<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1999
REGISTRATION NO. 333-83665
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SAGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3679 77-0389091
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2460 NORTH FIRST STREET, SUITE 100
SAN JOSE, CA 95131-1023
(408) 383-5300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHANDRASHEKAR M. REDDY
PRESIDENT, CHIEF EXECUTIVE OFFICER
SAGE, INC.
2460 NORTH FIRST STREET, SUITE 100
SAN JOSE, CA 95131-1023
(408) 383-5300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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JOHN W. CAMPBELL III, ESQ. NORA L. GIBSON, ESQ.
RUSSELL J. WOOD, ESQ. PETER S. BUCKLAND, ESQ.
E. JOHN PARK, ESQ. JOAQUIN GAMBOA-PANI, ESQ.
MORRISON & FOERSTER LLP BROBECK PHLEGER & HARRISON, LLP
425 MARKET STREET ONE MARKET, SPEAR STREET TOWER
SAN FRANCISCO, CA 94105-2482 SAN FRANCISCO, CA 94105
(415) 268-7000 (415) 442-0900
</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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for same offering. [ ]
- ---------------
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) REGISTRATION FEE(3)
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Common Stock, par value $0.01 per share..... 3,450,000 $10.00 $34,500,000.00 $9,591.00
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(1) Includes 450,000 shares of common stock that the underwriters have the
option to purchase from the Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457 under the Securities Act of 1933, as
amended.
(3) A registration fee of $9,591 was paid on September 30, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
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 SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 8, 1999
[SAGE LOGO]
3,000,000 SHARES
COMMON STOCK
Sage, Inc. is offering 3,000,000 shares of its common stock. This is our
initial public offering, and no public market currently exists for our shares.
We have applied to have the shares we are offering approved for quotation on the
Nasdaq National Market under the symbol "SAGI."
We anticipate that the initial public offering price will be between $8.00
and $10.00 per share.
-------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
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<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Sage, Inc....................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Sage has granted the underwriters a 30-day option to purchase up to an
additional 450,000 shares of its common stock to cover over-allotments.
-------------------------
ROBERTSON STEPHENS
PRUDENTIAL SECURITIES
NEEDHAM & COMPANY, INC.
The date of this prospectus is , 1999.
<PAGE> 3
Front Cover Spread
1. Text:
"Display Processing Technologies"
"Image Processing"
"Flat Panel Displays (FPD) and Digital CRTs have a fixed resolution
(resolution). However, these displays receive input resolutions that are
not specific - in fact, they vary greatly. Sage has the technology to
convert these various types of input resolutions to an optimal resolution
for each particular display, while maintaining clear, crisp images."
2. Picture of the incoming resolution for a "800 x 600 pixels or
phosphorescent dots" display and picture of the converted resolution on an
XGA Monitor for a 1024 x 768 pixels display "Without Sage" processing and
"With Sage" processing.
3. Picture of the incoming resolution for a "1280 x 1024 pixels" display and
picture of the converted resolution on an XGA Monitor "1024 x 768 pixels"
display "Without Sage" processing and "With Sage" processing.
4. Text:
"SmartSet(TM)"
"Image is often misplaced and distorted due to incompatibilities with
Graphics Controller timing signals from PC"
"Image is automatically adjusted to optimize position and all
artifacts/distortion eliminated"
5. Picture of an XGA Monitor for a "1024 x 768 pixels" display "Without Sage"
processing and "With Sage" processing.
6. Text:
"Video Processing"
"Whether viewing a movie or watching TV, the ability to see a crisp, clean,
high-resolution picture is becoming increasingly important. Sage's video
processing technologies dramatically improve video image quality, thus
enhancing viewer experience, through advanced proprietary algorithims."
7. Picture of "Decode" image.
8. Text:
"We DECODE by carefully isolating the key elements of the video signal. The
color content is separated from the luminance or brightness. Our time-base
correction removes picture jitter, which is typical with VCR type sources."
9. Picture of "De Interlace" image.
10. Text:
"We DE-INTERLACE through a complex, motion sensitive process of combining
information from even and odd frames and interpolating to 'fill in the
blanks.' Our intelligent line doubling removes both the scan lines and
motion artifacts found in most television displays."
11. Picture of "Enhance" image.
12. Text:
"We ENHANCE by analyzing the picture details. Edges are sharpened, small
details are increased, and color transitions are enhanced. This improves
the clarity of the picture and adds vibrancy and depth."
Description of Inside Front Cover
1. Sage logo graphic
2. Text:
"High Performance Display Processing Solutions."
"Bridging the World. . .to Displays."
3. Graphic presentation showing input/sources (TV Antenna, Personal Computer,
VCR/DVD, Coax Cable, Terrestrial Digital Broadcasting and Satellite) and
output/applications (Flat Panel Monitor, Digital CRT Monitor, All-in-One
PC, Large Screen Projection TV, Plasma Display and Projector).
Description of Inside Back Cover
1. Text:
"Electronic Information Displays"
"Enabled by Sage, Inc."
"Today's PC/IV conversion resulted in the rapidly growing demand for video
enabled monitors. Sage, Inc. provides interface solutions for image
improved Digital CRT monitors and for space, weight and power saving Flat
Panel monitors, each having a distinct area of applications."
2. Graphic presentations showing Flat Panel display advantages.
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK.
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Note Regarding Forward-Looking Statements................... 15
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Selected Consolidated Financial Data........................ 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 29
Management.................................................. 40
Certain Transactions........................................ 47
Principal Stockholders...................................... 49
Description of Capital Stock................................ 51
Shares Eligible for Future Sale............................. 53
Underwriting................................................ 55
Legal Matters............................................... 57
Experts..................................................... 57
Where You Can Find Additional Information................... 57
Index to Consolidated Financial Statements.................. F-1
</TABLE>
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We own or have rights to trademarks that we use in conjunction with the
sale of our products. Sage, SmartSet, AutoSet, SureSync, Cheetah2, Cheetah3 and
Cheetah4 are trademarks that are owned by us. This prospectus also makes
reference to trademarks and trade names of other companies.
i
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PROSPECTUS SUMMARY
This summary is not complete and does not contain all of the information
that you should consider before buying shares in the offering. You should read
the following summary together with the more detailed information and
consolidated financial statements, and the notes to those consolidated financial
statements, appearing elsewhere in this prospectus. This prospectus contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from the results anticipated in those
forward-looking statements as a result of the factors described under the
heading "Risk Factors" and elsewhere in this prospectus.
OUR BUSINESS
Sage, Inc. designs, develops and markets high performance display
processors used in digital displays. Our integrated semiconductor solutions are
compatible with existing personal computers and display monitors, and emerging
display devices, including flat panel monitors, flat panel televisions,
projection devices, digital cathode ray vacuum tube displays, Internet
appliances and touch-screen displays used in retail and industrial settings.
Digital displays have substantial advantages over traditional analog displays.
Digital displays offer a more compact form factor, generate less heat, consume
less power and produce less radiation. All displays require that incoming
display signals be processed in order to display images, and there are more than
100 different varieties of display signals in use today. Display manufacturers
seek display processing solutions that can function effectively with the large
number of existing and emerging analog and digital signals, ensure the
compatibility of new displays with the large installed base of personal
computers, or PCs, and provide consumers with plug and play capability.
We offer a family of state-of-the-art digital display processors that
provide highly integrated analog-to-digital conversion, signal reformatting and
color processing capabilities. We design and sell circuit boards that are built
around our semiconductors as turnkey display processing solutions for specific
display applications. Our solutions are designed with a common architecture,
configurable software and modular components that can be easily and rapidly
incorporated into digital display devices. We sell our processing solutions to
leading display manufacturers, including Fujitsu, Ltd. and its subcontractors
and NEC Corporation.
We were the first company to introduce a fully effective automatic display
adjustment feature and the first to integrate mode detection, reformatting,
color depth processing and customized on-screen displays onto a single display
processor. Our objective is to be the leading provider of display signal
processing solutions for display manufacturers by:
- offering the highest performance semiconductor solutions that are fully
compatible with all signal modes and display types;
- focusing our sales efforts on the leading display manufacturers;
- emphasizing our strong customer relationships by providing superior
on-site engineering support as well as easy-to-use custom design tools;
- providing display processors that allow our customers to differentiate
their products through customized features; and
- leading the display signal processing industry in technological advances.
CORPORATE INFORMATION
We were formed as a California corporation in May 1994. In May 1999, we
were reincorporated in Delaware. Our principal executive office is located at
2460 North First Street, Suite 100, San Jose, California 95131-1023, and our
telephone number at this address is (408) 383-5300.
1
<PAGE> 6
THE OFFERING
Common stock offered............................ 3,000,000 shares
Common stock to be outstanding after this
offering........................................ 9,799,591 shares
Use of proceeds................................. We intend to use the offering
proceeds for working capital
and general corporate
purposes.
Proposed Nasdaq National Market symbol.......... SAGI
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The common stock outstanding after the offering is based on the number of
shares outstanding as of June 30, 1999 and excludes:
- 868,266 shares subject to outstanding options as of June 30, 1999 at a
weighted average exercise price of $0.87 per share;
- 85,386 additional shares available for grant under our 1997 Stock Plan as
of June 30, 1999 and an additional 142,346 shares reserved on July 14,
1999 for additional options grants; and
- 193,829 shares subject to outstanding warrants as of June 30, 1999 at a
weighted average exercise price of $4.40 per share.
Except as otherwise noted, all information in this prospectus:
- reflects a three-for-one reverse stock split in our common stock,
implemented on October 1, 1999;
- includes 71,788 shares issued between June 30, 1999 and September 30,
1999 pursuant to the exercise of options;
- includes 375,000 shares issued pursuant to a joint development and
license agreement;
- reflects the automatic conversion of our outstanding preferred stock into
common stock immediately prior to the closing of this offering; and
- assumes that the underwriters' over-allotment option will not be
exercised.
RECENT DEVELOPMENTS
Our reported total revenue for the three months ended September 30, 1999
was $3.7 million, compared with total revenue of $0.9 million for the three
months ended September 30, 1998 representing a 318% increase. Display processor
revenue was $2.1 million for the three months ended September 30, 1999, compared
with display processor revenue of $0.4 million for the three months ended
September 30, 1998 representing a 388% increase. Our reported total revenue for
the three months ended September 30, 1999 was $3.7 million, compared with total
revenue of $3.8 million for the three months ended June 30, 1999 representing a
2.4% decrease. Display processor revenue was $2.1 million for the three months
ended September 30, 1999, compared with display processor revenue of $1.3
million for the three months ended June 30, 1998 representing a 61.5% increase.
For the three months ended September 30, 1999, we had a net loss of $3.4
million, or $1.04 per share. Included in the net loss for the three months ended
September 30, 1999 was an expense of $2.5 million relating to in-process
research and development arising from a joint development and licensing
agreement.
2
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
--------------------------------------------- -----------------
1995 1996 1997 1998 1999 1998 1999
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<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues................ $ -- $ 251 $1,758 $ 1,495 $ 7,132 $ 465 $ 3,775
Gross profit (loss)..... -- 68 622 (144) 2,218 113 1,332
Loss from operations.... (57) (383) (701) (2,686) (4,862) (1,473) (643)
Net loss................ $ (57) $ (384) $ (708) $(2,775) $ (4,751) $(1,454) $ (617)
====== ====== ====== ======= ======== ======= =======
Net loss per share:
Basic and diluted..... $(0.04) $(0.19) $(0.32) $ (1.08) $ (2.00) $ (0.61) $ (0.22)
====== ====== ====== ======= ======== ======= =======
Pro forma............. $ (0.96) $ (0.11)
======== =======
Shares used in computing
net loss per share:
Basic and diluted..... 1,400 1,995 2,246 2,578 2,381 2,385 2,816
Pro forma............. 4,965 5,750
</TABLE>
The pro forma net loss per share is calculated assuming that all
outstanding shares of convertible preferred stock are converted into common
stock at the beginning of the periods presented, or on the date of issuance of
the preferred stock, whichever is later.
<TABLE>
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JUNE 30, 1999
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ACTUAL AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $4,388 $29,038
Working capital............................................. 3,482 28,132
Total assets................................................ 6,851 31,501
Total current liabilities................................... 2,455 2,455
Total stockholders' equity.................................. 4,396 29,046
</TABLE>
The consolidated balance sheet data appearing above at June 30, 1999, as
adjusted, gives effect to our receipt of the net proceeds from the sale of the
shares offered hereby at an assumed initial public offering price of $9.00 per
share, after deducting underwriting discounts and commissions and estimated
offering expenses payable by us, and our receipt of $40,000 from the issuance of
71,788 shares of common stock between June 30, 1999 and September 30, 1999
pursuant to the exercise of options and our receipt of $500,000 from the
issuance of 375,000 shares of common stock pursuant to a joint development and
license agreement.
3
<PAGE> 8
RISK FACTORS
You should carefully consider the risk factors described below, and all
other information contained in this prospectus, before making an investment
decision regarding our common stock. The risks and uncertainties described below
are not the only ones we face. If any of the events or circumstances described
below arise, our business, financial condition or results of operations could be
seriously harmed, the value of our common stock could decline and you could lose
all or part of your investment. Additional risks and uncertainties not presently
known to us, or that may be currently considered by us to be immaterial, may
also impair our business operations.
RISKS RELATED TO OUR OPERATIONS
A SIGNIFICANT AMOUNT OF OUR REVENUES COMES FROM A FEW CUSTOMERS AND ANY DECREASE
IN REVENUES FROM THESE FEW CUSTOMERS COULD SIGNIFICANTLY IMPACT OUR TOTAL
REVENUES
We are and will continue for the foreseeable future to be dependent on a
limited number of large customers for a substantial portion of our revenues. For
the fiscal year ended March 31, 1999, sales of semiconductor products to
Lite-On, Inc. accounted for 48.6% of our revenues. For the three months ended
June 30, 1999, Elo TouchSystems, Inc., a circuit board customer, and two
divisions of NEC, a semiconductor customer, accounted for 31.5% and 21.3%,
respectively, of revenues. As a result of customer concentration any one of the
following factors could significantly impact our total revenues:
- a significant reduction, delay or cancellation of orders from one or more
of our key customers; or
- a decision by one or more significant customers to select products
manufactured by a competitor, or its own internally developed solution,
for inclusion in future product generations.
The digital display manufacturing market is highly concentrated among
relatively few large manufacturers. We expect our operating results to continue
to depend on revenues from a relatively small number of display manufacturers
and their suppliers.
OUR RELIANCE ON A LIMITED NUMBER OF LARGE CUSTOMERS REDUCES OUR ABILITY TO
NEGOTIATE FAVORABLE PRICING TERMS WITH OUR CUSTOMERS
The digital display manufacturing market is highly concentrated among
relatively few large manufacturers. These manufacturers have significantly
greater financial and other resources than we do, therefore we may be unable to
negotiate favorable pricing terms with them. Any inability to negotiate
favorable pricing terms with our customers could impact our ability to generate
positive earnings.
WE HAVE INCURRED NET LOSSES SINCE OUR INCEPTION, AND WE MAY NOT ACHIEVE OR
SUSTAIN ANNUAL PROFITABILITY
We incurred net losses of $617,000 for the three months ended June 30,
1999, and $708,000, $2.8 million and $4.8 million for each of the respective
years ended March 31, 1997, 1998 and 1999, and had an accumulated deficit of
$9.3 million as of June 30, 1999. We also expect to record an expense of $2.5
million, relating to in-process research and development in the three months
ending September 30, 1999 in connection with a licensing transaction with
Faroudja Laboratories, Inc. In the future we expect our research and development
and our selling, general and administration expenses to increase. Accordingly,
we expect to continue to incur additional operating losses for at least the next
12 months. Although we have experienced revenue growth in recent periods, this
growth is not
4
<PAGE> 9
necessarily indicative of future operating results, and we cannot assure you
that we will be able to sustain the growth in our revenues. If we do achieve
profitability, we cannot be certain that we can sustain or increase
profitability on a quarterly or annual basis in the future or at all. This may
in turn cause our stock price to decline. In addition, if we do not achieve or
sustain profitability in the future, we may be unable to continue our
operations. Please see "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
more detailed information on our historical results of operations as well as
charges we expect to incur during the three month period ending September 30,
1999.
WE HAVE A LIMITED OPERATING HISTORY, MAKING IT DIFFICULT FOR YOU TO EVALUATE OUR
BUSINESS AND YOUR INVESTMENT
We commenced operations in January 1995, but we did not generate material
revenues from the sale of our semiconductor products until July 1998. Thus, we
have a limited operating history upon which to evaluate our current business and
prospects. Due to our limited history, it is difficult or impossible for us to
predict our future results of operations with any degree of accuracy. For
example, we cannot accurately forecast expenses based on our projections of
future revenues. Most of our expenses are relatively fixed in the short term,
and we may not be able to quickly reduce spending if our revenues are lower than
our projections. In addition, because substantially all of our present customers
order on a purchase order basis rather than long-term purchase commitments, we
have only a limited ability to project future revenues. Therefore, net losses in
a given quarter may be greater than expected. Moreover, due to our limited
operating history, any evaluation of our business and prospects must be made in
light of the risks and uncertainties often encountered by early stage companies
in technology markets. Many of these risks are discussed elsewhere in this
section. Please see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for more detailed information on our historical
results of operations.
FLUCTUATIONS IN OUR OPERATING RESULTS MAKE IT DIFFICULT TO PREDICT OUR FUTURE
PERFORMANCE AND MAY RESULT IN VOLATILITY IN THE MARKET PRICE OF OUR COMMON STOCK
Our quarterly operating results have fluctuated significantly in the past
and we expect our results to fluctuate significantly in the future based on a
number of factors. Some of these factors arise from decisions we have made with
respect to the timing and magnitude of expenditures and our ability to control
our revenues. Our operating expenses, which include research and development
expenses and selling, general and administration expenses, are relatively fixed
over the short-term. If our revenues are lower than we expect because we sell
fewer display processors, because we delay the release or the announcement of
new products or for other reasons, we may not be able to quickly reduce our
spending in response. In addition, our revenues could fall short of our
expectations if we experience delays or cancellations of even a small number of
orders.
Certain other factors have, in the past, caused fluctuations in our
quarterly operating. These factors are industry risks over which we have no
control, including:
- changes in the available supply of flat panel displays at reasonable
prices;
- changes in our customers' demand for our products;
- the deferral of customer orders in anticipation of new products or
enhancements by us or our competitors; and
- changes in the available production capacity at the semiconductor
fabrication foundries that manufacture our products and changes in the
costs of manufacturing.
- our ability to develop, introduce and market new products in time to meet
the product design cycles of our customers;
5
<PAGE> 10
There are additional factors that could, but which have not, affected our
operating results including:
- the growth rate of the overall digital display market;
- incorrect forecasting of future revenues;
- changes in product mix, product costs or pricing; and
- general economic conditions and economic conditions specific to the
personal computer, display and semiconductor markets.
In addition, as a result of a license transaction with Faroudja, we will
record an expense of $2.5 million relating to in-process research and
development during the three months ended September 30, 1999.
Any one or more of these factors are difficult to forecast and could result
in fluctuations in our future operating results. Any shortfall in our revenues
would have a direct impact on our business. In addition, fluctuations in our
quarterly results could adversely affect the market price of our common stock in
a manner unrelated to our long-term operating performance. Because our operating
results are volatile and difficult to predict, you should not rely on the
results of one quarter as an indication of our future performance. It is likely
that in some future quarter our operating results will fall below the
expectations of securities analysts and investors. In this event, the trading
price of our common stock may decline significantly.
ANY DELAY IN INTRODUCING NEW PRODUCTS OR ENHANCEMENTS TO EXISTING PRODUCTS COULD
REDUCE CUSTOMER ACCEPTANCE OF OUR PRODUCTS AND COULD DECREASE OUR MARKET SHARE
OR REVENUES
Our display manufacturing customers have regular design cycles for their
next display models. Our future success will depend to a substantial degree upon
our ability to develop and introduce new products and enhancements to our
existing products, and to do so on a schedule that makes our products and
enhancements available at the time our customers are making purchasing
decisions. Our products and product enhancements must incorporate technological
changes and innovations to meet evolving customer and industry standards.
Although we expect to continue to make significant investments in research and
development to enhance our current products and to develop products
incorporating new and existing technologies, we cannot assure you that new
products or product enhancements will be successfully developed. If developed,
we cannot assure you that any new products or product enhancements will be
developed in time to capture market opportunities or achieve a significant or
sustainable level of acceptance in new and existing markets.
FAILURE TO MANAGE OUR EXPANSION EFFECTIVELY COULD ADVERSELY AFFECT OUR ABILITY
TO INCREASE OUR REVENUES AND IMPROVE OUR EARNINGS
Our ability to successfully offer our products in a rapidly evolving market
requires effective planning and management processes. We continue to increase
the scope of our operations domestically and internationally and have increased
our headcount substantially. Between June 30, 1998 and June 30, 1999, we
expanded our headcount by over 25%. In addition, we plan to continue to hire a
significant number of employees this year. Our past growth, and our expected
future growth, places a significant strain on our management systems and
resources including our financial and managerial controls, reporting systems and
procedures. In addition, we will need to continue to expand, train and manage
our workforce worldwide.
6
<PAGE> 11
WE DEPEND ON KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY, AND IF WE ARE
UNABLE TO RETAIN OR HIRE ADDITIONAL PERSONNEL, OUR REVENUES AND PRODUCT
DEVELOPMENT EFFORTS COULD BE HARMED
Our future success depends upon the continued services of our executive
officers and other key engineering, sales, marketing and support personnel, many
of whom would be difficult to replace. We do not have key person life insurance
policies covering any of our employees other than Arun Johary, our Vice
President of Engineering. We intend to hire a significant number of engineering,
sales, marketing and support personnel in the future, and we believe our success
depends, in large part, upon our ability to attract and retain our key
employees. Competition for these persons is intense, especially in the San
Francisco Bay Area, and we may not be able to retain our key personnel or
identify, attract or retain other highly qualified personnel in the future. 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 revenues
and product development efforts could be harmed.
OUR FOREIGN CUSTOMERS ACCOUNT FOR A SIGNIFICANT PORTION OF OUR REVENUES, AND IF
WE DO NOT SUCCESSFULLY ADDRESS THE RISKS ASSOCIATED WITH THESE INTERNATIONAL
OPERATIONS, OUR REVENUES COULD DECLINE
Sales outside of the U.S. accounted for 69.9% of our revenues in the fiscal
year ended March 31, 1999 and accounted for none of our revenues during the
fiscal years ended March 31, 1997 and 1998. A substantial portion of our OEM
customers are located in Japan, Taiwan and Korea, with aggregate sales from
those three countries accounting for 60.2% of our revenues during the fiscal
year ended March 31, 1999. We anticipate that sales outside of the U.S. could
increase in future periods and may account for an increasing portion of our
revenue. In addition, manufacturers who incorporate our processors into their
displays sell them outside of the U.S., thereby exposing us indirectly to
foreign risks. We are, therefore, subject to many international risks,
including:
- the increased complexity and costs of conducting international
operations;
- difficulties in managing sales representatives located outside the U.S.;
- difficulties in staffing and managing foreign operations;
- economic and political instability;
- changes in regulatory requirements, tariffs, current and future import
and export restrictions and other barriers;
- timing and availability of export licenses;
- potentially adverse tax consequences;
- the burden of complying with complex foreign laws and treaties;
- difficulties in collecting accounts receivable;
- difficulties in protecting intellectual property rights in foreign
countries; and
- foreign currency exchange fluctuations.
To date, sales of our products have been denominated exclusively in U.S.
dollars. An increase in the value of the U.S. dollar will increase the price of
our products so that they become relatively more expensive to customers in the
local currency of a particular country, potentially leading to a reduction in
our revenues and profitability.
7
<PAGE> 12
WE CURRENTLY DEPEND ON A LIMITED NUMBER OF CONTRACT MANUFACTURERS FOR OUR
SEMICONDUCTOR AND CIRCUIT BOARD PRODUCTS, AND WE MUST ORDER PRODUCTS FROM THEM
BASED ON FORECASTS FROM OUR CUSTOMERS FROM WHICH WE DO NOT HAVE FIRM PURCHASE
ORDERS
We do not own or operate a semiconductor fabrication facility and we do not
have the resources to manufacture our products internally. Currently, our
Cheetah2 and Cheetah4 chips are being manufactured, assembled and tested by
Kawasaki LSI U.S.A., Inc., and our Cheetah3 chips are being manufactured,
assembled and tested by Fujitsu Microelectronics Inc. Our circuit board products
are manufactured and tested by Topline Electronics, Inc. We do not have a
long-term supply contract with any of our contract manufacturers, and they are
not obligated to supply us with products for any specific period, in any
specific quantity or at any specific price, except as may be provided in a
particular purchase order. We try not to maintain substantial inventories of
products, but we must often place orders for products two to three months before
they are needed and before we have firm purchase orders for those products. None
of our products is currently manufactured by more than one supplier, and all of
our products are expected to be single-source manufactured for the foreseeable
future. There are many risks associated with our dependence on third-party
manufacturing, assembling and product testing relationships, including:
- delays in delivering products in response to purchase orders due to
increased demand, disruptions in operations or other factors;
- lack of control over pricing;
- reduced quality assurance;
- reduced manufacturing yields and costs;
- unavailability or interruption of access to process technologies
necessary to manufacture our products; and
- potential misappropriation of our intellectual property.
If we are unable to obtain our products from manufacturers on schedule,
revenues from the sale of those products may be delayed. If orders for our
products are cancelled, revenues will be lost.
IF WE HAVE TO QUALIFY A NEW CONTRACT MANUFACTURER FOR ANY OF OUR PRODUCTS, WE
MAY LOSE REVENUES AND DAMAGE OUR CUSTOMER RELATIONSHIPS
Our display processors require manufacturing with state-of-the-art
fabrication equipment and techniques. Because the lead time needed to establish
a strategic relationship with a new contract manufacturer is at least three
months, and the estimated time for us to adapt a product's design to a
particular contract manufacturer's processes is an additional three to four
months, there is no readily available alternative source of supply for any
specific product. A manufacturing disruption at any of our contract
manufacturers would impact the production of our display processors for a
substantial period of time, thereby reducing our revenues, and would harm our
customer relationships.
SHORTAGES OF MATERIALS INCLUDED IN OUR SEMICONDUCTOR AND CIRCUIT BOARD PRODUCTS
MAY INCREASE OUR COSTS OR LIMIT OUR REVENUES AND DELAY OUR ABILITY TO SHIP OUR
PRODUCTS ON TIME
From time to time, shortages of certain materials that are used in our
semiconductor and circuit board products may occur. In particular, we may
experience shortages of semiconductor wafers, video random access memory and
analog-to-digital converters. If materials shortages occur, we may incur
additional costs to procure the scarce components or be unable to ship our
products to our customers in a timely fashion, all of which could negatively
impact our earnings.
8
<PAGE> 13
BY SUBCONTRACTING SEPARATELY FOR THE PRODUCTION OF WAFERS FOR OUR NEXT
GENERATION PROCESSORS, WE ARE ASSUMING RISKS THAT WE DO NOT CURRENTLY FACE
Currently, we purchase packaged, assembled and tested semiconductor
products from contract manufacturers. We expect that we will assume greater
responsibility for this process for our next generation of products by
subcontracting separately for the production of wafers and for their assembly
and testing. If we do so, we will become more responsible for losses arising
from wafer manufacturing yields and for coordination of the manufacturing,
assembly and testing process. Poor yields, or our failure to implement this
approach to manufacturing properly, would reduce our revenues and harm our gross
margin and results of operations.
FAILURE TO MAINTAIN OUR LICENSE WITH FAROUDJA COULD MATERIALLY HARM OUR BUSINESS
BY DELAYING OR PREVENTING NEW PRODUCT INTRODUCTIONS
We hold a license to develop semiconductors based on technology owned by
Faroudja under a joint license and development agreement with Faroudja. Under
the terms of the agreement, we may produce a family of video display processors
incorporating Faroudja technologies that are intended to expand our
semiconductor technology into emerging television and monitor markets. Under the
terms of license agreement, we are required to provide Faroudja with certain
favorable pricing terms in connection with Faroudja's purchase of products
developed by us incorporating their technology. Faroudja is restricted for a
limited time to license to others the technology it has licensed to us. During
the term of the agreement, we are prohibited from developing, for use in
products licensed, sold or distributed by us to third parties or for use in
products licensed, sold or distributed through a private label, any circuit
board video display processor that incorporates a licensed chip and is intended
to be used as a standalone video display processor similar to certain Faroudja
products. We are also required to pay royalties to Faroudja on sales of our
semiconductors incorporating their technology. Faroudja may terminate the
agreement if we fail to perform or violate the terms of the agreement and fail
to cure such violation within 30 days of Faroudja's written notice thereof.
Failure to maintain our license with Faroudja could delay or prevent the
introduction of new products which could limit our ability to compete for new
business and negatively impact our revenues. Even if we could identify and
license or develop non-infringing equivalent technology, which is far from
certain, the cost and delays from such a changeover in our base technology would
likely cause material harm to our business.
PORTIONS OF OUR RESEARCH AND DEVELOPMENT EFFORTS ARE PERFORMED IN INDIA, AND
RISKS RELATED TO THOSE OPERATIONS COULD HARM OUR RESEARCH AND DEVELOPMENT
CAPABILITIES AND NEGATIVELY IMPACT OUR PRODUCT SALES
Any risks related to the political or economic conditions in India and the
surrounding region, including risks relating to India's national security
situation or labor market conditions, may adversely impact our ability to take
advantage of our operations in India. In addition, circumstances beyond our
control at our facilities, related to operating in a developing country, such as
unreliable power supplies, may have a material adverse effect on our research
and development capabilities. We cannot assure you that restrictive laws or
policies on either the part of India or the United States will not constrain our
ability to effectively operate in both countries. If we are required to relocate
our India facilities, we cannot assure you that a relocation will not disrupt
our business.
BECAUSE OUR DISPLAY PROCESSORS ARE COMPLEX, THEY MAY HAVE ERRORS OR DEFECTS THAT
ARE FOUND ONLY AFTER THE PROCESSORS HAVE BEEN INCORPORATED INTO OUR CUSTOMERS'
PRODUCTS, WHICH COULD RESULT IN WARRANTY CLAIMS AND A REDUCTION IN REVENUES
Our display processors are complex products and are designed to be
incorporated into digital display devices, which are themselves complex.
Although we thoroughly test our products, design and
9
<PAGE> 14
manufacturing defects may not be discovered during the manufacturing and testing
process and only be discovered when the finished display products are connected
to a signal source. Consequently, our customers may discover errors or defects
in our hardware or software after large quantities of our products have been
fully incorporated into their digital display devices. To date, however, our
customers have not, to our knowledge, discovered errors or defects in our
products, although a small number of customers have returned products because
the product design did not meet those customers' needs. If our customers were to
discover errors or defects that may be identified after a display device is
connected to a signal source, we could experience:
- loss of or delay in revenues and loss of market share;
- loss of customers;
- failure to achieve market acceptance;
- diversion of development resources;
- increased warranty costs;
- legal actions by our customers; and
- increased insurance costs.
In addition, in the event of a significant number of product returns due to a
defect or recall of our products, our revenues, gross margin and name brand
could be significantly harmed.
IF MONITORS INCORPORATING OUR SOLUTIONS ARE NOT COMPATIBLE WITH PCS AND OTHER
DEVICES FOR WHICH THEY ARE MARKETED, THE MARKET FOR OUR PRODUCTS WILL BE REDUCED
AND OUR BUSINESS PROSPECTS COULD BE SIGNIFICANTLY LIMITED
Our products are incorporated into our customers' display monitors which
have different parts and specifications and utilize multiple protocols that
allow them to be compatible with specific PCs and other devices. If our
customers' products are not compatible with the PCs and other devices for which
they have been marketed and sold, consumers will return those monitors, or
consumers will not purchase those monitors, and the market for our customers'
products could be significantly reduced. As a result, a portion of our market
would be eliminated, and our business would be harmed.
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
COULD HARM OUR COMPETITIVE POSITION
Our ability to compete effectively with other companies will depend, in
part, on our ability to maintain the proprietary nature of our technology. We
have four pending patent applications filed with the U.S. Patent and Trademark
Office for protection of certain of our significant technologies, but we cannot
assure you that the degree of protection offered by these patents will be
sufficient or that any of our pending patents will be issued. In addition,
competitors in both the U.S. and foreign countries, many of which have
substantially greater resources, may apply for and obtain patents that will
prevent, limit or interfere with our ability to make and sell our products.
We may from time to time receive notifications of claims that we may be
infringing patents or intellectual property rights owned by third parties. While
there is currently no intellectual property rights litigation pending against
us, litigation could result in significant expenses to us and could reduce sales
of our products. Any litigation could also divert the efforts of our technical
and management personnel, whether or not the litigation is determined in our
favor. In addition, we may not be able to develop, license or acquire
non-infringing technology under reasonable terms. These developments could
result in an inability to compete for customers or could adversely affect our
ability to increase our earnings. See "Business -- Intellectual Property."
10
<PAGE> 15
ALTHOUGH WE ARE NOT PRIMARILY A SUPPLIER OF SOFTWARE, OUR SUPPLIERS COULD BE
ADVERSELY AFFECTED BY YEAR 2000 ISSUES WHICH COULD DISRUPT OUR ABILITY TO
DELIVER PRODUCTS TO OUR CUSTOMERS
The year 2000 problem is the potential for system and processing failure of
date-related data as a result of computer-controlled systems that use two digits
rather than four to define a year in the date field. Many computer hardware
systems and software applications could fail or create erroneous results unless
corrected so that they can correctly process data related to the year 2000 and
beyond. Although we are not primarily a supplier of software, we outsource all
of our semiconductor manufacturing to third party suppliers and, to the extent
such manufacturers may be affected by the year 2000 problem, our supply of
semiconductors could be delayed or eliminated. Any disruption in the supply of
semiconductors related to the year 2000 problem could directly affect our sales
and reduce our results of operations. We are currently seeking assurances from
our suppliers that their manufacturing of our semiconductors will be unaffected
by the year 2000 problem but have not received such assurances to date. We
expect to receive such assurances by December 1999, and, in the event certain
manufacturers fail to provide assurances, we plan to work with each such
manufacturer on an individual basis. The year 2000 problem could also affect our
internal systems, including our information technology systems. We have
initiated an assessment of our material internal information technology systems,
which we expect to have completed by December 1999. We are currently developing
contingency plans to address those year 2000 issues that may pose a significant
risk to our ongoing operations. For additional information concerning the year
2000 risk and our assessment of its impact on our business, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Readiness."
RISKS RELATED TO THE DISPLAY PROCESSING INDUSTRY
FAILURE OF CONSUMER DEMAND FOR FLAT PANEL DISPLAYS AND OTHER DISPLAY
TECHNOLOGIES TO INCREASE AS WE EXPECT COULD IMPEDE OUR GROWTH PROSPECTS
Our product development strategies anticipate that consumer demand for flat
panel displays and other emerging display products will increase in the future.
The success of our products is dependent on increased demand for these products,
which are at early stages of development. The potential size of the flat panel
display market and the timing of its development are uncertain and will depend
upon a number of factors, all of which are beyond our control.
THERE IS CURRENTLY AN UNDERSUPPLY OF FLAT PANELS, AND IF THE MANUFACTURING
CAPACITY OF FLAT PANELS DOES NOT INCREASE, OUR MARKET GROWTH WILL BE LIMITED
Currently, there is a limited supply of flat panels, and increasing the
supply of flat panels is a costly and lengthy process requiring significant
capital investment. Accordingly, we do not expect the current shortage of flat
panels or their high prices to change in the near term. In the past, the supply
of flat panels has been cyclical. We expect this pattern to continue.
Undercapacity in the flat panel market may limit our ability to increase our
revenues because our customers may limit their purchases of our products if they
cannot obtain sufficient supplies of flat panels. In addition, flat panel
monitor prices may remain high because of limited supply, and consumer demand
may not grow if the supply of flat panels does not increase.
INTENSE COMPETITION MAY REDUCE THE DEMAND OR PRICES FOR OUR PRODUCTS, DECREASING
OUR GROSS MARGIN
The display signal processing industry is intensely competitive. Rapid
technological change, evolving industry standards and declining average selling
prices in these markets could have a material adverse effect on our business,
financial condition and results of operations. As the overall
11
<PAGE> 16
price of flat panel display screens continues to fall, we may be required to
offer solutions to manufacturers at discounted prices due to increased price
competition. At the same time, new, alternative display processing technologies
and industry standards may emerge that directly compete with technologies that
we offer. We may be required to increase our investment in research and
development at the same time that product prices are falling. In addition, even
after making this investment, we cannot assure you that our technologies will be
superior to those of our competitors or that our products will achieve market
acceptance, whether for performance or price reasons. Failure to effectively
respond to these trends could reduce the demand for our products.
We compete with a range of diversified electronic and semiconductor
companies that offer display processors, some of which have substantially
greater resources than we do. In particular, we compete against Arithmos, Inc.,
Genesis Microchip, Inc., Pixelworks, Inc. and Silicon Image, Inc. We also
compete in some instances against in-house processing solutions designed by
large original equipment manufacturers, or OEMs. In the future, our current or
potential customers may also develop their own proprietary display processors
and become our competitors. In addition, start-up companies that are seeking to
capitalize on business opportunities as a result of the shift from analog to
digital technology may seek to compete in our markets. Our competitors may
develop advanced technologies enabling them to offer more cost-effective and
higher quality solutions to our OEM customers than those offered by us.
Increased competition could harm our business, financial condition and results
of operations by, for example, increasing pressure on our profit margin or
causing us to lose sales opportunities.
BECAUSE OF OUR LONG PRODUCT DEVELOPMENT PROCESS AND SALES CYCLE, WE MAY INCUR
SUBSTANTIAL EXPENSES BEFORE WE EARN ASSOCIATED REVENUES AND MAY NOT ULTIMATELY
SELL AS MANY UNITS OF OUR PRODUCTS AS WE FORECASTED
We develop products based on forecasts of demand and incur substantial
product development expenditures prior to generating associated revenues. Our
customers typically perform numerous tests and extensively evaluate our products
before incorporating them into their systems. The time required for testing,
evaluation and design of our products into a customer's equipment can take up to
six months or more. Because of our relatively limited history in selling our
products, we cannot assure you that the time required for the testing,
evaluation and design of our products by our customers will not exceed six
months. Because of this lengthy development cycle, we may experience a delay
between the time we accrue expenses for research and development and sales and
marketing efforts and the time when we generate revenues, if any, from such
expenditures.
Furthermore, achieving a design win with a customer does not necessarily
mean that this customer will order large volumes of our products. A design win
is not a binding commitment by a customer to purchase our products. Rather, it
is a decision by a customer to use our products in the design process of that
customer's products. In addition, our customers can choose at any time to
discontinue using our products in that customer's designs or product development
efforts. If our products are chosen to be incorporated into a customer's
products, we may still not realize significant revenues from that customer if
that customer's products are not commercially successful.
WE MAY NOT BE ABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE IN THE MARKETS
IN WHICH WE COMPETE OR TO COMPLY WITH INDUSTRY STANDARDS IN THE FUTURE
The markets in which we compete or seek to compete are subject to rapid
technological change, frequent new product introductions, changing customer
requirements for new products and features, and evolving industry standards. The
introduction of new technologies and the emergence of new industry standards
could render our display processors less desirable or obsolete. If we fail to
produce technologically competitive products in a cost-effective manner and on a
timely basis, and if we are unable to comply with industry standards in the
future, our business and results of operations could be harmed.
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<PAGE> 17
IF WE DO NOT ACHIEVE DESIGN WINS WITH LEADING DISPLAY MANUFACTURERS, WE MAY BE
UNABLE TO SECURE ADDITIONAL DESIGN WINS IN THE FUTURE AND OUR ABILITY TO GROW
WOULD BE SERIOUSLY LIMITED
The development of new, technologically advanced products and product
enhancements is a complex and uncertain process requiring accurate anticipation
of technological and market trends, as well as skill in obtaining design wins.
Any failure on our part to obtain additional design wins with leading OEMs and
to successfully design, develop and introduce new products and product
enhancements could harm our business, financial condition and results of
operations. In addition, development and manufacturing schedules for our
products are difficult to predict, and we cannot assure you that we will achieve
timely customer shipments of new products. The timely introduction of these
products and their acceptance by customers are important to our future success.
Any delays in product development, whether due to manufacturing, product design
and development, lack of market acceptance or otherwise, could reduce future
customer acceptance of our products and harm our business, financial condition
and results of operations.
RISKS RELATED TO THIS OFFERING
THE SUBSTANTIAL NUMBER OF SHARES OF COMMON STOCK ELIGIBLE FOR FUTURE SALE COULD
CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE
We will have 9,799,591 shares of common stock outstanding immediately after
the offering. The shares sold in the offering will be freely transferable.
Additional shares may be sold in the public market to the extent permitted by
Rule 144 or exemptions under the Securities Act. Lock-up agreements executed by
our stockholders limit the number of shares of common stock that may be sold in
the public markets. However, BancBoston Robertson Stephens Inc., may in its sole
discretion, release all or some portion of the securities subject to the lock-up
agreements. The market price of our common stock could decline as a result of
sales of a large number of shares of our common stock in the market after the
offering, or the perception that such sales could occur. These factors also
could make it more difficult for us to raise funds through future offerings of
common stock. See "Shares Eligible for Future Sale."
MANAGEMENT MAY APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT DO NOT INCREASE
OUR PROFITS OR MARKET VALUE
Our management will have considerable discretion in the application of the
proceeds, and you will not have the opportunity, as part of your investment
decision, to assess whether the proceeds are being used appropriately. The
proceeds may be used for corporate purposes that do not increase our
profitability or our market value. Pending application of the proceeds, they may
be placed in investments that do not produce income or that lose value. See "Use
of Proceeds."
NEW INVESTORS WILL INCUR SUBSTANTIAL AND IMMEDIATE DILUTION
The initial public offering price of our common stock will be substantially
higher than the net tangible book value per share of the outstanding common
stock immediately after this offering. Therefore, based upon an assumed initial
public offering price of $9.00 per share, if you purchase our common stock in
this offering, you will incur substantial and immediate dilution of
approximately $6.04 per share. If additional shares are sold by the underwriters
following the exercise of their overallotment option, or if outstanding options
to purchase shares of common stock are exercised, there will be further dilution
of your investment.
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<PAGE> 18
THE ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION COULD ADVERSELY
AFFECT THE RIGHTS OF THE HOLDERS OF OUR COMMON STOCK
Certain anti-takeover provisions of Delaware law and our certificate of
incorporation may make a change in control of Sage more difficult, even if a
change in control would be beneficial to the stockholders. These provisions may
allow the board of directors to prevent changes in the management and control of
Sage. Under Delaware law, our board of directors may adopt additional
anti-takeover measures in the future. One anti-takeover provision that we have
is the ability of our board of directors to determine the terms of preferred
stock and issue such preferred stock without the approval of the holders of the
common stock. At the time of the offering, there are no shares of such preferred
stock outstanding. However, because the rights and preferences of any series of
preferred stock may be set by the board of directors in its sole discretion
without approval of the holders of the common stock, the rights and preferences
of this preferred stock may be superior to those of the common stock.
Accordingly, the rights of the holders of common stock may be adversely
affected.
OUR PRINCIPAL STOCKHOLDERS HAVE SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS
THAT MAY NOT BE IN THE BEST INTERESTS OF OUR OTHER STOCKHOLDERS
Immediately after the offering, our executive officers, directors and other
principal stockholders will, in the aggregate, beneficially own approximately
43.7% of our outstanding common stock. Although these stockholders will not have
majority control, they currently have, and likely will continue to have,
significant influence with respect to the election of our directors and approval
or disapproval of our significant corporate actions. This influence over our
affairs might be adverse to the interests of other stockholders. In addition,
the voting power of these stockholders, under certain circumstances, could have
the effect of delaying or preventing a change in control over our business.
OUR COMMON STOCK HAS NOT BEEN PUBLICLY TRADED, AND WE EXPECT THAT THE PRICE OF
OUR STOCK MAY FLUCTUATE SUBSTANTIALLY
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined through negotiations
between the underwriters and us. You may not be able to sell your shares at or
above the initial public offering price due to a number of factors, including:
- actual or anticipated fluctuations in our operating results;
- changes in expectations as to our future financial performance;
- changes in financial estimates of securities analysts;
- technological innovations by others; and
- the operating and stock price performance of other comparable companies.
In particular, the stock prices of technology companies like Sage have been
highly volatile recently. Therefore, the price of our stock may decline, and the
value of your investment may be reduced.
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<PAGE> 19
NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements, trend analyses and other information contained in this
prospectus regarding markets for our products and trends in revenues, gross
margin and anticipated expense levels, and any statement that contains the words
"anticipate," "believe," "plan," "estimate," "expect," "intend," "seek" and
other similar expressions, constitute forward-looking statements. These
forward-looking statements are subject to business and economic risks, including
those risks identified in "Risk Factors" and elsewhere in this prospectus and
our actual results of operations may differ significantly from those contained
in the forward-looking statements because of such risks. The cautionary
statements made in this prospectus apply to all forward-looking statements
wherever they appear in this prospectus.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 3,000,000 shares of
common stock that we are offering will be approximately $24.1 million
(approximately $27.9 million if the underwriters' over-allotment option is
exercised in full) assuming an initial public offering price of $9.00 per share
and after deducting estimated offering expenses and underwriting discounts and
commissions payable by us. We intend to use the net proceeds primarily for
working capital expenditures associated with the purchase of additional
inventory related to the expansion of our product line and increasing our sales
to international customers and for general corporate purposes. Although we may
use a portion of the net proceeds to acquire technology or businesses that are
complimentary to our business, we have no current plans in this regard. Pending
such uses, we plan to invest the net proceeds in short-term, interest-bearing,
investment grade securities. Another purpose of this offering is to create a
public market for our common stock and to facilitate our future access to public
capital markets.
DIVIDEND POLICY
We have never declared or paid dividends on our common stock or other
securities and do not intend to pay dividends in the foreseeable future. We plan
to retain any earnings for use in the operation of our business and to fund
future growth.
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<PAGE> 20
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
- on an actual basis; and
- on an as adjusted basis to reflect the application of the estimated net
proceeds from the initial public offering, the proceeds from the issuance
of 71,788 shares between June 30, 1999 and September 30, 1999 pursuant to
the exercise of options, the proceeds from the issuance of 375,000 shares
pursuant to a joint development and license agreement, and the conversion
of all outstanding shares of our preferred stock into common stock.
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Stockholders' equity:
Preferred stock, par value $0.01 per share; 10,000,000
shares authorized; 3,058,528 shares issued and
outstanding, actual; no shares issued and outstanding,
as adjusted............................................ 31 --
Common stock, par value $0.01 per share; 23,000,000 shares
authorized, 3,175,965 shares issued and outstanding,
actual; 9,799,591 shares issued and outstanding, as
adjusted............................................... 32 98
Additional paid in capital................................ 14,579 39,194
Retained earnings......................................... (9,292) (9,292)
Deferred compensation..................................... (811) (811)
Notes receivable from stock sales......................... (143) (143)
------
Total stockholders' equity................................ 4,396 29,046
------ ------
Total capitalization................................... 4,396 29,046
====== ======
</TABLE>
The information in the table above excludes:
- 868,266 shares subject to outstanding options as of June 30, 1999 at a
weighted average exercise price of $0.87 per share;
- 85,386 additional shares available for grant under our 1997 Stock Plan as
of June 30, 1999 and an additional 142,346 shares reserved on July 14,
1999 for additional option grants; and
- 193,829 shares subject to outstanding warrants as of June 30, 1999 at a
weighted average exercise price of $4.40 per share.
This table should be read in conjunction with "Management, Discussion and
Analysis of Financial Condition and Results of Operations,"
"Management -- Employee Benefit Plans" and the consolidated financial statements
and the notes thereto included elsewhere in this prospectus.
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<PAGE> 21
DILUTION
Our pro forma net tangible book value at June 30, 1999 was approximately
$4,396,000, or $0.69 per share after giving effect to the conversion of all
outstanding shares of our preferred stock into shares of common stock upon
completion of this offering. Pro forma net tangible book value per share is
equal to our total tangible assets less our total liabilities, divided by the
total number of shares of our common stock outstanding. After giving effect to
the sale of the 3,000,000 shares of our common stock offered in this offering at
an assumed initial public offering price of $9.00 per share (after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by us) and giving effect to the issuance of 71,788 shares between June
30, 1999 and September 30, 1999 pursuant to the exercise of options and the
issuance of 375,000 shares of common stock pursuant to a joint development and
license agreement, our pro forma as adjusted net tangible book value at June 30,
1999 would have been approximately $29,046,000, or $2.96 per share. This
represents an immediate increase in net tangible book value of $2.27 per share
to existing stockholders and an immediate dilution of $6.04 per share to new
investors purchasing shares of our common stock in this offering. The following
table illustrates the per share dilution to the new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 9,00
Pro forma net tangible book value per share at June 30,
1999................................................... $ 0.69
Increase in pro forma net tangible book value per share
attributable to this offering.......................... 2.27
------
Pro forma net tangible book value per share as adjusted
after the offering........................................ 2.96
------
Dilution per share to new investors in this offering........ $ 6.04
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1999,
the total number of stockholders and new investors with respect to the number of
our common stock purchased from Sage, the total consideration paid and the
average price per share paid by the existing stockholders and by the new
investors in this offering before deducting the underwriting discounts and
commissions and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 6,799,591 69% 15,362,000 36% $2.26
New investors........................... 3,000,000 31 27,000,000 64 9.00
--------- --- ---------- ---
Total................................. 9,799,591 100% 42,362,000 100%
========= === ========== ===
</TABLE>
The information in the table above excludes:
- 868,266 shares subject to outstanding options as of June 30, 1999 at a
weighted average exercise price of $0.87 per share;
- 85,386 additional shares available for grant under our 1997 Stock Plan as
of June 30, 1999 and an additional 142,346 shares reserved on July 14,
1999 for additional option grants; and
- 193,829 shares subject to outstanding warrants as of June 30, 1999 at a
weighted average exercise price of $4.40 per share.
This table should be read in conjunction with "Capitalization,"
"Management -- Employee Benefit Plans" and note 7 of the notes to consolidated
financial statements included elsewhere in this prospectus.
17
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements, the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement of
operations data for the fiscal years ended March 31, 1997, 1998 and 1999, and
consolidated balance sheet data at March 31, 1998 and 1999, are derived from our
audited consolidated financial statements included in this prospectus. The
consolidated statement of operations data for the three months ended June 30,
1998 and 1999 and the consolidated balance sheet data at June 30, 1999 are
derived from our unaudited consolidated financial statements included in this
prospectus. The consolidated balance sheet data at March 31, 1997 is derived
from our audited consolidated financial statements not included in this
prospectus. The consolidated statement of operations data for the years ended
March 31, 1995 and 1996, and consolidated balance sheet data at March 31, 1995
and 1996, are derived from our unaudited consolidated financial statements not
included in this prospectus. Our unaudited consolidated financial statements
have been prepared by us on a basis consistent with our audited financial
statements and, in management's opinion, include all adjustments necessary for a
fair presentation of such information. The operating results for the three
months ended June 30, 1999 are not necessarily indicative of results that may be
expected for the year ended March 31, 2000 or any other interim period or future
fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
------------------------------------------------- ------------------
1995 1996 1997 1998 1999 1998 1999
------ ------ ------ ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues........................ $ -- $ 251 $1,758 $ 1,495 $ 7,132 $ 465 $ 3,775
Cost of revenues................ -- 183 1,136 1,639 4,914 352 2,443
------ ------ ------ ------- -------- ------- -------
Gross profit (loss)............. 68 622 (144) 2,218 113 1,332
Operating expenses:
Research and development...... 47 380 994 1,597 2,270 465 715
Selling, general and
administration.............. 10 71 329 945 3,214 511 1,058
Stock compensation............ -- -- -- -- 1,596 610 202
------ ------ ------ ------- -------- ------- -------
Total operating expenses.... 57 451 1,323 2,542 7,080 1,586 1,975
------ ------ ------ ------- -------- ------- -------
Loss from operations............ (57) (383) (701) (2,686) (4,862) (1,473) (643)
Interest income (expense),
net........................... -- (1) (7) (89) 111 19 26
------ ------ ------ ------- -------- ------- -------
Net loss........................ $ (57) $ (384) $ (708) $(2,775) $ (4,751) $(1,454) $ (617)
====== ====== ====== ======= ======== ======= =======
Net loss per share: basic and
diluted....................... $(0.04) $(0.19) $(0.32) $ (1.08) $ (2.00) $ (0.61) $ (0.22)
====== ====== ====== ======= ======== ======= =======
Pro forma net loss per share.... $ (0.96) $ (0.11)
======== =======
Shares used in computing net
loss per
share: basic and diluted...... 1,400 1,995 2,246 2,578 2,381 2,385 2,816
Shares used in computing pro
forma net loss per share...... 4,965 5,750
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
-------------------------------------------- --------
1995 1996 1997 1998 1999 1999
---- ----- ------ ------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................... $ -- $ 9 $ 908 $ 380 $2,473 $4,388
Working capital................................ (15) (263) 357 (1,440) 1,471 3,482
Total assets................................... -- 126 1,692 1,309 4,293 6,851
Total current liabilities...................... 15 385 1,154 2,281 2,390 2,455
Total stockholders' equity..................... (15) (259) 538 (972) 1,903 4,396
</TABLE>
18
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our
consolidated financial statements and the notes thereto included elsewhere in
this prospectus. The results described below are not necessarily indicative of
the results to be expected in any future period. Certain statements in this
discussion and analysis are forward-looking statements within the meaning of the
federal securities laws. These forward-looking statements are subject to certain
risk and uncertainties that could cause actual results to differ materially from
historical results or our predictions. See "Note Regarding Forward-Looking
Statements."
OVERVIEW
Sage was founded in 1994 and began operations in 1995. We design, develop
and market high performance digital display processors used in digital displays.
Flat panel displays and other emerging digital display devices have substantial
advantages over their traditional analog counterparts, and markets for these
products are beginning to grow rapidly. Display signals are characterized by
several important attributes: resolution, frame refresh rate, scanning format
and color depth. Combinations of these characteristics are called modes, and
there are over 100 different modes used today to display images on PCs and
televisions. These modes must be recognized and processed to produce a high
quality image on a display. Display manufacturers seek display processing
solutions that can function effectively with the large number of existing and
emerging signal modes, ensure the compatibility of new displays with the large
installed base of PCs and provide consumers with plug and play capability.
