lease shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have signed this First Amendment of
Lease, which, for reference purposes shall be deemed to have been dated as of
July 15, 1998.
LANDLORD: TENANT
RENCO INVESTMENT COMPANY LEXAR MEDIA, INC.
A California Partnership A California Corporation
By:_____________________________ By:__________________________
Title: General Partner
Title:_______________________
By:_____________________________
Title: General Partner
By:__________________________
By:_____________________________ Title:_______________________
Title: General Partner
<PAGE>
SECOND AMENDMENT OF LEASE
This Second Amendment of Lease ("Amendment") is made and entered into this
the 13th day of September, 1999 by and between RENCO INVESTMENT COMPANY, a
California General Partnership ("Landlord") and LEXAR MEDIA, INC., a California
Corporation ("Tenant").
R E C I T A L S
A. Landlord and Tenant entered into a Lease dated October 25, 1996
("Lease"), for the lease of approximately 22,788 gross square feet of space in
the building located at 47421 Bayside Parkway, Fremont, Alameda County,
California ("Premises").
B. Landlord and Tenant entered into a First Amendment of Lease dated July
15, 1998 wherein the Lease term was extended to December 31, 2003. The Lease
and First Amendment shall here after be referred to herein as the "Lease"
herein.
C. Landlord and Tenant agree to amend the Lease to extend the lease term
and to allow Tenant to lease additional space within the building, such that
Tenant shall occupy and lease 34,396 gross square feet of space.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt of which is hereby acknowledged, Landlord
and Tenant agree as follows:
1. Unless otherwise expressly provided herein, all terms which are given a
special definition by the Lease, that are used herein, are intended to be used
with the definition given to them in the Lease. The provisions of the Lease
shall remain in full force and effect except as specifically amended hereby. In
the event of any inconsistency between the Lease and this Amendment, the terms
of this Amendment shall prevail.
2. The Lease expiration date of December 31, 2003, shall be extended to a
date that is five (5) years after the Effective Date, as defined in Paragraph 3
below.
3. Tenant hereby agrees to lease and hire from Landlord an additional
11,608 gross square feet of space located at 47361 Bayside Parkway, Fremont,
Alameda County, California ("Additional Space"), such that the total space
leased by Tenant shall total 34,396 gross square feet of space. Possession of
the Additional Space shall be tendered to Tenant, and Tenant's obligation to pay
Rent shall commence on the "Effective Date", which shall be the later of: (i)
January 1, 2000; or (ii) the date that the Additional Space becomes available
for Tenant's occupancy.
4. Paragraph 1.1.K. is hereby amended to increase Tenant's Security
Deposit from $37,322.23 to the sum of $55,789.77. Payment of the additional
sum, in the amount of $18,467.54 shall be made upon execution of this Amendment,
and shall be held by Landlord as security under the terms of the Lease.
1
<PAGE>
5. Paragraph 1.1.P. is amended as follows:
Commencing on January 1, 2000, and continuing through the month of
December 2000, the Base Monthly Rent shall be $47,689.33.
Commencing on January 1, 2001, and continuing through the month of
December, 2001, the Base Monthly Rent shall be $49,596.90.
Commencing on January 1, 2002, and continuing through the month of
December, 2002, the Base Monthly Rent shall be $51,580.78.
Commencing on January 1, 2003, and continuing through the month of
December, 2003, the Base Monthly Rent shall be $53,644.01.
Commencing on January 1, 2004, and continuing through the month of
December, 2004, the Base Monthly Rent shall be $55,789.77.
6. Tenant agrees to lease the Additional Space, in its "as is" condition.
7. Landlord and Tenant each agree to pay their own broker for services
provided. Neither Landlord nor Tenant shall be obligated to pay the other
party's real estate brokerage fees. Landlord and Tenant each agree to indemnify,
defend and hold the other party harmless from and against any and all liability,
damages and costs (including attorneys' fees) incurred by the other as a result
of a claim made by the other party's real estate broker.
8. Commencing on the Effective Date and continuing though December 31,
2004, Tenant shall have a right of first refusal as to the 11,180 gross square
foot space located at 47381 Bayside Parkway, Fremont, California. Tenant's right
of first refusal shall be the right to lease all of the space upon the terms and
conditions then being proposed by any other prospective tenant. Landlord shall
notify Tenant, in writing, of the availability of the space and the proposed
terms offered by a prospective tenant. Tenant shall then have 3 business days
within which to elect to lease all of the space on the terms and conditions
otherwise proposed by the prospective tenant. If Tenant fails to make a timely
election to lease the space, then this right of first refusal shall terminate.
In the event Tenant elects to exercise this right of first refusal, then an
amendment to this Lease shall be executed by Landlord and Tenant incorporating
the new space into the terms of this Lease. Tenant's failure to execute the
amendment within 3 business days of receipt of the amendment, shall void this
right of first refusal and Landlord shall have the right to lease the space to
any prospective tenant that it shall elect.
9. Tenant's election to exercise the Option in Paragraph 8 of the First
Amendment shall be the election to extend the term of the Lease as to the entire
34,396 square feet of the Premises. Tenant my not exercise the Option as to a
portion of the Premises.
2
<PAGE>
10. Except as herein modified or amended, the Lease shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have signed this Amendment, which, for
reference purposes shall be deemed to have been dated as of September 13, 1999.
LANDLORD: TENANT:
RENCO INVESTMENT COMPANY LEXAR MEDIA INC.
A California General Partnership A California Corporation
By: _______________________________ By: ____________________________
Title: General Partner
Title: _________________________
By: _______________________________
Title: General Partner By: ____________________________
Title: _________________________
By: _______________________________
Title: General Partner
3
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
Lexar Media K.K. Qualified to do business in California and Texas
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated February 3, 2000 on our audits of the consolidated financial
statements of Lexar Media, Inc. We also consent to the references to our firm
under the captions "Experts" and "Selected Consolidated Financial Data."
However, it should be noted that PricewaterhouseCoopers LLP has not prepared or
certified such "Selected Consolidated Financial Data."
San Jose, California
February 16, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,495
<SECURITIES> 3,896
<RECEIVABLES> 9,552
<ALLOWANCES> (730)
<INVENTORY> 16,287
<CURRENT-ASSETS> 36,045
<PP&E> 2,968
<DEPRECIATION> (1,134)
<TOTAL-ASSETS> 38,274
<CURRENT-LIABILITIES> 16,471
<BONDS> 96
53,136
0
<COMMON> 1
<OTHER-SE> (31,430)
<TOTAL-LIABILITY-AND-EQUITY> 38,274
<SALES> 29,219
<TOTAL-REVENUES> 29,219
<CGS> 24,596
<TOTAL-COSTS> 44,383
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117
<INCOME-PRETAX> 15,281
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,281)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,281)
<EPS-BASIC> (2.53)
<EPS-DILUTED> (2.53)
</TABLE>