We offer state-of-the-art digital display processors that provide, highly
integrated analog-to-digital conversion, signal reformatting and color
processing capabilities. Our solutions are compatible with all commercially
available display signal modes and display types and are designed with a common
architecture, configurable software and modular components that can be easily
and rapidly incorporated into digital display devices. We sell our processing
solutions to leading display manufacturers, including Fujitsu, NEC and Sanyo.
Since our inception, we have focused primarily on the design and sale of
high performance display processors. In our early operations we developed
circuit boards assembled with off-the-shelf display processors and other
components. We secured limited sales of these circuit board products through
independent distributors to manufacturers of low volume, embedded display
products, such as medical or measuring equipment, and to systems integrators
developing their own flat panel display monitors.
In November 1996, we introduced our first display processor, Cheetah, as a
prototype based on 0.6 micron technology. In November 1997, we introduced
Cheetah1, based on the prototype Cheetah architecture, but manufactured using
0.35 micron technology. During the fiscal year ended March 31, 1998, we secured
limited orders to incorporate the Cheetah1 into display processing boards
designed by us. Throughout this period, we developed and perfected our core
display processing technology, built our firmware library and identified
qualified semiconductor manufacturing vendors.
In April 1998, we introduced our Cheetah2 display processor, with an
improved scaling engine, an AutoSet feature that automatically adjusts the image
position and quality, and a modular design that allows external memory to be
added as an option to support increased functionality. Cheetah2's features led
to significant design wins with large OEM flat panel display manufacturers. In
July 1998, we achieved our first significant revenues from sales of Cheetah2,
and in April 1999, we released our Cheetah3 and Cheetah4 semiconductor products.
These display processors are designed around the same core technologies as our
Cheetah2 semiconductor and provide advanced functionality for higher performance
and more specialized applications. We have achieved significant design wins for
19
<PAGE> 24
Cheetah3 and Cheetah4. We have commenced shipping of Cheetah3 and expect to
begin shipping Cheetah4 in commercial quantities in the immediate future.
Since July 1998, we have derived our revenues principally through sales of
our semiconductors to large OEM display manufacturers. We recognize revenues
when our products are shipped to our customers or, in cases of sales to
distributors made under agreements permitting the return of unsold products,
when our distributors ship the products to their customers. Generally, we ship
our products within a few weeks after order and therefore we carry no
significant backlog. Because our semiconductors are purchased for installation
in our OEM customers' products, our ability to recognize revenues depends upon
our customers' product development cycles. Also, our customers may limit our
ability to announce significant design wins if they see competitive advantages
in not disclosing the technology built into their newest display devices.
Currently, we produce packaged, assembled and tested semiconductor
products. However, we expect that we will assume greater responsibility over
this process for our next generations of display processors by separately
subcontracting for the production of wafers, the assembly of the completed
semiconductor and their testing. While this transition to a new manufacturing
model will expose us to greater responsibilities for semiconductor yields and
the coordination of the assembly and testing process, we believe that our gross
margins will improve and that the transition will result in our having greater
control over the manufacturing process.
Historically, sales of display processing circuit boards have represented a
substantial portion of our revenues. In the future, we expect sales of circuit
boards to decline as a percentage of total revenues and sales of semiconductors
to increase as a percentage of total revenues. From time to time, however, we
may be asked to design and supply our circuit boards to low volume manufacturers
and other OEM manufacturers who are not equipped or prefer not to design and
develop their own display processing boards. Because we generate significantly
lower operating margins on circuit boards as compared to semiconductors,
fluctuations in our product mix will impact our overall operating margins.
In July 1999, we entered into a joint development agreement with Faroudja
under which we issued 375,000 shares of common stock to Faroudja in exchange for
an aggregate amount of $500,000 in cash and a limited exclusive license to
certain of Faroudja's decoding, deinterlacing and image enhancement technologies
that can only be used in products currently under development. Under the terms
of the agreement, we intend to produce a family of video display processors
incorporating Faroudja technology that are intended to expand our semiconductor
technology into emerging television and monitor markets. We intend to
incorporate Faroudja's technologies into our proprietary display processing
solutions to create a video solution for the mass television market by combining
Faroudja's decoding, deinterlacing and image algorithms with our technology. As
a result of that transaction, we will record an expense of $2.5 million relating
to in-process research and development during the three months ended September
30, 1999. We have completed approximately five percent of the work involved to
date and the project is proceeding according to our expectations. Faroudja has
delivered the licensed technology, executed several design transfers and
conducted meetings with us as required by the agreement. In addition, we have
also met with Faroudja to discuss the architecture and specifications for our
video display processor, and we hope to complete the architecture and
specifications in the fourth quarter of fiscal year 1999. We have not to date
encountered any deviations from our cost projections. We hope to introduce the
new semiconductor in November of 2000. In the event we are unable to achieve our
project goal, our business prospects will be limited with respect to the
project's target market. For a more detailed discussion, see the description
provided under the headings "Risk Factors" and the notes to our consolidated
financial statements.
20
<PAGE> 25
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, certain
consolidated statement of operations data reflected as a percentage of revenues.
Our results of operations are reported as a single business segment.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
------------------------ ---------------
1997 1998 1999 1998 1999
----- ------ ----- ------ -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................. 64.6 110.6 68.9 75.7 64.7
----- ------ ----- ------ -----
Gross margin (loss).......................... 35.4 (9.6) 31.1 24.3 35.3
----- ------ ----- ------ -----
Operating expenses:
Research and development................... 56.6 106.8 31.8 100.0 18.9
Selling, general and administration........ 18.7 63.2 45.1 110.0 28.0
Stock compensation expense related to
options................................. -- -- 22.4 131.1 5.4
----- ------ ----- ------ -----
Total operating expenses................ 75.3 170.0 99.3 341.2 52.3
----- ------ ----- ------ -----
Loss from operations......................... (39.9) (179.7) (68.2) (316.9) (17.0)
Interest income (expense), net............... (0.4) (6.0) 1.6 4.1 0.7
----- ------ ----- ------ -----
Net loss..................................... (40.3)% (185.6)% (66.6)% (312.8)% (16.3)%
===== ====== ===== ====== =====
</TABLE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Revenues. Our revenues were $3.8 million and $465,000 in the three months
ended June 30, 1999 and 1998, respectively. Revenues increased due to the
commencement of commercial sales of Cheetah2 in July 1998 and to a significant
increase in sales of circuit board products. Revenues from sales of
semiconductor products increased to $1.3 million, representing 34.9% of total
revenues in the three months ended June 30, 1999, compared to only $28,000 in
the three months ended June 30, 1998. Revenues from sales of our circuit board
products increased to $2.0 million in the three months ended June 30, 1999,
compared to $437,000 in the three months ended June 30, 1998 in part due to
shipments to new circuit board customers. Our circuit board products represented
52.2% and 94.0% of total revenues in the three months ended June 30, 1999 and
June 30, 1998, respectively. For the three months ended June 30, 1999, we
purchased and shipped $277,000 of hard-to-find components, including memory
chips and high-speed analog-to-digital converters, required as a condition of
semiconductor sales, and we recognized $208,000 of non-recurring engineering, or
NRE, revenues, following the achievement of certain OEM board development
milestones. No NRE revenues were recognized in the three months ended June 30,
1998. Revenues from two customers, Elo TouchSystems and NEC, accounted for 31.5%
and 21.3%, respectively, of total revenues for the three months ended June 30,
1999. In future quarters, we expect semiconductor sales to increase and
represent a majority of our revenues.
Gross margin. Our gross margin was 35.3% and 24.3% for the three months
ended June 30, 1999 and 1998, respectively. The increase in gross margin for the
three months ended June 30, 1998 to the three months ended June 30, 1999 was due
to the changes in product mix and the benefit of fixed period costs being spread
over a larger sales volume. Due to the changes in the products we sold in fiscal
1999 as compared to fiscal 1998, there was a higher proportion of sales of
higher margin products for the three months ended June 30, 1998 than for the
three months ended June 30, 1999. For the three months ended June 30, 1999, our
gross margins from sales of semiconductor products, circuit boards and other
products were 56.1%, 32.7% and 5.8%, respectively. For the three months ended
June 30, 1998, our gross margin was 24.3%, achieved primarily from sales of
circuit board
21
<PAGE> 26
products. We did not sell semiconductor or other products during the three
months ended June 30, 1998.
Research and development. Our research and development expenses were
$715,000 and $465,000 for the three months ended June 30, 1999 and 1998,
respectively. Research and development expenses represented 18.9% and 100.0% of
revenues for the three months ended June 30, 1999 and 1998, respectively. Our
research and development expenses consist of compensation and personnel related
expenses and costs for purchased materials, designs and tooling which can
fluctuate significantly from period to period as a result of our product
development cycles. The compensation and personnel related expenses were
approximately 29.5% and 40.7% of the research and development expenses for the
three months ended June 30, 1999 and 1998, respectively. During the three months
ended June 30, 1998, our next generation of semiconductors were in development,
and we increased our spending on purchased materials, designs and tooling. We
expect similar increases in future quarterly research and development expenses
as we increase product development efforts in connection with our next
generation of semiconductors.
Selling, general and administration. Selling, general and administration
expenses were $1.1 million and $511,000 for the three months ended June 30, 1999
and 1998, respectively. Our selling, general and administration expenses consist
primarily of compensation and personnel related expenses and commissions paid to
independent sales representatives. The compensation and personnel related
expenses were 47.1% and 65.1% of selling, general and administration expenses
for the three months ended June 30, 1999 and 1998, respectively. Commissions
paid to independent sales representatives were 13.1% of selling, general and
administration expenses for the three months ended June 30, 1999 and not
significant for the three months ended June 30, 1998. As a percentage of
revenues, our selling, general and administration expenses decreased to 28.0% of
revenues for the three months ended June 30, 1999, from 110.0% of revenues for
the three months ended June 30, 1998. This decrease in selling, general and
administration expenses in proportion to revenues was largely the result of a
significant increase in sales volume partially offset by increased payroll.
Stock compensation. Stock compensation expenses amounted to $202,000 and
$610,000, for the three months ended June 30, 1999 and 1998, respectively.
Deferred compensation, representing the difference between the deemed fair
market value of our common stock on the date of grant and the exercise price of
stock options on the date of grant, is amortized on an accelerated basis as the
options vest. We expect deferred compensation expenses of $811,000 as of June
30, 1999 to be amortized on an accelerated basis as the options vest over the
next four years.
Provision for income taxes. We incurred operating losses for the three
months ended June 30, 1999 and 1998 and therefore had no provision for income
tax in either period. As of March 31, 1999, we had $5.1 million in net operating
losses which are available to offset future taxable income. If not used, the net
operating losses expire between 2010 and 2019.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH 31, 1999, 1998 AND 1997
Revenues. Revenues for the fiscal years ended March 31, 1999, 1998 and 1997
were $7.1 million, $1.5 million and $1.8 million, respectively. Revenues
increased $5.6 million from fiscal year 1998 to fiscal year 1999 as a result of
$4.9 million increase of sales of our newly introduced Cheetah2 processor and
circuit boards built around the Cheetah2. The remaining increase represented the
increase in sales to our semiconductor customers of hard-to-find components.
Revenues from sales of our semiconductors represented approximately 48.2% of
total revenues for the fiscal year 1999. During fiscal year 1998 and fiscal year
1997, revenues from the sale of semiconductors were not significant. Revenues
from sales of our circuit board products represented 28.2% for the fiscal year
1999 and almost all of sales for the fiscal year 1998 and fiscal year 1997.
Revenues from sales of our circuit board products declined from fiscal year 1997
to fiscal year 1998 due to a shift in the focus of
22
<PAGE> 27
our business from circuit boards to semiconductors, resulting in a greater
emphasis on semiconductor product development as opposed to sales of circuit
board products.
Gross margin. Gross margin for the fiscal years ended March 31, 1999, 1998
and 1997 was 31.1%, (9.6)% and 35.4%, respectively. Our negative gross margin
for the fiscal year ended March 31, 1998 reflected the $600,000 write-off of
obsolete circuit board inventories. During fiscal year 1999, the increase in our
gross margin was the result of increased revenues from higher margin
semiconductor products.
Research and development. Research and development expenses increased to
$2.3 million, in the fiscal year ended March 31, 1999, from $1.6 million and
$994,000, in the fiscal years ended March 31, 1998 and 1997, respectively. As a
percentage of revenues, research and development expenses represented 31.8%,
106.8% and 56.6% of revenues during the fiscal years ended March 31, 1999, 1998,
and 1997, respectively. Our fiscal year 1998 research and development expenses
increased compared to the fiscal year 1997 primarily because of the engineering
research and prototype development of Cheetah2. As a result, the compensation
and personnel related expenses increased from 21.4% in 1997 to 37.6% in 1998 as
of the total research and development expenses. The costs for the purchased
materials, designs and tooling increased from 10.1% in fiscal year 1997 to 30.8%
in fiscal year 1998. Our fiscal year 1999 research and development expenses
increased compared to the fiscal year 1998 research and development expenses as
a result of an increase in engineers employed in our research and development
efforts. However, as revenues increased from fiscal year 1998 to fiscal year
1999, research and development expenses, as a percentage of revenues, declined.
Although we expect absolute expenses to increase, we expect research and
development expenses as a percentage of revenues to decrease.
Selling, general and administration. For the fiscal years ended March 31,
1999, 1998 and 1997, selling, general and administration expenses were $3.2
million, $945,000 and $329,000, respectively. Selling, general and
administration expenses represented 45.1%, 63.2% and 18.7% of revenues in the
years ended March 31, 1999, 1998 and 1997, respectively. The overall increase in
our selling, general and administration expenses was principally related to the
introduction of the Cheetah2 in 1998 and the related increase in salaries,
commissions to independent sales representatives, travel and promotional
expenses. In the future, we anticipate that our expenditures will decline as a
percentage of revenues increase from our semiconductor products.
Stock compensation. We incurred stock compensation expenses of $1.6 million
for fiscal year 1999. Stock compensation expenses were not incurred in fiscal
year 1998 and fiscal year 1997.
Interest income (expense), net. For the fiscal years ended March 31, 1999,
1998 and 1997, interest income and interest expense were minor. We have financed
our business operations primarily through a series of relatively small private
equity transactions.
Provision for income taxes. We incurred operating losses for each of the
fiscal years ended March 31, 1999, 1998, or 1997, and therefore made no
provision for income tax in these fiscal years. As of March 31, 1999, we had
$5.1 million in net operating losses which are available to offset future
taxable income earned until between 2010 and 2019.
23
<PAGE> 28
QUARTERLY RESULTS OF OPERATION
The following table sets forth certain unaudited selected quarterly results
of operations data for the eight quarters ended June 30, 1999, as well as such
data expressed as a percentage of revenues. This data has been derived from our
unaudited consolidated financial statements that, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of such information for the periods
presented. Such statements of operations data should be read in conjunction with
our annual consolidated financial statements, and the related notes thereto
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------
SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30,
1997 1997 1998 1998 1998 1998 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS AND AS A PERCENTAGE OF REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS:
Revenues............................... $ 393 $ 352 $ 249 $ 465 $ 881 $ 2,283 $ 3,503 $ 3,775
Cost of revenues....................... 375 374 507 352 525 1,335 2,702 2,443
------- ------- ------- ------- ------- ------- ------- -------
Gross profit (loss).................... 18 (22) (258) 113 356 948 801 1,332
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development............. 460 417 435 465 574 524 707 715
Selling, general and
administration..................... 252 272 250 511 583 868 1,252 1,058
Stock compensation expense related to
options............................ -- -- -- 610 395 333 258 202
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses....... 712 689 685 1,586 1,552 1,725 2,217 1,975
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations................... (694) (711) (943) (1,473) (1,196) (777) (1,416) (643)
Interest income (expense), net......... 4 (6) (91) 19 34 30 28 26
------- ------- ------- ------- ------- ------- ------- -------
Net loss............................... $ (690) $ (717) $(1,034) $(1,454) $(1,162) $ (747) $(1,388) $ (617)
======= ======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF REVENUES:
Revenues............................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues....................... 95.4 106.3 203.6 75.7 59.6 58.5 77.1 64.7
------- ------- ------- ------- ------- ------- ------- -------
Gross profit (loss).................... 4.6 (6.3) (103.6) 24.3 40.4 41.5 22.9 35.3
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development............. 117.0 118.4 174.7 100.0 65.2 23.0 20.2 19.0
Selling, general and
administration..................... 64.1 77.3 100.4 109.9 66.2 38.0 35.7 28.0
Stock compensation expense related to
options............................ -- -- -- 131.2 44.8 14.6 7.4 5.4
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses....... 181.2 195.7 275.1 341.1 176.2 75.6 63.3 52.3
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations................... (176.6) (202.0) (378.7) (316.8) (135.8) (34.0) (40.4) (17.0)
Interest income (expense), net......... 1.0 (1.7) (36.5) 4.1 3.9 1.3 0.8 0.7
------- ------- ------- ------- ------- ------- ------- -------
Net loss............................... (175.6)% (203.7)% (415.2)% (312.7)% (131.9)% (32.7)% (39.6)% (16.3)%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
For the three months ended June 30, 1999, our gross margin was adversely
impacted by revenues from increased sales of low margin hard-to-find resale
components. Our gross margin for the three months ended March 31, 1999 was
adversely impacted by an inventory provision related to the transition from our
Cheetah2 to our Cheetah3 semiconductor. For the periods prior to June 30, 1998,
our gross margins were negatively impacted by low sales volumes, relatively high
fixed period costs and inventory write-downs associated with modifications to
the design of our circuit boards.
Since the commencement in July 1998 of sales of our semiconductor products,
we have added sales and marketing and engineering personnel. This increase in
headcount resulted in increased payroll, travel, engineering, design and
materials costs in each of the three months ended June 30, 1999, March 31, 1999,
December 31, 1998, and September 30, 1998.
We believe that period-to-period comparisons of our operating results
should not be relied upon as an indication of our future performance. In the
past, our results of operations have fluctuated significantly, and we expect
similar quarterly fluctuations in the future as a result of a number of factors
beyond our control. Among other things, these factors include the rate of growth
in the
24
<PAGE> 29
market for our products and changes in the demand for our products. In addition,
because a significant percentage of our revenues has been and is expected to
continue to be derived from a limited number of large customers, any variation
in the timing of orders from those large customer or design wins or losses can
result in significant fluctuations in our quarterly operating results. Our
anticipated research and development, selling and marketing, and general and
administrative expenses are based, in part, on future projections of revenues.
As a result of these and other factors, it is likely that in some future period
our operating results or business outlook will be below the expectations of
securities analysts or investors, which would likely result in a significant
reduction in the market price for our common stock. For a more detailed
discussion of these and other factors, see the description provided under the
headings "Risk Factors -- Fluctuations in our operating results make it
difficult to predict our future performance and may result in volatility in the
market price of our common stock" and "-- A significant amount of our revenues
come from a few customers and any decrease in revenues from these customers
could harm our business."
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have satisfied our liquidity requirements principally
through the issuance and sale of equity securities, totaling approximately $14.5
million. For the three months ended June 30, 1999, we used $438,000 in cash from
operating activities. During the fiscal years ended March 31, 1999 and March 31,
1998, we used $3.2 million and $1.9 million, respectively, for operating
activities, primarily due to operating losses and increased working capital
requirements as sales increased. Net cash used from investing activities was
$551,000 and $214,000, for the three months ended June 30, 1999 and the fiscal
year ended March 31, 1999, respectively. As of June 30, 1999, we did not have
any significant capital expenditure commitments. Net cash provided from
financing activities was $2.9 million from the issuance and sale of Series E
preferred stock during the three months ended June 30, 1999, and $5.5 million,
net of repayment of notes payable totalling $190,000, from the issuance of
Series D preferred stock in the fiscal year ended March 31, 1999. We have
received a commitment from General Bank to provide up to $2.0 million pursuant
to a revolving loan and security agreement secured by our property and accounts.
Under the terms of the revolving loan and security agreement, General Bank will
extend credit to our account at an interest rate equal to 0.5% above the prime
rate published in the money section of the New York edition of The Wall Street
Journal. The agreement terminates on June 30, 2000.
As of June 30, 1999, we had $4.4 million in cash and cash equivalents. In
addition, we had a $2.0 million credit facility under which no borrowings had
been made. We believe that the net proceeds of the sale of common stock offered
in this offering, together with our existing cash resources, will be sufficient
to meet our capital requirements through the next twelve months. We anticipate
using approximately $400,000 of cash during the three months ended September 30,
1999 to fund operating losses and using approximately $1.0 million during the
three months ended December 31, 1999 to fund operating losses and to fund
increases in our inventory and receivables as sales of our display processors
increases. However, we could be required or could choose to raise additional
capital during the next twelve months. Our future capital requirements will
depend on many factors, including the rate of revenue growth, profitability,
timing and extent of spending to support research and development programs,
expansion of selling and marketing and administrative activities, timing or
introductions of new products and product enhancements and market acceptance of
our products. We expect that we may need to raise additional equity or debt
financing in the future, although we are not currently negotiating for
additional financing nor do we have any plans to obtain additional financing
following our initial public offering. We cannot assure you that additional
equity or debt financing, if required, will be available on acceptable terms, or
at all. If we are unable to obtain additional capital, we may be required to
reduce the scope of our planned product development, selling and marketing
activities, which could harm our business, financial condition and results of
operations. In the event that we do raise additional equity financing, investors
in this offering will be further diluted.
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From time to time, we may evaluate acquisitions of businesses, products or
technologies that complement our business. Although we have no current plans in
this regard, any transactions, if consummated, may consume a portion of our
working capital or require the issuance of equity securities that may result in
further dilution to existing stockholders.
QUANTITATIVE AND QUALITATIVE DISCUSSION OF MARKET INTEREST RATE RISK
Our cash equivalents and short-term investments are exposed to financial
market risk due to fluctuation in interest rates, which may affect our interest
income and, in the future, the fair market value of our investments. We manage
the exposure to financial market risk by performing ongoing evaluations of our
investment portfolio and presently invest entirely in certificates of deposit
issued by banks, the value of which does not change based on changes in interest
rates. As our cash balances increase, we anticipate investing in short-term
investment-grade government and corporate securities. These securities will be
highly liquid and generally mature within 12 months from our purchase date. Due
to the short maturities of our investments, the carrying value should
approximate the fair value. In addition, we do not use our investments for
trading or other speculative purposes. We have performed an analysis to assess
the potential effect of reasonably possible near-term changes in interest and
foreign currency exchange rates. The effect of any change in foreign currency
exchange rates is not expected to be material to our results of operations, cash
flows or financial condition. Due to the short duration of our investment
portfolio, an immediate 10% change in interest rates would not have a material
effect on the fair market value of our portfolio. Therefore, we would not expect
our operating results or cash flows to be affected to any significant degree by
the effect of a sudden change in market interest rates on our securities
portfolio.
FOREIGN CURRENCY EXCHANGE RISK
We are an international company, selling our products globally and, in
particular, in Japan, Taiwan and Korea. Although we transact our business in
U.S. dollars, we cannot assure you that future fluctuations in the value of the
U.S. dollar would not affect the competitiveness of our products, gross profits
realized, and results of operations. Further, we incur expenses in India, Japan,
Taiwan and other countries that are denominated in currencies other than U.S.
dollars. We cannot estimate the effect that an immediate 10% change in foreign
currency exchange rates would have on our future operating results or cash flows
as a direct result of changes in exchange rates. However, we do not believe that
we currently have any significant direct foreign currency exchange rate risk and
have not hedged exposures denominated in foreign currencies or any other
derivative financial instruments.
INFLATION
The impact of inflation on our business has not been material for the three
months ended June 30, 1999 or the fiscal years ended March 31, 1999, 1998 and
1997.
YEAR 2000 READINESS
We are aware of the widely publicized problems associated with computer
systems as they relate to the year 2000. Many existing computer hardware systems
and software applications, and embedded computer chips, software and firmware in
control devices use only two digits to identify a year in the date field,
without considering the impact of the upcoming change in the century. Others do
not correctly process leap year dates. As a result, system applications and
devices could fail or create erroneous results unless corrected so that they can
correctly process data related to the year 2000 and beyond. These problems are
expected to increase in frequency and severity as the year 2000 approaches. We
have commenced our business risk assessment of the impact that the year 2000
problem may have on our operations. As business conditions warrant, this
assessment may be revised
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as new information is made available to us. To date, we have identified the
following five key areas of our business that may be affected:
Supplier relationships. We rely, directly and indirectly, on external
systems utilized by our suppliers for the management and control of fabrication,
assembly and test of our products. If our manufacturers are not year 2000
compliant, our products might not be manufactured on a timely basis or might
fail to be manufactured. Any disruption in our supply could seriously harm our
business, financial condition and results of operations. We have had discussions
with our manufacturers concerning their readiness for year 2000. We are
currently seeking assurances from our manufacturers that they are year 2000
compliant with respect to the manufacture of our products but have not received
such assurances to date. We expect to receive such assurances by December 1999,
and, in the event certain manufacturers fail to provide assurances, we plan to
work with each such manufacturer on an individual basis.
Internal infrastructure. Based upon our internal review to date, we do not
believe that our material internal information technology and non-information
technology systems will be affected by the year 2000 date change. We acquired
most of these systems after year 2000 compliance became an important issue for
third party systems vendors. Because most of the software applications used by
us are generally recent versions of vendor supported, commercially available
products, we have not incurred, and do not expect in the future to incur,
significant costs to upgrade these applications if the respective vendors
determine that a year 2000 compliant release is necessary. We will continue to
seek certifications that products installed are year 2000 ready, and are
targeting October 1, 1999 to complete this process.
Products. Our products do not contain two digit date codes and would
therefore be generally unaffected by the year 2000 date change. However, once
shipped, our products are incorporated into display devices and circuit board
products developed by others. The performance of our products could be affected
if a different component of these display devices is not year 2000 compliant. We
have not, and will not, assess the existence of these potential problems in our
customers' products.
Customers. We do not currently have any information concerning the year
2000 compliance status of our customers. Our current or future customers may
incur significant expenses to achieve year 2000 compliance. If our customers are
not year 2000 compliant, they may incur significant costs to remedy problems and
as a result of litigation. In either case, the year 2000 date change could
reduce or eliminate the budgets that current or potential customers could have
for purchases of our products. As a result, our business, financial condition
and results of operations could be harmed.
Other third party relationships. We rely on outside vendors for utilities
and telecommunications services, in addition to climate control, building access
and other infrastructure services. We are not capable of independently
evaluating the year 2000 compliance of the systems utilized to supply these
services. We cannot assure you that these suppliers are or will become year 2000
compliant with respect to these systems and that our business will not be
materially disrupted as a result.
We presently estimate that the total cost of addressing our year 2000
issues will not exceed $25,000. This estimate was derived utilizing numerous
assumptions, including the assumption that we have not identified any additional
internal significant year 2000 issues and that the plans of our third party
suppliers, distributors and customers will be fulfilled in a timely manner
without cost to us. However, these assumptions may not be accurate, and actual
results could differ materially and adversely from those anticipated after
completion of required remediation and testing.
In the event that we discover year 2000 issues in our internal systems, we
will endeavor to resolve these problems on a timely basis. We have not yet
developed any contingency plans for year 2000. The responses we receive from
third-party vendors and service providers will be taken into account in
determining the nature and extent of contingency plans we develop, if any. As
our worst
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case scenario, we expect significant reductions in orders for our processors as
well as delays in the delivery of our processors.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement on
Financial Accounting Standards, or SFAS, No. 133, Accounting For Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing accounting standards. SFAS No. 133 requires that all
derivatives be recognized in the balance sheet at their fair market value, and
the corresponding derivative gains or losses be either reported in the statement
of operations or as a deferred item depending on the type of hedge relationship
that exists with respect to such derivative. SFAS No. 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. We do not
expect the adoption of SFAS No. 133 to have a material impact on our financial
position or results of operations.
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BUSINESS
OVERVIEW
Sage designs, develops and markets high performance display processors used
in digital displays. Our integrated semiconductor solutions are compatible with
existing personal computers and display monitors, and emerging display devices,
including flat panel monitors, flat panel televisions, projection devices,
digital CRTs, Internet appliances and touch-screen displays in retail and
industrial settings. Flat panel displays and other emerging digital display
devices have substantial advantages over their traditional analog counterparts,
and markets for these products are beginning to grow rapidly. International Data
Corporation forecasts that worldwide shipments of desktop flat panel monitors
will increase at a 69.3% compounded annual growth rate from 1.4 million units in
1998 to 11.5 million units in 2002.
Display signals are characterized by several important attributes:
resolution, frame refresh rate, scanning format and color depth. Combinations of
these characteristics are called modes, and there are over 100 different modes
used today to display images on PCs and televisions. These modes must be
recognized and processed to produce a high quality image on a display. Display
manufacturers seek display processing solutions that can function effectively
with the large number of existing and emerging signal modes, ensure the
compatibility of new displays with the large installed base of PCs and provide
consumers with plug and play capability.
We offer a family of state-of-the-art digital display processors that
provide highly integrated analog-to-digital conversion, signal reformatting and
color processing capabilities. Our solutions are designed with a common
architecture, configurable software and modular components that can be easily
and rapidly incorporated into digital display devices. We sell our processing
solutions to leading display manufacturers, including Fujitsu and NEC.
INDUSTRY BACKGROUND
Electronic displays have become part of our daily lives as our computing,
communications and entertainment needs are increasingly being met by familiar
technologies, such as personal computers and televisions, and emerging
technologies, such as personal digital assistants, Internet appliances and
touch-screen displays used in retail and industrial settings. Historically, most
desktop PC monitors and all television screens displayed images on a cathode ray
vacuum tube, or CRT. A CRT displays images that are transmitted to it by an
analog signal. The display signal controls a beam of electrons that creates the
image by illuminating phosphorescent dots, or pixels, on the back of the CRT
screen. The quality of the image is a function of the mode of the input signal,
which consists of the following four principal parameters:
- Resolution: the number of horizontal and vertical lines on the display
screen into which the image is divided;
- Frame refresh rate: the number of times per second that the image is
displayed on the screen;
- Scanning format: the order in which the lines comprising the image are
displayed on the screen, either in sequence, known as progressive
scanning format, or alternating, known as interlaced scanning format; and
- Color depth: the number of colors used to display the image.
The emergence of digital displays
Digital flat panel display devices have been developed as an alternative to
traditional analog CRTs. Flat panel displays render images by digitally
switching pixels on or off on the surface of the
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display screen. Flat panel displays offer significant advantages over
traditional CRTs because they have a more compact form factor, generate less
heat, consume less power and produce less radiation. Flat panel displays also
produce images that do not flicker and that are more sharply defined than the
images displayed on CRT monitors. Flat panel displays were first incorporated
into laptop computers and, as panel sizes increased, they were incorporated into
desktop displays. Flat panel displays for PCs, originally deployed primarily in
situations where space was limited, are gaining widespread market acceptance as
prices decline, as manufacturing capacities increase and as manufacturing yields
improve.
The emergence of a significant digital flat panel display market has led PC
manufacturers to introduce PCs that produce both conventional analog as well as
digital display signals. Some PC manufacturers have begun to sell flat panel
displays incorporating the PC into its base, known as all-in-one PCs. The
introduction of digital display signal outputs has also provided manufacturers
of analog CRT monitors with an opportunity to develop new products that
incorporate digital signal processing capabilities into CRTs. These displays,
commonly referred to as digital CRTs, display images using the same technology
employed by traditional analog CRTs but by incorporating internal digital
processing they can have new display features, such as picture-in-picture
display and enhanced compatibility with multiple display signals. By adding
digital signal input features, manufacturers can differentiate digital CRTs from
the highly commoditized, price-sensitive analog CRT displays. Additionally, it
is expected that digital CRTs will be less expensive to manufacture than
traditional CRTs.
The digital television market
Television signals have traditionally been broadcast in analog form and
displayed in an interlaced scanning format on analog television CRTs. Recent
developments in the television industry have mirrored the changes that have
taken place in the PC display market. Traditional analog CRT televisions are
being manufactured in larger sizes, and displays with a progressive scanning
format are being introduced to improve the quality of images on larger screens.
Flat panel and plasma displays, which are digital, have been introduced to offer
the same form factor and image quality advantages as flat panel PC monitors. We
believe the worldwide trend toward broadcasting digital signals will lead to
increasing demand for HDTV sets that can produce higher quality images in
varying aspect ratios, such as the wider format, cinema-style aspect ratio of 16
x 9 in addition to the traditional television-style 4 x 3 aspect ratio.
International Data Corporation forecasts that annual shipments of digital
televisions in the U.S. will grow to 7.2 million units in 2002. Display
processing functionality, which is not currently included in traditional analog
televisions, will increasingly be needed to process HDTV signals as well as
analog signals for display on digital and progressive scanning televisions.
Display processing challenges
Display signals, which can be analog or digital, are generated in numerous
non-compatible modes for both personal computing and television applications.
The challenges of processing a signal to render a high quality image on a
digital display in this environment include:
- Recognizing and properly converting an analog or digital signal type. In
order for a display device to generate an image, the incoming display
signal must match the type accepted by the device. An analog display
device cannot display a digital signal and vice versa. Most PCs produced
today are configured to output analog signals because they are connected
to analog CRTs. The introduction of digital displays requires processors
that are capable of identifying whether the input type is analog or
digital and converting it, if necessary, in real time.
- Reformatting the mode of the input signal. The mode of each input signal,
whether analog or digital, must be reformatted to properly display the
image on the screen. The display processor
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must recognize the signal's mode and process it in real time in order to
match the particular resolution, scanning format, refresh rate and color
depth specifications of the display. If the signal is not correctly
processed, the screen will fail to display an image, or will produce an
image that is distorted, flickers or contains shadows or other flaws.
- Displaying true-to-life colors. Each display device displays colors
differently in response to the same signal. Display processors must
compensate for these different characteristics to ensure consistent
true-to-life color quality. In addition, certain digital display devices
can only display a limited number of colors. In such cases, the display
signal must be specially processed to simulate a full range of colors on
the display screen.
The challenge to display manufacturers
Display manufacturers face significant challenges and opportunities in
responding to developments in the PC and television display markets. The
emergence of new digital display devices and the proliferation of signal modes
increasingly require manufacturers to incorporate more powerful and flexible
display processors into their displays. Displays must be designed to function
with digital signals and remain compatible with the large installed base of
existing PCs and other appliances that transmit analog display signals. The
large number of different signal modes and types, the growing trend towards plug
and play devices in the PC market and the established easy-to-use
characteristics of the television market make it essential that displays operate
properly with minimal consumer configuration or adjustment in order to achieve
widespread market acceptance. At the same time, manufacturers are seeking ways
to take advantage of the capabilities of digital displays by developing
differentiating product features and associated brand recognition, all while
maintaining short design and manufacturing cycles and recognizing cost
constraints.
OUR SOLUTION
Sage is a leading global provider of high performance digital display
processors. Our advanced technology offers state-of-the-art display processing,
highly integrated analog-to-digital conversion, signal reformatting and color
processing capabilities. Our solutions are compatible with all commercially
available display signal modes and display types. We provide manufacturers with
a highly integrated and efficient display processing solution equipped with
custom design features. The principal benefits of our solution include:
Support for all commercially available signal modes and display types. We
provide display processors that enable any input display signal mode to be
displayed on all commercially available digital displays, including flat panel
monitors, flat panel televisions, projection devices, digital CRTs, Internet
appliances and touch-screen displays used in retail and industrial settings. Our
display processors, which incorporate our SureSync and SmartSet algorithm
features, produce high quality images by recognizing the characteristics of the
input signal and automatically reformatting an image as needed, in real time, to
match the type of signal accepted by the device. These features provide optimal
plug and play capabilities between the computing platform and the display
device.
Highly integrated and manufacturable display processing solution. Our
display processors are designed to perform analog-to-digital conversion, mode
detection, reformatting and color depth processing in a highly integrated
semiconductor with associated software. Our processors employ a common
architecture across our family of products. In addition, we provide
software-based design and test tools and offer manufacturers our extensive
system-level design and hardware experience and support. These features of our
products enable manufacturers to reduce the time required to design and
manufacture a wide range of display devices.
Highly customizable products. We support display manufacturers with a suite
of product and screen display configuration software design tools that allow
manufacturers to easily enhance their
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ability to brand their products by facilitating the creation of customized
on-screen interfaces for consumers. Our software tools accelerate display
manufacturers' product development cycles and their time to market. Our display
processors are modular, allowing display manufacturers to add or delete memory
as needed to reduce costs, while minimizing reengineering and redesign.
OUR STRATEGY
Our goal is to be the leading provider of display signal processing
solutions for display manufacturers. Our strategy consists of the following key
elements:
- Offer highly integrated semiconductor solutions compatible with all
signal modes and display types. We intend to provide increasingly
integrated, high performance semiconductor solutions that are fully
compatible with all PC display monitors, televisions, flat panel
monitors, flat panel televisions, projection devices, digital CRTs,
Internet appliances and touch-screen displays in retail and industrial
settings. We plan to develop our products to support digital CRTs and
other emerging digital displays and to design products that are
compatibile with all developing industry display signal standards.
- Target leading OEM manufacturers. We will continue to focus our sales
efforts on the leading global display manufacturers. Working with these
customers will allow us to reach a wider number of consumers and helps us
to maintain and enhance our technological capabilities. Securing design
wins with leading manufacturers provides references for our products,
helping to secure future sales to these and other manufacturers.
Furthermore, achieving a broad number of design wins with leading OEMs
creates an opportunity to capitalize on the success of their products. In
addition, these manufacturers have more reliable product development
cycles, better forecasting and greater panel supply.
- Continue to offer OEM customers high quality products and superior levels
of engineering support. We aim to develop the strongest possible customer
relationships by providing OEM manufacturers with easy-to-use solutions
and superior engineering support. We will continue to offer our OEM
customers a range of easy-to-use, custom design tools to simplify their
product design and development processes and provide them with the
ability to differentiate their products through customized features. We
intend to deliver greater value to manufacturers by helping them design
new product features and to bring their products to market more rapidly.
- Maintain technology leadership. We intend to make significant investments
in research and development in order to further develop our display
processing technology. We were the first company to introduce a fully
effective automatic display adjustment feature and the first to integrate
mode detection, reformatting, color depth processing and customized
on-screen displays onto a single display processor. We will also seek to
enter into strategic relationships with companies whose technology is
complementary to ours. For example, we recently entered into a joint
license and development arrangement with Faroudja to develop a display
processor integrating Faroudja's video decoding, deinterlacing and image
enhancement technologies. We expect that the combinations of our
technology with Faroudja's technology will enable us to expand our
semiconductor technology into emerging television and monitor markets.
- Maintain a flexible engineering and manufacturing model. We intend to
maintain our established engineering and design operations in India and
in the U.S., allowing us to access a larger pool of highly educated and
motivated employees. We will continue to reduce our capital requirements
and increase our operating leverage by maintaining a fabless
manufacturing model, which gives us significant operating leverage
without the need for large capital expenditures.
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OUR PRODUCTS
We design and sell display processors for use by manufacturers of digital
display devices. We also sell circuit boards designed around our semiconductors
as turnkey display processing solutions for specific display applications. Our
customers include leading display manufacturers, such as Fujitsu, NEC and Sanyo.
Semiconductor products. We design and sell a family of display processors
to display manufacturers, PC manufacturers and third party subsystem
manufacturers who design and manufacture monitors and PCs on behalf of brand
name companies. Some of the world's leading display and PC manufacturers have
chosen our Cheetah2, Cheetah3 and Cheetah4 processors for use in their products.
Cheetah2, our first mass production product, supports resolutions up to
1,024 x 768 pixels, or XGA, and uses an external analog-to-digital converter, or
ADC. Our new products, Cheetah3 and Cheetah4, are based on the same core design,
and support higher performance resolutions up to 1,280 x 1,024 pixels, or SXGA.
Cheetah3 integrates a ADC and is designed for displays that will accept either
an analog or digital input signal. Cheetah4 is optimized for displays that
accept only digital signals. Cheetah3 and Cheetah4 operate on a common software
platform, enabling our customers to support both products with common
board-level software. All of our products can process television signals using
an external video decoder chip and are compliant with widely used standards,
such as VESA, and emerging display standards, such as DVI. All of our products
include our proprietary SureSync and SmartSet mode recognition and adjustment
technologies, our high performance scaling engine and our software-configurable
on-screen display features. The following table illustrates the key features of
our display processors.
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<TABLE>
<C> <S> <C> <C>
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRODUCT NAME SUPPORTED
(DATE OF INTRODUCTION) SIGNAL INPUTS FEATURES AND TECHNOLOGY APPLICATIONS
<C> <S> <C> <C>
- ---------------------------------------------------------------------------------------------------
Cheetah2 - Analog PC - Maximum display - Analog input monitor
(April 1998) - Digital PC output: - Digital input monitor
- Television 100M pixels per second - Television display
- Computing speed: 800M - All-in-one PC
operations per second
- Technology: 0.35
micron,
3 layer metal
- ---------------------------------------------------------------------------------------------------
Cheetah3 - Analog PC - Internal ADC - Analog input monitor
(February 1999) - Digital PC - Image enhancement - Dual analog and
- Television - Color depth processing digital input
- Dual analog and - Maximum display monitor
digital input output: - Dual analog and
- Dual analog and 135M pixels per second television monitor
television input - Computing speed: 1600M
operations per second
- Technology: 0.35
micron,
4 layer metal
- ---------------------------------------------------------------------------------------------------
Cheetah4 - Digital PC - Image enhancement - Digital input monitor
(March 1999) - Television - Color depth processing - Television display
- Maximum display - All-in-one PC
output:
110M pixels per second
- Computing speed: 1300M
operations per second
- Technology: 0.35
micron,
3 layer metal
- ---------------------------------------------------------------------------------------------------
</TABLE>
Our Cheetah3 display processor provides maximum display output at faster
speeds and can be used in a wider ranger of display devices than most display
processors that are currently available. We believe that our display processors
also offer greater scaling and image enhancement features than those of our
competitors. In addition, we were the first company to develop and make widely
available a display processor that incorporated the auto adjust feature.
We are currently in the process of developing a new line of more integrated
digital display processors. We expect that this new line of processors will
offer enhanced display quality and support resolutions up to 1,600 x 1,200
pixels, or UXGA, and HDTV. We intend to develop a family of derivative
semiconductors and circuit boards built around this core technology. We cannot
assure you that we will successfully develop new products or product
enhancements based on our research and development activities. In addition, we
cannot assure you that, if new products or product enhancements are developed,
any such new product or product enhancements will be developed in time to
capture market opportunities or achieve a significant or substantial level of
acceptance in new and existing markets.
Circuit board products. We design and market both custom and standard
display processing circuit boards, built around our semiconductors, as turnkey
display processing solutions for specific display applications. Our custom
circuit boards address the unique needs of display manufacturers that want to
support several control and output capabilities on a single circuit board. These
capabilities include video display, touch-screen controls and the ability to
support specialized forms of data input such as credit card or bar code readers.
Our custom circuit boards take advantage of our
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highly integrated display processing solution to eliminate the need for multiple
cable connections, reduce physical system dimensions and improve system quality,
while lowering overall system cost. We offer these circuit boards to our OEM
customers in optional kit form. Our standard controller circuit boards provide
an effective off-the-shelf solution to our low volume display OEM customers.
TECHNOLOGY
Processing display signals requires large data streams to be recognized,
sampled, formatted and converted in real time. For example, operating a flat
panel SXGA digital display requires the digital processor to perform more than
1.5 billion operations per second.
The following diagram shows an example of the flow of data though our
Cheetah3 processor and some of the key steps required to generate a digital
display signal from an analog display signal input.
[FLOW CHART]
Our processors convert signals from a broad range of sources into a format
that can be displayed on different display devices with minimal need for
consumers to adjust operating device parameters. To accomplish this, our
processors must identify the input signal type and mode, convert it into a
digital form and then process it to match the display device. Our processors
respond and automatically adjust in real time to changes in the type and mode of
the incoming display signal. We have developed significant proprietary
architecture and design features to support the processes implemented by our
chips. These processes include:
Analog-to-digital conversion. Most PCs and televisions generate analog
display signals. In order to display this signal on a digital screen, the analog
data stream must be correctly identified, rapidly and accurately sampled and
converted to a digital signal with no measurable error in the timing of the
sampling. With our Cheetah3 processor, we have successfully addressed the
significant technical challenges of integrating analog-to-digital conversion
onto a single semiconductor. This enables us to lower costs and improve display
performance.
Mode detection. Our processors are designed to identify the resolution,
scanning format and frame refresh rate of the incoming display signal. Analog
display signals do not contain explicit information about these parameters. Our
SureSync technology measures the frequency of horizontal and vertical
synchronization signals contained within the incoming signal to deduce its mode.
The timing of these signals is not uniform and varies depending upon the
architecture and implementation of the PC graphics subsystem. We regularly
examine and incorporate information about these characteristics into the
software that supports our products, enabling them to detect and synchronize
with the PC graphics subsystems of virtually all manufacturers worldwide.
Spatial processing. Spatial processing, or scaling, is the process of
reformatting the resolution of an image to properly match the resolution of a
display. We have developed several generations of scaling technology that
increase and reduce the size of images as needed using efficient processing
algorithms.
Temporal processing. Each type of digital display supports a single, fixed
frame refresh rate, requiring adjustment of the flow of data to be matched to
the display device. Typically, the
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adjustment is performed through the use of external memory. Our Cheetah3 display
processors provide maximum flexibility by being the first product on the market
to provide integrated support for external frame memory on a single chip and to
provide an option to exclude memory, if desired, to reduce cost.
Color depth processing. Display devices often render the colors of the same
image differently because of variations in technologies and manufacturing
techniques used by different display manufacturers. Our processors incorporate
hardware and software that allows manufacturers to compensate for these
differences and to adjust the image being displayed. In addition, many digital
displays generate far fewer than the 16 million colors which traditional CRTs
are capable of displaying. In the case of certain older flat panel displays,
colors are limited to as few as eight. Our color processing technology simulates
additional colors so that the human eye perceives a far larger number of colors
than are supported by the display device. Our processors also include circuitry
that can enhance the details in the image, compensating for certain losses and
degradation of signal data resulting from the physical transmission of the
analog signals.
Display formatting. Digital displays have differences in their internal
architecture to which a signal must be adapted in order for the image to appear
on the screen. These differences can affect the characteristics of display
processing output signals that operate them. These variations include
differences in the number of bits or information that must be transmitted to the
display at one time and in the format and timing of signals that control certain
display functions. The format of these display signals from our processors is
programmable in software. Our processors can support all available types of
digital displays, including all types of plasma displays, projector devices and
liquid crystal displays, including active and passive matrix. This offers our
customers flexibility because they can change the manufacturing source of a
particular size of panel, or even change the size of the panel, without
redesigning a new display processing circuit board.
Software technology. The operation and internal configuration of our
processors is controlled by embedded software running on the display
manufacturer's circuit board. Our embedded software and easy-to-use software
utilities allow us to offer significant custom design features to display
manufacturers, including the design of the on-screen display user interface. In
addition, our SureSync and Smart-Set technologies enable consumers to optimize
image quality by clicking a single button or setting and are implemented using a
combination of hardware and software.
CUSTOMERS, MARKETING AND TECHNICAL SUPPORT
The digital display manufacturing market is dominated by a few
manufacturers and suppliers. We have achieved initial success in this
concentrated market. Our customers include Fujitsu, GES Singapore PTE. Ltd., Elo
TouchSystems, Korea Computer Incorporated, Lite-On, NEC, NewComm World Co.,
Ltd., Sanyo and Sony Corp. Elo TouchSystems and NEC accounted for 31.5% and
21.3%, respectively, of our revenues for the three months ending June 30, 1999.
We do not have purchase contracts with any of our customers that obligate them
to continue to purchase our display processors, and these customers could stop
purchasing our display processors at any time.
As of June 30, 1999, we employed 19 individuals in sales and marketing and
as field applications engineers and maintained relationships with seven
independent regional sales representatives. Our sales and marketing strategy
focuses on achieving design wins from leading OEM display manufacturers. We
market and sell our semiconductor products in the U.S. through distributors and
independent regional sales representatives and in Asia through independent
regional sales representatives in Japan, Korea, Taiwan and elsewhere, with
direct support from our U.S. and Indian offices. We market and sell our circuit
board products in the U.S. through distributors and our direct sales personnel,
and in Asia through sales representatives, with direct support from our U.S. and
Indian offices. We believe that providing customers with comprehensive product
support is critical to remaining competitive in the markets we serve. We provide
technical support through our sales
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<PAGE> 41
representatives and from our office in San Jose, California. We currently
provide full-time, on-site field applications engineers to support major
customers in Japan, Korea, Singapore and Taiwan.
RESEARCH AND DEVELOPMENT
Our future success will depend to a large extent on our ability to rapidly
develop and introduce new products and enhancements to our existing products
that meet emerging industry standards and satisfy changing customer
requirements. We have made and expect to continue to make substantial
investments in research and development and to participate in the development of
new and existing industry standards.
Our research and development has been focused in high speed
analog-to-digital signal display processors and advanced display processing
algorithms. We also conduct research and development in custom semiconductor
design. The majority of our engineers are involved in high speed, mixed signal
integrated circuit design and verification, with the remaining engineers
involved in algorithm development and software and system design. Before
development of a new product commences, our marketing managers work closely with
research and development engineers and customers to develop comprehensive
requirement specifications. In addition, our marketing managers and engineers
review the applicable industry standards and incorporate desired changes into
new product specifications. After a product is designed and becomes commercially
available, our engineers continue to work with various customers on specific
design issues to understand emerging requirements that may be incorporated into
future product generations or product upgrades.
In July 1999, we entered into a joint license and development agreement
with Faroudja under which we obtained a license to develop semiconductors using
Faroudja's video decoding, deinterlacing and image enhancement technologies.
Under the terms of the agreement, we may develop display processors that are
intended to expand our semiconductor technology into emerging television and
monitor markets. Faroudja may not transfer the licensed technology to others
until October 27, 2000 or eight months after we have the technology or ten
months following the delivery of the technology (depending upon our achieving
certain development milestones). The agreement will continue perpetually until
terminated by a breach by either party. We are prohibited from developing, for
use in products licensed, sold or distributed by us to third parties or for use
in products licensed, sold or distributed through a private label, any circuit
board video display processor that incorporates a licensed chip and is intended
to be used as a standalone video display processor similar to certain Faroudja
products. Under the terms of the license agreement, we are required to provide
Faroudja with certain favorable pricing terms in connection with Faroudja's
purchase of products developed by us incorporating their technology. We are also
required to pay royalties to Faroudja on sales of our semiconductors
incorporating their technology. Faroudja may terminate the agreement if we fail
to perform or violate the terms of the agreement and fail to cure such violation
within 30 days of Faroudja's written notice thereof. We issued shares of our
common stock to Faroudja in connection with the grant of the license under the
agreement.
Our research and development expenditures totaled $2.3 million in the
fiscal year ended March 31, 1999 and $1.6 million in the fiscal year ended March
31, 1998. Research and development expenses consist primarily of salaries and
related costs of employees engaged in research, design, and development
activities. In addition, expenses for outside engineering consultants and NRE
are included in research and development expenses. As of June 30, 1999, there
were 31 employees engaged in research and development. We perform our research
and development activities at our headquarters in San Jose, California and at
our facility in Bangalore, India. As of August 19, 1999, 28 of our employees
were based at our facility in India.
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<PAGE> 42
MANUFACTURING
We have adopted a fabless semiconductor manufacturing model and outsource
all of our semiconductor manufacturing, assembly and testing. This approach
allows us to focus our resources on the design, development and marketing of our
products and significantly reduces our capital requirements. As of June 30,
1999, we had a staff of five operations personnel responsible for inventory
shipping, purchasing and quality control. We subcontract all of our
semiconductor manufacturing to Fujitsu Microelectronics and Kawasaki LSI U.S.A..
All of our products have been and are expected to continue to be single-source
manufactured for the foreseeable future. Currently, we must place orders three
to four months in advance of expected delivery. We maintain our inventory levels
based on current lead times from foundries plus safety stock to account for
fluctuations in demand that we anticipate on the basis of our customers'
forecasts.
If we lose or decide to change a key supplier or foundry, it could take
several months to qualify a new supplier or foundry. Changing or qualifying a
new supplier or foundry, would likely involve delay and expenses, resulting in
foregone revenues, reduced operating margins and possible detriment to customer
relationships. Since we place our orders on a purchase order basis and do not
have a long term volume purchase agreement with any of our existing suppliers,
any of these suppliers may allocate capacity to the production of other products
while reducing deliveries to us on short notice. While we believe that we
currently have good relationships with our foundries and adequate capacity to
support our current sales levels, there can be no assurance that adequate
foundry capacity will be available in the future on acceptable terms, if at all.
Our semiconductor products are currently fabricated using a range of
process technologies. We must continuously develop our products using new
sub-micron technologies to remain competitive on a cost and performance basis.
Migrating to new technologies is a challenging task requiring new design skills,
methods and tools. We believe that the transition of our products to smaller
geometries will be important for us to remain competitive. Our business could be
harmed if any transition is delayed or inefficiently implemented.
INTELLECTUAL PROPERTY
We rely on a combination of non-disclosure agreements and copyright,
trademark and trade secret laws to protect the algorithms, design and
architecture of our semiconductor technology. We currently have four pending
applications for patents filed with the U.S. Patent and Trademark Office for
protection of certain of our significant technologies, including our video
adapter circuit, on-screen user interface, dual spatial and temporal scaling
system, video signal processing and channel equalization technology. In the
future, we expect to seek patent protection for our technologies as necessary.
Any future patents may not be granted and if granted may be invalidated,
circumvented, challenged or licensed to others.
To supplement the technologies that we develop internally, we have licensed
rights to use certain patents held by third parties, and we may license
additional technology rights in the future. In July 1999, we licensed certain
patents and trade secrets from Faroudja relating to its video decoding,
deinterlacing and image enhancement technologies. If the agreement is terminated
due to a material breach by us, the license of technology under the agreement
will terminate. In this event, we would be required to exclude the licensed
technology from our existing and future product lines.
The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights. We have certain
indemnification obligations with respect to the infringement of third-party
intellectual property rights. There is no intellectual property litigation
currently pending against us. However, we may from time to time receive
notifications of claims that we may be infringing patents or other intellectual
property rights owned by third parties. If it is necessary or desirable, we may
seek licenses under those patents or intellectual property rights.
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<PAGE> 43
However, we cannot be sure that licenses will be offered or that the terms of
any offered licenses will be acceptable to us.
COMPETITION
The display signal processing industry is very competitive. The markets in
which we operate are characterized by rapid technological change, evolving
industry standards and declining average selling prices, and we expect them to
become increasingly competitive. We believe that the key competitive factors in
our markets are product design, performance, price, features, size, reliability,
time to market and customer support. Our ability to successfully compete in our
target markets also depends on our continued success in the development of high
performance display processors at optimal price points. In addition, our
competitiveness may be affected by the development of competing technologies,
the emergence of new industry standards and consumer demand for specific display
features on the display device. Failure to monitor and effectively respond to
these trends could reduce demand for our products.
Our competitors include a range of diversified electronic and semiconductor
companies that offer display processing products. In particular, we compete
against Arithmos, Genesis, Pixelworks and Silicon Image. In some instances, we
also compete with internally designed processing solutions, developed by OEM
display manufacturers. In the future, our current or potential customers may
also develop their own proprietary display processors and become our
competitors. In addition, start-up companies that are seeking to capitalize on
business opportunities as a result of the shift from analog to digital
technology may seek to compete in our markets. Our competitors may develop
advanced technologies enabling them to offer more cost-effective and higher
quality solutions to OEM customers than those offered by us. Increased
competition could harm our business, financial condition and results of
operations by, for example, increasing pressure on our profit margins or causing
us to lose sales opportunities.
EMPLOYEES
As of June 30, 1999, we employed 59 full-time employees, including 31 in
research and development, five in operations, 19 in sales and marketing and four
in general and administration. Our employees are not represented by a collective
bargaining organization, and we believe that our relations with our employees
are good.
FACILITIES
We maintain a 9,300 square foot facility in San Jose, California, pursuant
to a sublease that expires in September 2000. This facility comprises our
headquarters and includes our research and development, sales and marketing and
administration departments. We also maintain a facility in Bangalore, India
pursuant to a lease that will expire in March 2000. We believe that our existing
facilities are adequate for our current needs and that additional space
sufficient to meet our needs for the foreseeable future will be available on
reasonable terms.
LEGAL PROCEEDINGS
As of June 30, 1999, we are not a party to any legal proceeding.
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<PAGE> 44
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Sage, and their ages as of August
23, 1999, are as follows:
<TABLE>
<CAPTION>
NAME(1) AGE POSITION
------- --- --------
<S> <C> <C>
Chandrashekar M. Reddy(2)(3).................... 39 President, Chief Executive Officer and
Director
Simon P. Westbrook.............................. 50 Chief Financial Officer, Secretary and
Treasurer
Arun Johary..................................... 41 Vice President of Engineering and
Chief Technical Officer
Vijay P. Desai.................................. 39 Vice President and General Manager,
Systems Business Unit
Pratap G. Reddy................................. 40 Vice President of IC Sales
Michael A. Gumport(3)........................... 47 Director
N. Damodar Reddy(2)............................. 61 Director
Kenneth Tai(2)(3)............................... 49 Director
</TABLE>
- -------------------------
(1) There is no familial relationship between Chandrashekar M. Reddy, N. Damodar
Reddy or Pratap G. Reddy.
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
Chandrashekar M. Reddy has served as President and Chief Executive Officer
since our inception. From January 1986 to January 1995, Mr. Reddy held several
design and program management positions at Intel Corporation. Mr. Reddy received
a BS in Electrical Engineering from the Indian Institute of Technology and an MS
in Electrical Engineering from the University of Wisconsin, Madison.
Simon P. Westbrook has served as Chief Financial Officer, Secretary and
Treasurer of Sage since April 1997. From March 1996 to January 1997, Mr.
Westbrook was Chief Financial Officer of Virtual I-O, Inc. From February 1992 to
March 1996, Mr. Westbrook was Controller at Creative Technology, Ltd. Mr.
Westbrook received an MA degree in Economics from Trinity College, Cambridge
University.
Arun Johary has served as Vice President of Engineering and Chief Technical
Officer of Sage since April 1997. From January 1995 to January 1997, Mr. Johary
was a Vice President for Technology at Armedia Inc., a company Mr. Johary
co-founded in 1995, that developed high-performance MPEG-2 decoder chips for a
large Japanese broadcast equipment company. From June 1986 to January 1995, Mr.
Johary served as a Senior Engineer of Graphics and Multimedia Architecture at
Chips & Technologies, Inc. From August 1982 to June 1986, Mr. Johary was an
Applications Engineer at Intel Corporation. Mr. Johary received a BS in
Electrical Engineering from the Indian Institute of Technology and an MS in
Electrical Engineering from the University of Southern California.
Vijay P. Desai has served as Vice President and General Manager, Systems
Business Unit, of Sage since August 1996. From October 1989 to August 1996, Mr.
Desai held a business development and management position at Sharp Electronics.
From September 1983 to October 1989, Mr. Desai held several technical sales and
marketing positions at Intel Corporation, AT&T Corporation and Siemens
Corporation. Mr. Desai received a BS in Electrical Engineering from the
University Baroda in India, a M.S. in Computer Science from Stevens Institute of
Technology and an MBA from the University of Phoenix.
Pratap G. Reddy has served as Vice President and General Manager, IC
Business Unit, of Sage since April 1998. From June 1983 to March 1988, Mr. Reddy
held a design and management
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<PAGE> 45
position at Data General, Inc. From March 1988 to March 1998, Mr. Reddy served
as the Group Director for Management and Business Development at Synopsys, Inc.
Mr. Reddy received a BS degree in Electrical Engineering from Kakatiya
University and an MS degree in Engineering Management from the University of
Iowa.
Michael A. Gumport has served as a Director of Sage since October 1996.
Since September 1998, Mr. Gumport has been the Chief Financial Officer of FED
Corporation, an optoelectronics company. From February 1990 to September 1998,
Mr. Gumport served as a Senior Vice President for Semiconductor Equity Research
at Lehman Brothers. Mr. Gumport received a BA degree from Amherst College and an
MBA from Columbia University.
N. Damodar Reddy has served as a Director of Sage since October 1996. Since
April 1985, Mr. Reddy has served as the President of Alliance Semiconductor. Mr.
Reddy received an MS in Electrical Engineering from North Dakota State
University and an MBA from the University of Santa Clara.
Kenneth Tai has served as a Director of Sage since August 1999. Since April
1998 Mr. Tai has served as the Chairman of Digitimes Publications, Inc., and
since March 1996 Mr. Tai has also served as the Chairman of Investar Capital,
Inc. From April 1993 to December 1995, Mr. Tai served as the Vice Chairman of
UMAX (USA), Inc. Prior to joining UMAX, Mr. Tai was one of the co-founders of
Acer Group where he served as Vice President of Worldwide Sales and Marketing as
well as President of the Acer Group USA. Mr. Tai received a BS degree in
Electrical Engineering from National Chiao Tung University and an MBA from
Tamkang University.
BOARD OF DIRECTORS AND COMMITTEES
Our bylaws require that our board of directors be comprised of between
three and five members. There are currently four directors on our board.
Directors are elected at our annual meeting of stockholders by a vote of the
holders of a majority of the voting power represented at such meeting. A
director may be re-elected for subsequent terms. The board of directors has a
compensation committee and an audit committee.
Compensation Committee. The compensation committee of the board of
directors is responsible for reviewing and recommending to the board regarding
our compensation policies and all forms of compensation to be provided to our
executive officers and directors, including annual salaries, bonuses, stock
option and other incentive compensation arrangements. The compensation committee
also administers our 1997 Stock Plan. The current members of the compensation
committee are Chandrashekar M. Reddy, Kenneth Tai and N. Damodar Reddy.
Audit Committee. The audit committee of the board of directors is
responsible for reviewing and monitoring our corporate financial reporting and
external audits, including our internal control functions, the results and scope
of the annual audit and other services provided by our independent auditors and
our compliance with legal matters that have a significant impact on our
financial reports. The audit committee also consults with our management and our
independent auditors prior to the presentation of financial statements to
stockholders and, as appropriate, initiate inquiries into aspects of our
financial affairs. The current members of our audit committee are Chandrashekar
M. Reddy, Kenneth Tai and Michael A. Gumport.
DIRECTOR COMPENSATION AND OTHER ARRANGEMENTS
Our non-employee directors do not receive cash compensation for their
service as directors. On appointment, each non-employee director received a
one-time grant of options to purchase shares of our common stock in amounts
ranging from 30,333 to 31,667 shares. In each case, the options vest over a
four-year period. See "Stock Option Plans -- 1997 Stock Plan."
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<PAGE> 46
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is currently comprised of Chandrashekar M.
Reddy, Kenneth Tai and N. Damodar Reddy. Chandrashekar M. Reddy also serves as
our President and Chief Executive Officer. Prior to the establishment of the
compensation committee on March 18, 1999, the board of directors as a whole made
all decisions relating to executive compensation. For a description of the
transactions between us and members of the compensation committee, and entities
affiliated with such members, see the transactions described under the heading
"Certain Transactions" in this prospectus. None of our executive officers serves
as a member of the board of directors or the compensation committee of any
entity that has one or more executive officers serving as a member of our board
of directors or compensation committee. There is no familial relationship
between Chandrashekar M. Reddy, N. Damodar Reddy or Pratap G. Reddy.
EXECUTIVE COMPENSATION
The following table sets forth compensation information for the fiscal year
ended March 31, 1999 paid by us for the services provided by our President and
Chief Executive Officer and the other executive officers whose total salary and
bonus for such fiscal year exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------------
SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS COMPENSATION
--------------------------- -------- -------- ------------------ ------------
<S> <C> <C> <C> <C>
Chandrashekar M. Reddy
President and Chief Executive Officer... $140,000 $123,278 -- $107,211(1)
Simon P. Westbrook
Chief Financial Officer,
Secretary and Treasurer................. 125,000 96,325 -- --
Arun Johary
Vice President of Engineering and
Chief Technical Officer................. 135,000 153,227 48,333 --
Vijay P. Desai
Vice President and General Manager,
Systems Business Unit................... 125,000 -- 47,667 11,844(1)
Pratap G. Reddy(2)
Vice President and General Manager IC
Business Unit........................... 125,000 70,352 72,333 --
</TABLE>
- -------------------------
(1) Includes amounts paid in fiscal year 1999 as salary deferred in fiscal years
1996 and 1997.
(2) Pratap Reddy started employment with us in April 1998.
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<PAGE> 47
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the
fiscal year ended March 31, 1999 to each of our executive officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED OPTION TERM(4)
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION ----------------------------
NAME GRANTED(1) FISCAL 1999(2) PRICE(3) DATE 5% 10%
---- ---------- --------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Chandrashekar M.
Reddy................ -- --% $ -- -- $ -- $ --
Simon P. Westbrook..... -- -- -- -- -- --
Aron Johary............ -- -- -- -- -- --
Vijay P. Desai......... -- -- -- -- -- --
Pratap G. Reddy........ 64,000 4.27% 0.564 04/01/08 22,656 65,280
</TABLE>
- -------------------------
(1) Each of the options vested as to 25% of the shares on April 1, 1999 and
2.08% shall vest monthly over the following three years thereafter.
(2) Based on a total of 306,181 option shares granted to our employees under our
1997 Stock Plan during fiscal year 1999.
(3) The exercise price was equal to the fair market value of our common stock as
valued by our board of directors on the date of grant. The exercise price
may be paid in cash or through a cashless exercise procedure involving a
same-day sale of the purchased shares.
(4) The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange
Commission and does not represent our prediction of our stock price
performance. The potential realizable value at 5% and 10% appreciation is
calculated by assuming that the exercise price on the date of grant
appreciates at the indicated rate for the entire term of the option and that
the option is exercised at the exercise price and sold on the last day of
its term at the depreciated price.
AGGREGATE OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding options that were
exercised by the executive officers during fiscal year 1999 and the number and
value of unexercised, in the money options, at June 30, 1999:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED IN-THE-
UNEXERCISED OPTIONS MONEY OPTIONS HELD AT
SHARES HELD AT JUNE 30, 1999(1) JUNE 30, 1999(2)
ACQUIRED ON VALUE ------------------------- ---------------------
NAME EXERCISED(1) REALIZED($) VESTED UNVESTED VESTED UNVESTED
---- ------------ ----------- ---------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Chandrashekar M. Reddy....... 160,666 $ -- -- -- $ -- $ --
Simon P. Westbrook........... 149,000 -- -- -- -- --
Arun Johary.................. 200,000 -- -- 48,333 -- 552,451
Vijay P. Desai............... -- -- 16,881 30,785 192,957 351,873
Pratap G. Reddy.............. -- -- 25,784 46,548 294,719 532,051
</TABLE>
- -------------------------
(1) The options are immediately exercisable for all of the option shares, but
any shares purchased under those options may be repurchased by us at the
original exercise price paid per share, if the optionee ceases service with
us before vesting in such shares. The heading Vested refers to shares that
are no longer subject to repurchase. The heading Unvested refers to shares
subject to repurchase as of June 30, 1999.
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<PAGE> 48
(2) Based on the fair market value of our common stock as determined by our
board of directors as of July 31, 1999 of $12.00 per share as estimated at
the time, less the exercise price payable for such shares.
EMPLOYEE BENEFIT PLANS
Stock Option Plans
Our 1997 Stock Plan was approved our board of directors and our
stockholders on November 4, 1997. The 1997 Stock Plan permits the grant of
securities of Sage, including options intended to qualify as incentive stock
options under Section 422 of the Internal Revenue Code of 1984, as amended, or
the Code, and nonqualified stock options to employees, officers, directors,
independent contractors and consultants; provided, however that incentive stock
options may be granted only to our employees. Initially 1,524,320 shares of
common stock were reserved for issuance under the 1997 Stock Plan and as of July
14, 1999 this amount was increased to 1,666,666. As of June 30, 1999, options to
purchase 570,666 shares of common stock granted under the 1997 Stock Plan had
been exercised, option to purchase 868,266 shares of common stock were
outstanding and options to purchase 85,386 shares of common stock remained
available for grant.
The board of directors or a committee designated by the board or the
administrator is authorized to administer the 1997 Stock Plan, including the
selection of persons to whom options may be granted and the interpretation and
implementation of the 1997 Stock Plan. Options granted under the 1997 Stock Plan
will vest and become exercisable as determined by the administrator at the time
of the option grant. The term of each option will be as determined by the
administrator; provided, however, that the maximum term of an option granted
under the 1997 Stock Plan is ten years (five years in the case of an incentive
stock option granted to a 10% stockholder). The aggregate fair market value, on
the date of grant, of our common stock for which incentive stock options are
exercisable for the first time by an employee during any calendar year may not
exceed $100,000 and such excess shall be treated as nonstatutory stock options.
The exercise price of each option granted under the 1997 Stock Plan shall be as
set forth in the applicable agreement, but shall not, in the case of an
incentive stock option that is granted to an employee who owns stock
representing more than 10% of the voting power, be less than 110% of the fair
market value, or granted to any other employee, be less than 85% of the fair
market value, in the case of a nonqualified stock option that is granted to a
person who owns stock representing more than 10% of the voting power, be less
than the 110% of the fair market value, or granted to any other person, be less
than 100% of the fair market value. In the event of a sale of all our assets or
merger with or into another corporation, all of the options granted under the
1997 Stock Plan will terminate unless assumed or substituted. The 1997 Stock
Plan may be amended at any time by the board of directors, although certain
amendments require stockholder approval. The 1997 Stock Plan will terminate in
November 2007 unless earlier terminated by the Board.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan, which is expected to be approved by
our board of directors and by our stockholders in October 1999, is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Code and
to provide our employees with an opportunity to purchase common stock through
payroll deductions.
Our board of directors or a committee designated by the board from time to
time shall grant to eligible employees the right to participate in an offering
of common stock under the plan during certain offering periods. We expect that
on the first day of each offer period, a participating employee will be granted
purchase rights which are a form of option to be automatically exercised on the
forthcoming exercise dates within the offer period during which deductions will
be made from the pay of the participants. When a purchase right is exercised,
the participant's withheld salary will be used
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<PAGE> 49
to purchase shares of our common stock. The price per share at which our shares
of common stock are to be purchased under our employee stock purchase plan
during any offering period will be the lesser of:
- 85% of the fair market value of our common stock on the date of the grant
of the option (the commencement of the offer period); or
- 85% of the fair market value of our common stock on the exercise date.
All our employees whose customary employment is for more than five months in any
calendar year and more than 20 hours per week are eligible to participate.
Employees subject to the rules or laws of a foreign jurisdiction that prohibit
or make impractical the participation of such individuals in the plan will not
be eligible to participate. Certain additional limitations on the amount of
common stock which may be purchased during any calendar year are imposed by the
Code.
Our employee stock purchase plan will be administered by our board of
directors or a committee designated by our board, which will have the authority
to administer our employee stock purchase plan and to resolve all questions
relating to its administration.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that a director
of a corporation will not be personally liable for monetary damages for breach
of such individual's fiduciary duties as a director except for liability:
- for any breach of such director's duty of loyalty to us or to you, our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- for unlawful payments of dividends or unlawful stock repurchases as
provided in Section 174 of the Delaware General Corporation Law; or
- for any transaction from which a director derives an improper personal
benefit.
Our bylaws provide that we shall indemnify our directors and executive
officers and may indemnify our officers, employees and other agents to the full
extent permitted by law and in excess of that expressly permitted by Section 145
of the DGCL, as authorized in our certificate of incorporation.
We believe that indemnification under our bylaws covers at least negligence
and gross negligence on the part of an indemnified party. Our bylaws also permit
us to advance expenses incurred by an indemnified party in connection with the
defenses of any action or proceeding arising out of such party's status or
service for us as a director, officer or employee or other agent upon an
undertaking by such party to repay such advances if it is ultimately determined
that such party is not entitled to indemnification except that any agent with
respect to such expenses shall be authorized by the board of directors.
In addition to indemnification provided for in our charter documents, upon
the closing of this offering, we will have entered into agreements to indemnify
our directors and officers. To the fullest extent permitted by the DGCL, these
agreements, among other things, provide for the indemnification of our directors
and officers for some of the expenses, including attorneys' fees, judgments,
fines and settlement amounts incurred by any such person in any action or
proceeding, including any action by us or in the right of the company, arising
out of person's services as one of our directors or officers, any of our
subsidiaries or any other company or enterprise to which such person provides
services at our request. Furthermore, we plan to purchase and maintain insurance
on
45
<PAGE> 50
behalf of our directors and officers to insure them against liabilities that
they may incur in their capacities as or arising out of their status as
directors and officers. We believe that these provisions and agreements will
assist us in attracting and retaining qualified persons to serve as directors
and officers.
At present we are not aware of any pending or threatened litigation or
proceeding involving any of our directors, officers, employees or agents in
which indemnification will be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
46
<PAGE> 51
CERTAIN TRANSACTIONS
Since April 1, 1996, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which we or any of our
subsidiaries was or is to be 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 capital stock or any member of the immediate family of any of the
foregoing persons had or will have a direct or indirect material interest, other
than compensation agreements and other arrangements described below or under the
heading "Management" in this prospectus.
RELATIONSHIP WITH OTHER INVESTORS
Private Placement Transactions
Since our inception, we have issued certain shares of our preferred stock
to directors, executive officers and 5% stockholders in the private placement
transactions described below:
- an aggregate of 886,666 shares of Series A preferred stock at $0.564 per
share on September 20, 1996 to investors including 366,916 shares to N.
Damodar Reddy and 129,500 shares to Michael A. Gumport; and
- an aggregate of 1,534,962 shares of Series D preferred stock at $3.861
per share from May 1, 1998 to August 31, 1998 to investors, including
647,500 shares to entities affiliated with the Investar Group.
We also issued an aggregate of 312,333 shares of common stock for $3.00 per
share in a private placement of shares in 1997, including 28,667 shares of
common stock to Chandrashekar M. Reddy on June 30, 1997.
From May 1, 1998 to May 15, 1998 we issued warrants to purchase an
aggregate of 166,192 shares of Series D preferred stock at an exercise price of
$3.861 to investors, including entities affiliated with the Investar Group.
These warrants will terminate upon the closing of the sale of common stock
offered in this offering, if not exercised on or before the time of closing.
Investors' Rights Agreements
Each of the Series D and Series E investors and Faroudja Laboratories, Inc.
acquired the following registration rights:
- two demands for registration at any time after six months following the
consummation of this offering. This demand registration right may be made
by the holders that own at least 20% of the registrable securities. If
our board of directors determines in good faith that the demand
registration would be seriously detrimental to us, we are entitled to
postpone the filing of the registration statement for a period not to
exceed 120 days, provided that we may not utilize this right more than
once in any twelve-month period;
- piggyback registration rights, if we propose to register any securities
under the Securities Act in connection with any public offering of our
securities other than a registration relating solely to the sale of
securities to participants in our stock plan or transaction covered by
Rule 145 under the Securities Act, a registration in which the stock
being registered is common stock issuable upon conversion of debt
securities which are also being registered, or any registration on any
form which does not include substantially the same information as would
be required to be included in a registration statement covering the sale
of the registrable securities, subject to quantity limitations determined
by underwriters if the offering involves an underwriting; and
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<PAGE> 52
- demand registration rights at any time after we become eligible to
register our securities on Form S-3, provided, among other limitations,
that the proposed aggregate price to the public is at least $500,000 and
that we have not effected two of these registrations in any twelve-month
period preceding the date of such request. This demand registration right
may be made by the holders of Series D and Series E preferred stock, as
the case may be, that own at least 10% of the shares of common stock into
which such preferred stock converts, or by Faroudja Laboratories, Inc.
Except for expenses incurred in connection with a registration of common
stock on Form S-3, which will be borne pro rata by the participants in the Form
S-3 registration, we have agreed to bear all fees, costs and expenses of these
registrations, other than underwriting discounts and commissions. We have also
agreed, to the extent permitted by law, to indemnify each of the Series D and
Series E investors and Faroudja Laboratories, Inc. against some liabilities in
connection with the offering of the shares, including liabilities arising under
the Securities Act.
The registration rights of each of the Series D and Series E investors and
Faroudja Laboratories, Inc. terminate on the earlier of;
- the fourth anniversary of the date of this offering; or
- the date when the shares held by them may be sold under Rule 144 or
another similar exemption under the Securities Act during any three-month
period without registration.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions, including loans, between us and
our officers, directors, principal stockholders and their affiliates will be
approved by a majority of the board of directors, including a majority of the
independent and disinterested outside directors on the board of directors, and
will be on terms no less favorable to us than could be obtained from
unaffiliated third parties.
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<PAGE> 53
PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership
of our common stock as of August 19, 1999, by the following individuals or
groups:
- each person or entity who is known by us to own beneficially more than 5%
of the outstanding shares of our common stock;
- each of our executive officers;
- each of our directors; and
- all directors and executive officers as a group.
Unless otherwise indicated, the address of each of the individuals listed
in the table is c/o Sage, Inc., 2460 North First Street, Suite 100, San Jose,
California 95131. Except as otherwise indicated, and subject to community
property laws where applicable, the persons named in the table have sole voting
and investment power with respect to all shares of common stock shown held by
them.
To the extent that any shares of common stock are issued upon exercise of
options, warrants or other rights that are presently outstanding or granted in
the future or reserved for future issuance under our stock plans, there will be
further dilution to new public investors. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities,
subject to community property laws, where applicable. Shares of our common stock
subject to options that are presently exercisable or exercisable within 60 days
of August 19, 1999 are deemed to be outstanding and beneficially owned by the
person holding such options for the purpose of computing the percentage of
ownership of such persons but are not treated as outstanding for the purpose of
computing the percentage of any other person.
The numbers shown in the table below assume no exercise by the underwriters
of their over-allotment option.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF SHARES OF COMMON STOCK BENEFICIALLY OWNED AS OF AUGUST 19, 1999
---------------------------------------------------------------------------------------------
PERCENT OF
SHARES SUBJECT TO SHARES ISSUABLE OUTSTANDING SHARES
A RIGHT OF PURSUANT TO OPTIONS ----------------------
OUTSTANDING SHARES REPURCHASE AS OF EXERCISABLE WITHIN 60 DAYS BEFORE THE AFTER THE
OF COMMON STOCK AUGUST 19, 1999(2) OF AUGUST 19, 1999 OFFERING OFFERING
------------------ ------------------ -------------------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS:
Entities affiliated with
Investar Group(1)........ 848,968 -- -- 12.9% 8.5%
DIRECTORS AND EXECUTIVE
OFFICERS:
Chandrashekar M. Reddy..... 905,304 -- -- 13.8% 9.2%
Simon P. Westbrook......... 157,236 70,565 -- 2.4% 1.6%
Arun Johary................ 204,836 107,205 -- 3.1% 2.1%
Vijay P. Desai............. 353,194 54,028 19,861 5.4% 3.6%
Pratap G. Reddy............ 362,965 54,028 32,565 5.5% 3.7%
N. Damodar Reddy........... 412,863 -- 29,280 6.3% 4.2%
Michael A. Gumport......... 274,641 -- 30,587 4.1% 2.8%
Kenneth Tai................ -- --
All executive officers and
directors as a group (8
persons)................. 2,671,039 -- -- 53.7% 27.2%
</TABLE>
- -------------------------
(1) Includes 1,388,500 shares and 28,321 shares subject to warrants exercisable
within 60 days of August 19, 1999 held by Investar Semiconductor Development
Fund, Inc., 129,500 shares and 9,442 shares subject to warrants within 60
days of August 19, 1999 held by Investar Excelsus Venture Capital
(International) Inc., 129,500 shares and 9,442 shares subject to warrants
within 60 days of August 19, 1999 held by Forefront Venture Partners, L.P.
and 129,500 shares and 9,440 shares subject to warrants within 60 days of
August 19, 1999 held by Investar Dayspring
49
<PAGE> 54
Venture Capital, Inc. The address of Investar Group is Room 1201, TWTC
International Trade Building, 12F, 333 Keelung Rd., Sec. 1, Taipei, Taiwan,
Republic of China. Investor Capital, Inc. retains voting and management
control of Investor Group.
(2) Shares of common stock issued under a stock repurchase agreement under which
we retained the right to repurchase those shares at a per share purchase
price equal to the original per share purchase price if the holder's
employment is terminated.
50
<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $0.01 per share, and 10,000,000 shares of preferred stock, par value
$0.01 per share. Upon consummation of this offering, no shares of preferred
stock and 9,799,591 shares of common stock (10,249,591 shares if the
underwriters' over-allotment option is exercised in full) will be outstanding.
The following summary is qualified in its entirety by reference to our
certificate of incorporation and Bylaws, copies of which are filed as exhibits
to the registration statement of which this prospectus is a part.
Under our 1997 Stock Plan, 1,666,666 shares of common stock have been
reserved for issuance and options to purchase 876,112 shares were outstanding as
of July 31, 1999.
COMMON STOCK
As of July 31, 1999, there were 3,558,610 shares of our common stock
outstanding held of record by approximately 57 stockholders, not including
3,177,039 shares that will be issued upon the automatic conversion of the
outstanding shares of our preferred stock into common stock upon the closing of
the offering. As of July 31, 1999, 1,666,666 shares of our common stock were
reserved for issuance pursuant to the 1997 Stock Plan. Upon completion of the
offering, there will be 9,799,591 shares of common stock outstanding.
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any of our outstanding preferred stock, the holders of our common
stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the board of directors out of funds legally available
therefor. See "Dividend Policy." In the event of liquidation, dissolution or
winding up of Sage, the holders of our common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding. Our common
stock has no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions applicable to our common stock. All
outstanding shares of our common stock are fully paid and nonassessable, and the
shares of our common stock to be issued upon completion of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
As of the closing of this offering, no shares of our preferred stock will
be outstanding. Effective at such time and pursuant to our certificate of
incorporation, the board of directors will have the authority, without further
action by the stockholders, to issue the preferred stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of Sage
without further action by the stockholders and may adversely affect the voting
and other rights of the holders of our common stock. The issuance of preferred
stock with voting and conversion rights may have the effect of decreasing the
market price of our common stock, and may adversely affect the voting power of
the holders of our common stock, including the loss of voting control to others.
At present, we have no plans to issue any shares of preferred stock.
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<PAGE> 56
CERTAIN ANTI-TAKEOVER, LIMITED LIABILITY AND INDEMNIFICATION PROVISIONS; SECTION
203 OF THE DELAWARE GENERAL CORPORATION LAW
We are subject to Section 203 of the Delaware General Corporation Law, as
amended ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that such
stockholder became an interested stockholder, unless:
- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
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, excluding for purposes of determining the
number of shares outstanding those shares owned (a) by persons who are
directors and also officers and (b) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
- on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines business combinations to include:
- any merger or consolidation involving the corporation or any
majority-owned subsidiary of the corporation and any other person or
entity;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation or any majority-owned subsidiary of the
corporation involving the interested stockholder;
- any transaction that results in the issuance or transfer by the
corporation or any majority-owned subsidiary of the corporation of any
stock of the corporation to the interested stockholder;
- any transaction involving the corporation or any majority-owned
subsidiary of the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the
corporation or any majority-owned subsidiary of the corporation
beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation or any majority-owned subsidiary of the
corporation. In general, Section 203 defines an interested stockholder as
any entity or person beneficially owning 15% or more or the outstanding
voting stock of the corporation and any entity or person affiliated with
or controlling or controlled by such entity or person.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Chase Mellon
Shareholder Services. The transfer agent's address is 400 South Hope Street, 4th
Floor, Los Angeles, California and its telephone number is (213) 553-9730.
52
<PAGE> 57
SHARES ELIGIBLE FOR FUTURE SALE
We cannot provide any assurance that a significant public market for our
common shares will develop or be sustained after this offering has been
completed. The sale of substantial numbers of common shares in the public
market, or the possibility of such a sale, could adversely affect prevailing
market prices for our common shares. Upon completion of this offering, there
will be 9,799,591 shares of our common stock outstanding. This assumes
conversion of all outstanding shares of our preferred stock, the surrender for
shares of our common stock of all outstanding warranties to purchase common
stock, no exercise of the underwriters' over-allotment option and no exercise of
outstanding compensatory stock options under our option plans. Of such shares,
the 3,000,000 shares sold in this offering will be freely transferable without
restriction or further registration under the Securities Act, except for any
shares held by our "affiliates", as that term is defined by the Securities Act,
which shares will be subject to the resale limitations of Rule 144 adopted under
the Securities Act.
All of our officers, directors and all other stockholders have agreed not
to offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock, or enter into any swap or similar
agreement that transfers, in whole or in part, the economic risk of ownership of
the common stock until 180 days after the offering. BancBoston Robertson
Stephens Inc. may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to lock-up agreements.
BancBoston Robertson Stephens Inc. currently has no plans to release any portion
of the securities subject to lock-up agreements. As a result of these
contractual restrictions and the provisions of Rules 144(k), 144 and 701, the
restricted shares will be available for sale in the public market as follows:
- no shares will be eligible for immediate sale on the date of this
Prospectus;
- no shares will be eligible for sale 90 days after the date of this
Prospectus; and
- approximately 8,620,844 shares will be eligible for sale 180 days after
the date of the offering.
In general, under Rule 144 as currently in effect, beginning 90 days after
the offering, a person or persons whose shares are aggregated, who owns shares
that were purchased from us or any affiliate at least one year previously
(including a person who may be deemed an affiliate) is entitled to sell within
any three-month period that a number of shares that does not exceed the greater
of (a) 1% of the then outstanding shares of our common stock (93,940 shares
immediately after the offering) or (b) the average weekly trading volume of our
common stock on the Nasdaq National Market during the four calendar weeks
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about us. Any person (or persons whose shares are aggregated) who is
not deemed to have been our affiliate at any time during the 90 days preceding a
sale, and who owns shares within the definition of "restricted securities" under
Rule 144 under the Securities Act that were purchased from us (or any affiliate)
at least two years previously, would be entitled to sell such shares under Rule
144(k) without regard to the volume limitations, manner of sale provisions,
public information requirements or notice requirements.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from us by our employees,
directors, officers, consultants or advisers prior to the date the issuer
becomes subject to the reporting requirements of the Securities Exchange Act of
1934 pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Securities and
Exchange Commission has indicated that Rule 701 will apply to typical
compensatory stock options granted by an issuer before the issuer becomes
subject to the
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<PAGE> 58
reporting requirements of the Exchange Act, along with the shares acquired upon
exercise of such options, including exercises after the date of this prospectus.
Securities issued in reliance on Rule 701 are restricted securities and
beginning 90 days after the date of this prospectus, may be sold:
- by persons other than affiliates, subject only to the manner of sale
provisions of Rule 144; and
- by affiliates under Rule 144 without compliance with its one-year holding
period requirement.
After the offering, the holders of 2,029,295 shares of our common stock or
their respective transferees, will be entitled to certain rights with respect to
the registration of such shares under the Securities Act. See "Description of
Capital Stock -- Registration Rights." Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act (except for shares purchased by affiliates)
immediately upon the effectiveness of such registration.
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<PAGE> 59
UNDERWRITING
The underwriters name below, acting through their representatives,
BancBoston Robertson Stephens Inc., Prudential Securities Incorporated and
Needham & Company, Inc. have severally agreed with us, subject to the terms and
conditions of the underwriting agreement, to purchase from us the number of
shares of common stock indicated opposite their names below. The underwriters
are committed to purchase and pay for all of the shares if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
BancBoston Robertson Stephens Inc. .........................
Prudential Securities Incorporated..........................
Needham & Company, Inc. ....................................
--------
Total.............................................
========
</TABLE>
We have been advised that the underwriters propose to offer the shares of
common stock to the public at the public offering price located on the cover
page of this prospectus and to dealers at that price less a concession not in
excess of per share, of which may be reallowed to other dealers.
After the initial public offering, the public offering price, concession and
reallowance to dealers may be reduced by the representatives. No reduction in
this price will change the amount of proceeds to be received by us as indicated
on the cover page of this prospectus.
Over-Allotment Option. We have granted to the underwriters an option
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 450,000 additional shares of common stock at the same price per
share as we will receive for the 3,000,000 shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of additional shares that the number of shares of common
stock to be purchased by it shown in the above table represents as a percentage
of the 3,000,000 shares offered by this prospectus. If purchased, the additional
shares will be sold by the underwriters on the same terms as those on which the
3,000,000 shares are being sold. We will be obligated, under this option, to
sell shares 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
3,000,000 shares of common stock offered by this prospectus.
The following table shows the per share and total underwriting discounts
and commissions to be paid by us to the underwriters. This information is
presented assuming either no exercise of full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
PER WITHOUT WITH
SHARE OPTION OPTION
-------- -------- --------
<S> <C> <C> <C>
Public offering price..................
Underwriting discounts and
commissions..........................
Proceeds, before expenses, to us.......
</TABLE>
The expenses of the offering are estimated at $ and are payable
entirely by us. BancBoston Robertson Stephens Inc. expects to deliver the shares
of common stock to purchasers on October , 1999.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of representation
and warranties contained in the underwriting agreement.
Future Sales. Each of our executive officers, directors and other
significant stockholders of record has agreed with the representatives, for a
period of 180 days after the date of this prospectus,
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<PAGE> 60
not to offer to sell, contract to sell or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to any shares of common stock, any
options or warrants to purchase any shares of common stock, or any securities
convertible into or exchangeable for shares of common stock owned as of the date
of this prospectus or acquired directly from us by these holders or with respect
to which they have or may acquire the power of disposition, without the prior
written consent of BancBoston Robertson Stephens Inc. However, BancBoston
Robertson Stephens Inc. may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements. There are no agreements between the representatives and any of our
stockholders providing consent by the representatives to the sale of shares
prior to the expiration of the 180-day lock-up period. In addition, we have
generally agreed that, during the 180-day lock-up period, we will not, without
the prior written consent of BancBoston Robertson Stephens, Inc., (a) consent to
the disposition of any shares held by stockholders prior to the expiration of
the 180-day lock-up period or (b) issue, sell, contract to sell or otherwise
dispose of, any shares of common stock, any options or warrants to purchase any
shares of common stock, or any securities convertible into, exercisable for or
exchangeable for shares of common stock, other than our sale of shares in the
offering, our issuance of common stock upon the exercise of currently
outstanding options and warrants, and our issuance of incentive awards under our
stock incentive plans. See "Shares Eligible for Future Sale."
Directed Shares. At our request, the underwriters will reserve up to
150,000 shares of common stock to be issued by us and offered hereby for sale,
at the initial public offering price, to directors, officers, employees,
business associates and related persons of Sage. The number of shares of common
stock available for sale to the general public will be reduced to the extent
that such individuals purchase all or a portion of these reserved shares. Any
reserved shares which are not purchased will be offered by the underwriters to
the general public on the same basis as the shares of common stock offered
hereby.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
No Prior Public Market. Prior to this offering, there has been no public
market for the common stock. Consequently, the initial public offering price for
the common stock offered by this prospectus will be determined through
negotiations between us and the representatives. Among the factors to be
considered in these negotiations were prevailing market conditions, our
financial information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
Stabilization. The representatives have advised us that, under Regulation M
under the Securities Exchange Act, some participants in the offering may engage
in transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A stabilizing bid is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of fixing or maintaining the price of the common stock. A syndicate covering
transaction is the bid for or purchase of the common stock on behalf of the
underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A penalty bid is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by the underwriter or syndicate member is purchased by the
representatives in a syndicate covering transaction and has therefore not been
effectively placed by the underwriter or syndicate member. The representatives
have advised us that these transactions may be effected on the Nasdaq National
Market or otherwise and, if commenced, may be discontinued at any time.
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<PAGE> 61
LEGAL MATTERS
The validity of the shares of our common stock being offered hereby will be
passed upon for us by Morrison & Foerster LLP, San Francisco, California.
Certain legal matters in connection with the offering will be passed upon for
the underwriters by Brobeck Phleger & Harrison LLP, San Francisco, California.
EXPERTS
The consolidated financial statements as of March 31, 1998 and 1999, and
for each of the three years in the period ended March 31, 1999, included in this
prospectus have been so included in reliance on the report of
PricewaterhousCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act with
respect to the shares of our common stock being offered hereby. This prospectus
does not contain all of the information set forth in that registration statement
or the exhibits and schedules to that registration statement. For further
information with respect to Sage and the common stock offered hereby, reference
is made to the registration statement and the exhibits and schedules filed as a
part of the registration statement. Statements contained in this prospectus
concerning the contents of any contract or any other document are not
necessarily complete; reference is made in each instance to the copy of such
contract or any other document filed as an exhibit to the registration
statement. Each such statement is qualified in all respects by such reference to
such exhibit.
You may inspect a copy of the registration statement without charge at the
Securities and Exchange Commission's principal office in Washington, D.C. and
obtain copies of all or any part thereof upon payment of certain fees from the
Public Reference Room of the Securities and Exchange Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
in New York, located at 7 World Trade Center, 13th Floor, New York, New York
10048, or in Chicago, located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at after payment of fees prescribed by the Commission. You
may obtain information on the operation of the Public Reference Room by calling
1-800-SEC-0300. The Commission also maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission. The Securities and Exchange Commission's World Wide Web address is
www.sec.gov.
We intend to furnish holders of our common stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing unaudited
condensed financial information for the first three quarters of each fiscal
year. We intend to furnish our stockholders with such other reports as we may
determine or as may be required by law.
57
<PAGE> 62
SAGE, 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 Stockholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 63
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Sage, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity (deficit)
and of cash flows present fairly, in all material respects, the financial
position of Sage, Inc. and its subsidiary at March 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1999, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
June 30, 1999, except for Note 13,
as to which the date is October 5, 1999
F-2
<PAGE> 64
SAGE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
MARCH 31, JUNE 30,
------------------ JUNE 30, 1999
1998 1999 1999 (NOTE 1)
------- ------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................. $ 380 $ 2,473 $ 4,388
Accounts receivable, net.................. 230 804 1,233
Inventories............................... 68 412 162
Prepaid expenses and other assets......... 163 172 154
------- ------- -------
Total current assets.............. 841 3,861 5,937
Property and equipment, net................. 468 432 914
------- ------- -------
Total assets...................... $ 1,309 $ 4,293 $ 6,851
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $ 324 $ 638 $ 632
Accrued expenses and other liabilities.... 1,457 1,752 1,823
Notes payable............................. 500 -- --
------- ------- -------
Total current liabilities......... 2,281 2,390 2,455
------- ------- -------
Commitments (Note 11)
Stockholders' equity (deficit):
Convertible preferred stock, $0.01 par
value; 10,000 shares authorized; 1,029,
2,564 and 3,059 shares issued and
outstanding actual; no shares issued
and outstanding pro forma.............. 11 26 31 $ --
Common stock, $0.01 par value; 23,000
shares authorized; 2,602, 3,176 and
3,176 shares issued and outstanding
actual; 6,353 shares issued and
outstanding pro forma.................. 26 32 32 64
Additional paid-in capital................ 2,915 11,646 14,579 14,578
Notes receivable from stockholders........ -- (113) (143) (143)
Deferred compensation related to stock
options and restricted stock........... -- (1,013) (811) (811)
Accumulated deficit....................... (3,924) (8,675) (9,292) (9,292)
------- ------- ------- -------
Total stockholders' equity........ (972) 1,903 4,396 $ 4,396
------- ------- ------- =======
Total liabilities and
stockholders' equity........... $ 1,309 $ 4,293 $ 6,851
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 65
SAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
---------------------------- -------------------
1997 1998 1999 1998 1999
------ ------- ------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................... $1,758 $ 1,495 $ 7,132 $ 465 $3,775
Cost of revenues....................... 1,136 1,639 4,914 352 2,443
------ ------- ------- ------- ------
Gross profit (loss).................... 622 (144) 2,218 113 1,332
------ ------- ------- ------- ------
Operating expenses:
Research and development............. 994 1,597 2,270 465 715
Selling, general and
administration.................... 329 945 3,214 511 1,058
Stock compensation................... -- -- 1,596 610 202
------ ------- ------- ------- ------
Total operating expenses.......... 1,323 2,542 7,080 1,586 1,975
------ ------- ------- ------- ------
Loss from operations................... (701) (2,686) (4,862) (1,473) (643)
Interest income (expense), net......... (7) (89) 111 19 26
------ ------- ------- ------- ------
Net loss............................... $ (708) $(2,775) $(4,751) $(1,454) $ (617)
====== ======= ======= ======= ======
Net loss per share:
Basic and diluted.................... $(0.32) $ (1.08) $ (2.00) $ (0.61) $(0.22)
====== ======= ======= ======= ======
Pro forma net loss per share
(unaudited).......................... $ (0.96) $(0.11)
======= ======
Shares used in computing net loss per
share:
Basic and diluted.................... 2,246 2,578 2,381 2,385 2,816
====== ======= ======= ======= ======
Shares used in computing pro forma net
loss per share (unaudited)........... 4,965 5,750
======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 66
SAGE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES DEFERRED
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE COMPENSATION
--------------- --------------- PAID-IN FROM RELATED TO ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL SHAREHOLDERS STOCK OPTIONS DEFICIT TOTAL
------ ------ ------ ------ ---------- ------------ ------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1996.................... -- $-- 2,160 $22 $ 160 $ -- $ -- $ (441) $ (259)
Issuance of Series A
preferred stock......... 887 9 -- -- 491 -- -- -- 500
Issuance of common stock
for cash, net of
repurchases............. -- -- 317 3 1,002 -- -- -- 1,005
Net loss.................. -- -- -- -- -- -- -- (708) (708)
----- --- ----- --- ------- ----- ------- ------- -------
Balance at March 31,
1997.................... 887 9 2,477 25 1,653 -- -- (1,149) 538
Issuance of common stock
for cash, net of
repurchases............. -- -- 125 1 314 -- -- -- 315
Issuance of Series B
preferred stock......... 83 1 -- -- 499 -- -- -- 500
Issuance of Series C
preferred stock......... 59 1 -- -- 399 -- -- -- 400
Issuance of warrants of
Series D preferred stock
in connection with notes
payable................. -- -- -- -- 50 -- -- -- 50
Net loss.................. -- -- -- -- -- -- -- (2,775) (2,775)
----- --- ----- --- ------- ----- ------- ------- -------
Balance at March 31,
1998.................... 1,029 11 2,602 26 2,915 -- -- (3,924) (972)
Issuance of common stock
upon exercise of stock
options................. -- -- 571 6 323 (113) -- -- 216
Issuance of common stock
for consulting services,
net..................... -- -- 3 -- 8 -- -- -- 8
Issuance of Series D
preferred stock, net of
issuance cost of $150... 1,453 14 -- -- 5,444 -- -- -- 5,458
Issuance of Series D
preferred stock for
settlement of notes
payable................. 82 1 -- -- 317 -- -- -- 318
Issuance of Series D
preferred stock warrants
in connection with line
of credit............... -- -- -- -- 30 -- -- -- 30
Deferred compensation
related to restrictions
placed in common
stock................... -- -- -- -- 393 -- (393) -- --
Deferred compensation
related to stock option
grants.................. -- -- -- -- 2,216 -- (2,216) -- --
Amortization of deferred
compensation related to
stock options and
restricted stock........ -- -- -- -- -- -- 1,596 -- 1,596
Net loss.................. -- -- -- -- -- -- -- (4,751) (4,751)
----- --- ----- --- ------- ----- ------- ------- -------
Balance at March 31,
1999.................... 2,564 26 3,176 32 11,646 (113) (1,013) (8,675) 1,903
Exercise of Series D
preferred stock
warrants (unaudited).... 2 -- -- -- 10 -- -- -- 10
Issuance of Series E
preferred stock, net of
issuance cost of $30
(unaudited)............. 493 5 -- -- 2,919 (30) -- -- 2,894
Issuance of Series E
preferred stock warrants
(unaudited)............. -- -- -- -- 4 -- -- -- 4
Amortization of deferred
compensation related to
stock options and
restricted stock
(unaudited)............. -- -- -- -- -- -- 202 -- 202
Net loss (unaudited)...... -- -- -- -- -- -- -- (617) (617)
----- --- ----- --- ------- ----- ------- ------- -------
Balance at June 30, 1999
(unaudited)............. 3,059 $31 3,176 $32 14,579 $(143) $ (811) $(9,292) $ 4,396
===== === ===== === ======= ===== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 67
SAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
---------------------------- ------------------
1997 1998 1999 1998 1999
------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................ $ (708) $(2,775) $(4,751) $(1,454) $ (617)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization.... 27 137 250 47 69
Stock compensation............... -- -- 1,596 610 202
Warrant expense.................. -- 50 4 -- 4
Changes in assets and
liabilities:
Accounts receivable............ (352) 209 (574) 15 (429)
Inventories.................... (72) 26 (344) (62) 250
Prepaid expenses and other
assets...................... (66) (93) 17 (10) 18
Accounts payable............... 442 (130) 314 87 (6)
Accrued expenses and other
liabilities................. 327 649 303 (98) 71
------ ------- ------- ------- -------
Net cash used in operating
activities............... (402) (1,927) (3,185) (865) (438)
------ ------- ------- ------- -------
Cash flows from investing activities:
Acquisition of property and
equipment........................ (204) (316) (214) (103) (551)
------ ------- ------- ------- -------
Cash flows from financing activities:
Proceeds from issuance (repayments)
of notes payable................. -- 500 (190) (190) --
Net proceeds from issuance
of common stock.......... 1,005 315 224 -- --
Net proceeds from issuance
of preferred stock....... 500 900 5,458 4,379 2,904
------ ------- ------- ------- -------
Net cash provided by
financing activities..... 1,505 1,715 5,492 4,189 2,904
------ ------- ------- ------- -------
Net increase (decrease) in cash and
cash equivalents.................... 899 (528) 2,093 3,221 1,915
Cash and cash equivalents at beginning
of year............................. 9 908 380 380 2,473
------ ------- ------- ------- -------
Cash and cash equivalents at end of
year................................ $ 908 $ 380 $ 2,473 $ 3,601 $ 4,388
====== ======= ======= ======= =======
Supplemental disclosures of cash flow
information:
Interest paid.................... $ 7 $ 27 $ 17 $ 2 $ 8
====== ======= ======= ======= =======
Noncash investing and financing
activities:
Issuance of convertible preferred
stock in lieu of debt
repayments....................... $ -- $ -- $ 318 $ 318 $ --
====== ======= ======= ======= =======
Issuance of common and preferred
stock in exchange for notes
receivable....................... $ -- $ -- $ 113 $ -- $ 30
====== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 68
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SAGE AND SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES:
Sage, Inc. ("Sage") was established in California in May 1994 and
re-incorporated in Delaware in May 1999. Sage designs, develops and markets
digital display processors. Sage offers a family of display signal processing
solutions that provide display processing, highly integrated analog-to-digital
conversion, signal reformatting and color processing and that are compatible
with all commercially available display signal modes and display types. Sage has
established a wholly owned subsidiary located in Bangalore, India.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts. Actual results could differ from
those estimates.
CONSOLIDATION
The financial statements herein presented include the results and financial
position of Sage and its wholly owned subsidiary. All intercompany transactions
and balances have been eliminated in consolidation.
FOREIGN EXCHANGE
The functional currency of Sage is the U.S. dollar and the functional
currency of its subsidiary is the Indian rupee.
Transactions in currencies other than the functional currency are measured
and recorded in the functional currency using the exchange rate in effect at the
date of the transaction. At the balance sheet date, monetary assets and
liabilities that are denominated in currencies other than the functional
currency are remeasured using the exchange rate at the balance sheet date. All
gains and losses arising from foreign currency transactions and remeasurement of
foreign currency denominated accounts are included in the determination of net
income in the year in which they occur and were not material for the years ended
March 31, 1997, 1998 and 1999.
The financial statements of the subsidiary company are translated into U.S.
dollars for consolidation as follows: assets and liabilities at the exchange
rate as of the balance sheet date, shareholders' equity at the historical rates
of exchange, and income and expense amounts at the average monthly exchange rate
during the year. The translation differences were not material for the three
years ended March 31, 1997, 1998 and 1999.
REVENUE RECOGNITION
Revenue is recognized upon product shipment except for shipments to
distributors with right of return, in which case revenues are deferred until the
distributor resells the inventories.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
F-7
<PAGE> 69
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CASH AND CASH EQUIVALENTS
Sage considers all highly liquid debt instruments purchased with a maturity
of three months or less at the date of purchase to be cash equivalents.
Currently all deposits are in short-term deposit and money market accounts with
various banks.
INVENTORIES
Inventories are stated at the lower of cost, determined on first-in,
first-out ("FIFO") basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally of three years.
IMPAIRMENT OF LONG-LIVED ASSETS
Sage reviews long-lived assets based upon a gross cash flow basis and will
reserve for impairment whenever events or changes in circumstances indicate the
carrying amount of the assets may not be fully recoverable. Based on its most
recent analysis, the Company believes that there was no impairment of its
property and equipment as of March 31, 1999.
INCOME TAXES
Sage accounts for income taxes under the asset and liability approach
whereby the expected future tax consequences of temporary differences between
the book and tax basis of assets and liabilities are recognized as deferred tax
assets and liabilities. A valuation allowance is established for any deferred
tax assets for which realization is uncertain.
STOCK-BASED COMPENSATION
Sage accounts for stock-based compensation arrangements in accordance with
the provisions of Accounting Principles Board's Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and complies with the disclosure
provisions of Statement of Financial Accounting Standard No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation." Under APB 25 and subject to certain
conditions, deferred compensation is recognized based on the excess, if any, of
the estimated fair market value of Sage's stock on the date of grant and the
amount an employee must pay to acquire the stock. Deferred compensation is
amortized over the vesting period on an accelerated basic using the model
presented in paragraph 24 of FASB Interpretation No. 28. Accordingly, the
percentages of the deferred compensation amortized in the first, second, third
and fourth years following the option grant date are 52%, 27%, 15% and 6%,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain of Sage's financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses, the
carrying amounts approximate fair value due to their short maturities.
F-8
<PAGE> 70
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
COMPREHENSIVE INCOME
In the fiscal year ended March 31, 1999, Sage adopted Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income" ("SFAS
130"). Comprehensive income is defined as the change in equity of a company
during a period from transactions and other events and circumstances excluding
transactions resulting from investment by owners and distribution to owners. For
the years ended March 31, 1997, 1998 and 1999, the comprehensive loss did not
differ significantly from the net loss.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities and is
effective for all fiscal years beginning after June 15, 2000. Sage anticipates
that, due to its limited use of derivative instruments, the adoption of SFAS 133
will not have a significant effect on Sage's results of operations or its
financial position.
BASIC AND DILUTED NET LOSS PER SHARE
Basic net loss per share is computed by dividing net income available to
common stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted net loss per share is calculated using
the weighted average number of outstanding shares of common stock plus dilutive
common stock equivalents. Shares of common stock that are subject to Sage's
right to repurchase are excluded from the basic and diluted net loss per share
computations. Options and warrants to purchase shares, and convertible preferred
stock outstanding were not included in the computation of diluted net loss per
share, as their effect was antidilutive for the periods presented. Therefore,
both the basic and diluted net loss per share computations resulted in the same
number and there were no reconciling items.
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
The pro forma net loss per share is calculated assuming that all
outstanding shares of convertible preferred stock are converted into common
stock at the beginning of the periods presented, or on the date of issuance of
the Preferred Stock, whichever is later.
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
If the offering is consummated, all shares of convertible preferred stock
outstanding will automatically convert into an aggregate of 3,177,039 shares of
common stock. The pro forma effect of this conversion has been reflected in the
accompanying financial statements as of June 30, 1999.
INTERIM RESULTS (UNAUDITED)
The accompanying consolidated balance sheet as of June 30, 1999, the
consolidated statements of operations and of cash flows for the three months
ended June 30, 1998 and 1999 and the consolidated statement of stockholders'
equity for the three months ended June 30, 1999 are unaudited. In the opinion of
management, these statements have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments, consisting of
only normal
F-9
<PAGE> 71
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
recurring adjustments, necessary for the fair presentation of the results for
the interim periods. The data disclosed in the notes to the consolidated
financial statements as of such dates and for such periods are unaudited.
NOTE 2 -- BALANCE SHEET ACCOUNTS (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31,
---------------- JUNE 30,
1998 1999 1999
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable:
Accounts receivable...................................... $ 248 $ 893 $1,322
Less: allowance for doubtful accounts.................... (18) (89) (89)
------ ------ ------
$ 230 $ 804 $1,233
====== ====== ======
Inventories:
Raw materials............................................ $ 12 $ 71 $ 79
Finished goods........................................... 56 341 83
------ ------ ------
$ 68 $ 412 $ 162
====== ====== ======
Property and equipment:
Equipment, computers and software........................ $ 504 $ 725 $1,300
Furniture and fixtures................................... 128 121 97
------ ------ ------
632 846 1,397
Less: accumulated depreciation and amortization.......... (164) (414) (483)
------ ------ ------
$ 468 $ 432 $ 914
====== ====== ======
Accrued expenses and other liabilities:
Margin on deferred sales to distributors................. $ 323 $ 171 $ 161
Other deferred revenue................................... 350 169 --
Accrued compensation costs............................... 309 512 220
Reserve for adverse purchases commitment................. 146 33 33
Accrued warranty......................................... 61 61 65
Advances from shareholders............................... 31 -- --
Payable on development projects.......................... -- 192 220
Commission payable to sales agents....................... -- 62 68
Deferred payment for software purchased.................. -- -- 501
Other accruals........................................... 237 552 555
------ ------ ------
$1,457 $1,752 $1,823
====== ====== ======
</TABLE>
NOTE 3 -- LINE OF CREDIT:
As of March 31, 1999, Sage had a credit facility with a bank which allowed
Sage to borrow up to $2,000,000 or $600,000 plus 85% of eligible accounts
receivable, whichever is less, at an interest rate of 0.5% plus prime rate (8.5%
per annum on March 31, 1999). The credit facility expires on June 30, 2000 and
is secured by all of Sage's assets. As of March 31, 1999, Sage did not have any
borrowings outstanding under the credit facility. The line of credit requires
Sage to achieve certain financial ratios and operating results. At June 30,
1999, Sage was in compliance with the covenants.
F-10
<PAGE> 72
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Sage issued six year warrants to subscribe for 25,000 shares of Series D
preferred stock at an exercise price of $3.861 per share to the bank in
connection with the credit facility received. The warrants were valued at
$30,000 which was included as interest expense.
NOTE 4 -- NOTES PAYABLE:
In August 1997, Sage issued $500,000 of unsecured redeemable notes bearing
interest at 8% per annum, payable quarterly. The Notes carried three year
warrants to subscribe for 100,000 shares of Series D preferred stock at $4.80
per share, expiring May 15, 2001. In May 1998, in conjunction with the closing
of the Series D round of financing, $310,000 of the Notes, together with $8,000
of accrued interest thereon, were converted into Series D preferred stock, and
the remaining notes, together with accrued interest of $6,000, were repaid.
Warrants were valued at $50,000, which was included as interest expense.
NOTE 5 -- INCOME TAXES:
There was no income tax provision for the years ended March 31, 1997, 1998
and 1999 because operations resulted in pre-tax losses. As of March 31, 1999,
Sage had net operating loss carryforwards of approximately $5,125,000 for
federal income tax purposes. These losses are available to reduce taxable income
and expire from 2010 through 2019. Because of certain changes in the ownership
of Sage, there is a limitation on the use of the net operating loss
carryforwards of approximately $800,000 per year pursuant to Section 382 of the
Internal Revenue Code.
Deferred tax assets at March 31, 1997, 1998 and 1999 relate primarily to
net operating losses, inventory reserves and accruals. A valuation allowance has
been provided in an amount equal to these assets due to the uncertainty of their
realization.
The following is an analysis of Sage's deferred tax assets:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
1997 1998 1999
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net operating loss carryforward................... $ 71 $ 700 $ 1,895
Inventory reserve................................. 195 258 360
Accrued liabilities not currently deductible...... 159 512 665
------- ------- -------
425 1,470 2,920
Deferred tax assets valuation allowance........... (425) (1,470) (2,920)
------- ------- -------
$ -- $ -- $ --
======= ======= =======
</TABLE>
F-11
<PAGE> 73
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- NET LOSS PER SHARE:
The following table sets forth the computations of basic and diluted net
loss per share for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
---------------------------- -----------------
1997 1998 1999 1998 1999
------ ------- ------- ------- ------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss............................... $ (708) $(2,775) $(4,751) $(1,454) $ (617)
Denominator:
Weighted average common stock shares
outstanding.......................... 2,246 2,578 2,841 2,598 3,199
Less weighted average restricted common
stock shares subject to the company's
repurchase option.................... (461) (213) (383)
------ ------- ------- ------- ------
Shares used in computing basic and
diluted net loss per share........... 2,246 2,578 2,380 2,385 2,816
====== ======= ======= ======= ======
Basic and diluted net loss per share... $(0.32) $ (1.08) $ (2.00) $ (0.61) $(0.22)
====== ======= ======= ======= ======
</TABLE>
NOTE 7 -- SHAREHOLDERS' EQUITY:
COMMON STOCK
As of June 30, 1999 Sage is authorized to issue up to 23,000,000 shares of
common stock. Of the shares authorized, 1,524,320 shares of common stock have
been reserved for issuance under the Sage's employee stock option plans.
RESTRICTED COMMON STOCK
Certain shares of common stock were sold to the founders and other
investors under the term of a restricted stock purchase agreement in May 1998.
These agreements contain provisions for the repurchase of unvested shares by
Sage for individuals who terminate employment prior to full vesting. The common
stock subject to repurchase will vest over four years.
As a condition to the issuance of Series D preferred stock in May 1998,
certain founders entered into stock restriction agreements with Sage pursuant to
which 1.37 million of the outstanding common shares were restricted and were
made subject to monthly vesting (over a 4 year period beginning when the shares
were originally issued and ending in April 2000) based on the founders continued
employment with Sage. Under the terms of the restricted stock agreement, Sage
has the right to repurchase the unvested shares at the original issuance price
in the event the founder ceases to be an employee of Sage. Sage recorded
deferred stock compensation amounting to $393,000 for the shares covered under
the restricted stock agreement. The deferred amount is recognized as
compensation expense over the vesting period on an accelerated basis. During the
fiscal year ended March 31, 1999 and the three months ended June 30, 1999, such
compensation expense included in stock compensation in the statement of
operations amounted to $274,000 and $35,000 (unaudited), respectively.
F-12
<PAGE> 74
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of March 31, 1999, Sage had a total of 397,145 shares of common stock
subject to repurchase rights.
CONVERTIBLE PREFERRED STOCK
Sage is authorized to issue 10,000,000 shares of convertible preferred
stock without par value, of which 886,666, 83,333, 266,666 and 2,000,000 shares
were designated Series A, B, C and D preferred stock, respectively. At March 31,
1999, Sage had issued 886,666, 83,333, 59,233 and 1,534,962 shares of Series A,
B, C and D preferred stock, respectively.
Of the preferred stock shares authorized, 100,000, 62,859 and 25,000 shares
have been reserved for issuance of Series D preferred shares for the warrants
issued in connection with the issuance of the 8% unsecured redeemable notes, the
Series D preferred stock and a credit facility, respectively. The outstanding
warrants have a weighted average remaining contractual life of 2.23 years, and a
weighted average exercise price of $4.35 per share.
All warrants are issued with exercise price equal to fair value of
respective preferred stock at issuance dates and are exercisable upon issuance.
The weighted average fair value of warrant issued during fiscal year 1999 was
$1.04. The fair value of each warrant was determined using the Black-Scholes
model with the following assumptions: dividend yield of 0%, risk-free interest
rate of 5% to 6%, a term equal to the period of the warrant and a volatility
factor of 65%.
In connection with the sale of Series D preferred stock, Sage issued three
year warrants to subscribe for 62,859 shares of Series D preferred stock at
$3.861 per share.
The rights, preferences and privileges of Sage's preferred stock are as
follows:
Dividends. Holders of Series A, B, C and D preferred stock are entitled to
receive noncumulative annual dividends of $0.06, $0.48, $0.54 and $0.30 per
share, respectively, when and if declared by the board of directors. Sage may
not distribute to common shareholders until the dividends for preferred stock
have been paid. No dividends on preferred stock or common stock have been
declared by the board of directors since inception.
Conversion. Each share of Series A, B, C and D preferred stock outstanding
is convertible at the option of the holder into common stock, subject to
adjustment for dilution. Such conversion is automatic upon the completion of a
public offering with aggregate proceeds of not less than $7,500,000.
The conversion ratio of preferred stock into shares of common stock is:
<TABLE>
<S> <C>
Series A........................... 1.000 = 1.000
Series B........................... 1.000 = 1.580
Series C........................... 1.000 = 1.778
Series D........................... 1.000 = 1.017
</TABLE>
Voting. Each share of Series A, B, C and D preferred stock entitles its
holder to one vote for each common share into which the shares would convert.
Liquidation. In the event of a liquidation, dissolution or winding up of
Sage, the holders of A, B, C and D preferred stock are entitled to be paid, in
preference to common shareholders, a per share distribution of $0.57, $6.00,
$6.75 and $3.87, respectively, plus all declared but unpaid dividends. After
payment to the holders of preferred stock, the remaining assets and funds of
Sage
F-13
<PAGE> 75
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
shall be distributed ratably to the holders of common stock and preferred stock
on an as if converted basis until the holders of the Series A, B, C and D
preferred stock shall have received an aggregate of $1.092, $18.00, $20.25 and
$11.613 per share, respectively (in each case, including the aforesaid
liquidation preference). Thereafter, any remaining assets shall be distributed
ratably to the holders of common stock.
NOTE 8 -- STOCK OPTIONS:
In September 1995 the stockholders of Sage approved the 1995 Stock Plan. In
November 1997 the shareholders of Sage approved the 1997 Stock Plan, terminating
the 1995 Plan and transferring the balance of the option pool from the 1995
Stock Plan to the 1997 Stock Plan. In the fiscal year ended March 31, 1999, Sage
cancelled all options outstanding under the 1995 Stock Plan and reissued them
under the 1997 Stock Plan.
Under the 1997 Stock Plan, nonqualified and incentive stock options may be
granted at prices not less than 85% and 100%, respectively, of the fair market
value at the date of grant, as determined by the board of directors. However,
the option price granted to a person who owns stock greater than 10% of the
total combined voting power of all classes of stock of Sage shall not be less
than 110% of the fair market value on the date of grant. Options granted under
the 1997 Stock Plan vest over five years or at such rate as may be determined by
the board of directors. The options are exercisable during the period the
participant has the same relationship with Sage as an employee, consultant or
outside director as the participant had when the option was granted and within
90 days after the termination of the relationship, but not longer than ten years
after the date the option is granted.
In May 1998 the board of directors repriced all outstanding option grants
with an exercise price in excess of $0.57 per share. The number of repriced
stock options was 966,320.
During the fiscal year ended March 31, 1999, Sage granted options for the
purchase of 306,181 shares of common stock to employees at a weighted average
exercise price of $0.69 per share. Management recognized deferred compensation
of $2,216,000 related to options repriced or granted during the year ended March
31, 1999. In addition, the Company recorded deferred compensation of $393,000
related to restrictions placed on common shares of founders as described in Note
6 above. Such deferred compensation is being amortized on an accelerated basis
over the vesting period, generally four years. The amortization of deferred
compensation for the year ended March 31, 1999 amounted to $1,596,000.
Had compensation cost for the Sage's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method prescribed by SFAS 123, the effect on fiscal
1997, 1998, and 1999 net losses would have been immaterial. The fair value of
each option grant during the fiscal years ended March 31, 1997, 1998 and 1999 is
estimated on the date of grant using the Black-Scholes method with the following
assumptions: dividend yield of 0%, risk-free interest rate of 6.40%, 5.95% and
4.96%, respectively, a weighted average expected option term of five years, and
a volatility factor of 0. The weighted average value per share under SFAS 123 of
options granted during the fiscal years 1997, 1998 and 1999 were $0.24, $0.37
and $1.71, respectively.
F-14
<PAGE> 76
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The plans' activities for the years ended March 31, 1997, 1998 and 1999 and
the three months ended June 30, 1999 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------
WEIGHTED
SHARES NUMBER AVERAGE
AVAILABLE OF PRICE EXERCISE
FOR GRANT SHARES PER SHARE PRICE
--------- ------ ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at March 31, 1996..................... 633 34 $ 0.57 $0.57
Options granted............................... (341) 341 $0.57-$3.00 $1.02
------ -----
Balance at March 31, 1997..................... 292 375 $0.57-$3.00 $1.02
Increase in option pool, net.................. 691 -- -- --
Options granted............................... (953) 953 $0.57-$3.00 $2.61
Options canceled.............................. 218 (218) $0.57-$3.00 $3.00
------ -----
Balance at March 31, 1998..................... 248 1,110 $0.57-$3.00 $1.98
Increase in option pool, net.................. 166 -- -- --
Options granted............................... (1,272) 1,272 $0.57-$9.00 $0.69
Options exercised............................. -- (571) $0.57-$3.60 $0.57
Options canceled.............................. 966 (966) $0.57-$9.00 $1.11
------ -----
Balance at March 31, 1999..................... 108 845 $0.57-$9.00 $0.75
Options granted (unaudited)................... (24) 24 $ 5.10 $5.10
Options canceled (unaudited).................. 1 (1) $ 0.57 $0.57
====== =====
Balance at June 30, 1999 (unaudited).......... 85 868 $0.57-$9.00 $0.87
====== ===== =========== =====
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------- -------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE
EXERCISE OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- -------------- ----------- -------- -------------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$0.57 710 9.22 $0.57 259 $0.57
$1.05 36 9.55 $1.05 -- --
$1.50 70 9.79 $1.50 -- --
$1.95 24 9.88 $1.95 -- --
$9.00 5 9.96 $9.00 -- --
--- ---
$0.57-$9.00 845 9.30 $0.75 259 $0.57
=== ===
</TABLE>
NOTE 9 -- EMPLOYEE BENEFITS PLAN:
Sage has a salary savings plan, which qualifies under Section 401(k) of the
Internal Revenue Code. Under the plan, participating employees may defer up to
15% of their pretax salary, but not more than statutory limits. There were no
matching contributions for the years ended March 31, 1997, 1998 and 1999.
F-15
<PAGE> 77
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
Two customers represented 37% and 17% of revenues for the year ended March
31, 1997. Three customers represented 44%, 20% and 17% of revenues for the year
ended March 31, 1998. One customer represented 49% of revenues for the year
ended March 31, 1999. Three customers represented 32%, 18% and 15% of the
accounts receivable balance at March 31, 1998. Three customers represented 25%,
15% and 13% of the accounts receivable balance at March 31, 1999.
Financial instruments that potentially subject Sage to significant
concentrations of credit risk consist primarily of cash, cash equivalents and
accounts receivable. Ongoing credit evaluations are performed and reserves for
potential credit losses are maintained. Certain sales were made under letters of
credit, which further reduces Sage's overall credit risk.
NOTE 11 -- SEGMENT AND GEOGRAPHIC INFORMATION:
Sage operates in one reportable segment which is the development and sales
of display processors and accompanying software to support the display industry.
Sage has operations in the United States and India. The India operation was
established in January 1996. The results of the India operation for the years
ended March 31, 1997, 1998 and 1999 and its total assets as of the respective
dates were not material to Sage's consolidated financial statements.
Sage sells its products primarily in the United States and to the Asia
Pacific region. Revenues by geographic location based on the country of the
customer were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1997 1998 1999
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
United States........................................ $1,758 $1,495 $2,131
Taiwan............................................... -- -- 3,535
Other Asia Pacific countries......................... -- -- 1,365
Europe............................................... -- -- 101
------ ------ ------
$1,758 $1,495 $7,132
====== ====== ======
</TABLE>
NOTE 12 -- COMMITMENTS:
Sage leases its facilities under noncancelable operating leases which
expire on various dates through September 2000. Future minimum lease payments as
of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING
FISCAL YEAR LEASES
----------- --------------
(IN THOUSANDS)
<S> <C>
2000................................ $218
2001................................ 106
----
Total minimum lease payments........ $324
====
</TABLE>
Total rent expenses under operating leases for fiscal years 1997, 1998 and
1999 were $48,000, $84,000 and $150,000, respectively.
F-16
<PAGE> 78
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 -- SUBSEQUENT EVENT:
In May 1999 Sage sold 492,333 shares of Series E preferred stock for an
aggregate of $2.9 million, net of estimated expenses of $30,000. At the same
time, in connection with the sale of Series E preferred stock, Sage issued three
year warrants to subscribe for 5,970 shares of Series E preferred stock at $6.00
per share.
On July 24, 1999, Sage entered into a joint license and development
agreement with Faroudja under which Sage issued 375,000 shares of common stock
to Faroudja in exchange for $500,000 cash and a limited exclusive license to
certain of Faroudja's video processing and image enhancement technologies. Under
the terms of the agreement, the licensed technologies can only be used to
develop new chip solutions that incorporate both Faroudja's and Sage's
technologies. As a result of that transaction, Sage recorded an expense of $2.5
million relating to in-process research and development during the three months
ended September 30, 1999.
On October 1, 1999, Sage implemented a three-for-one reverse stock split.
Shares and per share amounts have been retroactively restated for all periods
presented.
F-17
<PAGE> 79
[SAGE LOGO]
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant in connection with the
distribution of the securities being registered, other than underwriting
discounts and commissions, are as follows:
<TABLE>
<CAPTION>
AMOUNT*
----------
<S> <C>
Securities and Exchange Commission Filing Fee............... $ 9,591
NASD Filing Fee............................................. 3,950
Nasdaq National Market Listing Fee.......................... 95,000
Accounting Fees and Expenses................................ 230,000
Blue Sky Fees and Expenses.................................. 3,000
Legal Fees and Expenses..................................... 300,000
Transfer Agent and Registrar Fees and Expenses.............. 10,000
Printing Expenses........................................... 330,000
Miscellaneous Expenses...................................... 18,459
----------
Total.................................................. $1,000,000
==========
</TABLE>
- -------------------------
* All amounts are estimates except the Commission filing fee, the NASD filing
fee and the Nasdaq National Market listing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporate Law of the State of Delaware,
the Registrant has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Bylaws (Exhibit 3.2 hereto) also provide for indemnification of its directors,
executive officers, employees and agents, to the fullest extent permissible
under Delaware law.
The Registrant's certificate of incorporation (Exhibit 3.1 hereto) provides
that the liability of its directors for monetary damages shall be eliminated to
the fullest extent permissible under Delaware law. Pursuant to Delaware law,
this includes elimination of liability for monetary damages for breach of the
directors' fiduciary duty of care to the Registrant and its stockholders. These
provisions do not eliminate the directors' duty of care and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Registrant, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for any
transaction from which the director derived an improper personal benefit, and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law. The provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
Prior to the effective date of the registration statement, the Registrant
will have entered into agreements with its directors and certain of its
executive officers that require the Registrant to indemnify such persons against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person may
be made a party by reason of the fact that such person is or was a director or
officer of the Registrant or any of its affiliated enterprises, provided such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Registrant and, with respect to
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. The
II-1
<PAGE> 81
indemnification agreements also set forth certain procedures that will apply in
the event of a claim for indemnification thereunder.
The Registrant intends to obtain in conjunction with the effectiveness of
the registration statement a policy of directors' and officers' liability
insurance that insures the Company's directors and officers against the cost of
defense, settlement or payment of a judgment under certain circumstances.
The Underwriting Agreement filed as Exhibit 1.1 to this registration
statement provides for indemnification by the underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the period from August 19, 1996 to August 19, 1999, the Registrant
has issued and sold the following unregistered securities:
(1) On September 30, 1996, Registrant issued an aggregate of 886,666
shares in a private placement of its Series A Preferred Stock at a purchase
price of $0.564 per share, for cash in the aggregate amount of $500,080, to
investors.
(2) On February 10, 1997, Registrant issued an aggregate of 382,978
shares in a private placement of its common stock, at a purchase price of
$0.564 per share, for cash in the aggregate amount of $216,000, to
investors.
(3) On March 11, 1997, Registrant issued an aggregate of 270,333
shares in a private placement of its common stock for an aggregate purchase
price of $811,000 to officers, directors and consultants and investors.
(4) On July 30, 1997, Registrant issued an aggregate of 125,000 shares
in a private placement of its common stock for an aggregate purchase price
of $271,564 to officers, directors and consultants.
(5) On September 4, 1997, Registrant issued 1,461,454 shares of
warrants to purchase up to 100,000 shares of our common stock for a price
of $1.60 to employees, directors and consultants.
(6) On January 29, 1998, Registrant issued 83,333 shares in a private
placement of its Series B Preferred Stock at a purchase price of $6.00 per
share, for cash in the aggregate amount of $500,000, to Krishnan Shah
Limited Family Partnership and 59,233 shares of its Series C Preferred
Stock at a purchase price of $6.75, for cash in the aggregate amount of
$399,825 to Grand Wide Technology Ltd. and Richview Ltd.
(7) On May 1 and May 15, 1998, Registrant issued 1,245,537 shares in a
private placement of its Series D Preferred Stock at a purchase price of
$3.86, for cash in the aggregate amount of $4,809,021 to 28 investors.
(8) On May 1, 1999, Registrant issued 487,333 shares in a private
placement of its Series E Preferred Stock at a purchase price of $6.00 per
share, for cash in the aggregate amount of $2,924,000 to 47 accredited
investors pursuant to Rule 506 of Regulation D.
(9) On July 27, 1999, Registrant issued 375,000 shares in a private
placement of its common shares to Faroudja Laboratories, Inc. in a
transaction valued at $12.00 per share in exchange for an aggregate amount
of $500,000 and certain licensed technology from Faroudja.
The sale of the above securities was deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act or
Rule 701 promulgated under Section 3(b)
II-2
<PAGE> 82
of the Securities Act as transactions by an issuer not involving any public
offering or transactions pursuant to compensatory benefit plans and contracts
relating to compensation as provided under such Rule 701. The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with the Registrant, to information about the
Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
The exhibits are as set forth in the Exhibit Index.
(b) FINANCIAL STATEMENT SCHEDULES
None.
Schedules have been omitted since they are not required or are not
applicable or the required information is shown in the financial statements or
related notes.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide 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.
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 foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The 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 purpose 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
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused Amendment No. 2 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Jose, State of California on the 8th day of October, 1999.
SAGE, INC.
By: /s/ CHANDRASHEKAR M. REDDY
------------------------------------
Chandrashekar M. Reddy
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
Amendment No. 2 to this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ CHANDRASHEKAR M. REDDY President, Chief Executive October 8, 1999
- --------------------------------------------------- Officer and Director
Chandrashekar M. Reddy (Principal Executive Officer)
/s/ SIMON P. WESTBROOK* Chief Financial Officer October 8, 1999
- --------------------------------------------------- (Principal Financial and
Simon P. Westbrook Accounting Officer)
/s/ MICHAEL A. GUMPORT* Director October 8, 1999
- ---------------------------------------------------
Michael A. Gumport
/s/ N. DAMODAR REDDY* Director October 8, 1999
- ---------------------------------------------------
N. Damodar Reddy
/s/ KENNETH TAI* Director October 8, 1999
- ---------------------------------------------------
Kenneth Tai
* By: /s/ CHANDRASHEKAR M. REDDY
-------------------------------------------
Chandrashekar M. Reddy
Attorney-in-fact
</TABLE>
II-4
<PAGE> 84
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<S> <C>
1.1 Form of Underwriting Agreement
3.1* Certificate of Incorporation of the Registrant
3.2* Registrant's Bylaws
4.1 Reference is made to Exhibit 3.1
4.2 Series D Investors' Rights Agreement dated May 1, 1998 with
certain Investors
4.3 Series E Investors' Rights Agreement dated May 1, 1999 with
certain Investors
4.4 Faroudja Laboratories, Inc. Investors' Rights Agreement
dated July 27, 1999
4.5* Specimen Stock Certificate of Registrant
5.1* Opinion of Morrison & Foerster LLP as to the legality of the
Common Stock being registered.
10.1 Form of Indemnification Agreement between the Company and
each of its Officers and Directors
10.2 Registrant's 1997 Stock Option Plan
10.3** Faroudja Laboratories, Inc. Joint Development and License
Agreement dated July 27, 1997
10.4 Master Distributor Agreement with Avnet, Inc.
10.5 Authorized Reseller Agreement with Reptron Electronics, Inc.
10.6 Authorized Reseller Agreement with Jaco Electronics, Inc.
10.7 Hardware Distribution Agreement with Bell Microproducts,
Inc.
10.8 Form of Representative Agreement
10.9 Credit Agreement with General Bank
21.1 List of Subsidiaries
23.1 Consent of Morrison & Foerster LLP. Reference is made to
Exhibit 5.1.
23.2 Consent of PricewaterhouseCoopers LLP
24.1 Powers of Attorney. Reference is made to the signature page
hereof.
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
** Confidential treatment of certain portions of the exhibit has been requested.
<PAGE> 1
EXHIBIT 1.1
UNDERWRITING AGREEMENT
Date
BancBoston Robertson Stephens Inc.
Prudential Securities, Inc. and
Needham & Company, Inc.
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
INTRODUCTORY. Sage, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of [___] shares (the "Firm Shares")
of its Common Stock, par value $[___] per share (the "Common Shares"). In
addition, the Company has granted to the Underwriters an option to purchase up
to an additional [___] Common Shares (the "Option Shares") as provided in
Section 2. The Firm Shares and, if and to the extent such option is exercised,
the Option Shares are collectively called the "Shares". BancBoston Robertson
Stephens Inc., Prudential Securities, Inc. and Needham & Company, Inc. have
agreed to act as representatives of the several Underwriters (in such capacity,
the "Representatives") in connection with the offering and sale of the Shares.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1
(File No. 333-[___]), which contains a form of prospectus to be used in
connection with the public offering and sale of the Shares. Such registration
statement, as amended, including the financial statements, exhibits and
schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including any
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A or Rule 434 under the Securities Act, is called the "Registration
Statement". Any registration statement filed by the Company pursuant to Rule
462(b) under the Securities Act is called the "Rule 462(b) Registration
Statement", and from and after the date and time of filing of the Rule 462(b)
Registration Statement the term "Registration Statement" shall include the Rule
462(b) Registration Statement. Such prospectus, in the form first used by the
Underwriters to confirm sales of the Shares, is called the "Prospectus";
provided, however, if the Company has, with the consent of BancBoston Robertson
Stephens Inc., elected to rely upon Rule 434 under the Securities Act, the term
"Prospectus" shall mean the Company's prospectus subject to completion (each, a
"preliminary prospectus") dated [___] (such preliminary prospectus is called the
"Rule 434 preliminary prospectus"), together with the applicable term sheet (the
"Term Sheet") prepared and filed by
<PAGE> 2
the Company with the Commission under Rules 434 and 424(b) under the Securities
Act and all references in this Agreement to the date of the Prospectus shall
mean the date of the Term Sheet. All references in this Agreement to the
Registration Statement, the Rule 462(b) Registration Statement, a preliminary
prospectus, the Prospectus or the Term Sheet, or any amendments or supplements
to any of the foregoing, shall include any copy thereof filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").
The Company hereby confirms its agreements with the Underwriters
as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents, warrants and covenants to each
Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale of
the Shares. Each of the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendment thereto, at the time it became
effective and at all subsequent times, complied and will comply in all material
respects with the Securities Act and did not and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading. The
Prospectus, as amended or supplemented, as of its date and at all subsequent
times, did not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
The representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representatives three complete conformed copy of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
2.
<PAGE> 3
(c) Distribution of Offering Material By the Company. The Company
has not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(e) Authorization of the Shares. The Shares to be purchased by the
Underwriters from the Company have been duly authorized for issuance and sale
pursuant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement except for such rights as have been
duly waived.
(g) No Material Adverse Change. Subsequent to the respective dates
as of which information is given in the Prospectus: (i) there has been no
material adverse change, or any development that could reasonably be expected to
result in a material adverse change, in the condition, financial or otherwise,
or in the earnings, business, operations or prospects, whether or not arising
from transactions in the ordinary course of business, of the Company and its
subsidiaries, considered as one entity (any such change or effect, where the
context so requires, is called a "Material Adverse Change" or a "Material
Adverse Effect"); (ii) the Company and its subsidiaries, considered as one
entity, have not incurred any material liability or obligation, indirect, direct
or contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of business; and
(iii) there has been no dividend or distribution of any kind declared, paid or
made by the Company or, except for dividends paid to the Company or other
subsidiaries, any of its subsidiaries on any class of capital stock or
repurchase or redemption by the Company or any of its subsidiaries of any class
of capital stock.
(h) Independent Accountants. PriceWaterhouse Coopers, who have
expressed their opinion with respect to the financial statements (which term as
used in this Agreement includes the related notes thereto) and supporting
schedules filed with the Commission as a part of the Registration Statement and
included in the Prospectus, are independent public or certified public
accountants as required by the Securities Act.
(i) Preparation of the Financial Statements. The financial
statements filed with the Commission as a part of the Registration Statement and
included in the Prospectus present fairly the consolidated financial position of
the Company and its subsidiaries as of and at the dates indicated and the
results of their operations and cash flows for the periods specified. The
supporting schedules included in the Registration Statement present fairly the
information required to be stated therein. Such financial statements and
supporting schedules have been prepared in conformity with generally accepted
accounting principles as applied in the United
3.
<PAGE> 4
States applied on a consistent basis throughout the periods involved, except as
may be expressly stated in the related notes thereto. No other financial
statements or supporting schedules are required to be included in the
Registration Statement. The financial data set forth in the Prospectus under the
captions "Summary--Summary Consolidated Financial Data", "Selected Consolidated
Financial Data" and "Capitalization" fairly present the information set forth
therein on a basis consistent with that of the audited financial statements
contained in the Registration Statement.
(j) Company's Accounting System. The Company and each of its
subsidiaries maintain a system of accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles as applied in the United States and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(k) Subsidiaries of the Company. The Company does not own or
control, directly or indirectly, any corporation, association or other entity
other than the subsidiaries listed in Exhibit 21 to the Registration Statement.
(l) Incorporation and Good Standing of the Company and its
Subsidiaries. Each of the Company and its subsidiaries has been duly organized
and is validly existing as a corporation or limited liability company, as the
case may be, in good standing under the laws of the jurisdiction in which it is
organized with full corporate power and authority to own its properties and
conduct its business as described in the prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification.
(m) Capitalization of the Subsidiaries. All the outstanding shares
of capital stock of each subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise set forth
in the Prospectus, all outstanding shares of capital stock of the subsidiaries
are owned by the Company either directly or through wholly owned subsidiaries
free and clear of any security interests, claims, liens or encumbrances.
(n) No Prohibition on Subsidiaries from Paying Dividends or Making
Other Distributions. No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from making
any other distribution on such subsidiary's capital stock, from repaying to the
Company any loans or advances to such subsidiary from the Company or from
transferring any of such subsidiary's property or assets to the Company or any
other subsidiary of the Company, except as described in or contemplated by the
Prospectus.
(o) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in the
Prospectus). The Common Shares (including the Shares) conform in all material
respects to the description thereof contained in the Prospectus. All of the
issued and outstanding Common Shares have been duly authorized and validly
issued, are fully paid and
4.
<PAGE> 5
nonassessable and have been issued in compliance with federal and state
securities laws. None of the outstanding Common Shares were issued in violation
of any preemptive rights, rights of first refusal or other similar rights to
subscribe for or purchase securities of the Company. There are no authorized or
outstanding options, warrants, preemptive rights, rights of first refusal or
other rights to purchase, or equity or debt securities convertible into or
exchangeable or exercisable for, any capital stock of the Company or any of its
subsidiaries other than those accurately described in the Prospectus. The
description of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted thereunder, set forth in
the Prospectus accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights.
(p) Stock Exchange Listing. The Shares have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(q) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters in the manner contemplated here and in the Prospectus, (ii) by
the National Association of Securities Dealers, LLC and (iii) by the federal and
provincial laws of Canada.
(r) Non-Contravention of Existing Instruments Agreements. Neither
the issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, (i) the charter or by-laws of the Company or any of
its subsidiaries, (ii) the terms of any indenture, contract, lease, mortgage,
deed of trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which the Company or any of its
subsidiaries is a party or bound or to which its or their property is subject or
(iii) any statute, law, rule, regulation, judgment, order or decree applicable
to the Company or any of its subsidiaries of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its subsidiaries or any of its or their
properties.
(s) No Defaults or Violations. Neither the Company nor any
subsidiary is in violation or default of (i) any provision of its charter or
by-laws, (ii) the terms of any indenture, contract, lease, mortgage, deed of
trust, note agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which it is a party or bound or to which its property
is subject or (iii) any statute, law, rule, regulation, judgment, order or
decree of any court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or such
subsidiary or any of its properties, as applicable, except any such violation or
default which would not, singly or in the aggregate, result in a Material
Adverse Change except as otherwise disclosed in the Prospectus.
(t) No Actions, Suits or Proceedings. Except as otherwise disclosed
in the Prospectus, no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or any of its subsidiaries or its or their property is pending or, to the best
knowledge of the Company, threatened that (i) could reasonably be expected to
have a Material Adverse Effect on the performance of this
5.
<PAGE> 6
Agreement or the consummation of any of the transactions contemplated hereby or
(ii) could reasonably be expected to result in a Material Adverse Effect.
(u) All Necessary Permits, Etc. The Company and each subsidiary
possess such valid and current certificates, authorizations or permits issued by
the appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct their respective businesses, and neither the Company nor
any subsidiary has received any notice of proceedings relating to the revocation
or modification of, or non-compliance with, any such certificate, authorization
or permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could result in a Material Adverse Change.
(v) Title to Properties. The Company and each of its subsidiaries
has good and marketable title to all the properties and assets reflected as
owned in the financial statements referred to in Section 1 above, in each case
free and clear of any security interests, mortgages, liens, encumbrances,
equities, claims and other defects, except such as do not materially and
adversely affect the value of such property and do not materially interfere with
the use made or proposed to be made of such property by the Company or such
subsidiary. The real property, improvements, equipment and personal property
held under lease by the Company or any subsidiary are held under valid and
enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such real
property, improvements, equipment or personal property by the Company or such
subsidiary.
(w) Tax Law Compliance. The Company and its subsidiaries have filed
all necessary federal, state and foreign income and franchise tax returns and
have paid all taxes required to be paid by any of them and, if due and payable,
any related or similar assessment, fine or penalty levied against any of them.
The Company has made adequate charges, accruals and reserves in the applicable
financial statements referred to in Section 1 above in respect of all federal,
state and foreign income and franchise taxes for all periods as to which the tax
liability of the Company or any of its subsidiaries has not been finally
determined. The Company is not aware of any tax deficiency that has been or
might be asserted or threatened against the Company that could result in a
Material Adverse Change.
(x) Intellectual Property Rights. Each of the Company and its
subsidiaries owns or possesses adequate rights to use all patents, patent rights
or licenses, inventions, collaborative research agreements, trade secrets,
know-how, trademarks, service marks, trade names and copyrights which are
necessary to conduct its businesses as described in the Registration Statement
and Prospectus; the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not result in a
Material Adverse Change that is not otherwise disclosed in the Prospectus; the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights; and the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names or
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, might have a Material Adverse Change. There is no
claim being made against the Company regarding patents, patent rights or
licenses, inventions, collaborative research, trade secrets, know-how,
trademarks, service marks, trade names or copyrights. The Company and its
subsidiaries do not in the conduct of their business as now or proposed to be
conducted as described in the Prospectus infringe or conflict with any right or
patent of any third party, or any discovery, invention, product or process which
is the
6.
<PAGE> 7
subject of a patent application filed by any third party, known to the Company
or any of its subsidiaries, which such infringement or conflict is reasonably
likely to result in a Material Adverse Change.
(y) Year 2000 Preparedness. There are no issues related to the
Company's, or any of its subsidiaries', preparedness for the Year 2000 that (i)
are of a character required to be described or referred to in the Registration
Statement or Prospectus by the Securities Act which have not been accurately
described in the Registration Statement or Prospectus or (ii) might reasonably
be expected to result in any Material Adverse Change or that might materially
affect their properties, assets or rights. All internal computer systems and
each Constituent Component (as defined below) of those systems and all
computer-related products and each Constituent Component (as defined below) of
those products of the Company and each of its subsidiaries fully comply with
Year 2000 Qualification Requirements. "Year 2000 Qualifications Requirements"
means that the internal computer systems and each Constituent Component (as
defined below) of those systems and all computer-related products and each
Constituent Component (as defined below) of those products of the Company and
each of its Subsidiaries (i) have been reviewed to confirm that they store,
process (including sorting and performing mathematical operations, calculations
and computations), input and output data containing date and information
correctly regardless of whether the date contains dates and times before, on or
after January 1, 2000, (ii) have been designated to ensure date and time entry
recognition and calculations, and date data interface values that reflect the
century, (iii) accurately manage and manipulate data involving dates and times,
including single century formulas and multi-century formulas, and will not cause
an abnormal ending scenario within the application or generate incorrect values
or invalid results involving such dates, (iv) accurately process any date
rollover, and (v) accept and respond to two-digit year date input in a manner
that resolves any ambiguities as to the century. "Constituent Component" means
all software (including operating systems, programs, packages and utilities),
firmware, hardware, networking components, and peripherals provided as part of
the configuration. The Company has inquired of material vendors as to their
preparedness for the Year 2000 and has disclosed in the Registration Statement
or Prospectus any issues that might reasonably be expected to result in any
Material Adverse Change.
(z) No Transfer Taxes or Other Fees. There are no transfer taxes or
other similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the shares.
(aa) Company Not an "Investment Company". The Company has been
advised of the rules and requirements under the Investment Company Act of 1940,
as amended (the "Investment Company Act"). The Company is not, and after receipt
of payment for the Shares will not be, an "investment company" or an entity
"controlled" by an "investment company" within the meaning of the Investment
Company Act and will conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(bb) Insurance. Each of the Company and its subsidiaries are insured
by recognized, financially sound and reputable institutions with policies in
such amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their businesses including, but not limited
to, policies covering real and personal property owned or leased by the Company
and its subsidiaries against theft, damage, destruction, acts of vandalism and
earthquakes, general liability and Directors and Officers liability. The Company
has no reason to believe that it or any subsidiary will not be able (i) to renew
its existing
7.
<PAGE> 8
insurance coverage as and when such policies expire or (ii) to obtain comparable
coverage from similar institutions as may be necessary or appropriate to conduct
its business as now conducted and at a cost that would not result in a Material
Adverse Change. Neither of the Company nor any subsidiary has been denied any
insurance coverage which it has sought or for which it has applied.
(cc) Labor Matters. To the best of Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, that might be
expected to result in a Material Adverse Change.
(dd) No Price Stabilization or Manipulation. The Company has not
taken and will not take, directly or indirectly, any action designed to or that
might be reasonably expected to cause or result in stabilization or manipulation
of the price of the Common Stock to facilitate the sale or resale of the Shares.
(ee) Lock-Up Agreements. Each officer and director of the company and
each beneficial owner of one or more percent of the outstanding issued share
capital of the Company has agreed to sign an agreement substantially in the form
attached hereto as Exhibit A (the "Lock-up Agreements"). The Company has
provided to counsel for the Underwriters a complete and accurate list of all
securityholders of the Company and the number and type of securities held by
each securityholder. The Company has provided to counsel for the Underwriters
true, accurate and complete copies of all of the Lock-up Agreements presently in
effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors or other stockholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of BancBoston Robertson Stephens Inc.
(ff) Related Party Transactions. There are no business relationships
or related-party transactions involving the Company or any subsidiary or any
other person required to be described in the Prospectus which have not been
described as required.
(gg) No Unlawful Contributions or Other Payments. Neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge, any
employee or agent of the Company or any subsidiary, has made any contribution or
other payment to any official of, or candidate for, any federal, state or
foreign office in violation of any law or of the character required to be
disclosed in the Prospectus.
(hh) Environmental Laws. (i) The Company is in compliance with all
rules, laws and regulations relating to the use, treatment, storage and disposal
of toxic substances and protection of health or the environment ("Environmental
Laws") which are applicable to its business, except where the failure to comply
would not result in a Material Adverse Change, (ii) the Company has received no
notice from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) the Company will not be required to make
future material capital expenditures to comply with Environmental Laws and (iv)
no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et
seq.), or otherwise designated as a contaminated site under applicable state or
local law.
8.
<PAGE> 9
(ii) ERISA Compliance. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained by
the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are
in compliance in all material respects with ERISA. "ERISA Affiliate" means, with
respect to the Company or a subsidiary, any member of any group of organizations
described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of
1986, as amended, and the regulations and published interpretations thereunder
(the "Code") of which the Company or such subsidiary is a member. No "reportable
event" (as defined under ERISA) has occurred or is reasonably expected to occur
with respect to any "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company, its subsidiaries or any of their
ERISA Affiliates, if such "employee benefit plan" were terminated, would have
any "amount of unfounded benefit liabilities" (as defined under ERISA). Neither
the Company, its subsidiaries nor any of their ERISA Affiliates has incurred or
reasonably expects to incur any liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "employee benefit plan" or
(ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates that is intended to be qualified under Section 401(a) of the Code is
so qualified and nothing has occurred, whether by action or failure to act,
which would cause the loss of such qualification.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) The Firm Shares. The Company agrees to issue and sell to the
several Underwriters the Firm Shares upon the terms herein set forth. On the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Underwriters
agree, severally and not jointly, to purchase from the Company the respective
number of Firm Shares set forth opposite their names on Schedule A. The purchase
price per Firm Share to be paid by the several Underwriters to the Company shall
be $[___] per share.
(b) The First Closing Date. Delivery of the Firm Shares to be
purchased by the Underwriters and payment therefor shall be made by the Company
and the Representatives at 6:00 a.m. San Francisco time, at the offices of
Morrison & Foerster LLP (or at such other place as may be agreed upon among the
Representatives and the Company), (i) on the third (3rd) full business day
following the first day that Shares are traded, (ii) if this Agreement is
executed and delivered after 1:30 P.M., San Francisco time, the fourth (4th)
full business day following the day that this Agreement is executed and
delivered or (iii) at such other time and date not later that seven (7) full
business days following the first day that Shares are traded as the
Representatives and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 8 hereof),
such time and date of payment and delivery being herein called the "Closing
Date;" provided, however, that if the Company has not made available to the
Representatives copies of the Prospectus within the time provided in Section
2(g) and 3(e) hereof, the Representatives may, in their sole discretion,
postpone the Closing Date until no later that two (2) full business days
following delivery of copies of the Prospectus to the Representatives.
(c) The Option Shares; the Second Closing Date. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several
9.
<PAGE> 10
Underwriters to purchase, severally and not jointly, up to an aggregate of [___]
Option Shares from the Company at the purchase price per share to be paid by the
Underwriters for the Firm Shares. The option granted hereunder is for use by the
Underwriters solely in covering any over-allotments in connection with the sale
and distribution of the Firm Shares. The option granted hereunder may be
exercised at any time upon notice by the Representatives to the Company, which
notice may be given at any time within 30 days from the date of this Agreement.
The time and date of delivery of the Option Shares, if subsequent to the First
Closing Date, is called the "Second Closing Date" and shall be determined by the
Representatives and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Option Shares
are to be purchased, each Underwriter agrees, severally and not jointly, to
purchase the number of Option Shares (subject to such adjustments to eliminate
fractional shares as the Representatives may determine) that bears the same
proportion to the total number of Option Shares to be purchased as the number of
Firm Shares set forth on Schedule A opposite the name of such Underwriter bears
to the total number of Firm Shares agrees, severally and not jointly, to sell
the number of Option Shares (subject to such adjustments to eliminate fractional
shares as the Representatives may determine) that bears the same proportion to
the total number of Option Shares to be sold as the number of Option Shares set
forth in Schedule B opposite the name of such Selling Stockholder. The
Representatives may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company.
(d) Public Offering of the Shares. The Representatives hereby advise
the Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Shares as soon
after this Agreement has been executed and the Registration Statement has been
declared effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.
(e) Payment for the Shares. Payment for the Shares shall be made at
the First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer in immediately available-funds to the order of the Company.
It is understood that the Representatives have been authorized,
for their own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Shares and any Option Shares the Underwriters have agreed to purchase.
BancBoston Robertson Stephens Inc., individually and not as the Representatives
of the Underwriters, may (but shall not be obligated to) make payment for any
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
(f) Delivery of the Shares. The Company shall deliver, or cause to
be delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company shall
also deliver, or cause to be delivered, a credit representing the Option Shares
the Underwriters have agreed to purchase at the First Closing Date (or the
Second Closing Date, as the case may be), to an account or accounts at The
Depository Trust Company as designated by the Representatives for the accounts
of the Representatives and the several Underwriters, against the irrevocable
release of a wire transfer of immediately available funds
10.
<PAGE> 11
for the amount of the purchase price therefor. Time shall be of the essence, and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00
noon on the second business day following the date the Shares are released by
the Underwriters for sale to the public, the Company shall deliver or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
SECTION 3. COVENANTS OF THE COMPANY.
The Company further covenants and agrees with each Underwriter
as follows:
(a) Registration Statement Matters. The Company will (i) use its
best efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934 (the
"Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b) under
the Securities Act a Prospectus in a form approved by the Representatives
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Securities Act and (iii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been advised
and furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Securities Act. If
the Company elects to rely on Rule 462(b) under the Securities Act, the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) under the Securities Act prior to the time
confirmations are sent or given, as specified by Rule 462(b)(2) under the
Securities Act, and shall pay the applicable fees in accordance with Rule 111
under the Securities Act.
(b) Securities Act Compliance. The Company will advise the
Representatives promptly (i) when the Registration Statement or any
post-effective amendment thereto shall have become effective, (ii) of receipt of
any comments from the Commission, (iii) of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
11.
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(d) Amendments and Supplements to the Prospectus and Other
Securities Act Matters. The Company will comply with the Securities Act and the
Exchange Act, and the rules and regulations of the Commission thereunder, so as
to permit the completion of the distribution of the Shares as contemplated in
this Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Representatives or counsel for the Underwriters, it becomes
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances existing at the time the Prospectus
is delivered to a purchaser, not misleading, or, if it is necessary at any time
to amend or supplement the Prospectus to comply with any law, the Company
promptly will prepare and file with the Commission, and furnish at its own
expense to the Underwriters and to dealers, an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the Prospectus as
so amended or supplemented will not, in the light of the circumstances when it
is so delivered, be misleading, or so that the Prospectus will comply with the
law.
(e) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto as the Representatives may
request.
(f) Insurance. The Company shall (i) obtain Directors and Officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby and (ii) shall cause BancBoston Robertson
Stephens Inc. to be added as an additional insured to such policy in respect of
the offering contemplated hereby.
(g) Notice of Subsequent Events. If at any time during the ninety
(90) day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(h) Use of Proceeds. The Company shall apply the net proceeds from
the sale of the Shares sold by it in the manner described under the caption "Use
of Proceeds" in the Prospectus.
(i) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Company Shares.
(j) Earnings Statement. As soon as practicable, the Company will
make generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending December 31, 2000 that satisfies the provisions of Section 11(a) of the
Securities Act.
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(k) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Exchange Act.
(l) Agreement Not to Offer or Sell Additional Securities. The
Company will not, without the prior written consent of BancBoston Robertson
Stephens Inc., for a period of 180 days following the date of the Prospectus,
offer, sell or contract to sell, or otherwise dispose of or enter into any
transaction which is designed to, or could be expected to, result in the
disposition (whether by actual disposition or effective economic disposition due
to cash settlement or otherwise by the Company or any affiliate of the Company
or any person in privity with the Company or any affiliate of the Company)
directly or indirectly, or announce the offering of, any other Common Shares or
any securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) issue and sell Common Shares pursuant to any
director or employee stock option plan, stock ownership plan or dividend
reinvestment plan of the Company in effect at the date of the Prospectus and
described in the Prospectus so long as none of those shares may be transferred
on during the period of 180 days from the date that the Registration Statement
is declared effective (the "Lock-Up Period") and the Company shall enter stop
transfer instructions with its transfer agent and registrar against the transfer
of any such Common Shares and (ii) the Company may issue Common Shares issuable
upon the conversion of securities or the exercise of warrants outstanding at the
date of the Prospectus and described in the Prospectus.
(m) Future Reports to the Representatives. During the period of five
years hereafter the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the National Association of Securities Dealers, LLC
or any securities exchange; and (iii) as soon as available, copies of any report
or communication of the Company mailed generally to holders of its capital
stock.
SECTION 4. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section 1
hereof as of the date hereof and as of the First Closing Date as though then
made and, with respect to the Option Shares, as of the Second Closing Date as
though then made, to the timely performance by the Company of its covenants and
other obligations hereunder, and to each of the following additional conditions:
(a) Compliance with Registration Requirements; No Stop Order; No
Objection from the National Association of Securities Dealers, LLC. The
Registration Statement shall have become effective prior to the execution of
this Agreement, or at such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of Underwriters'
13.
<PAGE> 14
Counsel; and the National Association of Securities Dealers, LLC shall have
raised no objection to the fairness and reasonableness of the underwriting terms
and arrangements.
(b) Corporate Proceedings. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section.
(c) No Material Adverse Change. Subsequent to the execution and
delivery of this Agreement and prior to the First Closing Date, or the Second
Closing Date, as the case may be, there shall not have been any Material Adverse
Change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in your
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus.
(d) Opinion of Counsel for the Company. You shall have received on
the First Closing Date, or the Second Closing Date, as the case may be, an
opinion of Morrison & Foerster LLP counsel for the Company substantially in the
form of Exhibit B attached hereto, dated the First Closing Date, or the Second
Closing Date, addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters.
Counsel rendering the opinion contained in Exhibit B may rely as
to questions of law not involving the laws of the United States or the State of
California and Delaware upon opinions of local counsel, and as to questions of
fact upon representations or certificates of officers of the Company, and of
government officials, in which case their opinion is to state that they are so
relying and that they have no knowledge of any material misstatement or
inaccuracy in any such opinion, representation or certificate. Copies of any
opinion, representation or certificate so relied upon shall be delivered to you,
as Representatives of the Underwriters, and to Underwriters' Counsel.
(e) Opinion of Patent Counsel for the Company. You shall have
received on the First Closing Date, or the Second Closing Date, as the case may
be, an opinion of [_________], patent counsel for the Company substantially in
the form of Exhibit C attached hereto.
(f) Opinion of Counsel for the Underwriters. You shall have received
on the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Brobeck, Phleger & Harrison LLP, substantially in the form of Exhibit
D hereto. The Company shall have furnished to such counsel such documents as
they may have requested for the purpose of enabling them to pass upon such
matters.
(g) Accountants' Comfort Letter. You shall have received on the
First Closing Date and on the Second Closing Date, as the case may be, a letter
from PriceWaterhouse Coopers addressed to the Underwriters, dated the First
Closing Date or the Second Closing Date, as the case may be, confirming that
they are independent certified public accountants with respect to the Company
within the meaning of the Act and the applicable published Rules and Regulations
and based upon the procedures described in such letter delivered to you
concurrently with the execution of this Agreement (herein called the "Original
Letter"), but carried out to a date not
14.
<PAGE> 15
more than four (4) business days prior to the First Closing Date or the Second
Closing Date, as the case may be, (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as of
the First Closing Date or the Second Closing Date, as the case may be, and (ii)
setting forth any revisions and additions to the statements and conclusions set
forth in the Original Letter which are necessary to reflect any changes in the
facts described in the Original Letter since the date of such letter, or to
reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise from that set
forth in the Registration Statement or Prospectus, which, in your sole judgment,
is material and adverse and that makes it, in your sole judgment, impracticable
or inadvisable to proceed with the public offering of the Shares as contemplated
by the Prospectus. The Original Letter from PriceWaterhouse Coopers shall be
addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations, (ii) set forth their opinion with respect to their examination of
the consolidated balance sheet of the Company as of March 31, 1999 and related
consolidated statements of operations, shareholders' equity, and cash flows for
the twelve (12) months ended March 31, 1999, (iii) state that PriceWaterhouse
Coopers has performed the procedures set out in Statement on Auditing Standards
No. 71 ("SAS 71") for a review of interim financial information and providing
the report of PriceWaterhouse Coopers as described in SAS 71 on the financial
statements for each of the quarters in the three-quarter period ended September
31, 1999 (the "Quarterly Financial Statements"), (iv) state that in the course
of such review, nothing came to their attention that leads them to believe that
any material modifications need to be made to any of the Quarterly Financial
Statements in order for them to be in compliance with generally accepted
accounting principles consistently applied across the periods presented, and
address other matters agreed upon by PriceWaterhouse Coopers and you. In
addition, you shall have received from PriceWaterhouse Coopers a letter
addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements as
of March 31, 1999, did not disclose any weaknesses in internal controls that
they considered to be material weaknesses.
(h) Officers' Certificate. You shall have received on the First
Closing Date and the Second Closing Date, as the case may be, a certificate of
the Company, dated the First Closing Date or the Second Closing Date, as the
case may be, signed by the Chief Executive Officer and Chief Financial Officer
of the Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the First
Closing Date or the Second Closing Date, as the case may be, and the
Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
First Closing Date or the Second Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the
15.
<PAGE> 16
Prospectus, and any amendments or supplements thereto, contained all
material information required to be included therein by the Securities
Act and in all material respects conformed to the requirements of the
Securities Act, the Registration Statement and the Prospectus, and any
amendments or supplements thereto, did not and does not include any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and, since the effective date of the
Registration Statement, there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not been so set
forth; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been
(a) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise, (b) any
transaction that is material to the Company and its subsidiaries
considered as one enterprise, except transactions entered into in the
ordinary course of business, (c) any obligation, direct or contingent,
that is material to the Company and its subsidiaries considered as one
enterprise, incurred by the Company or its subsidiaries, except
obligations incurred in the ordinary course of business, (d) any change
in the capital stock or outstanding indebtedness of the Company or any
of its subsidiaries that is material to the Company and its subsidiaries
considered as one enterprise, (e) any dividend or distribution of any
kind declared, paid or made on the capital stock of the Company or any
of its subsidiaries, or (f) any loss or damage (whether or not insured)
to the property of the Company or any of its subsidiaries which has been
sustained or will have been sustained which has a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(i) Lock-up Agreement from Certain Stockholders of the Company. The
Company shall have obtained and delivered to you an agreement substantially in
the form of Exhibit A attached hereto from each officer and director of the
Company, and each beneficial owner of one or more percent of the outstanding
issued share capital of the Company.
(j) Stock Exchange Listing. The Shares shall have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(k) Compliance with Prospectus Delivery Requirements. The Company
shall have complied with the provisions of Sections 2(g) and 3(e) hereof with
respect to the furnishing of Prospectuses.
(l) Additional Documents. On or before each of the First Closing
Date and the Second Closing Date, as the case may be, the Representatives and
counsel for the Underwriters shall have received such information, documents and
opinions as they may reasonably require for the purposes of enabling them to
pass upon the issuance and sale of the Shares as contemplated herein, or in
order to evidence the accuracy of any of the representations and warranties, or
the satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied
when and as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option
16.
<PAGE> 17
Shares, at any time prior to the Second Closing Date, which termination shall be
without liability on the part of any party to any other party, except that
Section 5 (Payment of Expenses), Section 6 (Reimbursement of Underwriters'
Expenses), Section 7 (Indemnification and Contribution) and Section 10
(Representations and Indemnities to Survive Delivery) shall at all times be
effective and shall survive such termination.
SECTION 5. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Shares (including all printing and engraving costs), (ii) all fees and expenses
of the registrar and transfer agent of the Common Stock, (iii) all necessary
issue, transfer and other stamp taxes in connection with the issuance and sale
of the Shares to the Underwriters, (iv) all fees and expenses of the Company's
counsel, independent public or certified public accountants and other advisors,
(v) all costs and expenses incurred in connection with the preparation,
printing, filing, shipping and distribution of the Registration Statement
(including financial statements, exhibits, schedules, consents and certificates
of experts), each preliminary prospectus and the Prospectus, and all amendments
and supplements thereto, and this Agreement, (vi) all filing fees, attorneys'
fees and expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all or any part of the Shares for offer and sale under the
state securities or blue sky laws or the provincial securities laws of Canada or
any other country, and, if requested by the Representatives, preparing and
printing a "Blue Sky Survey", an "International Blue Sky Survey" or other
memorandum, and any supplements thereto, advising the Underwriters of such
qualifications, registrations and exemptions, (vii) the filing fees incident to,
and the reasonable fees and expenses of counsel for the Underwriters in
connection with, the National Association of Securities Dealers, LLC review and
approval of the Underwriters' participation in the offering and distribution of
the Common Shares, (viii) the fees and expenses associated with including the
Shares on the Nasdaq National Market, (ix) all costs and expenses incident to
the preparation and undertaking of "road show" preparations to be made to
prospective investors, and (x) all other fees, costs and expenses referred to in
Item 13, Item 14 of Part II of the Registration Statement. Except as provided in
this Section 5, Section 6, and Section 7 hereof, the Underwriters shall pay
their own expenses, including the fees and disbursements of their counsel.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated by the Representatives pursuant to Section 4, Section 7, Section 8 or
Section 9, or if the sale to the Underwriters of the Shares on the First Closing
Date is not consummated because of any refusal, inability or failure on the part
of the Company to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse the Representatives and the other
Underwriters (or such Underwriters as have terminated this Agreement with
respect to themselves), severally, upon demand for all out-of-pocket expenses
that shall have been reasonably incurred by the Representatives and the
Underwriters in connection with the proposed purchase and the offering and sale
of the Shares, including but not limited to fees and disbursements of counsel,
printing expenses, travel expenses, postage, facsimile and telephone charges.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification of the Underwriters.
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The Company agrees to indemnify and hold harmless each Underwriter, its
officers and employees, and each person, if any, who controls any Underwriter
within the meaning of the Securities Act and the Exchange Act against any loss,
claim, damage, liability or expense, as incurred, to which such Underwriter or
such controlling person may become subject, under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, or at common
law or otherwise (including in settlement of any litigation, if such settlement
is effected with the written consent of the Company, which consent shall not be
unreasonably withheld), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule 430A or
Rule 434 under the Securities Act, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company contained herein; or (iv) in whole
or in part upon any failure of the Company to perform its obligations hereunder
or under law; or (v) any act or failure to act or any alleged act or failure to
act by any Underwriter in connection with, or relating in any manner to, the
Shares or the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out of or
based upon any matter covered by clause (i), (ii), (iii) or (iv) above, provided
that the Company shall not be liable under this clause (v) to the extent that a
court of competent jurisdiction shall have determined by a final judgment that
such loss, claim, damage, liability or action resulted directly from any such
acts or failures to act undertaken or omitted to be taken by such Underwriter
through its bad faith or willful misconduct; and to reimburse each Underwriter
and each such controlling person for any and all expenses (including the fees
and disbursements of counsel chosen by BancBoston Robertson Stephens Inc.) as
such expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that the foregoing indemnity agreement shall not apply to any loss,
claim, damage, liability or expense to the extent, but only to the extent,
arising out of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by the Representatives expressly
for use in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and provided, further, that
with respect to any preliminary prospectus, the foregoing indemnity agreement
shall not inure to the benefit of any Underwriter from whom the person asserting
any loss, claim, damage, liability or expense purchased Shares, or any person
controlling such Underwriter, if copies of the Prospectus were timely delivered
to the Underwriter pursuant to Section 2 and a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 7(a) shall be in addition to any liabilities that the
Company may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its
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<PAGE> 19
directors, each of its officers who signed the Registration Statement and each
person, if any, who controls the Company within the meaning of the Securities
Act or the Exchange Act, against any loss, claim, damage, liability or expense,
as incurred, to which the Company, or any such director, officer or controlling
person may become subject, under the Securities Act, the Exchange Act, or other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected with
the written consent of such Underwriter), insofar as such loss, claim, damage,
liability or expense (or actions in respect thereof as contemplated below)
arises out of or is based upon any untrue or alleged untrue statement of a
material fact contained in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto), or arises
out of or is based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any preliminary prospectus, the
Prospectus (or any amendment or supplement thereto), in reliance upon and in
conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action. The indemnity
agreement set forth in this Section 7(b) shall be in addition to any liabilities
that each Underwriter may otherwise have.
(c) Information Provided by the Underwriters. The Company hereby
acknowledges that the only information that the Underwriters have furnished to
the Company expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the first paragraph and the second
paragraph under the caption "Underwriting" in the Prospectus; and the
Underwriters confirm that such statements are correct.
(d) Notifications and Other Indemnification Procedures. Promptly
after receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such
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<PAGE> 20
indemnified party of such indemnifying party's election so to assume the defense
of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with local counsel), approved by the indemnifying
party (BancBoston Robertson Stephens Inc. in the case of Section 7(b) and
Section 8), representing the indemnified parties who are parties to such
action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
(e) Settlements. The indemnifying party under this Section 7 shall
not be liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(f) Contribution. If the indemnification provided for in this
Section 7 is unavailable to or insufficient to hold harmless an indemnified
party under Section 7(a) or (b) above in respect of any losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law then each indemnifying party shall contribute to such amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total underwriting discounts and
commissions received by the Underwriters, in each
20.
<PAGE> 21
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or the Underwriters on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7(f) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7(f). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 7(f) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (f), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section 7(f)
to contribute are several in proportion to their respective underwriting
obligations and not joint.
(g) Timing of Any Payments of Indemnification. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
(30) days of invoice to the indemnifying party.
(h) Survival. The indemnity and contribution agreements contained in
this Section 7 and the representation and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
(i) Acknowledgements of Parties. The parties to this Agreement
hereby acknowledge that they are sophisticated business persons who were
represented by counsel during the negotiations regarding the provisions hereof
including, without limitation, the provisions of this Section 7, and are fully
informed regarding said provisions. They further acknowledge that the provisions
of this Section 7 fairly allocate the risks in light of the ability of the
parties to investigate the Company and its business in order to assure that
adequate disclosure is made in the Registration Statement and Prospectus as
required by the Securities Act and the Exchange Act.
SECTION 8. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Shares that
it or they have agreed to purchase
21.
<PAGE> 22
hereunder on such date, and the aggregate number of Common Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
does not exceed 10% of the aggregate number of the Shares to be purchased on
such date, the other Underwriters shall be obligated, severally, in the
proportions that the number of Firm Common Shares set forth opposite their
respective names on Schedule A bears to the aggregate number of Firm Shares set
forth opposite the names of all such non-defaulting Underwriters, or in such
other proportions as may be specified by the Representatives with the consent of
the non-defaulting Underwriters, to purchase the Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date. If, on the First Closing Date or the Second Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
and the aggregate number of Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Shares to be purchased on such date, and
arrangements satisfactory to the Representatives and the Company for the
purchase of such Shares are not made within 48 hours after such default, this
Agreement shall terminate without liability of any party to any other party
except that the provisions of Section 4, and Section 7 shall at all times be
effective and shall survive such termination. In any such case either the
Representatives or the Company shall have the right to postpone the First
Closing Date or the Second Closing Date, as the case may be, but in no event for
longer than seven days in order that the required changes, if any, to the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected.
As used in this Agreement, the term "Underwriter" shall be
deemed to include any person substituted for a defaulting Underwriter under this
Section 8. Any action taken under this Section 8 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 9. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date, this Agreement may be terminated by the Representatives by notice given to
the Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the National Association of
Securities Dealers, LLC; (ii) a general banking moratorium shall have been
declared by any of federal, New York, Delaware or California authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective change in United States' or international
political, financial or economic conditions, as in the judgment of the
Representatives is material and adverse and makes it impracticable or
inadvisable to market the Common Shares in the manner and on the terms described
in the Prospectus or to enforce contracts for the sale of securities; (iv) in
the judgment of the Representatives there shall have occurred any Material
Adverse Change; or (v) the Company shall have sustained a loss by strike, fire,
flood, earthquake, accident or other calamity of such character as in the
judgment of the Representatives may interfere materially with the conduct of the
business and operations of the Company regardless of whether or not such loss
shall have been insured. Any termination pursuant to this Section 9 shall be
without liability on the part of (a) the Company to any Underwriter, except that
the Company shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 5 and 6 hereof, (b) any Underwriter to
the Company, or (c) of any party hereto to any other party except that the
provisions of Section 7 shall at all times be effective and shall survive such
termination.
22.
<PAGE> 23
SECTION 10. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Shares sold hereunder and any termination of this Agreement.
SECTION 11. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
BANCBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
If to the Company:
SAGE, INC.
2460 North First Street, Suite 100
San Jose, CA 95131-1023
Facsimile: (408) 383-5300
Attention: Chandrashekar M. Reddy
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 12. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 9 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 7, and to their
respective successors, and no other person will have any right or obligation
hereunder. The term "successors" shall not include any purchaser of the Shares
as such from any of the Underwriters merely by reason of such purchase.
SECTION 13. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 14. GOVERNING LAW PROVISIONS.
(a) Governing Law. This agreement shall be governed by and construed
in accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
23.
<PAGE> 24
(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or the
courts of the State of California in each case located in the City and County of
San Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum. Each party not located in the
United States irrevocably appoints CT Corporation System, which currently
maintains a San Francisco office at 49 Stevenson Street, San Francisco,
California 94105, United States of America, as its agent to receive service of
process or other legal summons for purposes of any such suit, action or
proceeding that may be instituted in any state or federal court in the City and
County of San Francisco.
(c) Waiver of Immunity. With respect to any Related Proceeding, each
party irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the Specified
Courts or any other court of competent jurisdiction, and will not raise or claim
or cause to be pleaded any such immunity at or in respect of any such Related
Proceeding or Related Judgment, including, without limitation, any immunity
pursuant to the United States Foreign Sovereign Immunities Act of 1976, as
amended.
SECTION 15. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
[The remainder of this page has been intentionally left blank.]
24.
<PAGE> 25
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
SAGE, INC.
By:
-------------------------------------
Chandrashekar M. Reddy,
Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and
accepted by the Representatives as of the date first above written.
BANCBOSTON ROBERTSON STEPHENS INC.
PRUDENTIAL SECURITIES, INC.
NEEDHAM & COMPANY, INC.
On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.
By:
---------------------------------
Authorized Signatory
25.
<PAGE> 26
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM COMMON SHARES TO
UNDERWRITER BE PURCHASED
------------ -------------------------------
<S> <C>
BANCBOSTON ROBERTSON STEPHENS INC. ................................... [_____]
BANCBOSTON ROBERTSON STEPHENS INTERNATIONAL LIMITED".................. [_____]
PRUDENTIAL SECURITIES, INC............................................ [_____]
NEEDHAM & COMPANY, INC................................................ [_____]
Total......................................................... [_____]
</TABLE>
S-A
<PAGE> 27
EXHIBIT A
LOCK-UP AGREEMENT
BancBoston Robertson Stephens Inc.
Prudential Securities, Inc.
Needham & Company, Inc.
As Representatives of the Several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
RE: Sage, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain
shares of Common Stock of the Company ("Common Stock") or securities convertible
into or exchangeable or exercisable for Common Stock. The Company proposes to
carry out a public offering of Common Stock (the "Offering") for which you will
act as the representative[s] (the "Representatives") of the underwriters. The
undersigned recognizes that the Offering will be of benefit to the undersigned
and will benefit the Company by, among other things, raising additional capital
for its operations. The undersigned acknowledges that you and the other
underwriters are relying on the representations and agreements of the
undersigned contained in this letter in carrying out the Offering and in
entering into underwriting arrangements with the Company with respect to the
Offering.
In consideration of the foregoing, the undersigned hereby agrees
that the undersigned will not offer to sell, contract to sell, or otherwise
sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities") now
owned or hereafter acquired directly by such person or with respect to which
such person has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to partners or
shareholders of such person, provided that the distributees thereof agree in
writing to be bound by the terms of this restriction, (iii) with respect to
dispositions of Common Shares acquired on the open market, (iv) with respect to
sales or purchases of Common Stock acquired on the open market or (v) with the
prior written consent of BancBoston Robertson Stephens Inc., for a period
commencing on the date hereof and continuing to a date 180 days after the
Registration Statement is declared effective by the Securities and Exchange
Commission (the "Lock-up Period"). The foregoing restriction has been expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that included, relates to or derives any significant
part of its value from Securities. The undersigned also agrees and consents to
the
A-1
<PAGE> 28
entry of stop transfer instructions with the Company's transfer agent and
registrar against the transfer of shares of Common Stock or Securities held by
the undersigned except in compliance with the foregoing restrictions.
This agreement is irrevocable and will be binding on the
undersigned and the respective successors, heirs, personal representatives, and
assigns of the undersigned.
Dated
-----------------------------------
----------------------------------------
Printed Name of Holder
By:
-------------------------------------
Signature
----------------------------------------
Printed Name of Person Signing
(and indicate capacity of person
signing if signing as custodian,
trustee, or on behalf of an entity)
A-2
<PAGE> 29
EXHIBIT B
MATTERS TO BE COVERED IN THE OPINION OF COMPANY COUNSEL
(i) The Company and each Significant Subsidiary (as that term is
defined in Regulation S-X of the Act) has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation;
(ii) The Company and each Significant Subsidiary has the corporate
power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus;
(iii) The Company and each Significant Subsidiary is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction, if any, in which the ownership or leasing of its
properties or the conduct of its business requires such qualification,
except where the failure to be so qualified or be in good standing would
not have a Material Adverse Effect. To such counsel's knowledge, the
Company does not own or control, directly or indirectly, any
corporation, association or other entity other than [list subsidiaries];
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, the issued and
outstanding shares of capital stock of the Company have been duly and
validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right,
right of first refusal or other similar right;
(v) All issued and outstanding shares of capital stock of each
Significant Subsidiary of the Company have been duly authorized and
validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, have not been issued in violation of or subject to
any preemptive right, co-sale right, registration right, right of first
refusal or other similar right and are owned by the Company free and
clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest;
(vi) The Firm Shares or the Option Shares, as the case may be, to be
issued by the Company pursuant to the terms of this Agreement have been
duly authorized and, upon issuance and delivery against payment therefor
in accordance with the terms hereof, will be duly and validly issued and
fully paid and nonassessable, and will not have been issued in violation
of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right.
(vii) The Company has the corporate power and authority to enter into
this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed
and delivered by the Company and, is a valid and binding agreement of
the Company, enforceable in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable law and except
as enforceability may be limited by bankruptcy, insolvency,
reorganization,
B-1
<PAGE> 30
moratorium or similar laws relating to or affecting creditors' rights
generally or by general equitable principles;
(ix) The Registration Statement has become effective under the Act
and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Securities Act;
(x) The 8-A Registration Statement complied as to form in all
material respects with the requirements of the Exchange Act; the 8-A
Registration Statement has become effective under the Exchange Act; and
the Firm Shares or the Option Shares have been validly registered under
the Securities Act and the Rules and Regulations of the Exchange Act and
the applicable rules and regulations of the Commission thereunder;
(xi) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements
(including supporting schedules) and financial data derived therefrom as
to which such counsel need express no opinion), as of the effective date
of the Registration Statement, complied as to form in all material
respects with the requirements of the Act and the applicable Rules and
Regulations;
(xii) The information in the Prospectus under the caption "Description
of Capital Stock," to the extent that it constitutes matters of law or
legal conclusions, has been reviewed by such counsel and is a fair
summary of such matters and conclusions; and the forms of certificates
evidencing the Common Stock and filed as exhibits to the Registration
Statement comply with Delaware law;
(xiii) The description in the Registration Statement and the Prospectus
of the charter and bylaws of the Company and of statutes are accurate
and fairly present the information required to be presented by the
Securities Act;
(xiv) To such counsel's knowledge, there are no agreements, contracts,
leases or documents to which the Company is a party of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement
which are not described or referred to therein or filed as required;
(xv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the
Company's indemnification obligations hereunder, concerning which no
opinion need be expressed) will not (a) result in any violation of the
Company's charter or bylaws or (b) to such counsel's knowledge, result
in a material breach or violation of any of the terms and provisions of,
or constitute a default under, any bond, debenture, note or other
evidence of indebtedness, or any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or
instrument known to such counsel to which the Company is a party or by
which its properties are bound, or any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge, any
order, writ or decree of any court, government or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries, or
over any of their properties or operations;
B-2
<PAGE> 31
(xvi) No consent, approval, authorization or order of or qualification
with any court, government or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries, or over any of
their properties or operations is necessary in connection with the
consummation by the Company of the transactions herein contemplated,
except (i) such as have been obtained under the Securities Act, (ii)
such as may be required under state or other securities or Blue Sky laws
in connection with the purchase and the distribution of the Shares by
the Underwriters, (iii) such as may be required by the National
Association of Securities Dealers, LLC and (iv) such as may be required
under the federal or provincial laws of Canada;
(xvii) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company or any of its
subsidiaries of a character required to be disclosed in the Registration
Statement or the Prospectus by the Securities Act, other than those
described therein;
(xviii) To such counsel's knowledge, neither the Company nor any of its
subsidiaries is presently (a) in material violation of its respective
charter or bylaws, or (b) in material breach of any applicable statute,
rule or regulation known to such counsel or, to such counsel's
knowledge, any order, writ or decree of any court or governmental agency
or body having jurisdiction over the Company or any of its subsidiaries,
or over any of their properties or operations; and
(xix) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Company Shares or
other securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company
having rights known to such counsel to registration of such shares of
Company Shares or other securities, because of the filing of the
Registration Statement by the Company have, with respect to the offering
contemplated thereby, waived such rights or such rights have expired by
reason of lapse of time following notification of the Company's intent
to file the Registration Statement or have included securities in the
Registration Statement pursuant to the exercise of and in full
satisfaction of such rights.
(xx) The Company is not and, after giving effect to the offering and
the sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be, an "investment company" as
such term is defined in the Investment Company Act of 1940, as amended.
(xxi) To such counsel's knowledge, the Company owns or possesses
sufficient trademarks, trade names, patent rights, copyrights, licenses,
approvals, trade secrets and other similar rights (collectively,
"Intellectual Property Rights") reasonably necessary to conduct their
business as now conducted; and the expected expiration of any such
Intellectual Property Rights would not result in a Material Adverse
Effect. The Company has not received any notice of infringement or
conflict with asserted Intellectual Property Rights of others, which
infringement or conflict, if the subject of an unfavorable decision,
would result in a Material Adverse Effect. To such counsel's knowledge,
the Company's discoveries, inventions, products, or processes referred
to in the Registration Statement or Prospectus do not infringe or
conflict with any right or patent which is the subject of a patent
application known to the Company.
B-3
<PAGE> 32
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the First Closing Date or Second Closing Date,
as the case may be, the Registration Statement and any amendment or supplement
thereto (other than the financial statements including supporting schedules and
other financial and statistical information derived therefrom, as to which such
counsel need express no comment) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the First Closing
Date or the Second Closing Date, as the case may be, the Registration Statement,
the Prospectus and any amendment or supplement thereto (except as aforesaid)
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
B-4
<PAGE> 33
EXHIBIT C
MATTERS TO BE COVERED IN THE OPINION OF
PATENT COUNSEL FOR THE COMPANY
Such counsel are familiar with the technology used by the
Company in its business and the manner of its use thereof and have read the
Registration Statement and the Prospectus, including particularly the portions
of the Registration Statement and the Prospectus referring to patents, trade
secrets, trademarks, service marks or other proprietary information or materials
and:
(i) The Company is listed in the records of the United States Patent
and Trademark Office as the holder of record of the patents listed on a
schedule to such opinion (the "Patents") and each of the applications
listed on a schedule to such opinion (the "Applications"). To the
knowledge of such counsel, there are no claims of third parties to any
ownership interest or lien with respect to any of the Patents or
Applications. Such counsel is not aware of any material defect in form
in the preparation or filing of the Applications on behalf of the
Company. To the knowledge of such counsel, the Applications are being
pursued by the Company. To the knowledge of such counsel, the Company
owns as its sole property the Patents and pending Applications;
(ii) The Company is listed in the records of the appropriate foreign
offices as the sole holder of record of the foreign patents listed on a
schedule to such opinion (the "Foreign Patents") and each of the
applications listed on a schedule to such opinion (the "Foreign
Applications"). Such counsel knows of no claims of third parties to any
ownership interest or lien with respect to the Foreign Patents or
Foreign Applications. Such counsel is not aware of any material defect
of form in the preparation or filing of the Foreign Applications on
behalf of the Company. To the knowledge of such counsel, the Foreign
Applications are being pursued by the Company. To the knowledge of such
counsel, the Company owns as its sole property the Foreign Patents and
pending Foreign Applications;
(iii) Such counsel knows of no reason why the Patents or Foreign
Patents are not valid as issued. Such counsel has no knowledge of any
reason why any patent to be issued as a result of any Application or
Foreign Application would not be valid or would not afford the Company
useful patent protection with respect thereto;
(iv) As to the statements under the captions "Risk Factors -- Our
limited ability to protect our intellectual property and proprietary
rights could adversely affect our competitive position", _______________
and "Business -- Intellectual Property" nothing has come to the
attention of such counsel which caused them to believe that the
above-mentioned sections of the Registration Statement and any amendment
or supplement thereto made available and reviewed by such counsel, at
the time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date
on which Option Stock are to be purchased, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and
C-1
<PAGE> 34
(v) Such counsel knows of no material action, suit, claim or
proceeding relating to patents, patent rights or licenses, trademarks or
trademark rights, copyrights, collaborative research, licenses or
royalty arrangements or agreements or trade secrets, know-how or
proprietary techniques, including processes and substances, owned by or
affecting the business or operations of the Company which are pending or
threatened against the Company or any of its officers or directors.
C-2
<PAGE> 35
EXHIBIT D
MATTERS TO BE COVERED IN THE OPINION OF UNDERWRITERS' COUNSEL
(i) The Shares to be issued by the Company have been duly authorized
and, upon issuance and delivery and payment therefor in accordance with
the terms of the Underwriting Agreement, will be validly issued, fully
paid and non-assessable.
(ii) The Registration Statement complied as to form in all material
respects with the requirements of the Act; the Registration Statement
has become effective under the Act and, to such counsel's knowledge, no
stop order proceedings with respect thereto have been instituted or
threatened or are pending under the Securities Act.
(iii) The 8-A Registration Statement complied as to form in all
material respects with the requirements of the Exchange Act; the 8-A
Registration Statement has become effective under the Exchange Act; and
the Shares have been validly registered under the Securities Act and the
Rules and Regulations of the Exchange Act and the applicable rules and
regulations of the Commission thereunder;
(iv) The Underwriting Agreement has been duly authorized, executed
and delivered by the Company.
Such counsel shall state that such counsel has reviewed the
opinions addressed to the Representatives from ______________, each dated the
date hereof, and furnished to you in accordance with the provisions of the
Underwriting Agreement. Such opinions appear on their face to be appropriately
responsive to the requirements of the Underwriting Agreement.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the First Closing Date or Second Closing Date,
as the case may be, the Registration Statement and any amendment or supplement
thereto (other than the financial statements including supporting schedules and
other financial and statistical information derived therefrom, as to which such
counsel need express no comment) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the First Closing
Date or the Second Closing Date, as the case may be, the Registration Statement,
the Prospectus and any amendment or supplement thereto [and any Incorporated
Document] (except as aforesaid) contained any untrue statement of a material
fact or omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
D-1
<PAGE> 1
EXHIBIT 4.2
SAGE, INC.
INVESTORS' RIGHTS AGREEMENT
MAY 1, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Registration Rights................................................................1
1.1 Definitions...............................................................1
1.2 Request for Registration..................................................2
1.3 Company Registration......................................................4
1.4 Form S-3 Registration.....................................................4
1.5 Obligations of the Company................................................5
1.6 Furnish Information.......................................................6
1.7 Expenses of Registration..................................................7
1.8 Underwriting Requirements.................................................7
1.9 Delay of Registration.....................................................8
1.10 Indemnification..........................................................8
1.11 Reports Under Securities Exchange Act of 1934...........................10
1.12 Assignment of Registration Rights.......................................11
1.13 Limitations on Subsequent Registration Rights...........................12
1.14 "Market Stand-Off"Agreement.............................................12
1.15 Termination of Registration Rights......................................13
2. Covenants of the Company..........................................................13
2.1 Delivery of Financial Statements.........................................13
2.2 Right of First Offer.....................................................14
2.3 Termination of Covenants.................................................15
3. Miscellaneous.....................................................................15
3.1 Successors and Assigns...................................................15
3.2 Amendments and Waivers...................................................16
3.3 Notices..................................................................16
3.4 Severability.............................................................16
3.5 Governing Law............................................................16
3.6 Counterparts.............................................................17
3.7 Titles and Subtitles.....................................................17
3.8 Aggregation of Stock.....................................................17
</TABLE>
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<PAGE> 3
SAGE, INC.
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (the "Agreement") is made as of the 1st
day of May, 1998, by and among Sage, Inc., a California corporation (the
"Company"), and the investors listed on Exhibit A hereto, each of which is
herein referred to as an "Investor."
RECITALS
The Company and the Investors have entered into a Series D Preferred
Stock Purchase Agreement (the "Purchase Agreement") of even date herewith
pursuant to which the Company desires to sell to the Investors and the Investors
desire to purchase from the Company shares of the Company's Series D Preferred
Stock. A condition to the Investors' obligations under the Purchase Agreement is
that the Company and the Investors enter into this Agreement in order to provide
the Investors with (i) certain rights to register shares of the Company's Common
Stock issuable upon conversion of the Series D Preferred Stock held by the
Investors, (ii) certain rights to receive or inspect information pertaining to
the Company, and (iii) a right of first offer with respect to certain issuances
by the Company of its securities. The Company and the Investors each desire to
induce the Investors to purchase shares of Series D Preferred Stock pursuant to
the Purchase Agreement by agreeing to the terms and conditions set forth herein.
AGREEMENT
The parties hereby agree as follows:
1 REGISTRATION RIGHTS. The Company and the Investors covenant and agree
as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), and the declaration or ordering of effectiveness
of such registration statement or document;
(b) The term "Registrable Securities" means (i) the shares
of Common Stock issuable or issued upon conversion of the Series D Preferred
Stock of the Company, and (ii) any other shares of Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, the shares listed in (i); provided,
however, that the foregoing definition shall exclude in all cases any
Registrable Securities sold by a person in a transaction in which his or her
rights under this Agreement are not assigned. Notwithstanding the foregoing,
Common Stock or other securities
<PAGE> 4
shall only be treated as Registrable Securities if and so long as they have not
been (A) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, or (B) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(1) thereof so that all transfer restrictions, and
restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "Holder" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.12 of this Agreement;
(e) The term "Form S-3" means such form under the
Securities Act as in effect on the date hereof or any successor form under the
Securities Act;
(f) The term "SEC" means the Securities and Exchange
Commission; and
(g) The term "Qualified IPO" means a firm commitment
underwritten public offering by the Company of shares of its Common Stock
pursuant to a registration statement on Form S-1 under the Securities Act, the
public offering price of which is not less than $5.00 per share (appropriately
adjusted for any stock split, dividend, combination or other recapitalization)
and which results in aggregate cash proceeds to the Company of $7,500,000 (net
of underwriting discounts and commissions).
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after six (6)
months after the effective date of the first registration statement for a public
offering of securities of the Company (other than a registration statement
relating either to the sale of securities to employees of the Company pursuant
to a stock option, stock purchase or similar plan or an SEC Rule 145
transaction), a written request from the Holders of at least twenty percent
(20%) of the Registrable Securities then outstanding that the Company file a
registration statement under the Securities Act covering the registration of at
least twenty percent (20%) of the Registrable Securities then outstanding (or a
lesser percent if the anticipated aggregate offering price, net of underwriting
discounts and commissions, would exceed $5,000,000), then the Company shall,
within ten (10) days of the receipt thereof, give written notice of such request
to all Holders and shall, subject to the limitations of subsection 1.2(b), use
its best efforts to effect as soon as practicable, and in any event within 60
days of the receipt of such request, the registration under the Securities Act
of all Registrable Securities which the Holders request to be registered within
twenty (20) days of the mailing of such notice by the Company in accordance with
Section 3.3.
-2-
<PAGE> 5
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to this Section 1.2 and the
Company shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be selected by a majority in interest of
the Initiating Holders and shall be reasonably acceptable to the Company. In
such event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.5(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
1.2, a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed 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 of not more than 120 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 1.2:
(i) After the Company has effected two (2)
registrations pursuant to this Section 1.2 and such registrations have been
declared or ordered effective;
(ii) During the period starting with the date sixty
(60) days prior to the Company's good faith estimate of the date of filing of,
and ending on a date one hundred eighty (180) days after the effective date of,
a registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
-3-
<PAGE> 6
(iii) If the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.4 below.
1.3 COMPANY REGISTRATION. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock under the Securities Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan or a transaction
covered by Rule 145 under the Securities Act, a registration in which the only
stock being registered is Common Stock issuable upon conversion of debt
securities which are also being registered, or any registration on any form
which does not include substantially the same information as would be required
to be included in a registration statement covering the sale of the Registrable
Securities), the Company shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of each Holder given
within twenty (20) days after mailing of such notice by the Company in
accordance with Section 3.3, the Company shall, subject to the provisions of
Section 1.8, cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered.
1.4 FORM S-3 REGISTRATION. In case the Company shall receive from
any Holder or Holders of not less than ten percent (10%) of the Registrable
Securities then outstanding a written request or requests that the Company
effect a registration on Form S-3 and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) 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 or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within 15 days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.4: (i) if
Form S-3 is not available for such offering by the Holders; (ii) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000; (iii) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 120 days after receipt of
the request of the Holder or Holders under this Section 1.4; provided,
-4-
<PAGE> 7
however, that the Company shall not utilize this right more than once in any
twelve month period; (iv) if the Company has, within the twelve (12) month
period preceding the date of such request, already effected two registrations on
Form S-3 for the Holders pursuant to this Section 1.4; (v) in any particular
jurisdiction in which the Company would be required to qualify to do business or
to execute a general consent to service of process in effecting such
registration, qualification or compliance; or (vi) during the period ending one
hundred eighty (180) days after the effective date of a registration statement
subject to Section 1.3.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as demands for registration or registrations
effected pursuant to Sections 1.2 or 1.3, respectively.
1.5 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to one hundred twenty (120) days.
The Company shall not be required to file, cause to become effective or maintain
the effectiveness of any registration statement that contemplates a distribution
of securities on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement for up to one hundred twenty
(120) days.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
-5-
<PAGE> 8
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, such obligation to continue for one hundred twenty (120) days.
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
(i) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
1.6 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities. The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement
if, as a result of the application of the preceding sentence, the number of
shares or the anticipated aggregate offering price of the Registrable Securities
to be included in the registration does not equal or exceed the number of shares
or the anticipated aggregate offering price required to originally trigger the
Company's
-6-
<PAGE> 9
obligation to initiate such registration as specified in subsection 1.2(a) or
subsection 1.4(b)(2), whichever is applicable.
1.7 EXPENSES OF REGISTRATION.
(a) DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders
selected by them with the approval of the Company, which approval shall not be
unreasonably withheld, shall be borne by the Company; provided, however, that
the Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 1.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating Holders
shall bear such expenses), unless the Holders of a majority of the Registrable
Securities agree to forfeit their right to one demand registration pursuant to
Section 1.2; provided further, however, that if at the time of such withdrawal,
the Holders have learned of a material adverse change in the condition,
business, or prospects of the Company from that known to the Holders at the time
of their request and have withdrawn the request with reasonable promptness
following disclosure by the Company of such material adverse change, then the
Holders shall not be required to pay any of such expenses and shall retain their
rights pursuant to Section 1.2.
(b) COMPANY REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications of Registrable Securities pursuant to
Section 1.3 for each Holder (which right may be assigned as provided in Section
1.12), including (without limitation) all registration, filing, and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company and up to $5,000 of the reasonable fees and
disbursements of one counsel for the selling Holder or Holders selected by them
with the approval of the Company, which approval shall not be unreasonably
withheld, shall be borne by the Company.
(c) REGISTRATION ON FORM S-3. All expenses incurred in
connection with a registration requested pursuant to Section 1.4, including
(without limitation) all registration, filing, qualification, printers' and
accounting fees and the reasonable fees and disbursements of one counsel for the
selling Holder or Holders selected by them with the approval of the Company,
which approval shall not be unreasonably withheld, and counsel for the Company,
and any underwriters' discounts or commissions associated with Registrable
Securities, shall be borne pro rata by the Holder or Holders participating in
the Form S-3 Registration.
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters
-7-
<PAGE> 10
selected by it (or by other persons entitled to select the underwriters), and
then only in such quantity as the underwriters determine in their sole
discretion will not jeopardize the success of the offering by the Company. If
the total amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling shareholders
according to the total amount of securities entitled to be included therein
owned by each selling shareholder or in such other proportions as shall mutually
be agreed to by such selling shareholders) but in no event shall (i) any shares
being sold by a shareholder exercising a demand registration right similar to
that granted in Section 1.2 be excluded from such offering, (ii) the amount of
securities of the selling Holders included in the offering be reduced below
twenty percent (20%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities, in which case, except as provided in (i) the selling shareholders
may be excluded if the underwriters make the determination described above and
no other shareholder's securities are included or (iii) any securities held by a
Founder be included if any securities held by any selling Holder are excluded.
For purposes of the preceding parenthetical concerning apportionment, for any
selling shareholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and shareholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling shareholder," and any pro-rata reduction with
respect to such "selling shareholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling shareholder," as defined in this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or
-8-
<PAGE> 11
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
state securities law; and the Company will pay to each such Holder, underwriter
or controlling person, as incurred, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 1.10(a) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable to any Holder,
underwriter or controlling person for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that in no event shall any indemnity under this subsection
1.10(b) exceed the net proceeds from the offering received by such Holder,
except in the case of willful fraud by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
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<PAGE> 12
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section
1.10 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations; provided, that in no event shall any contribution by a Holder
under this Subsection 1.10(d) exceed the net proceeds from the offering received
by such Holder, except in the case of willful fraud by such Holder. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Securities Act and any other rule or regulation of the SEC that may at any
time permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
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<PAGE> 13
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety (90)
days after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public so long as the
Company remains subject to the periodic reporting requirements under Sections 13
or 15(d) of the Exchange Act;
(b) take such action, including the voluntary registration
of its Common Stock under Section 12 of the Exchange Act, as is necessary to
enable the Holders to utilize Form S-3 for the sale of their Registrable
Securities, such action to be taken as soon as practicable after the end of the
fiscal year in which the first registration statement filed by the Company for
the offering of its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
1.12 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of at least 100,000 shares of such securities, or to a partner or
affiliate of Holder, provided the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act. For the purposes of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under Section 1.
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<PAGE> 14
1.13 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
1.2 hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in subsection
1.2(a) or within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 1.2.
1.14 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees
that, during the period of duration (up to, but not exceeding, 180 days)
specified by the Company and an underwriter of Common Stock or other securities
of the Company, following the effective date of a registration statement of the
Company filed under the Securities Act, it shall not, to the extent requested by
the Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company held by it at any
time during such period except Common Stock included in such registration;
provided, however, that:
(a) such agreement shall be applicable only to the first
such registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) all officers and directors of the Company, all
one-percent securityholders, and all other persons with registration rights
(whether or not pursuant to this Agreement) enter into similar agreements.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period, and each Holder agrees
that, if so requested, such Holder will execute an agreement in the form
provided by the underwriter containing terms which are essentially consistent
with the provisions of this Section 1.14.
Notwithstanding the foregoing, the obligations described in this
Section 1.14 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to an SEC Rule 145 transaction
on Form S-4 or similar forms which may be promulgated in the future.
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<PAGE> 15
1.15 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be
entitled to exercise any right provided for in this Section 1 after the earlier
of (i) four (4) years following the consummation of a Qualified IPO, or (ii)
such time as Rule 144 or another similar exemption under the Securities Act is
available for the sale of all of such Holder's shares during a three (3)-month
period without registration.
2 COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver
to each Holder of at least 100,000 shares of Registrable Securities:
(a) as soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year of the Company, an income statement
for such fiscal year, a balance sheet of the Company and statement of
shareholder's equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles ("GAAP"),
and audited and certified by an independent public accounting firm of nationally
recognized standing selected by the Company;
(b) as soon as practicable, but in any event within thirty
(30) days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited profit or loss statement, a statement of cash
flows for such fiscal quarter and an unaudited balance sheet as of the end of
such fiscal quarter;
(c) within thirty (30) days of the end of each month, an
unaudited income statement and a statement of cash flows and balance sheet for
and as of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any event thirty (30)
days prior to the end of each fiscal year, a budget and business plan for the
next fiscal year, prepared on a monthly basis, and as soon as prepared, any
other budgets or revised budgets prepared by the Company; and
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment, provided that the foregoing shall not restrict the right of the
Company to change its accounting principles consistent with GAAP, if the Board
of Directors determines that it is in the best interest of the Company to do so.
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<PAGE> 16
2.2 RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this Section 2.2, the Company hereby grants to each Major Investor
(as hereinafter defined) a right of first offer with respect to future sales by
the Company of its Shares (as hereinafter defined). For purposes of this Section
2.2, a "Major Investor" shall mean any person who holds at least 100,000 shares
of the Series E Preferred Stock (or the Common Stock issued upon conversion
thereof) issued pursuant to the Purchase Agreement. For purposes of this Section
2.2, Major Investor includes any general partners and affiliates of a Major
Investor. A Major Investor who chooses to exercise the right of first offer may
designate as purchasers under such right itself or its partners or affiliates in
such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of its
capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Major Investors stating (i) its bona fide intention to offer
such Shares, (ii) the number of such Shares to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.
(b) Within 15 calendar days after delivery of the Notice,
the Major Investor may elect to purchase or obtain, at the price and on the
terms specified in the Notice, up to that portion of such Shares which equals
the proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Major Investor bears to the total number of shares
of Common Stock then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities). The Company shall promptly, in writing,
inform each Major Investor that purchases all the shares available to it (each,
a "Fully-Exercising Investor") of any other Major Investor's failure to do
likewise. During the ten (10)-day period commencing after receipt of such
information, each Fully-Exercising Investor shall be entitled to obtain that
portion of the Shares for which Major Investors were entitled to subscribe but
which were not subscribed for by the Major Investors that is equal to the
proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Fully-Exercising Investor bears to the total
number of shares of Common Stock then outstanding (assuming full conversion and
exercise of all convertible or exercisable securities).
(c) The Company may, during the 45-day period following
the expiration of the period provided in subsection 2.2(b) hereof, offer the
remaining unsubscribed portion of the Shares to any person or persons at a price
not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within 60 days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such Shares shall not be offered unless first reoffered
to the Major Investors in accordance herewith.
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<PAGE> 17
(d) The right of first offer in this paragraph 2.2 shall
not be applicable (i) to the issuance or sale of Common Stock (or options
therefor) to employees, consultants and directors, pursuant to plans or
agreements approved by the Board of Directors for the primary purpose of
soliciting or retaining their services, (ii) to or after consummation of a
Qualified IPO, (iii) to the issuance of securities pursuant to the conversion or
exercise of convertible or exercisable securities, (iv) to the issuance of
securities in connection with a bona fide business acquisition of or by the
Company, whether by merger, consolidation, sale of assets, sale or exchange of
stock or otherwise, (v) to the issuance of securities to financial institutions
or lessors in connection with commercial credit arrangements, equipment
financings, or similar transactions, (vi) to the issuance of securities pursuant
to currently outstanding options, warrants, notes, or other rights to acquire
securities of the Company or the warrants issued pursuant to the Purchase
Agreement, (vii) to the issuance or sale of the Series D Preferred Stock, (viii)
to the issuance of securities in connection with stock splits or similar
transactions or (ix) to the issuance of securities that, with unanimous approval
of the Board of Directors of the Company, are not offered to any existing
shareholder of the Company.
2.3 TERMINATION OF COVENANTS.
(a) The covenants set forth in Sections 2.1 through
Section 2.2 shall terminate as to each Investor and be of no further force or
effect (i) immediately prior to the consummation of a Qualified IPO, or (ii)
when the Company shall sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any other transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Company is disposed of,
provided that this subsection (ii) shall not apply to a merger effected
exclusively for the purpose of changing the domicile of the Corporation.
(b) The covenants set forth in Section 2.1 shall terminate
as to each Holder and be of no further force or effect when the Company first
becomes subject to the periodic reporting requirements of Sections 13 or 15(d)
of the Exchange Act, if this occurs earlier than the events described in Section
2.3(a) above.
3 MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective permitted successors and assigns of the
parties (including transferees of any of the Series E Preferred Stock or any
Common Stock issued upon conversion thereof). Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
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<PAGE> 18
3.2 AMENDMENTS AND WAIVERS.
(a) Any term of this Agreement may be amended or waived
only with the written consent of the Company and the holders of a majority of
the Registrable Securities then outstanding, not including the Founders' Stock;
provided that if such amendment has the effect of affecting the Founders' Stock
(i) in a manner different than securities issued to the Investors and (ii) in a
manner adverse to the interests of the holders of the Founders' Stock, then such
amendment shall require the consent of the holder or holders of a majority of
the Founders' Stock. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company.
(b) Notwithstanding any other provision in this Agreement
to the contrary, the Company shall be entitled to include additional purchasers
of its Series E Preferred Stock as "Investors" under this Agreement from time to
time in its discretion. Such new purchasers shall be deemed to be "Investors"
and the shares of the Company's Series D Preferred Stock held thereby shall be
deemed to be "Preferred Shares" for all purposes under this Agreement, provided
that such additional purchasers execute signature pages to this Agreement.
3.3 NOTICES. Unless otherwise provided, any notice required or
permitted by this Agreement shall be in writing and shall be deemed sufficient
upon delivery, when delivered personally or by overnight courier or sent by
telegram or fax, or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address or fax number as set forth
below or on Exhibit A hereto or as subsequently modified by written notice.
3.4 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
3.5 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto shall be governed, construed and interpreted in accordance with
the laws of the State of California, without giving effect to principles of
conflicts of laws.
3.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.7 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
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<PAGE> 19
3.8 AGGREGATION OF STOCK. All shares of the Preferred Stock held
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
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<PAGE> 20
The parties have executed this Investors' Rights Agreement as of the
date first above written.
SAGE, INC.
By:/s/ Chandrashekar Reddy
Sage, Inc.
INVESTORS:
INVESTAR SEMICONDUCTOR
By: /s/ Kandie Hsieh
INVESTAR DAYSPRING VENTURE CAPITAL
By: /s/ Kandie Hsieh
INVESTAR EXCELSUS VENTURE CAPITAL
By: /s/ Kandie Hsieh
FOREFRONT VENTURE PARTNERS LP
By: /s/ Kun Wei Chang
SAN PAOLO FONDI SPA
By: /s/ Marco Bartoloma
PRAKASH D. REDDY
By: /s/ Prakash D. Reddy
HUNG POO REAL ESTATE
By: /s/ Tong Tuan
SHIN SHENG LIN
By: /s/ Shin Sheng Lin
ANDREA DELLA VALLE
By: /s/ Andrea Della Valle
CHANDRASHEKAR REDDY
By: /s/ Chandrashekar Reddy
VIJAYALAKSHMI REDDY
By: /s/ Vijayalakshmi Reddy
RAM PAUL GUPTA
By: /s/ Ram Paul Gupta
ANIL ANAND DARA
By: /s/ Anil Anand Dara
BERNARD V. AND THERESA S. VONDERSCHMITT
By: /s/ Bernard V. Vonderschmitt
ALAN MARTEN
By: /s/ Alan Marten
MICHAEL A. GUMPORT
By: /S/ Michael A. Gumport
ASHOK P. VARIKOOTY
By: /S/ Ashok P. Varikooty
MANOJ GOEL
By: /s/ Manoj Goel
PATEL FAMILY PARTNER
By: /s/ Mukesh Patel
CHAD KECK
/s/ Chad Keck
MICHAEL MO
/s/ Michael Mo
MICHAEL BREWSTER
/s/ Michael Brewster
THE HEIDE PROBSTEL TRUST
/s/ Michael A.L. Probstel
MICHAEL A. GUMPORT
/s/ Michael A. Gumport
MANOJ GOEL
/s/ Manoj Goel
SHANKER M. REDDY
/s/ Shanker M. Reddy
MALAE U. REDDY
/s/ Malae U. Reddy
TERI HA NGUYEN
/s/ Teri Ha Nguyen
MADHAVI REDDY
/s/ Madhavi Reddy
C. RAJESH REDDY
/s/ C. Rajesh Reddy
MURLI THIRUMALE
/s/ Murli Thirumale
<PAGE> 1
EXHIBIT 4.3
SAGE, INC.
INVESTORS' RIGHTS AGREEMENT
MAY 1, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Registration Rights................................................................1
1.1 Definitions...............................................................1
1.2 Request for Registration..................................................2
1.3 Company Registration......................................................4
1.4 Form S-3 Registration.....................................................4
1.5 Obligations of the Company................................................5
1.6 Furnish Information.......................................................6
1.7 Expenses of Registration..................................................7
1.8 Underwriting Requirements.................................................7
1.9 Delay of Registration.....................................................8
1.10 Indemnification..........................................................8
1.11 Reports Under Securities Exchange Act of 1934...........................10
1.12 Assignment of Registration Rights.......................................11
1.13 Limitations on Subsequent Registration Rights...........................12
1.14 "Market Stand-Off"Agreement.............................................12
1.15 Termination of Registration Rights......................................13
2. Covenants of the Company..........................................................13
2.1 Delivery of Financial Statements.........................................13
2.2 Right of First Offer.....................................................14
2.3 Termination of Covenants.................................................15
3. Miscellaneous.....................................................................15
3.1 Successors and Assigns...................................................15
3.2 Amendments and Waivers...................................................16
3.3 Notices..................................................................16
3.4 Severability.............................................................16
3.5 Governing Law............................................................16
3.6 Counterparts.............................................................17
3.7 Titles and Subtitles.....................................................17
3.8 Aggregation of Stock.....................................................17
</TABLE>
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<PAGE> 3
SAGE, INC.
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (the "Agreement") is made as of the 1st
day of May, 1999, by and among Sage, Inc., a California corporation (the
"Company"), and the investors listed on Exhibit A hereto, each of which is
herein referred to as an "Investor."
RECITALS
The Company and the Investors have entered into a Series E Preferred
Stock Purchase Agreement (the "Purchase Agreement") of even date herewith
pursuant to which the Company desires to sell to the Investors and the Investors
desire to purchase from the Company shares of the Company's Series E Preferred
Stock. A condition to the Investors' obligations under the Purchase Agreement is
that the Company and the Investors enter into this Agreement in order to provide
the Investors with (i) certain rights to register shares of the Company's Common
Stock issuable upon conversion of the Series E Preferred Stock held by the
Investors, (ii) certain rights to receive or inspect information pertaining to
the Company, and (iii) a right of first offer with respect to certain issuances
by the Company of its securities. The Company and the Investors each desire to
induce the Investors to purchase shares of Series E Preferred Stock pursuant to
the Purchase Agreement by agreeing to the terms and conditions set forth herein.
AGREEMENT
The parties hereby agree as follows:
1 REGISTRATION RIGHTS. The Company and the Investors covenant and agree
as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), and the declaration or ordering of effectiveness
of such registration statement or document;
(b) The term "Registrable Securities" means (i) the shares
of Common Stock issuable or issued upon conversion of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D. Preferred
Stock or Series E Preferred Stock of the Company, and (ii) any other shares of
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
the shares listed in (i); provided, however, that the foregoing definition shall
exclude in all cases any Registrable Securities sold by a person in a
transaction in which his or her rights under this Agreement are not assigned.
Notwithstanding the foregoing, Common Stock or other securities
<PAGE> 4
shall only be treated as Registrable Securities if and so long as they have not
been (A) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, or (B) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(1) thereof so that all transfer restrictions, and
restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "Holder" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.12 of this Agreement;
(e) The term "Form S-3" means such form under the
Securities Act as in effect on the date hereof or any successor form under the
Securities Act;
(f) The term "SEC" means the Securities and Exchange
Commission; and
(g) The term "Qualified IPO" means a firm commitment
underwritten public offering by the Company of shares of its Common Stock
pursuant to a registration statement on Form S-1 under the Securities Act, the
public offering price of which is not less than $5.00 per share (appropriately
adjusted for any stock split, dividend, combination or other recapitalization)
and which results in aggregate cash proceeds to the Company of $7,500,000 (net
of underwriting discounts and commissions).
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after six (6)
months after the effective date of the first registration statement for a public
offering of securities of the Company (other than a registration statement
relating either to the sale of securities to employees of the Company pursuant
to a stock option, stock purchase or similar plan or an SEC Rule 145
transaction), a written request from the Holders of at least twenty percent
(20%) of the Registrable Securities then outstanding that the Company file a
registration statement under the Securities Act covering the registration of at
least twenty percent (20%) of the Registrable Securities then outstanding (or a
lesser percent if the anticipated aggregate offering price, net of underwriting
discounts and commissions, would exceed $5,000,000), then the Company shall,
within ten (10) days of the receipt thereof, give written notice of such request
to all Holders and shall, subject to the limitations of subsection 1.2(b), use
its best efforts to effect as soon as practicable, and in any event within 60
days of the receipt of such request, the registration under the Securities Act
of all Registrable Securities which the Holders request to be registered within
twenty (20) days of the mailing of such notice by the Company in accordance with
Section 3.3.
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(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to this Section 1.2 and the
Company shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be selected by a majority in interest of
the Initiating Holders and shall be reasonably acceptable to the Company. In
such event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.5(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
1.2, a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed 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 of not more than 120 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 1.2:
(i) After the Company has effected two (2)
registrations pursuant to this Section 1.2 and such registrations have been
declared or ordered effective;
(ii) During the period starting with the date sixty
(60) days prior to the Company's good faith estimate of the date of filing of,
and ending on a date one hundred eighty (180) days after the effective date of,
a registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
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(iii) If the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.4 below.
1.3 COMPANY REGISTRATION. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock under the Securities Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan or a transaction
covered by Rule 145 under the Securities Act, a registration in which the only
stock being registered is Common Stock issuable upon conversion of debt
securities which are also being registered, or any registration on any form
which does not include substantially the same information as would be required
to be included in a registration statement covering the sale of the Registrable
Securities), the Company shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of each Holder given
within twenty (20) days after mailing of such notice by the Company in
accordance with Section 3.3, the Company shall, subject to the provisions of
Section 1.8, cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered.
1.4 FORM S-3 REGISTRATION. In case the Company shall receive from
any Holder or Holders of not less than ten percent (10%) of the Registrable
Securities then outstanding a written request or requests that the Company
effect a registration on Form S-3 and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) 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 or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within 15 days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.4: (i) if
Form S-3 is not available for such offering by the Holders; (ii) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000; (iii) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 120 days after receipt of
the request of the Holder or Holders under this Section 1.4; provided,
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however, that the Company shall not utilize this right more than once in any
twelve month period; (iv) if the Company has, within the twelve (12) month
period preceding the date of such request, already effected two registrations on
Form S-3 for the Holders pursuant to this Section 1.4; (v) in any particular
jurisdiction in which the Company would be required to qualify to do business or
to execute a general consent to service of process in effecting such
registration, qualification or compliance; or (vi) during the period ending one
hundred eighty (180) days after the effective date of a registration statement
subject to Section 1.3.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as demands for registration or registrations
effected pursuant to Sections 1.2 or 1.3, respectively.
1.5 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to one hundred twenty (120) days.
The Company shall not be required to file, cause to become effective or maintain
the effectiveness of any registration statement that contemplates a distribution
of securities on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement for up to one hundred twenty
(120) days.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
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<PAGE> 8
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, such obligation to continue for one hundred twenty (120) days.
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
(i) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
1.6 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities. The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement
if, as a result of the application of the preceding sentence, the number of
shares or the anticipated aggregate offering price of the Registrable Securities
to be included in the registration does not equal or exceed the number of shares
or the anticipated aggregate offering price required to originally trigger the
Company's
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<PAGE> 9
obligation to initiate such registration as specified in subsection 1.2(a) or
subsection 1.4(b)(2), whichever is applicable.
1.7 EXPENSES OF REGISTRATION.
(a) DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders
selected by them with the approval of the Company, which approval shall not be
unreasonably withheld, shall be borne by the Company; provided, however, that
the Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 1.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating Holders
shall bear such expenses), unless the Holders of a majority of the Registrable
Securities agree to forfeit their right to one demand registration pursuant to
Section 1.2; provided further, however, that if at the time of such withdrawal,
the Holders have learned of a material adverse change in the condition,
business, or prospects of the Company from that known to the Holders at the time
of their request and have withdrawn the request with reasonable promptness
following disclosure by the Company of such material adverse change, then the
Holders shall not be required to pay any of such expenses and shall retain their
rights pursuant to Section 1.2.
(b) COMPANY REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications of Registrable Securities pursuant to
Section 1.3 for each Holder (which right may be assigned as provided in Section
1.12), including (without limitation) all registration, filing, and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company and up to $5,000 of the reasonable fees and
disbursements of one counsel for the selling Holder or Holders selected by them
with the approval of the Company, which approval shall not be unreasonably
withheld, shall be borne by the Company.
(c) REGISTRATION ON FORM S-3. All expenses incurred in
connection with a registration requested pursuant to Section 1.4, including
(without limitation) all registration, filing, qualification, printers' and
accounting fees and the reasonable fees and disbursements of one counsel for the
selling Holder or Holders selected by them with the approval of the Company,
which approval shall not be unreasonably withheld, and counsel for the Company,
and any underwriters' discounts or commissions associated with Registrable
Securities, shall be borne pro rata by the Holder or Holders participating in
the Form S-3 Registration.
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters
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<PAGE> 10
selected by it (or by other persons entitled to select the underwriters), and
then only in such quantity as the underwriters determine in their sole
discretion will not jeopardize the success of the offering by the Company. If
the total amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling shareholders
according to the total amount of securities entitled to be included therein
owned by each selling shareholder or in such other proportions as shall mutually
be agreed to by such selling shareholders) but in no event shall (i) any shares
being sold by a shareholder exercising a demand registration right similar to
that granted in Section 1.2 be excluded from such offering, (ii) the amount of
securities of the selling Holders included in the offering be reduced below
twenty percent (20%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities, in which case, except as provided in (i) the selling shareholders
may be excluded if the underwriters make the determination described above and
no other shareholder's securities are included or (iii) any securities held by a
Founder be included if any securities held by any selling Holder are excluded.
For purposes of the preceding parenthetical concerning apportionment, for any
selling shareholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and shareholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling shareholder," and any pro-rata reduction with
respect to such "selling shareholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling shareholder," as defined in this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or
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supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
state securities law; and the Company will pay to each such Holder, underwriter
or controlling person, as incurred, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 1.10(a) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable to any Holder,
underwriter or controlling person for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that in no event shall any indemnity under this subsection
1.10(b) exceed the net proceeds from the offering received by such Holder,
except in the case of willful fraud by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
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with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section
1.10 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations; provided, that in no event shall any contribution by a Holder
under this Subsection 1.10(d) exceed the net proceeds from the offering received
by such Holder, except in the case of willful fraud by such Holder. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Securities Act and any other rule or regulation of the SEC that may at any
time permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
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(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety (90)
days after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public so long as the
Company remains subject to the periodic reporting requirements under Sections 13
or 15(d) of the Exchange Act;
(b) take such action, including the voluntary registration
of its Common Stock under Section 12 of the Exchange Act, as is necessary to
enable the Holders to utilize Form S-3 for the sale of their Registrable
Securities, such action to be taken as soon as practicable after the end of the
fiscal year in which the first registration statement filed by the Company for
the offering of its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
1.12 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of at least 100,000 shares of such securities, or to a partner or
affiliate of Holder, provided the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act. For the purposes of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under Section 1.
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1.13 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
1.2 hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in subsection
1.2(a) or within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 1.2.
1.14 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees
that, during the period of duration (up to, but not exceeding, 180 days)
specified by the Company and an underwriter of Common Stock or other securities
of the Company, following the effective date of a registration statement of the
Company filed under the Securities Act, it shall not, to the extent requested by
the Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company held by it at any
time during such period except Common Stock included in such registration;
provided, however, that:
(a) such agreement shall be applicable only to the first
such registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) all officers and directors of the Company, all
one-percent securityholders, and all other persons with registration rights
(whether or not pursuant to this Agreement) enter into similar agreements.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period, and each Holder agrees
that, if so requested, such Holder will execute an agreement in the form
provided by the underwriter containing terms which are essentially consistent
with the provisions of this Section 1.14.
Notwithstanding the foregoing, the obligations described in this
Section 1.14 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to an SEC Rule 145 transaction
on Form S-4 or similar forms which may be promulgated in the future.
-12-
<PAGE> 15
1.15 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be
entitled to exercise any right provided for in this Section 1 after the earlier
of (i) four (4) years following the consummation of a Qualified IPO, or (ii)
such time as Rule 144 or another similar exemption under the Securities Act is
available for the sale of all of such Holder's shares during a three (3)-month
period without registration.
2 COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver
to each Holder of at least 100,000 shares of Registrable Securities:
(a) as soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year of the Company, an income statement
for such fiscal year, a balance sheet of the Company and statement of
shareholder's equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles ("GAAP"),
and audited and certified by an independent public accounting firm of nationally
recognized standing selected by the Company;
(b) as soon as practicable, but in any event within thirty
(30) days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited profit or loss statement, a statement of cash
flows for such fiscal quarter and an unaudited balance sheet as of the end of
such fiscal quarter;
(c) within thirty (30) days of the end of each month, an
unaudited income statement and a statement of cash flows and balance sheet for
and as of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any event thirty (30)
days prior to the end of each fiscal year, a budget and business plan for the
next fiscal year, prepared on a monthly basis, and as soon as prepared, any
other budgets or revised budgets prepared by the Company; and
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment, provided that the foregoing shall not restrict the right of the
Company to change its accounting principles consistent with GAAP, if the Board
of Directors determines that it is in the best interest of the Company to do so.
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<PAGE> 16
2.2 RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this Section 2.2, the Company hereby grants to each Major Investor
(as hereinafter defined) a right of first offer with respect to future sales by
the Company of its Shares (as hereinafter defined). For purposes of this Section
2.2, a "Major Investor" shall mean any person who holds at least 100,000 shares
of the Series E Preferred Stock (or the Common Stock issued upon conversion
thereof) issued pursuant to the Purchase Agreement. For purposes of this Section
2.2, Major Investor includes any general partners and affiliates of a Major
Investor. A Major Investor who chooses to exercise the right of first offer may
designate as purchasers under such right itself or its partners or affiliates in
such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of its
capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Major Investors stating (i) its bona fide intention to offer
such Shares, (ii) the number of such Shares to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.
(b) Within 15 calendar days after delivery of the Notice,
the Major Investor may elect to purchase or obtain, at the price and on the
terms specified in the Notice, up to that portion of such Shares which equals
the proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Major Investor bears to the total number of shares
of Common Stock then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities). The Company shall promptly, in writing,
inform each Major Investor that purchases all the shares available to it (each,
a "Fully-Exercising Investor") of any other Major Investor's failure to do
likewise. During the ten (10)-day period commencing after receipt of such
information, each Fully-Exercising Investor shall be entitled to obtain that
portion of the Shares for which Major Investors were entitled to subscribe but
which were not subscribed for by the Major Investors that is equal to the
proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Fully-Exercising Investor bears to the total
number of shares of Common Stock then outstanding (assuming full conversion and
exercise of all convertible or exercisable securities).
(c) The Company may, during the 45-day period following
the expiration of the period provided in subsection 2.2(b) hereof, offer the
remaining unsubscribed portion of the Shares to any person or persons at a price
not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within 60 days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such Shares shall not be offered unless first reoffered
to the Major Investors in accordance herewith.
-14-
<PAGE> 17
(d) The right of first offer in this paragraph 2.2 shall
not be applicable (i) to the issuance or sale of Common Stock (or options
therefor) to employees, consultants and directors, pursuant to plans or
agreements approved by the Board of Directors for the primary purpose of
soliciting or retaining their services, (ii) to or after consummation of a
Qualified IPO, (iii) to the issuance of securities pursuant to the conversion or
exercise of convertible or exercisable securities, (iv) to the issuance of
securities in connection with a bona fide business acquisition of or by the
Company, whether by merger, consolidation, sale of assets, sale or exchange of
stock or otherwise, (v) to the issuance of securities to financial institutions
or lessors in connection with commercial credit arrangements, equipment
financings, or similar transactions, (vi) to the issuance of securities pursuant
to currently outstanding options, warrants, notes, or other rights to acquire
securities of the Company or the warrants issued pursuant to the Purchase
Agreement, (vii) to the issuance or sale of the Series A, B, C, D or E Preferred
Stock, (viii) to the issuance of securities in connection with stock splits or
similar transactions or (ix) to the issuance of securities that, with unanimous
approval of the Board of Directors of the Company, are not offered to any
existing shareholder of the Company.
2.3 TERMINATION OF COVENANTS.
(a) The covenants set forth in Sections 2.1 through
Section 2.2 shall terminate as to each Investor and be of no further force or
effect (i) immediately prior to the consummation of a Qualified IPO, or (ii)
when the Company shall sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any other transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Company is disposed of,
provided that this subsection (ii) shall not apply to a merger effected
exclusively for the purpose of changing the domicile of the Corporation.
(b) The covenants set forth in Section 2.1 shall terminate
as to each Holder and be of no further force or effect when the Company first
becomes subject to the periodic reporting requirements of Sections 13 or 15(d)
of the Exchange Act, if this occurs earlier than the events described in Section
2.3(a) above.
3 MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective permitted successors and assigns of the
parties (including transferees of any of the Series E Preferred Stock or any
Common Stock issued upon conversion thereof). Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
-15-
<PAGE> 18
3.2 AMENDMENTS AND WAIVERS.
(a) Any term of this Agreement may be amended or waived
only with the written consent of the Company and the holders of a majority of
the Registrable Securities then outstanding, not including the Founders' Stock;
provided that if such amendment has the effect of affecting the Founders' Stock
(i) in a manner different than securities issued to the Investors and (ii) in a
manner adverse to the interests of the holders of the Founders' Stock, then such
amendment shall require the consent of the holder or holders of a majority of
the Founders' Stock. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company.
(b) Notwithstanding any other provision in this Agreement
to the contrary, the Company shall be entitled to include additional purchasers
of its Series E Preferred Stock as "Investors" under this Agreement from time to
time in its discretion. Such new purchasers shall be deemed to be "Investors"
and the shares of the Company's Series E Preferred Stock held thereby shall be
deemed to be "Preferred Shares" for all purposes under this Agreement, provided
that such additional purchasers execute signature pages to this Agreement.
3.3 NOTICES. Unless otherwise provided, any notice required or
permitted by this Agreement shall be in writing and shall be deemed sufficient
upon delivery, when delivered personally or by overnight courier or sent by
telegram or fax, or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address or fax number as set forth
below or on Exhibit A hereto or as subsequently modified by written notice.
3.4 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
3.5 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto shall be governed, construed and interpreted in accordance with
the laws of the State of California, without giving effect to principles of
conflicts of laws.
3.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.7 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
-16-
<PAGE> 19
3.8 AGGREGATION OF STOCK. All shares of the Preferred Stock held
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
-17-
<PAGE> 20
The parties have executed this Investors' Rights Agreement as of the
date first above written.
SAGE, INC.
By:/s/ Chandrashekar Reddy
Sage, Inc.
INVESTORS:
GARY E. GRATNY & MARISA I. GRATNY
By: /s/ Gary E. Gratny
DOUG BOSZARDT
By: /s/ Doug Boszardt
HARRY G. WHELAN
By: /s/ Harry G. Whelan
MEIER GROUP FAMILY PARTNERSHIP
By: /s/ Harry G. Whelan c/o Anthony Meier
ENCINAL PARTNERS
By: /s/ Harry G. Whelan
KEMAJO FAMILY LTD.
By: /s/ Harry G. Whelan
JON-CIN & SON LIMITED
By: /s/ Harry G. Whelan
JOHN MEYER
By: /s/ John Meyer
BARBARA NODA
<PAGE> 21
By: /s/ Barbara Noda
JEFF MEYER
By: /s/ Jeff Meyer
DEARDORF 1987 FAMILY TRUST
By: /s/ David A Deardorf, Trustee
JERRY KIACHIAN
By: /s/ Jerry Kiachian
FESHBACH PARTNERS I
By: /s/ Kurt N. Feshbach
FESHBACH PARTNERS OFFSHORE
By: /s/ Kurt N. Feshbach
ERDI FAMILY TRUST
By: /s/ George Erdi
THOMAS KLEIN AND SUSAN KLEIN
By: /s/ Tom Klein
RAJENDRA SINGH CHOUHAN
By: /s/ Rajendra Chouhan
SHANKER M. REDDY
By: /s/ Shanker M. Reddy
KARTIK M. REDDY
By: /s/ Kartik M. Reddy
SVATHU M. REDDY
By: /s/ Svathi M. Reddy
<PAGE> 22
ANDREA DELLA VALLE
By: /s/ Andrea della Vallee
STARBRIGHT TRUST DATED JANUARY 30, 1997
By: /s/ Amar Gupta
MICHAEL MO
By: /s/ Michael Mo
BAOCI CHEN MO
By: /s/ Baoci Chen Mo
WESLEY MOK FAMILY TRUST
By: /s/ Wesley Mok
SUKUMARA RAMANATHAN
By: /s/ Sukumara Ramanathan
NAMIREDDY VASANTH
By: /s/ Namireddy Vasanth
MANOJ GOEL
By: /s/ Manoj Goel
PADMA GOTTAM
By: /s/ Padma Gottam
SHRAVAN KETHIREDDY
By: /s/ Shravan Kethireddy
SANJAY K. REDDY
By: /s/ Sanjay K. Reddy
<PAGE> 23
SHWETA K. REDDY
By: /s/ Shweta K. Reddy
PRIYA REDDY
By: /s/ Priya Reddy
CHARITHA REDDY
By: /s/ Charitha Reddy
PREETA REDDY
By: /s/ Preeta Reddy
VIKRAM REDDY
By: /s/ Vikram Reddy
VIJITHA REDDY
By: /s/ Vijitha Reddy
GAINS INVESTMENT CORPORATION
By: /s/ Lee-Ren Hu
President
TYSOSHI TAIRA
By: /s/ Tysoshi Taira
VIJAYALAKSHMI REDDY
By: /s/ Vijayalakshmi Reddy
VIVEK P. REDDY
By: /s/ Vivek P. Reddy
VASAVI M. REDDY
By: /s/ Vasavi M. Reddy
<PAGE> 24
SANJAY MEHROTRA
By: /s/ Sanjay Mehrotra
SANYO ELECTRIC TRADING COMPANY, LTD.
By: /s/ Motonobu Sato
General Manager
VIGHNESWARA ROW MOKKARALA
By: /s/ Vighneswara Row Mokkarala
RAJA R. NADIMPALLI
By: /s/ Raja R. Nadimpalli
<PAGE> 1
EXHIBIT 4.4
SAGE, INC.
INVESTORS' RIGHTS AGREEMENT
JULY 26, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights.......................................................... 1
1.1 Definitions........................................................... 1
1.2 Request for Registration.............................................. 2
1.3 Company Registration.................................................. 4
1.4 Form S-3 Registration................................................. 4
1.5 Obligations of the Company............................................ 5
1.6 Furnish Information................................................... 6
1.7 Expenses of Registration.............................................. 7
1.8 Underwriting Requirements............................................. 7
1.9 Delay of Registration................................................. 8
1.10 Indemnification....................................................... 8
1.11 Reports Under Securities Exchange Act of 1934......................... 10
1.12 Assignment of Registration Rights..................................... 11
1.13 Limitations on Subsequent Registration Rights......................... 12
1.14 "Market Stand-Off" Agreement.......................................... 12
1.15 Termination of Registration Rights.................................... 13
2. Covenants of the Company..................................................... 13
2.1 Delivery of Financial Statements...................................... 13
2.2 Termination of Covenants.............................................. 13
3. Miscellaneous................................................................ 14
3.1 Successors and Assigns................................................ 14
3.2 Amendments and Waivers................................................ 14
3.3 Notices............................................................... 14
3.4 Severability.......................................................... 14
3.5 Governing Law......................................................... 15
3.6 Counterparts.......................................................... 15
3.7 Titles and Subtitles.................................................. 15
</TABLE>
1
<PAGE> 3
SAGE, INC.
INVESTOR'S RIGHTS AGREEMENT
This Investor's Rights Agreement (the "Agreement") is made as of the
26th day of July, 1999, by and among Sage, Inc., a Delaware corporation (the
"Company"), and Faroudja Laboratories, Inc., a California corporation (the
"Investor").
RECITALS
The Company and the Investor has entered into a Stock Purchase Agreement
(the "Purchase Agreement") of even date herewith pursuant to which the Company
desires to sell to the Investor, and the Investor desires to purchase from the
Company, shares of the Company's Common Stock. A condition to the Investors'
obligations under the Purchase Agreement is that the Company and the Investor
enter into this Agreement in order to provide the Investor with (i) certain
rights to register shares of the Company's Common Stock held by the Investor and
(ii) certain rights to receive or inspect information pertaining to the Company.
The Company and the Investor each desires to induce the Investor to purchase
shares of Common Stock pursuant to the Purchase Agreement by agreeing to the
terms and conditions set forth herein.
AGREEMENT
The parties hereby agree as follows:
1. REGISTRATION RIGHTS. The Company and the Investors covenant and agree
as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), and the declaration or ordering of effectiveness
of such registration statement or document;
(b) The term "Registrable Securities" means (i) the shares
of Common Stock issuable or issued upon conversion of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D. Preferred
Stock or Series E Preferred Stock of the Company, (ii) any other shares of
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
the shares listed in (i), and (iii) the shares of Common Stock issued to
Investor pursuant to the transactions contemplated by that certain Joint
Development and License Agreement and that certain Stock Purchase Agreement,
entered into by and between the Company and Investor, on the date hereof;
provided, however, that the foregoing definition shall exclude in all cases any
Registrable Securities sold by a person in a transaction in which his or her
rights under this Agreement are not assigned. Notwithstanding the foregoing,
Common Stock or other securities shall only be
1
<PAGE> 4
treated as Registrable Securities if and so long as they have not been (A) sold
to or through a broker or dealer or underwriter in a public distribution or a
public securities transaction or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions, and restrictive legends
with respect thereto, if any, are removed upon the consummation of such sale;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "Holder" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.12 of this Agreement;
(e) The term "Form S-3" means such form under the
Securities Act as in effect on the date hereof or any successor form under the
Securities Act;
(f) The term "SEC" means the Securities and Exchange
Commission; and
(g) The term "Qualified IPO" means a firm commitment
underwritten public offering by the Company of shares of its Common Stock
pursuant to a registration statement on Form S-1 under the Securities Act, the
public offering price of which is not less than $5.00 per share (appropriately
adjusted for any stock split, dividend, combination or other recapitalization)
and which results in aggregate cash proceeds to the Company of $7,500,000 (net
of underwriting discounts and commissions).
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after six (6)
months after the effective date of the first registration statement for a public
offering of securities of the Company (other than a registration statement
relating either to the sale of securities to employees of the Company pursuant
to a stock option, stock purchase or similar plan or an SEC Rule 145
transaction), a written request from the Holders of at least twenty percent
(20%) of the Registrable Securities then outstanding that the Company file a
registration statement under the Securities Act covering the registration of at
least twenty percent (20%) of the Registrable Securities then outstanding (or a
lesser percent if the anticipated aggregate offering price, net of underwriting
discounts and commissions, would exceed $5,000,000), then the Company shall,
within ten (10) days of the receipt thereof, give written notice of such request
to all Holders and shall, subject to the limitations of subsection 1.2(b), use
its best efforts to effect as soon as practicable, and in any event within 60
days of the receipt of such request, the registration under the Securities Act
of all Registrable Securities which the Holders request to be registered within
twenty (20) days of the mailing of such notice by the Company in accordance with
Section 3.3.
2
<PAGE> 5
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to this Section 1.2 and the
Company shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be selected by a majority in interest of
the Initiating Holders and shall be reasonably acceptable to the Company. In
such event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.5(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
1.2, a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed, 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 of not more than 120 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 1.2:
(i) After the Company has effected two (2)
registrations pursuant to this Section 1.2 and such registrations have been
declared or ordered effective;
(ii) During the period starting with the date sixty
(60) days prior to the Company's good faith estimate of the date of filing of,
and ending on a date one hundred eighty (180) days after the effective date of,
a registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
3
<PAGE> 6
(iii) If the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.4 below.
1.3 COMPANY REGISTRATION. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock under the Securities Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan or a transaction
covered by Rule 145 under the Securities Act, a registration in which the only
stock being registered is Common Stock issuable upon conversion of debt
securities which are also being registered, or any registration on any form
which does not include substantially the same information as would be required
to be included in a registration statement covering the sale of the Registrable
Securities), the Company shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of each Holder given
within twenty (20) days after mailing of such notice by the Company in
accordance with Section 3.3, the Company shall, subject to the provisions of
Section 1.8, cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered.
1.4 FORM S-3 REGISTRATION. In case the Company shall receive from
any Investor a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) 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 or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within 15 days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.4: (i) if
Form S-3 is not available for such offering by the Holders; (ii) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000; (iii) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 120 days after receipt of
the request of the Holder or Holders under this Section 1.4; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period; (iv) if the Company has, within the twelve (12) month period preceding
the date of such
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<PAGE> 7
request, already effected two registrations on Form S-3 for the Holders pursuant
to this Section 1.4; (v) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance;
or (vi) during the period ending one hundred eighty (180) days after the
effective date of a registration statement subject to Section 1.3.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as demands for registration or registrations
effected pursuant to Sections 1.2 or 1.3, respectively.
1.5 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to one hundred twenty (120) days.
The Company shall not be required to file, cause to become effective or maintain
the effectiveness of any registration statement that contemplates a distribution
of securities on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement for up to one hundred twenty
(120) days.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
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(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, such obligation to continue for one hundred twenty (120) days.
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
(i) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
1.6 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities. The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement
if, as a result of the application of the preceding sentence, the number of
shares or the anticipated aggregate offering price of the Registrable Securities
to be included in the registration does not equal or exceed the number of shares
or the anticipated aggregate offering price required to originally trigger the
Company's
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obligation to initiate such registration as specified in subsection 1.2(a) or
subsection 1.4(b)(2), whichever is applicable.
1.7 EXPENSES OF REGISTRATION.
(a) DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders
selected by them with the approval of the Company, which approval shall not be
unreasonably withheld, shall be borne by the Company; provided, however, that,
unless the registration request is withdrawn at the request of an underwriter,
the Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 1.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating Holders
shall bear such expenses), unless the Holders of a majority of the Registrable
Securities agree to forfeit their right to one demand registration pursuant to
Section 1.2; provided further, however, that if at the time of such withdrawal,
the Holders have learned of a material adverse change in the condition,
business, or prospects of the Company from that known to the Holders at the time
of their request and have withdrawn the request with reasonable promptness
following disclosure by the Company of such material adverse change, then the
Holders shall not be required to pay any of such expenses and shall retain their
rights pursuant to Section 1.2.
(b) COMPANY REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications of Registrable Securities pursuant to
Section 1.3 for each Holder (which right may be assigned as provided in Section
1.12), including (without limitation) all registration, filing, and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company and up to $5,000 of the reasonable fees and
disbursements of one counsel for the selling Holder or Holders selected by them
with the approval of the Company, which approval shall not be unreasonably
withheld, shall be borne by the Company.
(c) REGISTRATION ON FORM S-3. All expenses incurred in
connection with a registration requested pursuant to Section 1.4, including
(without limitation) all registration, filing, qualification, printers' and
accounting fees and the reasonable fees and disbursements of one counsel for the
selling Holder or Holders selected by them with the approval of the Company,
which approval shall not be unreasonably withheld, and counsel for the Company,
and any underwriters' discounts or commissions associated with Registrable
Securities, shall be borne pro rata by the Holder or Holders participating in
the Form S-3 Registration.
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters
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<PAGE> 10
selected by it (or by other persons entitled to select the underwriters), and
then only in such quantity as the underwriters determine in their sole
discretion will not jeopardize the success of the offering by the Company. If
the total amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling shareholders
according to the total amount of securities entitled to be included therein
owned by each selling shareholder or in such other proportions as shall mutually
be agreed to by such selling shareholders) but in no event shall (i) any shares
being sold by a shareholder exercising a demand registration right similar to
that granted in Section 1.2 be excluded from such offering, (ii) the amount of
securities of the selling Holders included in the offering be reduced below
twenty percent (20%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities, in which case, except as provided in (i) the selling shareholders
may be excluded if the underwriters make the determination described above and
no other shareholder's securities are included or (iii) any securities held by a
Founder be included if any securities held by any selling Holder are excluded.
For purposes of the preceding parenthetical concerning apportionment, for any
selling shareholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and shareholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling shareholder," and any pro-rata reduction with
respect to such "selling shareholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling shareholder," as defined in this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required
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to be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable to any Holder,
underwriter or controlling person for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that in no event shall any indemnity under this subsection
1.10(b) exceed the net proceeds from the offering received by such Holder,
except in the case of willful fraud by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate
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due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
1.10.
(d) If the indemnification provided for in this Section
1.10 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations; provided, that in no event shall any contribution by a Holder
under this Subsection 1.10(d) exceed the net proceeds from the offering received
by such Holder, except in the case of willful fraud by such Holder. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Securities Act and any other rule or regulation of the SEC that may at any
time permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
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(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety (90)
days after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public so long as the
Company remains subject to the periodic reporting requirements under Sections 13
or 15(d) of the Exchange Act;
(b) take such action, including the voluntary registration
of its Common Stock under Section 12 of the Exchange Act, as is necessary to
enable the Holders to utilize Form S-3 for the sale of their Registrable
Securities, such action to be taken as soon as practicable after the end of the
fiscal year in which the first registration statement filed by the Company for
the offering of its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
1.12 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of at least 100,000 shares of such securities, or to a partner or
affiliate of Holder, provided the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act. For the purposes of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under Section 1.
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1.13 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
1.2 hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in subsection
1.2(a) or within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 1.2.
1.14 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees
that, during the period of duration (up to, but not exceeding, 180 days)
specified by the Company and an underwriter of Common Stock or other securities
of the Company, following the effective date of a registration statement of the
Company filed under the Securities Act, it shall not, to the extent requested by
the Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company held by it at any
time during such period except Common Stock included in such registration;
provided, however, that:
(a) such agreement shall be applicable only to the first
such registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) all officers and directors of the Company, all
one-percent securityholders, and all other persons with registration rights
(whether or not pursuant to this Agreement) enter into similar agreements.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period, and each Holder agrees
that, if so requested, such Holder will execute an agreement in the form
provided by the underwriter containing terms which are essentially consistent
with the provisions of this Section 1.14.
Notwithstanding the foregoing, the obligations described in this
Section 1.14 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to an SEC Rule 145 transaction
on Form S-4 or similar forms which may be promulgated in the future.
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1.15 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be
entitled to exercise any right provided for in this Section 1 after the earlier
of (i) four (4) years following the consummation of a Qualified IPO, or (ii)
such time as Rule 144 or another similar exemption under the Securities Act is
available for the sale of all of such Holder's shares during a three (3)-month
period without registration.
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver
to each Holder of at least 100,000 shares of Registrable Securities:
(a) as soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year of the Company, an income statement
for such fiscal year, a balance sheet of the Company and statement of
shareholder's equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles ("GAAP"),
and audited and certified by an independent public accounting firm of nationally
recognized standing selected by the Company;
(b) as soon as practicable, but in any event within thirty
(30) days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited profit or loss statement, a statement of cash
flows for such fiscal quarter and an unaudited balance sheet as of the end of
such fiscal quarter;
(c) within thirty (30) days of the end of each month, an
unaudited income statement and a statement of cash flows and balance sheet for
and as of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any event thirty (30)
days prior to the end of each fiscal year, a budget and business plan for the
next fiscal year, prepared on a monthly basis, and as soon as prepared, any
other budgets or revised budgets prepared by the Company; and
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment, provided that the foregoing shall not restrict the right of the
Company to change its accounting principles consistent with GAAP, if the Board
of Directors determines that it is in the best interest of the Company to do so.
2.2 TERMINATION OF COVENANTS.
(a) The covenants set forth in Section 2.1 shall terminate
as to the Investor and be of no further force or effect (i) immediately prior to
the consummation of a
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Qualified IPO or (ii) when the Company shall sell, convey or otherwise dispose
of or encumber all or substantially all of its property or business or merge
into or consolidate with any other corporation (other than a wholly-owned
subsidiary corporation) or effect any other transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company is disposed of, provided that this subsection (ii) shall not apply to a
merger effected exclusively for the purpose of changing the domicile of the
Corporation.
(b) The covenants set forth in Section 2.1 shall terminate
as to each Holder and be of no further force or effect when the Company first
becomes subject to the periodic reporting requirements of Sections 13 or 15(d)
of the Exchange Act, if this occurs earlier than the events described in Section
2.2(a) above.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective permitted successors and assigns of the
parties (including transferees of any of the Series E Preferred Stock or any
Common Stock issued upon conversion thereof). Nothing in this Agreement, express
or implied, is intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
3.2 AMENDMENTS AND WAIVERS.
(a) Any term of this Agreement may be amended or waived
only with the written consent of the Company and the holders of a majority of
the Registrable Securities then outstanding, not including the Founders' Stock;
provided that if such amendment has the effect of affecting the Founders' Stock
(i) in a manner different than securities issued to the Investors and (ii) in a
manner adverse to the interests of the holders of the Founders' Stock, then such
amendment shall require the consent of the holder or holders of a majority of
the Founders' Stock. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company.
3.3 NOTICES. Unless otherwise provided, any notice required or
permitted by this Agreement shall be in writing and shall be deemed sufficient
upon delivery, when delivered personally or by overnight courier or sent by
telegram or fax, or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address or fax number as set forth
below or on Exhibit A hereto or as subsequently modified by written notice.
3.4 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of
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the Agreement shall be interpreted as if such provision were so excluded and (c)
the balance of the Agreement shall be enforceable in accordance with its terms.
3.5 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto shall be governed, construed and interpreted in accordance with
the laws of the State of California, without giving effect to principles of
conflicts of laws.
3.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.7 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
The parties have executed this Investors' Rights Agreement as of the
date first above written.
COMPANY:
SAGE, INC.
By: /s/ Chandrashekar Reddy
-------------------------------
President
INVESTOR:
FAROUDJA LABORATORIES, INC.
By: /s/ Glenn W. Marschek
-------------------------------
Chief Executive Officer
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EXHIBIT 10.1
SAGE, INC.
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made and entered into by
and between Sage, Inc., a Delaware corporation ("Company"), and
___________________ ___________________ ("Indemnitee") on this ______ day of
________________, ______.
Introduction
Indemnitee is a director and/or officer of the Company. The parties
intend for the Company to provide indemnification to the fullest extent
permitted by the Delaware General Corporation Law (the "Act") (including
advancement of expenses) to Indemnitee against any and all liabilities asserted
against Indemnitee, as the Act presently exists and may be expanded from time to
time. Based on such premise, and for certain good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Continued Service. Indemnitee will serve at the will of the Company or
under separate contract, if such exists, as a director and/or officer of the
Company for so long as Indemnitee is duly elected and qualified in accordance
with the Bylaws of the Company or until Indemnitee tenders his or her
resignation to the Company.
2. Indemnification. The Company shall indemnify Indemnitee as follows:
2.1 The Company shall indemnify Indemnitee when Indemnitee was, is, or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal (other than an action by or in the right of the
Company), by reason of the fact that Indemnitee is or was a director, officer,
employee or agent of the Company or is or was serving at the request of the
Company as a director, officer, employee, associate, fiduciary, manager, member,
partner, promoter, trustee or agent of another domestic or foreign corporation
or other person or of an employee benefit plan against reasonable expenses
(including counsel fees) incurred by Indemnitee in connection with such
proceeding if Indemnitee conducted himself or herself in good faith and
Indemnitee reasonably believed that his or her conduct was in or not opposed to
the best interests of the Company, and, with respect to any criminal proceeding,
had no reasonable cause to believe that his or her conduct was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent is not, of itself, determinative
that Indemnitee did not meet the standard of conduct described in this Section
2.1.
2.2 The Company shall indemnify Indemnitee when Indemnitee was, is or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by or in the right of the Company to procure a judgment in
its favor by reason of the fact that Indemnitee is or was a director, officer,
employee or agent of the Company, or is or was serving at
-1-
<PAGE> 2
the request of the Company as a director, officer, employee, associate,
fiduciary, manager, member, partner, promoter, trustee or agent of another
domestic or foreign corporation or other person or of an employee benefit plan
against reasonable expenses (including counsel fees) incurred by Indemnitee in
connection with such proceeding if Indemnitee conducted himself or herself in
good faith and Indemnitee reasonably believed that his or her conduct was in or
not opposed to the best interests of the Company and except that no
indemnification pursuant to this Agreement shall be made in connection with a
proceeding in which Indemnitee shall have been adjudged to be liable to the
Company or charging that Indemnitee derived an improper personal benefit,
whether or not involving action in an official capacity, in which proceeding
Indemnitee was adjudged liable on the basis that he or she derived an improper
personal benefit, unless and only to the extent that the court in which such
proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the
proceeding, Indemnitee is fairly and reasonably entitled to indemnity for such
reasonable expenses, which the court shall deem proper.
2.3 Any indemnification under Sections 2.1 and 2.2 (unless ordered by
a court) shall be made by the Company only as authorized in the specific
proceeding upon a determination, in accordance with the procedures set forth in
Section 3, that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct set forth in such
Sections 2.1 and 2.2.
2.4 Reasonable expenses (including counsel fees) incurred by
Indemnitee who is a party to any threatened, pending or completed civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Company in advance of the final disposition of such proceeding
within 14 days after the receipt by the Company from Indemnitee of a Statement
of Undertaking in substantially the form set forth in EXHIBIT A, by which
Indemnitee undertakes to repay such amount if it is ultimately determined that
Indemnitee did not meet the standard of conduct. Those people making the
determination must also determine that based upon the facts then known to them,
indemnification would not be precluded.
2.5 The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 2 shall not be deemed exclusive of any other
rights to which Indemnitee may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
Indemnitee's official capacity and as to action in another capacity while
holding such official capacity, shall continue after Indemnitee has ceased to be
a director, officer, employee or agent of the Company, and shall inure to the
benefit of the heirs, executors and administrators of Indemnitee.
3. Determination of Right to Indemnification. For the purpose of making the
determination of whether to indemnify Indemnitee in a specific as provided for
by Section 2.3, the board of directors of the Company, board committee,
independent legal counsel or stockholders, as the case may be, shall make the
determination in accordance with the following procedures:
3.1 Such determination shall be made (a) by the board of directors of
the Company by a majority vote of those present at a meeting at which a quorum
consisting of directors
-2-
<PAGE> 3
who were not parties to such proceeding are present, (b) if a quorum cannot be
obtained, by a majority vote of a committee of the board of directors designated
by the board of directors, which committee shall consist of two or more
directors not parties to the proceeding, (c) if a quorum of the board cannot be
obtained nor a board committee established, or if a majority of the directors
constituting such quorum or such board committee so directs, by (d) independent
legal counsel selected by a vote of the board or the board committee, or if a
quorum of the full board cannot be obtained or a board committee cannot be
established, by independent legal counsel selected by a majority vote of the
full Board, or (b) by the stockholders of the Company.
3.2 Indemnitee shall submit to the board of directors a Statement of
Request for Indemnification in substantially the form set forth in EXHIBIT B, in
which Indemnitee states that Indemnitee has met the applicable standard of
conduct set forth in Sections 2.1 and 2.2.
3.3 Indemnitee's submission of a Statement of Request for
Indemnification to the board of directors shall create a rebuttable presumption
that Indemnitee has met the applicable standard of conduct set forth in sections
2.1 and 2.2 and, therefore, is entitled to indemnification under Section 2. The
board of directors, board committee, independent legal counsel or stockholders,
as the case may be, shall determine, within 30 days after submission of the
Statement of Request for Indemnification, specifically, that Indemnitee is so
entitled, unless it or they shall possess clear and convincing evidence to rebut
the foregoing presumption, which evidence shall be disclosed to Indemnitee with
particularity in a sworn written statement signed by all persons who
participated in the determination and voted to deny indemnification.
4. Merger, Consolidation or Change in Control. If the Company is a
constituent corporation in a merger or consolidation, whether the Company is the
resulting or surviving corporation or is absorbed as a result thereof, or if
there is a change in control of the Company, Indemnitee shall stand in the same
position under this agreement with respect to the resulting, surviving or
changed corporation as Indemnitee would have with respect to the Company if its
separate existence had continued or if there had been no change in control of
the Company.
5. Certain Definitions. For the purposes of this Agreement, the following
terms shall have the indicated meanings and understandings:
5.1 The term "change in control" shall include any change in the
ownership of a majority of the outstanding voting securities of the Company or
in the composition of a majority of the members of the board of directors of the
Company.
5.2 The term "corporation" shall include any domestic or foreign
entity that is a predecessor of a corporation by reason of a merger or other
transaction in which the predecessor's existence leased upon consummation of the
transaction.
5.3 The term "director" means an individual who is or was a director
of the Company or an individual who, while a director of the Company, is or was
surviving at the Company's request as a director, an officer, an agent, an
associate, an employee, a fiduciary, a
-3-
<PAGE> 4
manager, a member, a partner, a promoter or a trustee of, or to hold any similar
position with, another domestic or foreign corporation or other person or of an
employee benefit plan. A director is considered to be serving an employee
benefit plan at the Company's request if the director's duties to the Company
also impose duties on, or otherwise involve services by, the director to the
plan or to participants in or beneficiaries of the plan. "Director" includes,
unless the context requires otherwise, the estate or personal representative of
a director.
5.4 The term "liability" means the obligation incurred with respect to
a proceeding to pay a judgment, settlement, penalty, fine, including an excise
tax assessed with respect to an employee benefit plan, or reasonable expenses.
5.5 The term "official capacity" means, when used with respect to a
director, the office of director in the Company and, when used with respect to a
person other than a director, the office in the Company held by the officer or
the employment, fiduciary or agency relationship undertaken by the employee,
fiduciary or agent on behalf of the Company. "Official capacity" does not
include service for any other domestic or foreign corporation or other person or
employee benefit plan.
5.6 The term "party" includes a person who was, is, or is threatened
to be made a named defendant or respondent in a proceeding.
5.7 The term "proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
6. Counsel fees. If (a) Indemnitee institutes any legal action to enforce
Indemnitee's rights under this Agreement, or to recover damages for breach of
this Agreement, and (b) if Indemnitee prevails in whole or in part, then
Indemnities shall be entitled to recover from the Company all fees and expenses
(including counsel fees) incurred by Indemnitee in connection therewith.
7. Deposit of Funds in Trust. If the Company voluntarily decides to
dissolve or to file a petition for relief under the applicable bankruptcy,
moratorium or similar laws, then not later than 10 days prior to such
dissolution or filing, the Company shall deposit in trust for the sole and
exclusive benefit of Indemnitee a cash amount equal to all amounts previously
authorized to be paid to Indemnitee hereunder, such amounts to be used to
discharge the Company's obligations to Indemnitee hereunder. Any amounts in such
trust not required for such purpose shall be returned to the Company. This
Section 7 shall not apply to the dissolution of the Company in connection with a
transaction as to which Section 4 applies.
8. Amendments to Act. This Agreement is intended to provide indemnity to
Indemnitee to the fullest extent allowed under Delaware law. Accordingly, to the
extent permitted by law, if the Act permits greater indemnity than the indemnity
set forth herein, or if any amendment is made to the Act expanding the indemnity
permissible under Delaware law, the indemnity obligations
-4-
<PAGE> 5
contained herein automatically shall be expanded, without the necessity of
action on the part of any party, to the extent necessary to provide to
Indemnitee the fullest indemnity permissible under Delaware law.
9. Miscellaneous Provisions.
9.1 Survival. The provisions of this Agreement shall survive the
termination of Indemnitee's service as a director or officer of the Company.
9.2 Entire Agreement. This Agreement constitutes the full
understanding of the parties, comprises the complete and exclusive statement of
the terms and conditions of their agreement relating to the subject matter
hereof and supersedes all prior negotiations, understandings and agreements,
whether written or oral, between the parties, their affiliates, and their
respective principals, shareholders, directors, officers, employees, consultants
and agents with respect thereto.
INDEMNITEE:
-----------------------------------
Name: ____________________________
Title: ___________________________
SAGE, INC.
-----------------------------------
Name: ____________________________
Title: ___________________________
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<PAGE> 6
EXHIBIT A
STATEMENT OF UNDERTAKING
STATE OF _______________________ )
) ss:
COUNTY OF _____________________ )
I, _______________________, being first duly sworn, depose and say as
follows:
1. This Statement of Undertaking is submitted pursuant to the Indemnity
Agreement dated ___________, 1999, between Sage, Inc., a Delaware corporation
("Company"), and me and Section 2.4 of such agreement.
2. I am requesting the advancement of certain reasonable expenses which I
have incurred in defending a civil, criminal, investigative or administrative
action, suit or proceeding brought against me by reason of the fact that I am or
was a director and/or officer of the Company.
3. I hereby undertake to repay this advancement of expenses if it is
ultimately determined that I did not meet the applicable standard of conduct
required to be entitled to Indemnification by the Company.
4. I am requesting the advancement of reasonable expenses in connection
with the following proceeding:
I have executed this Statement of Undertaking on ________________________.
______________________________________________
Signature
______________________________________________
Print Name
Subscribed and sworn to before me on ______________________.
My commission expires: ________________________
______________________________________________
Notary Public in and for said state and county
<PAGE> 7
EXHIBIT B
STATEMENT OF REQUEST FOR INDEMNIFICATION
STATE OF _______________________ )
) ss:
COUNTY OF _____________________ )
I, _____________________________, being first duly sworn, depose and say as
follows:
1. This Statement of Request for Indemnification is submitted pursuant to
the Indemnity Agreement dated ________________, 1999, between Sage, Inc., a
Delaware corporation ("Company"), and me and Section 3 of such agreement.
2. I am requesting indemnification against reasonable expenses (including
counsel fees) incurred by me in connection with a certain proceeding to which I
am a party or am threatened to be made a party by reason of the fact that I am
or was a director and/or officer of the Company.
3. With respect to all matters related to any such proceeding, I conducted
myself in good faith, I reasonably believed that my conduct was in or not
opposed to the best interests of the Company and, with respect to any criminal
proceeding, I had no reasonable cause to believe that my conduct was unlawful.
4. I am requesting indemnification in connection with the following
proceeding:
I have executed this Statement of Request for Indemnification on
___________________.
___________________________________________
Signature
___________________________________________
Print Name
Subscribed and sworn to before me on ______________________.
My commission expires: ________________________
______________________________________________
Notary Public in and for said state and county
<PAGE> 1
EXHIBIT 10.2
SAGE, INC.
1997 STOCK PLAN
1. PURPOSE OF THE PLAN. The purposes of this 1997 Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options (as
defined under Section 422 of the Code) or Nonstatutory Stock Options, as
determined by the Administrator at the time of grant of an Option and subject
to the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means the Committee appointed by the Board of
Directors in accordance with Section 4(a) and (b) of the Plan.
(e) "COMMON STOCK" means the Common Stock of the Company.
(f) "COMPANY" means Sage, Inc., a California corporation.
(g) "CONSULTANT" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Administrator, provided that
such leave is for a period of not more than 90 days, unless reemployment upon
the expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or
(iv) in the case of transfers between locations of the Company or between the
Company, its Subsidiaries or their respective successors. For purposes of this
Plan, a change in status from an Employee to a Consultant or from a Consultant
to an Employee will not constitute an interruption of Continuous Status as an
Employee or Consultant.
<PAGE> 2
(i) "EMPLOYEE" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company, with the
status of employment determined based upon such minimum number of hours or
periods worked as shall be determined by the Administrator in is discretion,
subject to any requirements of the Code. The payment by the Company of a
director's fee to a director shall not be sufficient to constitute
"employment" of such director by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(k) "FAIR MARKET VALUE" means, as of any date, the fair market value
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange, or the exchange with the greatest volume of trading
in Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but
not on the National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common
Stock for the last market trading day prior to the time of determination, as
reported in The Wall Street Journal or such other source as the Administrator
deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock Option within the meaning of Section 422 of the Code, as
designated in the applicable written Option Agreement.
(m) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option, as designated in the applicable written
Option Agreement.
(n) "OPTION" means a stock Option granted pursuant to the Plan.
(o) "OPTION AGREEMENT" means a written agreement between an Optionee
and the Company reflecting the terms of an Option granted under the Plan and
includes any documents attached to such Option Agreement, including, but not
limited to, a notice of stock option grant and a form of exercise notice.
(p) "OPTIONED STOCK" means the Common Stock subject to an Option or a
Stock Purchase Right.
<PAGE> 3
(q) "OPTIONEE" means an Employee or Consultant who receives an
Option or a Stock Purchase Right.
(r) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code, or any successor provision.
(s) "PLAN" means this 1997 Stock Plan.
(t) "REPORTING PERSON" means an officer, director, or greater than
10% shareholder of the Company within the meaning of Rule 16a-2 under the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the
Exchange Act.
(u) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 10 below.
(v) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written agreement
between a holder of a Stock Purchase Right and the Company reflecting the terms
of a Stock Purchase Right granted under the Plan and includes any documents
attached to such agreement.
(w) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange
Act, as the same may be amended from time to time, or any successor provision.
(x) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(y) "STOCK EXCHANGE" means any stock exchange or consolidated stock
price reporting system on which prices for the Common Stock are quoted at
any given time.
(z) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock
pursuant to Section 10 below.
(aa) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 3,000,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock. If an Option should expire
or become unexercisable for any reason without having been exercised in full,
the unpurchased Shares that were subject thereto shall, unless the Plan shall
have been terminated, become available for future grant under the Plan. In
addition, any Shares of Common Stock which are retained by the Company upon
exercise of an Option or Stock Purchase Right in order to satisfy the exercise
or purchase price for such Option or Stock Purchase Right or any withholding
taxes due with respect to such exercise shall be treated as not issued and shall
continue to be available under the Plan. Shares repurchased by the Company
pursuant to any repurchase right which the Company may have shall not be
available for future grant under the Plan.
<PAGE> 4
4. ADMINISTRATION OF THE PLAN.
(a) INITIAL PLAN PROCEDURE. Prior to the date, if any, upon which
the Company becomes subject to the Exchange Act, the Plan shall be administered
by the Board or Committee appointed by the Board.
(b) PLAN PROCEDURE AFTER THE DATE, IF ANY, UPON WHICH THE COMPANY
BECOMES SUBJECT TO THE EXCHANGE ACT.
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3,
grants under the Plan may be made by different bodies with respect to
directors, non-director officers and Employees or Consultants who are not
Reporting Persons.
(ii) ADMINISTRATION WITH RESPECT TO REPORTING PERSONS. With
respect to grants of Options or Stock Purchase Rights to Employees who are
Reporting Persons, such grants shall be made by (A) the Board if the Board may
make grants to Reporting Persons under the Plan in compliance with Rule 16b-3,
or (B) a Committee designated by the Board to make grants to Reporting Persons
under the Plan, which Committee shall be constituted in such a manner as to
permit grants under the Plan to comply with Rule 16b-3. Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly make grants to Reporting Persons under the Plan, all to the
extent permitted by Rule 16b-3.
(iii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND OTHER
EMPLOYEES. With respect to grants of Options or Stock Purchase Rights to
Employees or Consultants who are not Reporting Persons, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board, which
Committee shall be constituted in such a manner as to satisfy the legal
requirements relating to the administration of Incentive Stock Option plans,
if any, of applicable corporate and securities laws, of the Code and of any
applicable Stock Exchange (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws.
(c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan
and in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
<PAGE> 5
(ii) to select the Consultants and Employees to whom Options
and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(ix) to determine the terms and restrictions applicable to
Stock Purchase Rights and the Restricted Stock purchased by exercising such
Stock Purchase Rights; and
(x) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan; and
(xi) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options or Stock Purchase Rights to
participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs.
(d) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all holders of Options or Stock Purchase Rights.
5. ELIGIBILITY.
(a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options and Stock
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees. An Employee or Consultant who has
been granted an Option or Stock Purchase Right may, if he or she is otherwise
eligible, be granted additional Options or Stock Purchase Rights.
(b) TYPE OF OPTION. Each Option shall be designated in the Option
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However,
<PAGE> 6
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
For purposes of this Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares subject to an Incentive Stock Option shall be determined as of the
date of the grant of such Option.
(c) The Plan shall not confer upon the holder of any Option or Stock
Purchase Right any right with respect to continuation of employment or
consulting relationship with the Company, nor shall it interfere in any way with
such holder's right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten years unless sooner terminated under
Section 15 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than
ten years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement and provided further that, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Option is
granted, owns stock representing more than 10% of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Option shall be five years from the date of grant thereof or such
shorter term as may be provided in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board and
set forth in the applicable agreement, but shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than 10% of the
total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110%
of the Fair Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option that is:
<PAGE> 7
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than 10% of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value
per Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares that (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender or such other period as may be
required to avoid a charge to the Company's earnings, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which such Option shall be exercised, (5) authorization for the
Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised, (6) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price and
any applicable income or employment taxes, (7) delivery of an irrevocable
subscription agreement for the Shares that irrevocably obligates the option
holder to take and pay for the Shares not more than twelve months after the
date of delivery of the subscription agreement, (8) any combination of the
foregoing methods of payment, or (9) such other consideration and method of
payment for the issuance of Shares to the extent permitted under the Applicable
Laws. In making its determination as to the type of consideration to accept,
the Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER; Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator and reflected in the Option Agreement, which
may include vesting requirements and/or performance criteria with respect to
the Company and/or the Optionee; provided, however, that such Option shall
become exercisable at the rate of at least 20% per year over five years from
the date the Option is granted. In the event that any of the Shares issued upon
exercise of an Option should be subject to a right of repurchase in the
Company's favor, such repurchase rights shall lapse at the rate of at least 20%
per year over five years from the date the Option is granted. Notwithstanding
the above, in the case of an Option granted to an officer, director or
Consultant of the Company or any Parent or Subsidiary of the Company, the
Option may become fully exercisable, and a repurchase right, if any, in favor
of the Company shall lapse, at any time or during any period established by the
Administrator.
<PAGE> 8
An Option may not be exercised for a fraction of a Share and no partial
exercise of the Option may be for less than 100 Shares.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, not withstanding the exercise of the Option. The Company shall issue (or
cause to be issued) such stock certificate promptly upon exercise of the
Option. No adjustment will be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. Subject to
Section 9(c) below, in the event of termination of an Optionee's Continuous
Status as an Employee or Consultant with the Company, such Optionee may, but
only within three months (or such other period of time not less than 30 days as
is determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option and not
exceeding three months) after the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent that the Optionee
was entitled to exercise it at the date of such termination. To the extent that
the Optionee was not entitled to exercise the Option at the date of such
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate. No
termination shall be deemed to occur and this Section 9(b) shall not apply if
(i) the Optionee is a Consultant who becomes and Employee, or (ii) the Optionee
is an Employee who becomes a Consultant.
(c) DISABILITY OF OPTIONEE.
(i) Notwithstanding Section 9(b) above, in the event of
termination of an Optionee's Continuous Status as an Employee or Consultant as
a result of his or her total and permanent disability (within the meaning of
Section 22(e)(3) of the Code), such Optionee may, but only within twelve months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. To the extent that the Optionee was not entitled to exercise the
Option at the date of termination, or if the Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate.
<PAGE> 9
(ii) In the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of a disability which does not
fall within the meaning of total and permanent disability (as set forth in
Section 22(e)(3) of the Code), such Optionee may, but only within six months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option which is an Incentive Stock Option ("ISO") (within the meaning of
Section 422 of the Code) within three months of the date of such termination,
the Option will not qualify for ISO treatment under the Code. To the extent
that the Optionee was not entitled to exercise the Option at the date of
termination, or if the Optionee does not exercise such Option to the extent so
entitled within six months from the date of termination, the Option shall
terminate.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee
during the period of Continuous Status as an Employee or Consultant since the
date of grant of the Option, or within 30 days following termination of the
Optionee's Continuous Status as an Employee or Consultant, the Option may be
exercised, at any time within six months following the date of death (but in no
event later than the expiration date of the term of such Option as set forth in
the Option Agreement), by such Optionee's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that had accrued at the date of death or, if
earlier, the date of termination of the Optionee's Continuous Status as an
Employee or Consultant. To the extent that the Optionee was not entitled to
exercise the Option at the date of death or termination, as the case may be, or
if the Optionee does not exercise such Option to the extent so entitled within
the time specified herein, the Option shall terminate.
(e) RULE 16b-3. Options granted to Reporting Persons shall comply
with Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
10. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer, or, in the case of
a person owning stock representing more than (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
price shall not be less than (100%) of the Fair Market Value of the Shares as
of the date of the offer), and the time within which such person must accept
such offer, which shall in no event exceed 30 days from the date upon which the
Administrator made the determination to grant the Stock Purchase Right. The
offer shall be accepted by execution of a Restricted Stock Purchase Agreement
in the form determined by the Administrator.
<PAGE> 10
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original purchase price paid
by the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine; provided, however, that with respect to an
Optionee who is not an officer, director or Consultant of the Company or of any
Parent or Subsidiary of the Company, it shall lapse at a minimum rate of 20%
per year.
(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be
the same with respect to each purchaser.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the Stock Purchase Right is exercised, except as provided
in Section 12 of the Plan.
11. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by one or
some combination of the following methods: (a) by cash or check payment, or (b)
out of the Optionee's current compensation, (c) if permitted by the
Administrator, in its discretion, by surrendering to the Company Shares that (i)
in the case of Shares previously acquired from the Company, have been owned by
the Optionee for more than six months on the date of surrender, and (ii) have a
fair market value on the date of surrender equal to or less than the Optionee's
marginal tax rate times the ordinary income recognized, or (d) by electing to
have the Company withhold from the Shares to be issued upon exercise of the
Option, or the Shares to be issued in connection with the Stock Purchase Right,
if any, that number of Shares having a fair market value equal to the amount
required to be withheld. For this purpose, the fair market value of the Shares
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined (the "Tax Date").
Any surrender by a Reporting Person of previously owned Shares to satisfy
tax withholding obligations arising upon exercise of this Option must comply
with the applicable provisions of Rule 16b-3.
<PAGE> 11
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option or Stock Purchase Right as to which the
election is made; and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election
is filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option or Stock Purchase Right is
exercised but such Optionee shall be unconditionally obligated to tender back
to the Company the proper number of Shares on the Tax Date.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN OTHER
TRANSACTIONS.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination, recapitalization or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of 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 Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance 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 or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least 15 days prior to such proposed action. To the extent it has not been
previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
<PAGE> 12
(c) MERGER OR SALE OF ASSETS. In the event of a proposed sale of
all or substantially all of the Company's assets or a merger of the Company
with or into another corporation where the successor corporation issues its
securities to the Company's stockholders, each outstanding Option or Stock
Purchase Right shall be assumed or an equivalent option or right shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the successor corporation does not agree to
assume the Option or Stock Purchase Right or to substitute an equivalent option
or right, in which case such Option or Stock Purchase Right shall terminate
upon the consummation of the merger or sale of assets. For purposes of this
Section 12(c), an Option or a Stock Purchase Right shall be considered assumed,
without limitation, if, at the time of issuance of the stock or other
consideration upon such merger or sale of assets, each holder of an Option or a
Stock Purchase Right would be entitled to receive upon exercise of the Option
or Stock Purchase Right the same number and kind of shares of stock or the same
amount of property, cash or securities as such holder would have been entitled
to receive upon the occurrence of such transaction if the holder had been,
immediately prior to such transaction, the holder of the number of Shares of
Common Stock covered by the Option or the Stock Purchase Right at such time
(after giving effect to any adjustments in the number of Shares covered by the
Option or Stock Purchase Right as provided for in this Section 12).
(d) CERTAIN DISTRIBUTIONS. In the event of any distribution to
the Company's shareholders of securities of any other entity or other assets
(other than dividends payable in cash or stock of the Company) without receipt
of consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
13. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Options
and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised or purchased during the lifetime
of the Optionee or Stock Purchase Rights Holder only by the Optionee or Stock
Purchase Rights Holder.
14. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or
Stock Purchase Right, or such other date as is determined by the Board;
provided, however, that in the case of any Incentive Stock Option, the grant
date shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option
or Stock Purchase Right is so granted within a reasonable time after the date
of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AUTHORITY TO AMEND OR TERMINATE. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinua-
<PAGE> 13
tion shall be made that would impair the rights of any Optionee under any grant
theretofore made, without his or her consent. In addition, to the extent
necessary and desirable to comply with Rule 16b-3 or with Section 422 of the
Code (or any other applicable law or regulation, including the requirements of
any Stock Exchange), the Company shall obtain shareholder approval of any Plan
amendment in such a manner and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. No amendment or
termination of the Plan shall adversely affect Options already granted, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
16. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery
of such Shares pursuant thereto shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any Stock Exchange.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without
any present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by law.
17. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deeded by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
18. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced by
written Option Agreements and Restricted Stock Purchase Agreements,
respectively, in such form(s) as the Administrator shall approve from time to
time.
19. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and
the rules of any Stock Exchange upon which the Common Stock is listed. All
Options and Stock Purchase Rights issued under the Plan shall become void in
the event such approval is not obtained.
20. INFORMATION AND DOCUMENTS TO OPTIONEES AND PURCHASERS. The Company
shall provide financial statements at least annually to each Optionee and to
each individual who acquired Shares Pursuant to the Plan, during the period
such Optionee or purchaser has one or
<PAGE> 14
more Options or Stock Purchase Rights outstanding, and in the case of an
individual who acquired Shares pursuant to the Plan, during the period such
individual owns such Shares. The Company shall not be required to provide such
information if the issuance of Options or Stock Purchase Rights under the Plan
is limited to key employees whose duties in connection with the Company assure
their access to equivalent information. In addition, at the time of issuance of
any securities under the Plan, the Company shall provide to the Optionee or the
Purchaser a copy of the Plan and any agreement(s) pursuant to which securities
granted under the Plan are issued.
<PAGE> 1
EXHIBIT 10.03
JOINT DEVELOPMENT AND LICENSE AGREEMENT
This Joint Development and License Agreement ("Agreement"), is entered into
on July 23,1999 (the "Effective Date"), between Sage, Inc. ("Sage"), a Delaware
corporation with a principal place of business at 2460 North First Street, #100,
San Jose, California 95131, and Faroudja Laboratories, Inc. ("Faroudja"), a
California corporation with a principal place of business at 750 Palomar Avenue,
Sunnyvale, California 94086 (hereinafter referred to collectively as the
"Parties" and individually as a "Party").
RECITALS
WHEREAS, Sage designs, develops, manufactures and markets application
specific integrated circuits ("ASIC") primarily for the flat panel display
market;
WHEREAS, Faroudja is recognized as a leader in developing video processing
and image enhancement technologies and designs, develops and manufactures
products, including integrated circuits, for video applications.
WHEREAS, Sage and Faroudja are interested in working together to combine
Faroudja video processing and image enhancement technologies and expertise with
Sage's ASIC design and fabrication and display controller technologies and
expertise, to provide reasonably priced, high-quality chip solutions for
manufacturers of flat panel displays and other display devices.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants, and other terms and conditions contained herein, Sage and Faroudja
agree as follows:
AGREEMENT
1. Definitions.
1.1 "Affiliate" means, with respect to a Party, an entity controlling,
controlled by, or under common control with, such Party, such control being
exercised through the ownership or control, directly or indirectly, of at least
a majority of the capital stock (or, in the case of a noncorporate entity,
equivalent interests) representing the right to vote for the election of
directors or another managing authority, as of the Effective Date or thereafter
during the term of this Agreement, but such entity shall be deemed to be an
Affiliate only so long as such ownership or control exists.
1.2 "Contractor" means a person or entity, other than a Party or an
employee of a Party, that is engaged by a Party to perform any work related to
the subject matter of this Agreement.
1.3 "Deliverable Items" means the specific package of information and
materials relating to the Licensed Technology (defined below) necessary for Sage
to implement the Licensed Technology in Sage ASICs as set forth in Exhibit B.
<PAGE> 2
1.4 "Enhancement" means any modification, variation, revision or
adaptation to the Licensed Technology (defined below) that improves its
performance or reduces the cost of materials or production.
1.5 "Gross Margin" means, with respect to a Licensed Chip (defined below),
the Net Revenues (defined below) for such Licensed Chip less the Standard Cost
(defined below) of such Licensed Chip.
1.6 "Improvement" means any design, development, enhancement, modification
or improvement (whether or not patentable) relating to or arising from the
Licensed Technology and conceived or developed by either Party during the Term
of this Agreement.
1.7 "Joint Chip" means the first Licensed Chip (defined below) developed
by Sage in cooperation with Faroudja for use in connection with a universal
display controller.
1.8 "Joint Invention" means an Improvement (i) categorized by the Parties
as a Joint Invention prior to the commencement of any development of such
Improvement, (ii) made jointly by employees or Contractors of Faroudja and Sage
during the term of this Agreement or (iii) made solely by the employees or
Contractors of Sage during the term of this Agreement.
1.9 "Licensed Chip" means an ASIC that incorporates all or a portion of
the Licensed Technology (defined below) and that incorporates content provided
by Sage constituting [*] of the circuitry (measured by core die area) of such
integrated circuit device.
1.10 "Licensed Know-How" means the video decoding, enhancement and
deinterlacing technologies which are owned by Faroudja, on and after the
Effective Date, and incorporated in the technology transfer described on Exhibit
B annexed hereto, and any other information related thereto disclosed to Sage by
Faroudja through technical training sessions and ongoing technical support
described on Exhibit B.
1.11 "Licensed Patents" means those United States patents and patent
applications of Faroudja listed on Exhibit A; all corresponding patents or
patent applications issued by, or filed in, any other country; and all
continuations, continuations in part, substitutions, divisions, extensions,
reissues, reexaminations or renewals thereof.
1.12 "Licensed Technology" means Licensed Patents, Licensed Know-How and
Updates (defined below).
1.13 "Net Revenues" means the gross revenues from Sage's sale or other
distribution of Licensed Chips, but not including (i) sales and use taxes,
excise taxes, customs duties and other similar taxes levied in respect to such
sale or other disposition, (ii) shipping, handling, service, insurance and other
charges for delivery of Licensed Chips, and (iii) the amount of any bad debts,
refunds, returns, discounts and credits. In no event shall any taxes on Sage's
income be considered in a calculation of Net Revenues.
- --------
[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE> 3
1.14 "Standard Cost" means, with respect to a Licensed Chip, Sage's current
net per-unit costs for the fabrication, packaging and testing of units of such
Licensed Chip, together with all product-related costs necessary to bring such
Licensed Chip to the point of sale, including but not limited to shipping,
handling, insurance and storage charges.
1.15 "Subsidiary" means, with respect to a Party, an entity as to which
such Party owns and controls a majority of the capital stock (or, in the case of
a noncorporate entity, equivalent interests) representing the right to vote for
the election of directors or another managing authority, but such entity shall
be deemed to be a Subsidiary only so long as such ownership and control exist.
1.16 "Trademarks" means Faroudja's logos and other trademarks set forth on
Exhibit C, as such marks vary in appearance and/or style from time to time.
1.17 "Updates" means technology updates to fix bugs and/or correct errors
to the Licensed Technology developed by Faroudja for its own use or in response
to a report of a bug or error from Sage pertaining to the Licensed Technology,
regardless of whether such updates are licensed to any third party.
2. Technology License Grant.
2.1 License. Subject to the terms and conditions of this Agreement,
Faroudja hereby grants to Sage, a non-exclusive (except as provided in Section
5), non-transferable (except as provided in Sections 2.3 and 18.3), worldwide,
royalty-bearing right and license under all of Faroudja's copyright, patent,
trade secret, mask work, know how and other intellectual property rights in the
Licensed Technology:
(i) to design and develop, and engage Contractors to design and
develop, modifications to and derivatives of the Licensed Technology for the
purpose of creating Licensed Chips;
(ii) to use and engage third-party contractors to use the Licensed
Technology, including such modifications and derivatives, in the design and
development of Licensed Chips; and
(iii) to manufacture, have manufactured, sell and otherwise distribute
Licensed Chips.
The license granted in this Section 2.1 will be deemed to include a
license to Sage under all Joint Inventions.
2.2 Trademark License. Faroudja hereby grants to Sage a non-exclusive,
non-transferable (except as provided in Sections 2.3 and 18.3), worldwide right
and license to use Trademarks in Sage's marketing, sale and distribution of
Licensed Chips, subject to the terms and conditions of Section 16.
2.3 Sublicense Rights. Sage shall not have the right to sublicense any of
the rights or licenses granted to Sage under this Agreement, except that Sage
may grant sublicenses to Sage Subsidiaries that agree in writing that they are
subject to the terms and conditions of this Agreement and that Faroudja has all
rights of action against the Subsidiaries that it would have against Sage.
<PAGE> 4
2.4 Disclosure. Sage shall not disclose Faroudja Confidential Information
to its Subsidiaries or Contractors except in connection with the design,
manufacture or provision of products or services relating to the manufacture or
provision of Licensed Chips for Sage and/or its Subsidiaries. Disclosure shall
be limited to such portions of the Licensed Technology as are necessary to the
provision of such products or services. Any such disclosure shall be pursuant to
written confidentiality agreements that contain provisions at least as
restrictive as those which apply to Sage under this Agreement, providing for the
limited and secure use and storage of the Licensed Technology. Faroudja shall
not disclose Sage Confidential Information to its Subsidiaries or Contractors
except in connection with the provision of products or services relating to the
sale and distribution of Licensed Chips for Faroudja and/or its Subsidiaries.
Disclosure shall be limited to such portions of Sage Confidential Information as
are necessary to the provision of such products or services. Any such disclosure
shall be pursuant to written confidentiality agreements that contain provisions
at least as restrictive as those which apply to Faroudja under this Agreement.
3. Faroudja's Delivery and Technical Support Obligations.
3.1 Deliverable Items. Faroudja shall deliver to Sage the Deliverable
Items set forth in Exhibit B relating to each element of the Licensed Technology
in the manner and at the times set forth therein and, pursuant to Exhibit B,
according to the delivery schedule established by mutual agreement of the
Parties and attached to this Agreement. Upon receipt of such Deliverable Items,
if Sage determines that the Deliverable Items are insufficient for Sage to
implement the Licensed Technology in Licensed Chips, the Parties shall confer in
good faith and Faroudja shall promptly provide Sage with any information and
materials that the Parties deem necessary for Sage to implement the Licensed
Technology in Licensed Chips. Faroudja's failure to complete delivery of the
Deliverable Items will constitute a material breach by Faroudja of this
Agreement.
3.2 Updates. Faroudja shall deliver Updates to Sage at no charge, not
later than seven (7) days after the availability thereof.
3.3 Enhancements. If Faroudja licenses or otherwise makes available
Enhancements to any third party, other than an Affiliate of Faroudja or as a
result of a change of control as permitted by Section 18.3, for inclusion in
integrated circuits, Sage shall be entitled to obtain delivery of and a license
to such Enhancements on terms and conditions at least as favorable to Sage as
the terms and conditions offered by Faroudja to such third party; provided,
however, Faroudja shall, within seven (7) days after Faroudja enters into such
license with such third party, notify Sage in writing of the availability and
content of such license and, if it intends to accept such license, Sage must
inform Faroudja of its intent to accept such license within sixty (60) days from
the receipt of notification from Faroudja of the availability thereof.
3.4 Technical Support. During the term of this Agreement, Faroudja will
provide Sage with the technical support and training regarding the Licensed
Technology and Deliverable Items described on Exhibit B.
<PAGE> 5
4. Payments.
4.1 Fees.
(i) License Fee. In consideration of Faroudja's agreement to pay to Sage
the sum of five hundred thousand dollars ($500,000), Faroudja's agreement to
provide Sage with the Deliverable Items, Faroudja's license to Sage of the
Licensed Technology, Faroudja's agreement regarding transfer of the Licensed
Technology in Section 5.2, and the other terms and conditions of this Agreement,
on the Effective Date Sage shall pay Faroudja one million one hundred
twenty-five thousand (1,125,000) shares of Sage common stock as a license fee
(the "License Fee") pursuant to the transactions contemplated by that certain
Stock Purchase Agreement, Voting Agreement and Investors' Rights Agreement,
dated as of the date hereof and incorporated in their entirety herein by
reference. Faroudja shall not sell or otherwise alienate the License Fee until
the earlier to occur of (i) the end of the Exclusivity Period (as defined in
Section 5.2) and (ii) the availability of first samples of the Joint Chip.
(ii) Payment by Faroudja. Faroudja shall pay to Sage the sum of five
hundred thousand dollars ($500,000) on the Effective Date.
4.2 Royalties. For each unit of a Licensed Chip sold by Sage, Sage will
pay to Faroudja a royalty ("Royalty") equal to a percentage of Net Revenues on
such unit, as follows:
<TABLE>
<CAPTION>
Units of Licensed Chips Sold Royalty
- ---------------------------- -------
<S> <C>
1 unit to [*] units [*]% of Net Revenue
[*] to [*] units [*]% of Net Revenue
[*] to [*] units [*]% of Net Revenue
Over [*] units [*]% of Net Revenue
</TABLE>
All Royalties due Faroudja shall accrue upon the sale by Sage or a licensed
Sage Subsidiary of such Licensed Chips. Notwithstanding the foregoing, neither
Sage nor its licensed Subsidiaries shall pay Royalties on units of the Licensed
Chip that (i) are sold to Faroudja or its Subsidiaries, or (ii) are used for
internal purposes to facilitate the production and marketing of the Licensed
Chip, including but not limited to such purposes as testing, demonstrating,
end-user evaluation and sampling.
4.3 Discretion in Pricing. Sage and its licensed Subsidiaries shall be
free to determine their own list price for the Licensed Chips (and any discount
applied thereto) and no representative of Faroudja has any authority to dictate
Sage's or its licensed Subsidiaries' price for, or in any way inhibit Sage's or
its licensed Subsidiaries' pricing discretion with respect to, the Licensed
Chips.
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[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE> 6
4.4 Minimum Per Unit Royalty Payment. Sage and its licensed Subsidiaries
will pay to Faroudja at least a minimum Royalty payment of $[*] per unit of
Licensed Chip sold.
4.5 Royalty Payments for Combinations. Sage and its licensed Subsidiaries
may, at their discretion, incorporate the Licensed Chip in a board (a
"Combination"), and may offer such Combination at a single price. [*], Royalty
payments for each sale of a Combination shall be [*], and shall not be [*] For
the purpose of this Section 4.5, [*] means the value at which the Licensed Chip
[*] by Sage, or its Subsidiaries, as the case may be, [*], in similar
quantities. In no event shall the per-unit Royalty for Licensed Chips sold as
part of Combinations be less than $[*].
4.6 Most Favored Royalty Rate. If Faroudja licenses or otherwise makes
available the Licensed Technology to any third party on royalty terms that are
more favorable to such third party than the Royalty terms in Section 4.2, Sage
and its licensed Subsidiaries shall be entitled to rely on the same royalty
terms offered by Faroudja to such third party. Faroudja shall promptly notify
Sage in writing of any royalty terms that Faroudja offers to any third party
that are more favorable to such third party than the Royalty terms in Section
4.2. If Sage chooses to substitute the royalty terms in this Agreement for the
royalty terms offered to a third party, it shall notify Faroudja of its decision
within sixty (60) days upon receipt of notification from Faroudja of the
availability thereof. The operation of this Section 4.6 shall not require the
recalculation or refund of any payments previously made to Faroudja by Sage.
4.7 Payments; Royalty Reports. Royalties shall be payable within
forty-five (45) days after the end of each fiscal quarter, based on Net Revenues
during the preceding calendar quarter. With respect to Net Revenues generated in
a currency other than U.S. dollars, for purposes of calculating Net Revenues,
Sage will convert the selling currency to U.S. dollars based on the average
exchange rate for each month of such fiscal quarter for such currency set forth
in the final edition of The Wall Street Journal (version distributed in Northern
California). All payments required to be made under this Agreement shall be made
in U.S. dollars and be made payable to the order of "Faroudja Laboratories,
Inc." Payment may be made by check, direct deposit to Faroudja's bank or wire
transfer.
4.8 Royalty Reports. Concurrently with each Royalty payment, Sage shall
provide Faroudja with a written Royalty report specifying: (i) the gross number
of units of the Licensed Chip sold by Sage and its Subsidiaries, by type of
Licensed Chip, during the reporting period, (ii) Net Revenues by type of
Licensed Chip, (iii) the Royalty rate applied, and (iv) the total Royalties
determined to be due in the reporting period. The report will be accompanied by
a good faith, non-binding projection of the Royalties that Sage forecasts will
be payable to Faroudja with respect to the next calendar quarter.
4.9 Verification. Not more than once per year, following fifteen (15)
days' notice and at mutually acceptable times during Sage's regular business
hours, Sage will make available for audit by an independent public accountant,
at Sage's offices, such books and records as may reasonably be required to
verify Sage's compliance with this Agreement; provided, however,
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[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE> 7
such independent public accountant shall agree in writing to bound by
confidentiality obligations substantially similar to those that are binding on
Faroudja under this Agreement. Faroudja agrees to pay the cost of such audits
unless the amounts paid to Faroudja are found to be less than ninety-five
percent (95%) of the amounts due to Faroudja for the audited period, in which
event Sage shall reimburse Faroudja for the cost of such audit. Audits shall not
unreasonably interfere with Sage's business activities.
4.10 Maintenance of Records. Sage shall maintain, on a rolling thirty-six
(36) month basis, while this Agreement is in effect and for a period of at least
three (3) years thereafter, such accurate books and records as shall be
necessary to confirm Sage's compliance with this Agreement. Such records shall
include, without limitation, information necessary to compute payments due to
Faroudja hereunder.
4.11 Late Payment. If Sage fails to pay any payment due under this
Agreement on or before the due date thereof, then the delinquent amount shall be
subject to a late charge equal to one and one-half percent (1.5%) per month from
the due date until paid. If this late charge exceeds the maximum rate allowed by
law, then the late charge shall accrue at the maximum allowable rate.
4.12 Disputed Payments. Acceptance by Faroudja of any payments under this
Agreement shall not prevent Faroudja, at a later date, from disputing the amount
owed or from demanding more information from Sage regarding payments finally
due, and such acceptance of any payment by Faroudja shall not constitute a
waiver of any breach of any term or provision of this Agreement by Sage if any
breach shall have occurred.
4.13 Taxes. In addition to any other payments due under this Agreement,
Sage shall pay, and hereby agrees to indemnify and hold Faroudja harmless from,
any sales, use, excise, import or export, value-added or similar tax or duty not
based on Faroudja's income, including any penalties and interest, as well as any
costs associated with the collection or withholding thereof, and all government
fees, license fees and customs and similar fees levied on the delivery of any
services or the Licensed Technology to Sage (collectively, "Taxes"). All
payments due under this Agreement shall be made without any deduction or
withholding for any Taxes, unless such deduction or withholding is required by
any applicable law of any relevant government authority then in effect. If Sage
is required to deduct or withhold any Taxes other than in connection with any
failure by Faroudja to make payment of any Taxes, Sage will promptly notify
Faroudja of the requirement, pay the required amount to the relevant
governmental authority, provide Faroudja with an official receipt or certified
copy or other documentation acceptable to Faroudja evidencing the payment, and
gross-up the payments subject to any such deduction or withholding, and pay to
Faroudja, in addition to the payment to which Faroudja is otherwise entitled
under this Agreement, such additional amount as is necessary to insure that the
net amount actually received by Faroudja after any such deduction or withholding
equals the full amount Faroudja would have received had no such deduction or
withholding been imposed. In the event that Faroudja receives any allowable or
actual financial benefit from any Taxes so paid by Sage such that, together with
the grossed-up payment amount paid by Sage, Faroudja receives, or is entitled to
receive, more than the full amount Faroudja would have received had no such
deduction or withholding been imposed, then Faroudja shall promptly refund to
Sage any such excess, or at Sage's option, apply such excess to future
Royalties.
<PAGE> 8
5. Exclusivity.
5.1 During the term of this Agreement, Sage shall not develop, for use in
products licensed, sold or distributed by Sage to third parties or for use in
products licensed, sold or distributed through a private label, any board-level
video processor product that incorporates a Licensed Chip and is intended to be
used as a standalone video processor similar to the following Faroudja [*]
products: [*]
5.2 Faroudja will not license the Licensed Know-How or engage in a
transfer of the Licensed Technology similar to that described in Exhibit B to
[*] until the earliest of the following dates: [*] (the "Exclusivity Period").
6. Joint Chip.
6.1 Joint Chip. Sage will use commercially reasonable efforts to commit
the resources necessary to develop the Joint Chip as the first Licensed Chip at
the earliest possible date.
6.2 Marketing of Joint Chip. Sage shall use commercially reasonable
efforts to market the Joint Chip. Subject to the foregoing, Sage shall have sole
discretion in determining when and how to market the Joint Chip.
7. Faroudja's Rights To Purchase Licensed Chips.
7.1 Prices to Faroudja. Faroudja shall be entitled to purchase (a)
Licensed Chips for testing, demonstrating, end-user evaluation and sampling as
soon as reasonably practicable after they are available to Sage for those
purposes, and (b) production units of Licensed Chips from Sage at the earliest
time that Sage makes a Licensed Chip available to its customers, both of which
will be available to Faroudja for purchase from Sage at the following prices:
(i) for Licensed Chips to be used in liquid crystal display monitors, at
[*] at which such Licensed Chips are offered or sold by Sage to any third party
for similar quantities, less a percentage equal to the percentage Royalty which
would be due on such Licensed Chips pursuant to Section 4.2, above if they were
sold to a third party other than Faroudja;
(ii) for Licensed Chips to be used in projection applications and for
Licensed Chips to be used in the headset applications of Colorado MicroDisplay
and Sony, at a price that is [*] less than [*] at which such Licensed Chips are
offered or sold by Sage to any third party for similar quantities;
(iii) for Licensed Chips to be used in other applications, at a price that
is [*] less than [*] at which such Licensed Chips are offered or sold by Sage to
any third party for similar quantities.
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[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE> 9
7.2 Minimum Price. In no event will Sage be required to sell Licensed
Chips to Faroudja at a price that provides Sage with less than [*] Gross Margin.
If application of the pricing provisions of Section 7.1 to any proposed Licensed
Chip purchase by Faroudja would provide Sage with less than [*] Gross Margin,
the price to Faroudja of such Licensed Chips will be increased to a level which
will provide Sage with [*] Gross Margin.
7.3 Allocation of Licensed Chips. Within fifteen (15) days of the end of
each calendar quarter, Faroudja will provide to Sage a good faith, non-binding
projection of the quantities of Licensed Chips that Faroudja forecasts it will
purchase with respect to the next calendar quarter. If demand for the Licensed
Chips necessitates allocation, Licensed Chips will be allocated equitably among
Faroudja and other customers in proportion to quantities ordered.
7.4 Additional Sage Support. If Faroudja purchases Licensed Chips from
Sage,
(i) Sage will provide to Faroudja, at no charge to Faroudja, the same
firmware or software necessary to fully utilize such Licensed Chips as Sage
provides to other customers purchasing the same Licensed Chips, and Sage will
grant to Faroudja the same standard license (with the right to grant sublicenses
if such rights are granted to other customers) to use such firmware or software
as Sage provides to other customers purchasing the same Licensed Chips as
necessary to fully utilize such Licensed Chips;
(ii) if any license rights to Sage firmware or software are granted by
Sage to purchasers of Licensed Chips from Sage, Faroudja's license rights to
Sage firmware or software under Section 7.4(i) will include the right to grant
sublicenses to Faroudja customers to the extent necessary for Faroudja to grant
the same rights to purchasers of Licensed Chips from Faroudja as Sage grants to
purchasers of Licensed Chips from Sage;
(iii) Sage will provide Faroudja with a reasonable amount of technical
support regarding the firmware or software provided with such Licensed Chips;
(iv) Sage will disclose the firmware or software provided with such
Licensed Chips to Faroudja in the same form (source code or object code) and
under the same standard terms and conditions as Sage discloses such firmware or
software to other customers purchasing the same Licensed Chips; and
(v) Sage will customize any software provided by Sage with such Licensed
Chips, at Faroudja's reasonable request, on terms to be negotiated by the
Parties in good faith. If Sage is unwilling or unable to provide such
customization services on a timely basis and under commercially reasonable terms
and conditions, Sage will provide to Faroudja source code reasonably necessary
for Faroudja to make or have made the necessary modifications for Faroudja's or
Faroudja's customers' use with Licensed Chips purchased from Sage.
7.5 Discontinued Products. Sage shall notify Faroudja of its intention to
discontinue the production of any Licensed Chips at least ninety (90) days prior
to the date of the last scheduled production run. Faroudja shall have the right,
exercisable during the thirty (30)
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[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE> 10
day period following such notice, to submit a final purchase order for the
Licensed Chips being discontinued.
8. Ownership of Intellectual Property Rights
8.1 Agreements with Employees. Each of the Parties hereto represents to
the other Party that it has, or will have, prior to commencement of the
activities called for under this Agreement, valid and sufficient arrangements
and agreements with its respective employees and Contractors, such that the
ownership of any and all inventions that can be deemed Joint Inventions made by
an employee or Contractor vests in the Party hereto employing said employee or
Contractor, subject to the provisions of the applicable law governing ownership
of such inventions.
8.2 Licensed Technology. Faroudja shall retain all ownership, right, title
and interest in and to the Licensed Technology and proprietary rights related
thereto. No license is granted to Sage under any such rights other than the
license granted in this Agreement.
8.3 Faroudja Inventions and Improvements. Faroudja shall own all
ownership, right, title and interest in and to inventions made exclusively by
Faroudja employees or Contractors during the term of this Agreement. The license
granted in Section 2.1 will be deemed to include a license to Sage under Joint
Inventions. No other license is granted to Sage under any such rights other than
the license granted in this Agreement.
8.4 Sage Inventions and Improvements. Sage shall own all ownership, right,
title and interest in and to inventions made exclusively by Sage employees or
Contractors during the term of this Agreement, except to the extent that such
inventions are Joint Inventions.
8.5 Joint Inventions. Joint Inventions shall be jointly owned by Faroudja
and Sage, with each holding an undivided fifty percent (50%) ownership interest
in such Joint Invention. With respect to such Joint Inventions, (i) the Parties
shall agree on a case-by-case basis which Party will file United States and
foreign patent applications and other filings, recordation or registrations, if
any, (ii) the Parties shall share equally the reasonable cost of all mutually
agreed upon patent applications and other filings, recordation or registrations,
and (iii) each Party shall enjoy all rights of ownership of such Joint
Inventions, including the right to license and otherwise freely exploit such
Joint Inventions, without a right or duty of accounting; provided, however, with
respect to Joint Inventions created solely by Sage or its employees or
Contractors, during the term of this Agreement Faroudja will not license such
Joint Inventions to [*].
8.6 Registration. Except as expressly set forth herein, Sage shall not
seek or obtain any registration of any of the Licensed Technology in any name
other than that of Faroudja or participate directly or indirectly in such
registration anywhere in the world without Faroudja's prior written consent. If
Sage has obtained or obtains in the future, in any country, any registered,
filed, recorded or other right, title or interest in any of the Licensed
Technology, or in any other intellectual property right of Faroudja, Sage has so
acted or will act as an agent and for the benefit of Faroudja for the limited
purpose of obtaining such registrations and assigning the same to Faroudja. Sage
shall execute any and all instruments deemed by Faroudja, or its
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[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE> 11
respective attorneys or representatives, to be necessary to transfer such right,
title or interest to Faroudja.
8.7 Power of Attorney. During the term of this Agreement and for a period
of two (2) years thereafter, each Party agrees to execute such documents, render
such assistance and take such other actions as the other Party may reasonably
request, to assist the requesting Party to apply for, register, perfect, confirm
and protect the requesting Party's rights in the Licensed Technology, inventions
and Improvements in accordance with the ownership rights set forth in this
Agreement. Each Party will assist the other in obtaining and enforcing patents
and other protection with respect to the Licensed Technology, inventions and
Improvements in accordance with the ownership rights set forth in this Agreement
in any and all countries during and after the term of this Agreement. Neither
Party shall incur any expense with respect to any such assistance provided to
the other Party. If a requesting Party is unable to secure the other Party's
signature to any lawful and necessary document that accurately reflects the
ownership rights established under this Agreement, where such document is
required to apply for, execute, perfect, enforce or protect any patent or other
rights with respect to any Licensed Technology, invention or Improvement that is
the subject of this Agreement, then the non-requesting Party hereby designates
and appoints the requesting Party as its agent and attorney in fact to act for
and on behalf of and instead of the non-requesting Party to execute any such
documents and to take any such action in the name of the non-requesting Party.
9. Faroudja's Representations and Warranties.
9.1 Faroudja represents and warrants to Sage as follows:
(a) Title. Faroudja owns all right and title to the Licensed Patents
or otherwise has the right and authority to grant licenses of the Licensed
Patents to Sage.
(b) No Misappropriation. The Licensed Technology does not constitute
or contain any trade secrets of anyone other than Faroudja or one from whom
Faroudja has received rights to use and disclose such trade secrets under
license to Sage.
(c) No Trademark Infringement. The Trademarks do not infringe the
trademark rights of any person or entity.
(d) No Copyright Infringement. The Licensed Technology does not
infringe any copyright rights, including but not limited to the mask work
rights, of any person or entity.
(e) Non-Infringement of Known Patents. Faroudja has not received and
is not aware of any notice or allegation nor is it aware of any facts that would
suggest that the Licensed Technology infringes any valid patents or other
intellectual property rights owned by any person.
(f) Notices of Infringement. Faroudja has not received and is not
aware of any notice or allegation that any of the Licensed Technology infringes
any third-party intellectual property rights.
<PAGE> 12
9.2 Disclaimer of Warranty. In addition to the disclaimer of warranties
contained in Section 13.3 hereof, Faroudja specifically disclaims any warranty
that the Licensed Technology is error-free, complete or sufficient for the
manufacture and sale of the Licensed Chips.
10. Mutual Representations and Warranties.
Each Party hereby represents and warrants to the other Party as follows:
10.1 Corporate Existence and Power. Such Party (i) is a corporation duly
organized, validly existing and in good standing under the laws of the state in
which it is incorporated, (ii) has the corporate power and authority and the
legal right to own and operate its property and assets and to carry on its
business as it is now being conducted, and (iii) is in compliance with all
requirements of applicable law, except to the extent that any noncompliance
would not have a material adverse effect on its properties, business, financial
or other condition and would not materially adversely affect its ability to
perform its obligations under this Agreement.
10.2 Authorization and Enforcement of Obligations. Such Party (i) has the
corporate power and authority and the legal right to enter into this Agreement
and to perform its obligations hereunder, and (ii) has taken all necessary
corporate action on its part to authorize the execution and delivery of this
Agreement and the performance of its obligations hereunder. This Agreement has
been duly executed and delivered on behalf of such Party, and constitutes a
legal, valid, binding obligation, enforceable against such Party in accordance
with its terms.
10.3 No Conflict. The execution and delivery of this Agreement and the
performance of such Party's obligations hereunder (i) do not conflict with or
violate any requirement of applicable law or regulation, and (ii) do not
conflict with, or constitute a default under, any of its contractual
obligations.
10.4 No Warranties to Other Party's Customers. To the extent that either
Party makes any warranty to its customers with respect to the Licensed Chips,
such warranty shall be made solely for such Party's account and shall not bind
the other Party.
11. Faroudja's Indemnity.
11.1 Faroudja shall defend and hold harmless Sage against any legal action
to the extent based on a third-party claim that (i) Faroudja does not have the
right to grant the license granted by Faroudja to Sage under this Agreement,
(ii) the Licensed Technology, a modification or addition to the Licensed
Technology made by or for Faroudja or a Deliverable Item infringes a copyright,
trade secret, mask work, patent or other intellectual property rights of the
third party; or (iii) the Trademarks infringe the trademark rights of the third
party. Sage agrees to provide Faroudja with prompt notice of the claim, provided
that failure to provide such notice does not relieve Faroudja of the obligations
imposed by this section unless the failure to provide notice materially
prejudices Faroudja's rights. Sage further agrees to provide all reasonable
cooperation to Faroudja in defending a claim and agrees that Faroudja shall
control the defense and any settlement of the claim, provided, that any
settlement shall not impose any liability on Sage. Faroudja's obligations under
this Section 11.1 will not apply to (a) any use or combination of the Licensed
Technology or Deliverable Items by Sage with any software, hardware, component
or other technology not supplied by Faroudja, (b) any modifications or additions
to
<PAGE> 13
the Licensed Technology made by or for Sage (unless such modifications or
additions were made at Faroudja's request or instruction); (c) Faroudja's
compliance with Sage's instructions, drawings, designs or functional
specifications, or (d) any alteration or modification of the Licensed Technology
other than an alteration or modification made by Faroudja or a Faroudja
Contractor or agent.
11.2 If there is a claim relating to the Licensed Technology or a
Deliverable Item covered by Section 11.1, Faroudja may, at its option and
expense, (i) procure for Sage the past and future rights granted to Sage
hereunder with respect to the allegedly infringing portion of the Licensed
Technology or Deliverable Item; (ii) replace or modify the allegedly infringing
portion to make such portion non-infringing, provided that the replacement or
modified portion provides substantially the same functionality as the replaced
or original portion; or (iii) terminate this Agreement and reimburse Sage for
the total amount of the License Fee and Royalties paid hereunder.
11.3 THIS SECTION 11 STATES FAROUDJA'S ENTIRE OBLIGATION AND LIABILITY TO
SAGE WITH RESPECT TO ANY CLAIM REGARDING ACTUAL OR ALLEGED INFRINGEMENT OR
MISAPPROPRIATION OF THE INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY.
12. Sage's Indemnity.
12.1 Sage shall defend and hold harmless Faroudja against any legal action
to the extent based on a third-party claim that any modification or addition to
the Licensed Technology made by or for Sage or any Licensed Chip purchased by
Faroudja from Sage (except to the extent Faroudja is required to indemnify Sage
pursuant to Section 11.1), infringes a copyright, trade secret, mask work,
patent or other intellectual property rights of the third party. Faroudja agrees
to provide Sage with prompt notice of the claim, provided that failure to
provide such notice does not relieve Sage of the obligations imposed by this
section unless the failure to provide notice materially prejudices Sage's
rights. Faroudja further agrees to provide all reasonable cooperation to Sage in
defending a claim and agrees that Sage shall control the defense and any
settlement of the claim, provided, that any settlement shall not impose any
liability on Faroudja. Sage's obligations under this Section 12.1 will not apply
(i) to any claim for which Faroudja is obligated to indemnify Sage pursuant to
Section 11; (ii) to any modifications or additions to the Licensed Technology
made for Faroudja; (iii) to Sage's compliance with Faroudja's instructions,
drawings, designs or functional specifications; (iv) to any use or combination
of the modifications or additions to Licensed Technology with any software,
hardware, component or other technology not supplied by Sage.
<PAGE> 14
12.2 If there is a claim relating to Licensed Chips covered by Section
12.1, Sage may, at its option and expense, (i) procure for Faroudja the right to
use the Licensed Chips with respect to the allegedly infringing portion of the
Licensed Chips; (ii) replace or modify the allegedly infringing portion to make
such portion non-infringing, provided that the replacement or modified portion
provides substantially the same functionality as the replaced or original
portion; or (iii) cease developing, manufacturing, selling or distributing
Licensed Chips, including the Joint Chip.
12.3 THIS SECTION 12 STATES SAGE'S ENTIRE OBLIGATION AND LIABILITY TO
FAROUDJA WITH RESPECT TO ANY CLAIM REGARDING ALLEGED INFRINGEMENT OR
MISAPPROPRIATION OF THE INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY.
13. Limitation of Liability.
13.1. Neither Party shall be liable to the other Party for any incidental,
consequential, special or punitive damages arising out of or relating to this
Agreement, whether liability is based on breach of contract, breach of warranty
(express, implied or otherwise), indemnity or otherwise, and whether asserted in
contract, tort (including negligence and strict product liability) or otherwise,
and irrespective of whether such Party has been advised of the possibility of
any such damages. In no event shall either Party's aggregate liability in
connection with this Agreement exceed [*].
13.2 NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES (EXPRESS,
IMPLIED, STATUTORY OR OTHERWISE), OTHER THAN AS EXPRESSLY SET FORTH IN SECTIONS
9 AND 10, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT OF
THIRD-PARTY RIGHTS, OR THEIR EQUIVALENTS UNDER THE LAWS OF ANY JURISDICTION.
EACH PARTY DISCLAIMS, AND IRREVOCABLY WAIVES, THE BENEFIT OF ANY REPRESENTATIONS
AND WARRANTIES NOT EXPRESSLY SET FORTH IN SECTIONS 9 AND 10, RESPECTIVELY.
14. Term; Termination.
14.1 Term. This Agreement, and the rights and licenses granted by Faroudja
to Sage pursuant to this Agreement shall commence on the Effective Date and
continue in perpetuity, unless earlier terminated as provided in this Section
14.
14.2 Termination for Breach. If either Party materially breaches any
material provision of this Agreement, then the other Party may elect to
terminate this Agreement if the defaulting Party fails to cure the breach within
thirty (30) days of receipt of written notice describing such breach.
14.3 Termination for Convenience. Sage shall have the right to terminate
this Agreement for convenience after completion of the fifth year of the term of
this Agreement upon sixty (60) days notice to Faroudja; provided, however,
Faroudja shall have the right, exercisable
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[*] Omitted pursuant to a confidential treatment request. The material has been
filed separately with the Securities and Exchange Commission.
<PAGE> 15
during the thirty (30) day period following such notice, to submit a final
purchase order for Licensed Chips.
14.4 Insolvency. Either Party shall have the right to suspend its
performance under this Agreement by written notice to the other Party, if such
other Party shall: (1) become insolvent or bankrupt or cease to do business, be
unable or admit in writing its inability to pay all debts as they mature or make
a general assignment for the benefit of or enter into any composition or
arrangement with creditors; (2) authorize, apply for, or consent to the
appointment of a receiver or trustee, or liquidate all or a substantial part of
its assets or have proceedings seeking such appointment commenced against it
which are not terminated within sixty (60) days of such commencement; or (3)
file a voluntary petition under any bankruptcy or insolvency law, or file a
voluntary petition under the reorganization or arrangement provisions of the
United States Bankruptcy Act or any similar laws of any jurisdiction or have
proceedings under such laws instituted against it which are not terminated
within thirty (30) days of such commencement. Such suspension of performance
shall remain in effect until such other Party (a) assumes this Agreement and
provides adequate assurances of its future performance under this Agreement, or
(b) rejects this Agreement.
14.5 Additional Bankruptcy Provisions. If Faroudja ceases to conduct
business through liquidation or forced dissolution, voluntary or involuntary
liquidation or reorganization under the United States Bankruptcy Code or
otherwise ceases to do business, or rejects this Agreement under Section 365 of
the Bankruptcy Code, the provision of 11 U.S.C. ss. 101(56) and 365(n) shall
apply and Sage may elect to (i) treat this Agreement as immediately terminated,
or (ii) retain Sage's rights under this Agreement. All rights and licenses
granted to Sage pursuant to this Agreement are, and shall be deemed to be, for
purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of rights to
"intellectual property" as defined under Section 101 of the U.S. Bankruptcy
Code. In a bankruptcy or insolvency proceeding involving Faroudja, the Parties
agree that Sage, as licensee of such rights, shall retain and fully exercise all
of its rights and elections under the U.S. Bankruptcy Code, and the provisions
thereof shall apply notwithstanding conflict of law principles. If, in a
bankruptcy or insolvency proceeding involving Faroudja, the provisions of the
U.S. Bankruptcy Code referenced above are determined not to apply, Sage shall
nevertheless be entitled to no less than the protection offered by the
provisions of the U.S. Bankruptcy Code with respect to its entitlement to and
rights to the use and possession of all intellectual property to which Sage has
been granted rights under this Agreement notwithstanding the bankruptcy or
insolvency of Faroudja.
14.6 Effect of Termination. Upon termination of this Agreement, all rights
and licenses granted hereunder will terminate, and each Party will be released
from all obligations and liabilities to the other occurring or arising after the
date of such termination. Upon termination by Sage pursuant to Section 14.2, (a)
Sage will receive a non-exclusive, perpetual right and license to: (i) design
and develop, and engage third-party contractors to design and develop,
modifications to and derivatives of the Licensed Technology, (ii) use and engage
third-party contractors to use the Licensed Technology, including such
modifications and derivatives, in the design and development of Licensed Chips,
and (iii) manufacture, have manufactured, sell and otherwise distribute such
Licensed Chips; provided, however, such right and license is contingent on Sage
continuing to pay to Faroudja a Royalty at rates that are equal to fifty percent
(50%) of the Royalty rates set forth in Sections 4.2 and 4.5 of this Agreement
and fifty percent
<PAGE> 16
(50%) of the minimum Royalty payment set forth in Section 4.4. Notwithstanding
anything to the contrary in this Section 14.6 and provided Sage complies with
its payment obligations pursuant to Sections 4.2 and 4.4, Sage may dispose of
any Licensed Chips that it has manufactured prior to termination of the
Agreement for a period of one hundred twenty (120) days after the effective date
of such termination and shall have the right to fulfill any obligations to
deliver Licensed Chips pursuant to binding orders entered into before the
termination of the Agreement.
14.7 Survival. Notwithstanding anything in Section 14.6 to the contrary,
the Parties' rights and obligations under Sections 4 (to the extent payment
obligations have accrued prior to termination or continue to accrue in
accordance with Section 14.6), 8.2, 8.3 (first sentence only), 8.4, 8.5, 11, 12,
13, 14, 15, 16.1, 16.4 and 18 shall survive termination of this Agreement.
15. Confidentiality.
The exchange of confidential information between the Parties pursuant to
this Agreement shall be governed by the terms of the Mutual Confidential
Disclosure Agreement signed between the Parties on April 27, 1999 (the
"Confidentiality Agreement"). The Confidentiality Agreement is hereby amended as
follows:
(i) Section 1 of the Confidentiality Agreement will be replaced with the
following:
"Purpose. The parties have entered into a Joint Development and
License Agreement (the "License Agreement") and Stock Purchase
Agreement, Voting Agreement and Investor Rights Agreement, both dated
as of the date hereof, relating to advanced video technologies and
the purchase of certain securities, under which each party may
disclose Confidential Information (as hereinafter defined) to the
other for the purposes set forth in such agreements."
(ii) Section 9 of the Confidentiality Agreement will be replaced with the
following:
"Term. This Agreement shall become effective as of the date written
above. This Agreement shall remain in effect as long as the License
Agreement or Stock Agreement remains in effect, whichever is longer.
The provisions of this Agreement shall apply to all Confidential
Information disclosed under this Agreement prior to termination and,
notwithstanding termination, shall survive for a period of three (3)
years from the date of each disclosure."
(iii) The following sentence shall be added at the end of Section 10 of the
Confidentiality Agreement:
"In the event of any conflict between the provisions of this
Confidentiality Agreement and the License Agreement and/or the Stock Agreement,
the License Agreement shall control."
16. Trademarks and Proprietary Notices.
16.1. Use of Faroudja Name and Trademarks. Sage acknowledges that Faroudja
has made a substantial investment in developing and maintaining an image and
reputation for high
<PAGE> 17
quality design, prestige and performance and that the Licensed Technology is
associated with products of consistently high quality and performance. The
Faroudja name and Trademarks may be used by Sage on Licensed Chips only with the
prior written notice, opportunity to review and consent of Faroudja.
16.2. Samples of Licensed Chips. Sage agrees that in order to use
Trademarks on Licensed Chips, the performance of Licensed Chips must adhere to
Faroudja standards of quality and performance. Faroudja will have the right to
test and evaluate all Licensed Chips with respect to which Sage seeks to use a
Trademark to confirm that the performance of such products is consistent with
the Faroudja image and reputation. The parties acknowledge their mutual interest
in the broad use of Trademarks. Faroudja will not unreasonably withhold its
consent to the use of such marks on Licensed Chips that adhere to Faroudja
quality and performance standards. To facilitate this process, (a) Sage will
provide to Faroudja samples of the Licensed Chips that will be sold under
Faroudja's Trademarks (which samples of the Licensed Chips shall be provided as
early in the design process as reasonably possible) together with a board and
firmware or software necessary for testing; and (b) Faroudja will evaluate
Licensed Chips within ten (10) business days of receipt of the samples or any
additional period of time as the Parties mutually agree upon (the "Review
Period"). If Faroudja notifies in writing Sage within the Review Period that the
sample Licensed Chip does not meet commercially reasonable standards of quality
and set forth the reasons for Faroudja's objections in reasonable detail, the
Parties shall confer in good faith to identify the changes that Sage must make
to the subject chip and, in the absence of agreement, Sage shall make
commercially reasonable efforts to remedy any of Faroudja's commercially
reasonable objections before making such chip generally available to the public.
If Faroudja fails to notify Sage in writing of its objections to a chip within
the Review Period, or if Faroudja does not approve the use of Trademarks with a
Licensed Chip, Sage shall have the right to make such Licensed Chips generally
available under Sage's trademarks or a private label, in Sage's sole discretion.
16.3. Samples of Marketing Material. Sage will provide to Faroudja samples
of any advertisement, brochure or other publicly distributed material that it
intends to use in connection with Licensed Chips and which contains a Faroudja
name or bears a Faroudja Trademark. Faroudja will notify Sage in writing within
seven (7) business days of receipt of such samples of any objections it has to
the usage of the Faroudja name or Trademark, and set forth the reasons for
Faroudja's objections in reasonable detail. Sage shall remedy the identified
objections and will provide revised samples to Faroudja. Faroudja will notify
Sage in writing within three (3) business days of receipt of such revised
samples of any objections it has to the usage of the Faroudja name or Trademark,
seting forth the reasons for Faroudja's objections in reasonable detail, and
Sage shall make commercially reasonable efforts to remedy the identified
objections. Faroudja will not unreasonably withhold its approval of any samples
provided pursuant to this Section 16.3.
16.4. Proprietary Rights Notices; Obligation to Use Appropriate Markings.
Sage shall use commercially reasonable efforts to affix the Trademark to each
Licensed Chip approved by Faroudja. Further, Sage agrees to use the appropriate
trademark, product descriptor and trademark symbol (either "TM" or circled "R"),
and clearly indicate Faroudja's ownership of its trademark(s) whenever any of
the Trademarks is first mentioned in any advertisement, brochure or
documentation. Sage shall use commercially reasonable efforts to affix to the
<PAGE> 18
documentation associated with each Licensed Chip approved by Faroudja the
patent, copyright, or other proprietary notices reasonably specified by
Faroudja. Sage will determine the size and placement of such notices given the
overall size and design and other markings on such Sage documentation.
17. Confidentiality of Agreement; Public Announcement.
17.1 Confidentiality of Agreement. The Parties agree that the terms and
conditions of this Agreement shall be deemed to be Confidential Information
under the Parties' Confidentiality Agreement and neither Party shall advertise,
issue any press release or otherwise publish the fact that the Parties have
entered into this Agreement without the prior written consent of the other
Party, except as may be required by law.
17.2 Initial Release. Notwithstanding the foregoing, within seven (7) days
of the Effective Date, Sage and Faroudja will issue a joint press release, the
terms and details of which both Parties shall agree upon.
17.3 Future Releases. After the press release announcing the signing of
this Agreement is issued, each Party may include the information included in
such press release in subsequent press releases and other publications without
the other Party's prior written consent, provided that such Party includes
proper attribution of the other Party's name.
18. Miscellaneous Provisions.
18.1 Notices. All notices required hereunder shall be in writing and shall
be sent by U.S. mail (first class) or nationally-recognized courier service
(e.g., DHL, Federal Express), with all postage or delivery charges prepaid, or
may be sent via facsimile, subject to confirmation via U.S. mail or
nationally-recognized courier service, and shall be addressed to the Parties at
their addresses set forth below or to such other address(es) as may be furnished
by written notice in the manner set forth herein. Notices shall be deemed to
have been served when delivered or, if delivery is not performed as a result of
the addressee's fault, when tendered.
<TABLE>
<S> <C>
Notices to Faroudja: Notices to Sage:
Faroudja Laboratories, Inc. Sage, Inc.
750 Palomar Avenue 2460 North First Street, #100
Sunnyvale, California 94086 San Jose, California 95131
Attn: Chief Executive Officer Attn: Company Secretary
Facsimile No.: 408.735.8571 Facsimile No.: 408.383.5310
With a copy to: With a copy to:
Faroudja Laboratories, Inc. John W. Campbell, III
750 Palomar Avenue Morrison & Foerster, LLP
Sunnyvale, California 94086 425 Market Street
Attn: General Counsel San Francisco, California 94105
Facsimile No.: 408.735.0142 Facsimile No.: 415.268.7522
</TABLE>
<PAGE> 19
18.2 Relationship. The relationship between the parties shall be that of
independent contractors. This Agreement shall not be construed as creating an
agency, partnership, joint venture or any other form of legal association
between the Parties other than as expressly set forth herein. Neither Party
shall have any right or authority to assume or create any obligation of any kind
or to make any representation or warranty on behalf of the other Party, whether
express or implied, or to bind the other Party in any respect whatsoever, except
as expressly set forth in this Agreement.
18.3 Limitation on Assignment. Neither Party shall be entitled to assign,
transfer or otherwise convey this Agreement or any of its rights hereunder to
any third party unless the written consent of the other Party shall first have
been obtained. Any attempted or purported assignment, sublicense, transfer,
conveyance or delegation without such prior consent (where required hereunder)
having been obtained shall be void and a breach of this Agreement.
Notwithstanding the foregoing, either Party can assign this Agreement in the
event of a transfer of all or substantially all of such Party's assets or the
merger or consolidation of such Party. Subject to the foregoing, this Agreement
shall bind and inure to the benefit of the Parties and their respective
successors and permitted assigns.
18.4 Non-Solicitation. Neither Party shall, during the first two (2) years
of this Agreement, either directly or indirectly, on its own behalf or in the
service of or on behalf of others, divert, solicit or hire away, or attempt to
divert, solicit or hire away, any person employed by the other Party, except
with the prior written consent of the other Party.
18.5 Force Majeure. Except for the obligation to pay money, neither Party
shall be deemed to be in breach or default of this Agreement as the result of
any delay or nonperformance which is caused by flood, fire, storm, earthquake,
or other Act of God, war acts of the public enemy, riot, civil disturbance,
strike, lockout or labor dispute.
18.6 Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, U.S.A., without reference
to conflicts of law principles except to the extent that United States federal
law preempts California law, in which case United States federal law (including,
without limitation, copyright, patent and federal trademark law) shall apply,
without reference to conflicts of law principles.
18.7 Attorneys' Fee. If either Party commences any action or proceeding
against the other Party to enforce this Agreement or any of its rights
hereunder, the prevailing Party in such action or proceeding shall be entitled
to recover from the other Party the reasonable attorneys' fees and all related
costs and expenses incurred by such prevailing Party in connection with such
action or proceeding and in connection with enforcing any judgment or order
thereby obtained.
18.8 No Waiver. No failure or delay by either Party in exercising any
right, power or remedy under this Agreement shall operate as a waiver of any
such right, power or remedy. No waiver of any provision of this Agreement shall
be effective unless in writing and signed by the Party against whom such waiver
is sought to be enforced.
<PAGE> 20
18.9 Amendments in Writing. No amendment to or modification of this
Agreement shall be binding unless in writing and signed by a duly authorized
representative of each of the Parties.
18.10 Severability. In the event that any provision of this Agreement (or
any portion hereof) is determined by a court of competent jurisdiction to be
illegal, invalid or otherwise unenforceable (an "Invalid Provision"), the
Parties shall substitute, by mutual consent, a valid and enforceable provision
for such Invalid Provision, which valid and enforceable provision in its effect
is sufficiently similar to the Invalid Provision that it can be reasonably
assumed that the Parties would have entered into this Agreement with such
alternate provision. If such provision cannot be agreed upon, the invalidity of
one or several provisions of this Agreement shall not affect the validity of
this Agreement as a whole, unless an Invalid Provision is of such essential
importance to this Agreement that it can be reasonably assumed that the Parties
would not have entered into this Agreement without the Invalid Provision.
18.11 No Third Party Beneficiaries. No provisions of this Agreement,
whether express or implied, are intended or shall be construed to confer upon or
give to any person or entity other than the specific Parties and their
Subsidiaries, as applicable, any rights, remedies or other benefits under or by
reason of this Agreement.
18.12 Headings for Convenience. The section headings used in this Agreement
are intended primarily for reference and shall not by themselves determine the
construction or interpretation of this Agreement or any portion hereof.
18.13 Entire Agreement. This Agreement, including all exhibits hereto,
constitutes the entire agreement and understanding of the Parties with respect
to the subject matter hereof, and, except for the Confidentiality Agreement,
supersedes all prior and contemporaneous correspondence, negotiations,
agreements and understandings between the Parties, and any representations and
warranties, both oral and written.
18.14 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and when taken together
shall constitute one and the same instrument.
In witness whereof, the duly authorized representatives of the Parties have
executed this Agreement as of the day and year first above written.
SAGE, INC. FAROUDJA LABORATORIES, INC.
By: /s/ CHANDRASHEKAR M. REDDY By: /s/ GLENN W. MARSHEL
----------------------------------- ------------------------------------
Name: Chandrashekar M. Reddy Name: Glenn W. Marshel
--------------------------------- ----------------------------------
Title: President and CEO Title: CEO
-------------------------------- ---------------------------------
<PAGE> 1
EXHIBIT 10.4
MASTER DISTRIBUTOR AGREEMENT
This Agreement effective as of the 30th day of September, 1997, by and between
SAGE, INC., having offices at 4633 Old Ironsides, Santa Clara, California
95054, ("Manufacturer"), and AVNET, INC., having offices at 2617 South 46th
Street, Phoenix, Arizona 85034 ("Distributor").
1. PRODUCTS
The term "Product" or "Products" as used herein shall mean the items
listed on Exhibit "A" hereto, as changed from time to time in accordance with
the provisions of this Agreement.
2. APPOINTMENT/TERRITORY
Manufacturer hereby appoints Distributor and Distributor hereby accepts
the appointment, as the non-exclusive distributor for the Products within the
following described territory: United States and Canada (the "Territory"), and
at all locations identified in Exhibit "B". This agreement shall automatically
be extended to any other Electronic Marketing Group division or subsidiary of
Avnet, Inc. which may hereafter be formed or acquired by Avnet.
3. TERM
The term of this Agreement shall be for twenty-four (24) months commencing
on the effective date hereof and this Agreement shall automatically be renewed
thereafter for additional one (1) year periods at all anniversary dates hereof
unless this Agreement is otherwise terminated as elsewhere provided herein.
4. DUTIES OF DISTRIBUTOR
(a) Distributor shall use its best efforts commensurate with its overall
business to promote the sale of the Products within the Territory.
(b) Distributor shall send to Manufacturer, within thirty (30) working
days after the end of each month, a sales activities report including the names
of purchasers, quantities of products purchased and dollar amounts invoiced to
the said purchasers.
5. OBLIGATIONS OF MANUFACTURER
(a) Manufacturer shall consistently keep Distributor informed on a timely
basis of changes and innovations in performance, serviceability, uses and
applications of all Products.
(b) Manufacturer, at its expense, shall provide training for personnel
designated by Distributor in marketing and servicing products. Such training
shall be held at the times and locations as mutually agreed by the parties.
(c) Manufacturer, at its expense, shall periodically provide Distributor
with reasonably sufficient quantities of Manufacturer's advertising and
promotional materials, pricing information and technical data related to the
Products.
6. PRICE/PRICE CHANGE
(a) The prices to be paid by Distributor for any Products ordered pursuant
to this Agreement are set forth in Exhibit "A".
(b) The prices contained in Exhibit "A" are subject to change by
Manufacturer at any time. Notwithstanding the aforesaid, such change shall not
become effective as to Distributor unless Manufacturer gives Distributor at
least thirty (30) days advance written notice thereof.
(c) In the event that the Manufacturer decreases the price of any Product,
Distributor will be entitled to a credit equal to the difference between the
net price paid by Distributor, less any prior credits granted by Manufacturer,
and the new decreased price for the Product multiplied by the quantity of such
Product in Distributor's inventory on the effective date of the reduction.
Similar price adjustment will also be made on all such Products in transit to
Distributor on the effective date of such price decrease.
(i) Distributor shall submit to Manufacturer, not later than sixty
(60) working days after receiving notice of such price decrease, after the
effective date of such price decrease, a Product inventory report as of the
effective date, together with a debit memo reflecting the credit described in
subparagraph 6(c) above.
(ii) Manufacturer shall be deemed to have verified the Product
inventory report and debit memo unless Manufacturer contests the same in
writing within sixty (60) days after receiving such report and memo.
Uncontested debit memos shall be credited to Distributor's account as of the
effective date of such price decrease.
(d) All Products shipped on or after the effective date of any price
decrease will be shipped and invoiced at the price in effect at the time of
shipment.
(e) All Products shipped after the effective date of any price increase
will be shipped and invoiced at the price in effect at the time of order
placement.
7. TAXES
Distributor shall not be liable for any taxes with respect to any order
other than municipal, state or federal sales taxes which Manufacturer is
required by law to collect from Distributor.
8. PAYMENT
Payment for all Products purchased hereunder by Distributor shall be 2%
10th and 25th or Net thirty (30) days from date of invoice or shipment,
whichever date is later.
Page 1
<PAGE> 2
In the event that at the close of each calendar month, sums owed to
Distributor from Manufacturer exceed (i) sums due from Distributor to
Manufacturer plus (ii) projected sums due from Distributor to Manufacturer in
respect of Products to be shipped in the succeeding 30 day period collectively
Net Manufacturer Receivable ("NMR"), Manufacturer shall remit to Distributor
payment of all NMRs, by check or wire transfer in Federal Funds, no later than
the close of the following calendar month.
9. WARRANTY OF TITLE
Manufacturer warrants the title to all Products to be sold to Distributor
hereunder and warrants that such Products are not subject to any security
interests, liens or other encumbrances.
10. SHIPMENT/RISK OF LOSS
Manufacturer agrees to deliver Products ordered by Distributor to the
location and within the time specified in Distributor's purchase order.
Distributor shall have the right to designate the common carrier to be used,
and, in absence of such specification by Distributor, Manufacturer shall
select the carrier in its reasonable discretion. Title to such Products and the
risk of loss therefor shall pass to Distributor upon delivery to the common
carrier. All shipments shall be F.O.B. Manufacturer's location closest to the
delivery point specified in Distributor's purchase order.
11. ORDER CHANGES
(a) Distributor may change or cancel orders or reschedule shipment dates
for any Products ordered, provided that Distributor notifies Manufacturer at
least ten (10) days prior to the originally-scheduled date.
(b) Manufacturer shall acknowledge Distributor's orders in writing or via
EDI within five (5) days of receipt. Order acknowledgements shall contain
Manufacturer's promised ship date.
(c) Should Manufacturer's promised ship date change, Manufacturer shall
notify Distributor in writing or via EDI within five (5) business days of the
change. Should Distributor's customer cancel its order with Distributor due to
a change to Manufacturer's promised ship date, Distributor may cancel its order
to Manufacturer without penalty.
(d) Any order shipped thirty (30) days or more in advance of Distributor's
request date may be rejected by Distributor and returned to Manufacturer.
Manufacturer shall be responsible for both incoming and return freight charges.
12. STOCK ROTATION/RETURN PRIVILEGE
(a) Distributor may return, FOB Distributor's location, a quantity of
Products to Manufacturer for credit provided that the total credit shall not
exceed 10% of the net sales dollars invoiced by Manufacturer to Distributor
during each one-year period of this Agreement (beginning with the effective
date hereof). Such returns may be made at Distributor's discretion in one or
more shipments from time to time during the applicable one-year period or
within thirty (30) days thereafter, however, unless otherwise agreed to in
writing by Manufacturer, any returns made prior to the end of the applicable
year shall not cumulatively exceed 10% of the net sales dollars which have been
invoiced by Manufacturer to Distributor from the beginning of the applicable
year up to the date of any such return or returns. The credit to be issued in
respect of each such Product returned shall be issued by Manufacturer within
thirty (30) calendar days after receipt of such Product by Manufacturer and
shall be issued in the amount of the actual net invoice price charged for same
by Manufacturer to Distributor less any prior credits granted by Manufacturer
to Distributor for the said Product. All Products returned in accordance with
this provision must be unused in commerce. In the event this Agreement is
terminated for any reason with outstanding credits existing in favor of
Distributor, Manufacturer shall promptly refund cash to Distributor in the
amount of the outstanding credits.
(b) Notwithstanding subparagraph (a) above, Distributor will have sixty
(60) days after the initial twelve (12) month period that any "New Product" is
in its inventory to return such "New Product" to Manufacturer for credit. Such
credit shall be equal to Distributor's purchase price for such "New Product"
less any prior credits. For purposes of this paragraph, a "New Product" is a
Product that is newly introduced by Manufacturer to the market.
(c) Notwithstanding subparagraph (a) above, Distributor will have sixty
(60) days after the initial twelve (12) month period that its "Initial Stocking
Order" is in its inventory to return any of its "Initial Stocking Order" to
Manufacturer for credit. Such credit shall be equal to Distributor's purchase
price therefor less any prior credits. For purposes of this paragraph, the
"Initial Stocking Order" is the first purchase order placed by Distributor
under this Agreement.
13. WARRANTY
Manufacturer warrants the Products in accordance with its standard
warranty as set forth in Exhibit "C". Distributor is authorized to pass this
warranty through to Distributor's customers and to end users. The warranty
period as stated in Exhibit "C" shall begin to run with respect to any end user
upon delivery of the Product to the end user. Any Product to be returned under
the terms of the warranty may be shipped to Manufacturer either by Distributor
or directly by a re-seller customer or end user.
14. DEFECTIVE PRODUCTS
Notwithstanding any other provision of this Agreement or of any Exhibit
hereto, Distributor may return for full credit, any and all Products found to
be defective upon delivery, or within a reasonable time thereafter, provided,
however, that any such defective Products are returned to Manufacturer, freight
collect, within ninety (90) days of the discovery of the defect.
15. QUALITY
If Products are received by Distributor with quality problems and
Distributor deems it practical to institute testing
Page 2
<PAGE> 3
and/or rework of such Products in order to sell the same, such problems shall
be reported to Manufacturer in writing and Manufacturer shall reimburse
Distributor for its direct cost of labor and material.
16. DISCONTINUED PRODUCTS
Manufacturer may discontinue the manufacture and/or sale of any Product.
In the event of any such discontinuance, Manufacturer shall give Distributor at
least ninety (90) days advance written notice thereof. Distributor may, in its
sole discretion, within sixty (60) days after receipt of such notice, notify
Manufacturer in writing of Distributor's intention to return any or all
Products in its inventory which have been so discontinued. Distributor shall
receive full credit for all such Products so returned. Any such credit shall be
in the amount of the actual net invoice price paid by Distributor for the
discontinued Products less any prior credits. All freight charges shall be paid
by Manufacturer.
17. ENGINEERING CHANGES/OBSOLESCENCE
Manufacturer shall give Distributor at least ninety (90) days advance
written notice of engineering changes that will affect any Products in
Distributor's inventory. If these modifications, in Distributor's sole
judgment, will adversely affect the sale of Distributor's inventory of such
Products once the engineering modifications are implemented, then Manufacturer
shall cooperate with Distributor to sell such affected inventory. If, after the
aforementioned efforts (but in no event later than one hundred twenty (120)
days after the first public announcement of such modification or the first
shipment of the modified Product, whichever occurs first), any of the affected
Product still remains in Distributor's inventory, Manufacturer agrees, at
Distributor's election to (a) replace it with upgraded Products, or (b)
repurchase any or all of the affected inventory at Distributor's actual net
invoice cost less any prior credits. Manufacturer shall pay all freight charges
associated with return of affected Products to Manufacturer and/or shipment of
upgraded Products to Distributor.
18. SPARE PARTS
Manufacturer shall provide spare parts for the Products sold under this
Agreement for a period of no less than five (5) years after shipment of the
last Products to Distributor. Such spare parts shall be made available to
Distributor at a non-discriminatory price based upon the pricing in effect at
the time such spare parts are ordered.
19. TERMINATION
(a) This Agreement may be terminated at any time, without cause, by
either party upon giving the other party at least sixty (60) days prior written
notice. Such termination shall be effective on the date stated in the said
notice.
(b) This Agreement may be terminated immediately for cause by either
party in the event the other party:
(i) shall become insolvent, or
(ii) admits in writing its inability to pay its debts as they
mature, or
(iii) ceases to function as a going concern or to conduct its
operations in the normal course of business, or
(iv) assigns or transfers, either voluntarily or by operation of
law, any or all of its rights or obligations under this Agreement without
having obtained the prior written consent of the other party; or
(v) effects any material change in its management or ownership (for
the purposes of this subparagraph, a change in the Chief Executive Officer or
the Chief Operating Officer shall be deemed a material change of management,
and a change of 25% or more in ownership shall be deemed a material change in
ownership); or
(vi) upon the filing of a petition by or against it under any state
or federal bankruptcy or insolvency law, fails to tender to the other party a
guaranty of its obligations under this Agreement by a person, firm or other
entity having a net worth of at least 85% of its own net worth as of the
commencement of this Agreement, such guaranty to be in a form satisfactory to
the other party; or
(vii) fails to perform any of its obligations under this Agreement so
as to be in default hereunder and fails to cure such default within thirty (30)
days after written notice thereof.
(c) In the event of termination of this Agreement, Manufacturer shall
repurchase, at Distributor's election, any or all unsold Products in
Distributor's inventory or in transit to Distributor on the effective date of
termination, along with any or all technical and promotional material designed
to promote the sale of the Products. The repurchase price for such unsold
Products and other material shall be the actual net invoice price paid by
Distributor less any prior credits.
(d) In the event Manufacturer terminates for its convenience or for any
reason other than those listed in subparagraph 19(b), or Distributor terminates
for cause, then all freight charges associated with such repurchase of Products
under this paragraph 19 shall be paid by Manufacturer. In the event Distributor
terminates for its convenience or for any other reason other than those listed
in subparagraph 19(b), or Manufacturer terminates for cause, then such freight
charges shall be paid by Distributor.
(e) All Products to be repurchased pursuant to this paragraph 19 must be
in unused, factory-shipped condition and must be returned in original cartons
or the equivalent.
(f) After any termination of this Agreement Manufacturer agrees to sell
to Distributor any Products which Distributor is contractually obligated to
furnish to a customer and which Distributor does not have in its inventory,
provided that Distributor orders such Products within ten (10) days after the
effective date of termination.
28. CONFIDENTIALITY
If either party hereto receives from the other party written information
which is marked "Confidential" and/or "Proprietary", the receiving party agrees
not to use such information except in the performance of this Agreement, and
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<PAGE> 4
to treat such information in the same manner as it treats its own confidential
information. The obligation to keep information confidential shall not apply to
any such information that has been disclosed in publicly available sources, is,
through no fault of the party receiving the confidential information, hereafter
disclosed in a publicly available source; is in the rightful possession of the
party receiving the confidential information without an obligation of
confidentiality; or is required to be disclosed by operation of law. Except as
otherwise provided herein, the obligation not to disclose shall be for a period
of one year after the termination of this Agreement.
21. PATENT/COPYRIGHT/TRADEMARK INDEMNIFICATION
Manufacturer warrants that any and all Products purchased hereunder,
and the manufacture, sale or use thereof, do not and will not violate or
infringe upon any patent, copyright, trademark, trade secret or other property
right of any third party; that Manufacturer will, at its own cost and expense,
defend any suit that may arise in respect thereto or in respect to the
combination of any Product with any equipment, data or programming, to the
extent that the claim alleges that the Product standing alone infringes such
rights, and provided Manufacturer is notified thereof, and that Manufacturer
will indemnify and hold harmless Distributor, its successors and assigns, and
the customers of any of them, from all loss, damages, costs and expenses
(including reasonable attorneys' fees and costs of establishing rights to
indemnification) which may be incurred on account of the assertion of any such
property rights by any person.
22. GENERAL INDEMNIFICATION
(a) Manufacturer and Distributor each agrees to indemnify and hold the
other harmless from and against any and all claims, damages and liabilities
asserted by any person or entity resulting directly from:
(i) any breach by it, or by any of its employees or agents, of
this Agreement or any of its warranties, representations, covenants or
obligations as provided for in this Agreement; or
(ii) any negligent act, or affirmative act of any of its
employees or agents.
Such indemnification shall include the payment of all reasonable
attorneys' fees and other costs (including costs of establishing rights to
indemnification) incurred by the party seeking indemnification in defending
such claims.
(b) Notwithstanding any other provision of this Agreement or any
Exhibit or Appendix hereto, Manufacturer agrees to indemnify and hold the
Distributor harmless of and from any and all liabilities, losses and damages
(including costs, expenses and attorneys' fees, and costs of establishing rights
to indemnification) resulting from any claim of any of Distributor's customers
or any other third party, including employees of Distributor or Manufacturer,
for death, personal injury, breach of warranty, or damage to property arising
out of, or in any way connected with, the Products or the use or operation
thereof. Manufacturer at its sole cost and expense agrees to defend any and all
claims, actions, suits or proceedings brought against Distributor in connection
therewith, upon notice of pendency thereof, and to pay and satisfy any and all
judgments, costs, attorneys' fees, awards or recoveries relating thereto.
(c) Manufacturer agrees to name Distributor as an additional insured on
any and all product liability insurance policies it may have in effect from
time to time with respect to any Products.
23. USE OF TRADEMARKS/TRADE NAMES
During the term of this Agreement, Distributor is authorized to use
Manufacturer's trademarks, trade names and logos in connection with
Distributor's sale, advertisement and promotion of Products. Distributor shall
have the right to pass on this right of usage to its re-seller customers. Upon
termination of this Agreement and sale or other disposition of any products
remaining in inventory, Distributor shall cease to use any of such marks, names
or logos and shall, within a reasonable time, remove any reference to
Manufacturer from its advertising and promotional material.
24. CO-OP FUND
A cooperative advertising fund shall be established to which
Manufacturer and Distributor shall contribute at least once every six (6)
months. Each party shall contribute to the fund an amount equal to __% of the
gross sales dollars invoiced by Manufacturer to Distributor during the said
six-month period. The fund is to be used for mutually agreed upon projects such
as promotion, advertising and training. All particulars with respect to the
establishment of the fund and the return of unused monies shall be by mutual
agreement. Upon the termination of this Agreement, any monies remaining in the
fund shall be appropriately returned to the parties.
25. SOFTWARE
Any and all software included as Products hereunder shall be acquired
by Distributor subject to the terms of a Master Distributor License, a copy of
which is attached as Exhibit "D" and is made a part hereof.
26. SUPPLIER QUALITY HANDBOOK
Manufacturer agrees to use reasonable best efforts to attain the goals
established in the Avnet Supplier Quality Handbook as may be amended from time
to time. Manufacturer agrees to work with Distributor to establish improvement
plans and performance milestones in those areas when Manufacturer falls under
the published goal.
27. GENERAL
(a) INDEPENDENT CONTRACTORS. It is understood and agreed that
Manufacturer and Distributor are independent contractors and each is engaged in
the operation of its own business and neither will be considered the agent of
the other
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<PAGE> 5
for any purpose whatsoever. Nothing contained in this Agreement will be
construed to establish a relationship that would allow either party to make
representations or warranties on behalf of the other except as expressly set
forth herein.
(b) ASSIGNMENT. This Agreement may not be assigned partially or
completely by either party without the prior written consent of the other which
shall not be unreasonably withheld. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and assigns.
(c) NOTICES. Any notice provided for or permitted in this Agreement
will be deemed to have been given when mailed postage prepaid by certified mail
or registered mail, return receipt requested, to the party to be notified, at
the address set forth below:
Manufacturer:
Sage, Inc.
4633 Old Ironsides
Santa Clara, California 95054
Attn: Vijay Desai
Distributor:
Avnet, Inc.
2617 South 46th Street
Phoenix, Arizona 85034
Attn: Donald Sweet, Senior Vice President
Global Supplier Management
with a copy simultaneously to:
Avnet, Inc.
80 Cutter Mill Road
Great Neck, New York 11021
Attn: Senior Vice President and General Counsel
(d) ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof and supersedes all
prior agreements relating thereto, written or oral, between the parties.
Amendments to this Agreement must be in writing, signed by the duly authorized
officers of the parties, specifically stating that such amendments are made
pursuant to this subparagraph (d).
(e) NO IMPLIED WAIVERS. The failure of either party at any time to
require performance by the other of any provision hereof shall not affect the
right of such party to require performance at any time thereafter, nor shall
the waiver of either party of a breach of any provision hereof be taken or held
to be a waiver of a provision itself.
(f) GOVERNING LAW. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of the State of California, other
than the conflicts of laws principles thereof.
(g) STATUTORY CONFORMANCE. With respect to the products ordered under
this Agreement, Manufacturer warrants and agrees that it has complied with the
requirements of: (i) the Fair Labor Standards Act of 1938, as amended, and its
invoices shall so state; (ii) Social Security and Workers Compensation laws, if
work is performed on Distributor's premises; (iii) Equal Opportunity clause in
Section 202 of Executive Order 11246, as the same may be amended; (iv) Section
503 of the Rehabilitation Act of 1973; (v) The Vietnam Veterans Readjustment
Assistance Act of 1974; and (vi) all other applicable federal, state and local
laws, codes and requirements.
(h) OZONE DEPLETING SUBSTANCES. Distributor reserves the right to
reject any Products containing or manufactured with substances identified as a
Class I or Class II ozone depleting substances by the U.S. Environmental
Protection Agency pursuant to Title VI of the Clean Air Act Amendments of 1990,
and any amendments thereto, whether or not such Products shall be required to
bear labeling.
(i) SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof in that jurisdiction or affecting
the validity or unenforceability of such provision in any other jurisdiction.
(j) SURVIVORSHIP. All obligations and duties hereunder which shall by
their nature extend beyond the expiration or termination of this Agreement,
shall survive and remain in effect beyond any expiration or termination hereof.
(k) FORCE MAJEURE. Neither party shall be liable for failure to fulfill
its obligations under this Agreement or any purchase order issued hereunder or
for delays in delivery due to causes beyond its reasonable control, including,
but not limited to, acts of God, acts or omissions of the other party, man-made
or natural disasters, material shortages, strikes, delays in transportation or
inability to obtain labor or materials through its regular sources. The time
for performance of any such obligation shall be extended for the time period
lost by reason of the delay.
(l) FAVORED NATIONS. Notwithstanding any other provision contained
herein, if Manufacturer shall sell any Products to any other domestic
Distributor at a price for the same or a lesser quantity which is lower than
the prices set forth on Exhibit "A" (as changed from time to time in accordance
with the provisions hereof), the Distributor shall simultaneously be given the
benefit of such lower purchase price. For the purposes of this subparagraph, a
distributor is a person, firm or corporation that acquires Products from
Manufacturer, inventories the same, and transfers those Products to customers
or end users.
(m) CONFLICTING TERMS. The parties agree that the terms and conditions
of this Agreement shall prevail, notwithstanding contrary or additional terms,
in any purchase order, sales acknowledgment, confirmation or any other document
issued by either party effecting the purchase and/or sale of Products.
(n) CONSENTS AND APPROVALS. Any consents or approvals required
hereunder shall not be unreasonably withheld.
(o) HEADINGS. The Table of Contents, if any, and headings of paragraphs
herein are inserted for convenience of reference only and shall be ignored in
the construction or interpretation hereof.
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<PAGE> 6
(p) U.S. MILITARY PRODUCT VALUE-ADDED TESTING. Manufacturer hereby
authorizes Distributor to perform, and/or to subcontract to independent test
labs, value-added testing on Manufacturer's military integrated circuit
products which are sold by Manufacturer as "JAN" products or are otherwise
classified as conforming with JEDEC 108/109, U.S. MIL-STD-38510 and/or
MIL-S-19500 specifications ("Military IC's"). Value-added testing shall be
performed in accordance with Distributor's then applicable military value-added
policy. However, Distributor shall not materially amend its military
value-added policy as applied to Manufacturer's Military IC's without the prior
approval of Manufacturer. Manufacturer shall warrant tested Military IC's in
accordance with Manufacturer's standard warranty for Military IC's which have
not been subjected to value-added testing, and Distributor shall be authorized
to pass through such warrant to its customers.
(q) LIFE SUPPORT POLICY. MANUFACTURER PRODUCTS SHOULD NOT BE USED IN
MEDICAL DEVICES WITH LIFE SUPPORT FUNCTIONS NOR IN SAFETY EQUIPMENT (OR SIMILAR
APPLICATIONS) WHERE COMPONENT FAILURE MIGHT RESULT IN LOSS OF LIFE OR PHYSICAL
HARM WITHOUT THE WRITTEN APPROVAL OF AN OFFICER OF MANUFACTURER.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
effective as of the date first above set forth.
MANUFACTURER: DISTRIBUTOR:
SAGE, INC. AVNET, INC.
By: /s/ VIJAY P. DESAI By: /s/ STEVE CHURCH
-------------------------- ----------------------------------
Name: VIJAY P. DESAI Name: STEVE CHURCH
-------------------------- ----------------------------------
(Typed or Printed) (Typed or Printed)
Title: Vice President, Title: PRESIDENT, AVNET OMG
Management and Sales SENIOR VICE PRESIDENT, AVNET, INC.
-------------------------- ----------------------------------
Date: 10/29/97 Date: 10/16/97
-------------------------- ----------------------------------
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<PAGE> 1
EXHIBIT 10.5
AUTHORIZED RESELLER AGREEMENT
This agreement is executed by and between SAGE INC and REPTRON ELECTRONICS,
"Authorized Reseller" for FLAT PANEL CONNECTIVITY PRODUCTS.
The parties agree as follows:
1. AUTHORIZATION
The above named Authorized Reseller has been appointed on a non-exclusive
basis for the distribution, resale, service and promotion of SAGE INC
products. SAGE INC reserves the right to appoint additional distributors
and to sell directly or through its agents in the market area as it deems
necessary for effective market coverage.
2. PRICES AND TERMS
Subject to written order acceptance, SAGE INC agrees to sell, and
Authorized Reseller agrees to purchase, the products at prices set forth in
the SAGE INC authorized distributor net price schedule ("Distributor
Schedule"), F.O.B. shipping point, net 30 days, on SAGE INC terms and
conditions of sale, both as in effect at the time Authorized Reseller's
orders are received by SAGE INC at its offices in SANTA CLARA, CALIFORNIA
(city & state). Price changes will only be made upon 30 days prior written
notice to Authorized Reseller. In the event of a price decrease, Authorized
Reseller will receive credit to the extent of the decrease for SAGE INC
product on its shelf on the date the price decrease notification is
effective, provided a complete inventory of such products is received by
SAGE INC on or before the 15th day after effective date. Any invoice not
paid within 30 days will be assessed on interest charge at the rate of 2%
per month on the outstanding balance (24% per year) or the highest rate
allowed by law, whichever is less.
3. AUTHORIZED RESELLER RESPONSIBILITIES
Authorized Reseller shall use its best efforts to promote and develop the
market for the sale of the products, and to that end shall maintain a
suitable place of business and an adequate stock of SAGE INC products to
meet promptly and efficiently the normal requirements of its customers. The
same shall include a reasonable display and inventory space.
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<PAGE> 2
4. ____________________ ASSISTANCE
SAGE INC shall (i) make available to Authorized Reseller inventory
adjustment privileges, sales and promotional literature, catalogs and
seminars, along with other assistance as set forth in SAGE INC's Authorized
Reseller Policy and Procedures Agreement; (ii) encourage customers to place
orders with distributors; (iii) keep Authorized Reseller advised of changes
in SAGE INC sales policies affecting Authorized Reseller operations.
5. WARRANTY
All products sold in accordance with this agreement shall be subject to the
warranty set forth in the SAGE INC standard terms and conditions of sale in
effect at the date of receipt of any order by SAGE INC. Presently, SAGE INC
warrants its products under normal use and service for a period of one year
(based on either the product date code or proof of purchase) whichever is
later.
6. RELATIONSHIP OF PARTIES
Nothing herein shall be construed as constituting Authorized Reseller an
agent or legal representative of SAGE INC, or to create in Authorized
Reseller any right or authority to incur any obligations on behalf of SAGE
INC, or to bind SAGE INC in any way. Orders are not binding upon SAGE INC
until received, accepted and approved in writing by SAGE INC.
7. DURATION OF AGREEMENT
Term of this agreement shall commence upon date of execution by both
parties and shall continue in effect until terminated as provided below.
This agreement may be terminated by either party upon 30 days prior written
notice, with or without cause, to the other party's last known address by
registered mail, return receipt requested, postage prepaid. In the event of
Authorized Reseller insolvency or bankruptcy, assignment for the benefit of
creditors, receivership, dissolution or institution of proceedings for
reorganization, attachment of assets lasting more than 30 days, or breach
of obligations under this agreement, SAGE INC shall be deemed to have
terminated this agreement for cause. If SAGE INC so terminates for cause,
the termination notice shall specify in reasonable detail the reasons
therefore.
8. THIS DISTRIBUTORSHIP IS AT WILL
No right to be an Authorized Reseller to any geographical area or specific
sales is granted or created hereby. Said Reseller rights are granted solely
at the unilateral
page -2-
<PAGE> 3
discretion and determination of SAGE INC and no proprietary, continuing or
other rights of any kind are created in the Authorized Reseller or this
agreement.
9. REPURCHASE OF PRODUCTS
Upon termination of this Agreement, SAGE INC shall repurchase unused
products in Authorized Resellers inventory and Authorized Reseller agrees
to sell the same to SAGE INC as follows:
A. In the event SAGE INC exercises its right to terminate this Agreement
pursuant to the 30 days notice option, it shall repurchase all
returnable SAGE INC products sold to Authorized Reseller under this
agreement which are on hand, unsold by Authorized Reseller and in
merchantable condition at the termination date, at either the maximum
discount as shown on the then current Distributor Schedule or at
prices shown on the original invoice for the products, whichever is
less.
B. In the event Authorized Reseller terminates this Agreement or SAGE INC
terminates the Agreement for cause (ref: No. 7 "Duration of
Agreement"), SAGE INC will repurchase all or part of the products at
either of the prices as set forth in paragraph A above, less 15%
restocking and inspection charge, and issue credit against all unpaid
invoices by Authorized Reseller or refuse such purchase in whole or in
part.
10. CONFIDENTIALITY
Authorized Reseller agrees to maintain confidential all information
provided to it by SAGE INC and identified as confidential, and, upon
request, to return to SAGE INC all such confidential information in its
possession. Price lists, policy information, and amounts and nature of
purchase by customers are conclusively agreed and understood to be
confidential and trade secrets, protected information. Customer lists are
not exclusive to either SAGE INC or Authorized Reseller. However,
Authorized Reseller specifically agrees not to disclose, use, or utilize in
any way, shape or form, directly or indirectly, any of the confidential
information, including but not limited to, price lists which SAGE INC or
its representatives may provide to Authorized Reseller.
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<PAGE> 4
11. ASSIGNMENT
This Agreement may not be assigned in whole or in part by Authorized
Reseller without prior written consent of SAGE INC. No proprietary or any
other rights attached hereto and no assignment is deemed appropriate or
possible.
12. GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of California. The parties hereto specifically agree
that the proper place for venue for any legal action, judicial,
administrative, through arbitration or otherwise, shall be Irvine,
California.
13. ATTORNEY FEES
In the event of any action instituted between the parties in connection
with this Agreement, the prevailing party shall be entitled from the
losing party all the prevailing party's costs and expenses including
without limitation court costs and reasonable attorney fees.
14. ENTIRE AGREEMENT
This Agreement constitutes the entire Agreement between the parties with
respect to the subject matter of this Agreement. No additions to or
modifications of any provisions contained in this Agreement shall be
effective unless fully set forth in a writing signed by all parties.
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<PAGE> 5
15. AUTHORIZED RESELLER ACKNOWLEDGEMENT
Authorized Reseller acknowledges receipt and review of a copy of this Authorized
Reseller Policy, Procedures and Agreement (15 pages), and Authorized Reseller
agrees to the terms and conditions of said documents.
Authorized Reseller further understands that failure to comply with or conduct
its (Authorized Reseller's) business within such guidelines and/or this
Agreement, provides SAGE INC with a basis for termination for cause.
SAGE INC Reptron Electronics, Inc.
- ----------------------------------- -----------------------------------
Authorized Reseller
/s/ CHANDRASHEKAV REDDY /s/ R. GORDON SARGENT
- ----------------------------------- -----------------------------------
By (Signature) By (Signature)
CHANDRASHEKAV REDDY R. Gordon Sargent
- ----------------------------------- -----------------------------------
Print Name Print Name
Director of Corporate
PRESIDENT Product Marketing
- ----------------------------------- -----------------------------------
Title Title
11/27/96 November 14, 1996
- ----------------------------------- -----------------------------------
Date Date:
page -5-
<PAGE> 1
EXHIBIT 10.6
AUTHORIZED RESELLER AGREEMENT
This agreement is executed by and between SAGE INC. and JACO Electronics,
"Authorized Reseller" for FLAT PANEL CONNECTIVITY PRODUCTS.
The parties agree as follows:
1. AUTHORIZATION
The above named Authorized Reseller has been appointed on a non-exclusive
basis for the distribution, resale, service and promotion of SAGE INC.
products. SAGE INC. reserves the right to appoint additional distributors
and to sell directly or through its agents in the market areas as it deems
necessary for effective market coverage.
2. PRICES AND TERMS
Subject to written order acceptance, SAGE INC. agrees to sell, and
Authorized Reseller agrees to purchase, the products at prices set forth in
the SAGE INC. authorized distributor net price schedule ("Distributor
Schedule"), F.O.E. shipping point, net 30 days, on SAGE INC. terms and
conditions of sale, both as in effect at the time Authorized Reseller's
orders are received by SAGE INC. at its offices in SANTA CLARA, CALIFORNIA
(city and state). Price changes will only be made upon 30 days prior
written notice to Authorized Reseller. In the event of a price decrease,
Authorized Reseller will receive credit to the extent of the decrease for
SAGE INC. product on its shelf on the date the price decrease notification
is effective, provided a complete inventory of such products is received by
SAGE INC. on or before the 15th day after effective date. Any invoice not
paid within 30 days will be assessed on interest change at the rate of 2%
per month on the outstanding balance (24% per year) or the highest rate
allowed by law, whichever is less.
3. AUTHORIZED RESELLER RESPONSIBILITIES
Authorized Reseller shall use its best efforts to promote and develop the
market for the sale of the products, and to that end shall maintain a
suitable place of business and an adequate stock of SAGE INC. products to
meet promptly and efficiently the normal requirements of its customers. The
same shall include a reasonable display and inventory space.
<PAGE> 2
4. ____________________ ASSISTANCE
SAGE INC shall (i) make available to Authorized Reseller inventory
adjustment privileges, sales and promotional literature, catalogs and
seminars, along with other assistance as set forth in SAGE INC's Authorized
Reseller Policy and Procedures Agreement; (ii) encourage customers to place
orders with distributors; (iii) keep Authorized Reseller advised of changes
in SAGE INC sales policies affecting Authorized Reseller operations.
5. WARRANTY
All products sold in accordance with this agreement shall be subject to the
warranty set forth in the SAGE INC standard terms and conditions of sale in
effect at the date of receipt of any order by SAGE INC. Presently, SAGE INC
warrants its products under normal use and service for a period of one year
(based on either the product date code or proof of purchase) whichever is
later.
6. RELATIONSHIP OF PARTIES
Nothing herein shall be construed as constituting Authorized Reseller an
agent or legal representative of SAGE INC, or to create in Authorized
Reseller any right or authority to incur any obligations on behalf of SAGE
INC, or to bind SAGE INC in any way. Orders are not binding upon SAGE INC
until received, accepted and approved in writing by SAGE INC.
7. DURATION OF AGREEMENT
Term of this agreement shall commence upon date of execution by both
parties and shall continue in effect until terminated as provided below.
This agreement may be terminated by either party upon 30 days prior written
notice, with or without cause, to the other party's last known address by
registered mail, return receipt requested, postage prepaid. In the event of
Authorized Reseller insolvency or bankruptcy, assignment for the benefit of
creditors, receivership, dissolution or institution of proceedings for
reorganization, attachment of assets lasting more than 30 days, or breach
of obligations under this agreement. SAGE INC shall be deemed to have
terminated this agreement for cause. If SAGE INC so terminates for cause,
the termination notice shall specify in reasonable detail the reasons
therefore.
8 THIS DISTRIBUTORSHIP IS AT WILL
No right to be an Authorized Reseller to any geographical area or specific
sales is granted or created hereby. Said Reseller rights are granted solely
at the unilateral
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<PAGE> 3
discretion and determination of SAGE INC and no proprietary, continuing or
other rights of any kind are created in the Authorized Reseller or this
Agreement.
9. REPURCHASE OF PRODUCTS
Upon termination of this Agreement, SAGE INC shall repurchase unused
products in Authorized Resellers inventory and Authorized Reseller agrees
to sell the same to SAGE INC. as follows:
A. In the event SAGE INC exercises its right to terminate this Agreement
pursuant to the 30 days notice option, it shall repurchase all
returnable SAGE INC products sold to Authorized Reseller under this
agreement which are on hand, unsold by Authorized Reseller and in
merchantable condition at the termination date, prices shown on the
original invoice of the products.
B. In the event Authorized Reseller terminates this Agreement or SAGE
INC terminates the Agreement for cause (ref. No. 1, Duration of
Agreement:), SAGE INC will repurchase all of the products at the
prices as set forth in paragraph A above, less 15% restocking and
inspection charge, and issue credit against all unpaid invoices by
Authorized Reseller.
C. In neither of the repurchase plans set forth in paragraphs A and B
above, will Authorized Reseller receive credit on products that are
over two years old (based on either the product date code or proof of
purchase date, whichever is earlier). No such products may be returned
unless specifically agreed to in writing by SAGE INC based on a
negotiated credit allowance agreed to prior to return. SAGE INC has
absolutely no obligation to negotiate such an agreement.
10. CONFIDENTIALITY
Authorized Reseller agrees to maintain confidential all information
provided to it by SAGE INC and identified as confidential, and, upon request,
to return to SAGE INC all such confidential information in its possession.
Price lists, policy information, and amounts and nature of purchase by
customers are conclusively agreed and understood to be confidential and trade
secrets, protected information. Customer lists are not exclusive to either SAGE
INC or Authorized Reseller. However, Authorized Reseller specifically agrees
not to disclose, use, or utilize in any way, shape or form, directly or
indirectly, any of the confidential information, including but not limited to,
price lists which SAGE INC or its representatives may provide to Authorized
Reseller.
<PAGE> 4
1. ASSIGNMENT
This Agreement may not be assigned in whole or in part by Authorized
Reseller without prior written consent of SAGE INC. No proprietary or any
other rights attached hereto and no assignment is deemed appropriate or
possible.
2. GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of California. The parties hereto specifically agree that
the proper place for venue for any legal action, judicial, administrative,
through arbitration or otherwise, shall be Irvine, California.
3. ATTORNEY FEES
In the event of any action instituted between the parties in connection
with this Agreement, the prevailing party shall be entitled from the losing
party all the prevailing party's costs and expenses including without
limitation court costs and reasonable attorney fees.
4. ENTIRE AGREEMENT
This Agreement constitutes the entire Agreement between the parties with
respect to the subject matter of this Agreement. No additions to or
modifications of any provisions contained in this Agreement shall be
effective unless fully set forth in a writing signed by all parties.
<PAGE> 5
Sage Inc. Jaco Electronics Inc.
4633 Old Ironsides Dr. #420 145 Oser Ave
Santa Clara, CA 95054 Hauppauge, NY 11788
By: /s/ VIJAY P. DESAI By: /s/ DENNIS SCHWEBER
------------------------------- -------------------------------
Name: VIJAY P. DESAI Name: Dennis Schweber
----------------------------- -----------------------------
Vice President - Marketing & Sales Title: V.P. Marketing
----------------------------
Date: 8/25/97 Date: 9/17/97
----------------------------- ----------------------------
<PAGE> 1
EXHIBIT 10.7
BELL MICROPRODUCTS, INC.
HARDWARE DISTRIBUTION AGREEMENT
This Agreement, made this 10 day of October, 1996, is by and between Bell
Microproducts, Inc. ("Distributor"), a California Corporation having its
principal place of business at 1941 Ringwood Avenue, San Jose 95131-1721, and
Sage Inc. ("Vendor"), a California Corporation having its principal place of
business at 4633 Ironsides Drive, Suite 420, Santa Clara, California, 95054.
RECITALS
Vendor manufactures, produces and/or supplies computer products and desires to
grant to Distributor the right to sell and distribute the products, as
hereinafter defined, upon the terms and conditions set forth below.
Distributor is engaged in the sale and distribution of computer products and
desires to have the right to sell and distribute Vendor's products and upon
said terms and conditions.
In consideration of the mutual covenants and agreements set forth below, the
parties hereto agree as follows:
1. RECITALS
The recitals stated above are incorporated herein by reference.
2. GRANT OF DISTRIBUTION RIGHTS
2.1 Vendor hereby grants to Distributor, and Distributor accepts, the
non-exclusive right to distribute in the geographic regions
("Territory") and to customers ("Customers") as defined in Exhibit A,
attached hereto, all computer products ("Product" or "Products")
listed on Exhibit B, attached hereto and made a part hereof, as
amended from time to time by mutual written agreement.
2.2 Vendor agrees to make available and to sell to Distributor such
Product as Distributor shall order from Vendor at the prices and
subject to the terms set forth in this Agreement. Vendor reserves the
right at any time to change, modify or discontinue any Product, model,
type or design furnished hereunder. In addition, Vendor reserves the
right to change its published Distributors' Price for any Product at
any time.
2.3 Vendor may appoint other distributors to distribute its Products.
<PAGE> 2
3. TERM
The term of this Agreement shall be for a period of one (1) year, beginning
on the date first above written. Thereafter, the Agreement shall be renewed
for successive terms of one (1) year without further notice unless
terminated sooner as provided under the provisions of the Agreement.
4. OBLIGATIONS OF VENDOR
4.1 Vendor shall use its best efforts to ship Product promptly after
receipt of Distributor's Purchase Order for Product, unless otherwise
directed by Distributor.
4.2 At the time of initial order and from time to time thereafter, Vendor
shall provide at no charge reasonable amounts of sales literature,
which amounts shall be solely determined by Vendor.
4.3 For each Product shipment to Distributor, Vendor shall issue to
Distributor an invoice showing Distributor's Purchase Order number and
Product part number, description, price and any discount. At
Distributor's request, Vendor shall provide Distributor with a current
statement of account, listing all invoices outstanding and any
payments made and credits given since the date of the previous
statement, if any.
5. OBLIGATIONS OF DISTRIBUTOR
5.1 Distributor must submit written Purchase Orders (which may be
transmitted via facsimile) for all Products purchased under this
Agreement. Purchase Orders must specify Product model numbers,
quantity ordered, shipping destinations, shipping dates and preferred
carrier (if any). All such Purchase Orders are subject to the terms
and conditions set forth in this Agreement and in the attached Exhibit
C. Any terms or conditions which add to or differ from the terms and
conditions of this Agreement shall be invalid. Distributor agrees,
subject to Vendor's ability to supply Product(s), that Distributor
will carry a sufficient inventory of Product(s) to provide immediate
"off-the-shelf" delivery to Distributor's Customers, and that, upon
request, Distributor will make available to Vendor its current Product
inventory status.
5.2 Distributor will handle all Product returns from its Customers and
batch them for return to Vendor at regular intervals.
5.3 Distributor agrees to consistently use best efforts to market, sell,
promote and otherwise encourage the purchase of Products by Customers.
Distributor shall factually present Products in terms of function and
performance, and conduct its business in a manner reflecting favorably
upon Vendor's valuable good will and reputation. Distributor further
agrees to display, demonstrate and market Products prominently and
favorably in comparison with other competitive products.
5.4 Distributor will maintain sufficient facilities, personnel and
demonstration units of Products so as to be able to effective
demonstrate Products. Vendor agrees to provide technical assistance on
an ongoing basis to its Customers. Distributor will make its
facilities available for Product training and support, with the
assistance of Vendor.
5.5 Distributor agrees to provide to Vendor sell-through data, including
customer name, address, and Product type for each Product within
fifteen (15) days of the end of each month.
2
<PAGE> 3
6. PRICE AND TERMS
6.1 The net price (excluding taxes, duties, freight charges and insurance)
for Products sold by Vendor to Distributor shall be Vendor's
Distributors' Price appearing in effect on the date Vendor receives
Distributor's Purchase Order. Vendor may change the Distributor's
Price of any or all of its Products with thirty (30) days written
notice.
6.2 In the event that Vendor increases its published Distributors' Price
for any Product which Distributor is authorized to resell, only
Purchase Orders previously accepted by Vendor will be invoiced at the
lower price. All new Purchase Orders will be subject to the price
increase.
6.3 In the event that Vendor decreases its published Distributors' Price
for any Product which Distributor is authorized to resell, Vendor will
apply "Price Protection" to any Purchase Order in process, and to any
Product which is in Distributor's inventory at the time of the price
decrease, with the following restrictions:
(i) Products in inventory must have been purchased directly from
Vendor. Vendor reserves the right to verify Price Protection
claims and audit inventory at Distributor's sites;
(ii) Only Product(s) with invoices issued within the previous one
hundred eighty (180) days will be protected;
(iii) Distributor must present a written request for credit within
thirty (30) days of the price decrease, including the serial
numbers of Product(s) affected; and
(iv) Once Price Protection is approved by Vendor, Distributor must
submit a Purchase Order for Product(s) with a dollar value equal
to or greater than the price protection credit total.
7. SHIPPING
Vendor shall ship Product only pursuant to Distributor Purchase Orders
received by Vendor. Product shall be shipped F.O.B. Vendor's warehouse,
with risk of loss or damage as set forth in Standard Terms and Conditions,
Exhibit C, Section 9, attached hereto. Further, Vendor's standard shipping
and handling charges, as set forth in Standard Terms and Conditions,
Exhibit C, Section 9, attached hereto and amended from time to time, shall
apply to all Purchase Orders.
8. CANCELLATIONS
Distributor may, without charge, cancel any Products on order, provided
that Vendor receives written confirmation of such cancellation at least
two (2) days prior to the original scheduled shipment date.
9. PROMOTIONAL ACTIVITIES
9.1 Distributor may advertise and promote Product ("Promotional
Activities") in a commercially reasonable manner and may use Vendor's
trademarks, service marks and trade name in connection therewith;
provided that Distributor shall submit the advertisement or promotion
to Vendor for review and approval prior to the occurrence of the
promotion, which approval shall not be unreasonably withheld or
delayed. Vendor retains all rights, title and interest in its trade
mark, and all use by Distributor of such trademarks inures to
Vendor's benefit.
3
<PAGE> 4
9.2 Vendor agrees to cooperate with Distributor in Promotional Activities
and hereby grants Distributor a Cooperative Promotion Allowance
("CPA"). Vendor shall accrue the CPA at a rate of two percent (2.0%)
of invoice amounts for Product purchased from Vendor and paid by
Distributor, excluding shipping, handling, taxes and the like, and
adjusted for credits.
9.3 Distributor shall use the CPA for Promotional Activities such as, but
not limited to, seminars, print advertising and direct mail, which
prominently and positively feature Products. Upon receipt of
reasonable evidence of such expenditures, Vendor will debit the full
amount of qualifying expenditures from the CPA accrued to date by
Distributor, and Vendor will credit the same amount against Vendor's
account.
9.4 CPA credits must be used within twelve (12) months of accrual or be
lost by Distributor.
10. STOCK ROTATION
Distributor may return Products which Distributor has previously taken
delivery of subject to the following conditions:
10.1 Stock rotation may occur in the months of March, June, September and
December.
10.2 Product must have been purchased directly from Vendor and must be in
restockable and salable condition, including their original Vendor
packaging.
10.3 Distributor will be credited for any amounts previously paid by
Distributor for Products thus returned, less any Price Protection or
other credits previously received for such Product.
10.4 Credit received for Stock Rotation may only be applied by Distributor
against a corresponding Purchase Order for delivery of equal or
greater value than the credit.
10.5 The total value of such returns may not exceed twenty five percent
(25%) of the total value of Products purchased during the prior three
(3) months.
11. PRODUCT WARRANTIES
Vendor warrants its Products as set forth in Standard Terms and Conditions,
Exhibit C, Section 5 attached hereto. Vendor has no obligation to provide
loaner Products to Distributor while any Product is being repaired, either
under warranty or out of warranty. Distributor may provide its customers
with loaners; however, it shall do so entirely at its own expense. Vendors
shall use its best efforts to repair and return the Product within thirty
(30) days of receipt.
12. INDEMNITY
12.1 Vendor shall defend, indemnify, and hold Distributor harmless from and
against any claims, demands, liabilities or expenses (including
attorney's fees and costs) for any injury or damage, including, but
not limited to, any personal or bodily injury or property damage,
arising out of or resulting in any way from any defect in Products.
This duty to indemnify Distributor shall be in addition to the
warranty obligations of Vendor.
12.2 Vendor shall indemnify and hold Distributor harmless from and against
all damages and costs incurred by Distributor arising from the
infringement of any U.S. or Canadian patents, copyrights or trademarks
as set forth in Standard Terms and Conditions, Exhibit C, Section 6
attached hereto.
4
<PAGE> 5
12.3 In any event of indemnification, Distributor will give prompt notice
of any claim to Vendor. Vendor will have sole authority to defend and
settle claims. Distributor will cooperate fully with Vendor in helping
it defend itself against such claim, provided Vendor reimburses
Distributor for any reasonable expenses associated with such
cooperation.
13. REPRESENTATIONS AND WARRANTIES
Vendor warrants and represents that Products and their use do not infringe
upon any patents, copyright or trademarks of others, and that there are not
any suits or proceedings pending or threatened which allege that any
Product or the use thereof infringes upon such patents, copyrights or
trademarks. Vendor further warrants that sales to Distributor of Product at
the listed prices and/or discounts do not in any way constitute violations
of federal, state or local laws, ordinances, rules or regulations,
including any anti-trust laws or trade regulations.
14. TERMINATION
14.1 Either party may terminate this Agreement, with or without cause, by
giving ninety (90) days written notice to the other party. Both
parties have considered the making of expenditures in preparing for
performance under this Agreement, and losses possibly resulting to
each in the event of its termination. As a result, neither party shall
be responsible to the other for damages or otherwise by reason of such
termination of this Agreement, except as explicitly provided for
elsewhere in this Agreement.
14.2 In the event Distributor materially breaches this Agreement (e.g.,
including without limitation, becomes delinquent in payment of its
obligations, misrepresents Vendor's Product(s), fails to adequately
support Vendor's Product(s), conducts its business in a fashion that
damages Vendor's valuable good will and reputation, breaches the
Confidential Information Agreement executed herewith) and such breach
continues for thirty (30) days after written notice to Distributor,
then Distributor agrees that Vendor may terminate this Agreement with
cause.
14.3 Distributor may terminate this Agreement if Vendor materially breaches
its obligations herein and such breach continues for thirty (30) days
after written notice of such breach to Vendor.
14.4 This Agreement shall immediately terminate if either party ceases
conducting business in the normal course, becomes insolvent, makes a
general assignment for the benefit of creditors, suffers or permits
the appointment of a receiver for its business or assets, or avails
itself of or becomes subject to any proceeding under the Federal
Bankruptcy Act or any other federal or state statute relating to
insolvency or the protection of rights of creditors.
14.5 Upon termination of this Agreement, with or without cause, Vendor will
purchase at Distributor's invoiced cost all new and unused product in
Distributor's inventory.
14.6 Distributor warrants that on or before the effective date of
termination of this Agreement all identifying signs, literature, logos
or other evidence linking Distributor and Vendor shall be returned to
Vendor or a process started to discontinue use thereof.
15. OTHER PROVISION
15.1 Construction
This Agreement shall be construed and enforced in accordance with the
laws of the State of California.
5
<PAGE> 6
15.2 Notices
All notices, requests, demands and other communications called for or
contemplated hereunder shall be in writing and shall be deemed to
have been duly given when delivered or two (2) days after mailing by
U.S. certified or registered first-class mail, prepaid and addressed
to the parties at the addresses set forth at the beginning of this
Agreement or at such other addresses as the parties may designate by
written notice.
15.3 Attorney's Fees
In the event suit is commence to enforce this Agreement or otherwise
relating to this Agreement, the prevailing party shall be entitled to
reasonable attorney's fees and costs incurred in connection
therewith.
15.4 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute on and the same instrument. However, this Agreement shall
be of no force or effect until executed by both parties.
15.5 Confidential Information
Neither party shall disclose to the other any information regarded as
confidential information by the disclosing party or any third party.
Any confidential disclosures shall be exclusively governed by a
separate agreement.
15.6 No Implied Waivers
The failure of either party at any time to required performance by
the other party of any provision hereof shall not affect in any way
the full rights to require such performance at any time thereafter.
The waiver by either party of a breach of any provision hereof shall
not be taken, construed or held to be a waiver of the provision
itself or a waiver of any breach thereafter or any other provision
hereof.
15.7 Captions and Section Headings
Captions and section headings used herein are for convenience only,
are not a part of this agreement, and shall not be used in construing
it.
15.8 Covenant of Further Cooperation
Each of the parties agrees to execute and deliver such further
documents and to cooperate in such a manner as may be necessary to
implement and give effect to the agreements contained herein.
15.9 Binding on Heirs, Successors and Permitted Assigns
This Agreement shall be binding upon and shall inure to the benefit
of each party, its successors and assigns. The permitted assigns
shall be a parent company, wholly-owned subsidiary or any entity that
merges with or acquires all of the assets or stock of the party.
15.10 Severability
A judicial determination that any provision of this Agreement is
invalid in whole or in part shall not affect the enforceability of
those provisions found to be valid.
15.11 Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto pertaining to the subject matter hereof, superseding any and
all previous proposals, representation or statements, oral or
written. Any previous agreements between the parties pertaining to
the subject matter of this Agreement shall supersede the terms of any
invoice or Purchase Order issued by either party. Any modifications
to this Agreement must be in writing and signed by authorized
representatives of both parties hereto.
6
<PAGE> 7
16. ARBITRATION
All disputes, questions, controversies, claims or damages arising between
the parties hereto, or in relation to, or in connection with this
Agreement, or for breach thereof shall finally be settled by arbitration
pursuant to the rules of the American Arbitration Association by which each
party hereto is bound. Judgment upon the award of the arbitrators may be
entered in any court having jurisdiction thereof. Such arbitration shall be
held solely in San Jose, California, U.S.A.
17. LIMITATION OF LIABILITY
The standard warranty constitutes the sole and exclusive remedy against
Vendor for the furnishing of non-conforming or defective goods and
infringing goods. In no event, including if the goods are non-conforming,
defective, infringing, delayed or not delivered, shall Vender be liable for
any special, contingent, incidental, indirect or consequential damages,
even if Vendor has been advised of the possibility of such damage, whether
under a contract, tort, property or other legal theory. Such damages for
which Vendor is not responsible, include but are not limited to,
anticipated profits, labor expended, delays, loss of use and good will.
18. PARTIES EXECUTING
The parties executing this Agreement warrant that they have the requisite
authority to do so.
IN WITNESS WHEREOF, the parties set forth below their consent to the terms of
the Agreement through the signatures of their duly authorized representatives.
Bell Microproducts, Inc. Sage Inc.
By: /s/ PHIL ROUSSEY By: /s/ VIJAY P. DESAI
----------------------------- -----------------------------
Name: PHIL ROUSSEY Name: VIJAY P. DESAI
--------------------------- ---------------------------
Title: SR V-P of MKTING Title: VP-MKTG & SALES
-------------------------- --------------------------
Date: 10-3-96 Date: 10/8/96
--------------------------- ---------------------------
The Exhibits to this Agreement are:
Exhibit A: Territory and Customers
Exhibit B: Vendor Products
Exhibit C: Standard Terms and Conditions of Sale
7
<PAGE> 8
EXHIBIT A
Territory: U.S.A., and International excluding Europe
Customers: Resellers and End Users
A-1
<PAGE> 9
EXHIBIT B
Vendor Products
B-1
<PAGE> 10
EXHIBIT C
STANDARD TERMS AND CONDITIONS OF SALE
1. CONTROLLING DOCUMENT
The acceptance of Distributor's Purchase Order is expressly made
conditional on Distributor's consent to the terms and conditions set
forth therein. Vendor agrees to furnish the goods covered thereby upon
these terms and conditions.
2. PRICES AND TAXES
Prices shown are for delivery of goods F.O.B. Vendor's warehouse. Any
manufacturer's sales, use or excise tax, or customs or inspection fee
shall be paid by Distributor. In the event Vendor is required to pay any
such tax, fee or charge, Distributor shall within thirty (30) business
days reimburse Vendor thereof.
3. DELIVERY AND DELAY
Delivery of goods to a carrier at Vendor's plant or other loading point
shall constitute delivery to Distributor. All risk of loss or damage of
Product(s) in transit are borne by Distributor. Any partial deliveries
shall be separately invoiced and paid for when due per invoice without
regard to following deliveries. Claims for shortages or errors in
delivery must be made in writing to Vendor within ten (10) days after
receipt of shipment. Vendor shall not be liable for any loss or damage as
a result of any delay due to any cause beyond Vendor's direct reasonable
control.
4. INSPECTION
Distributor shall examine all goods promptly upon receipt thereof. Within
ten (10) days of such receipt, Distributor shall notify Vendor in writing
of all claimed shortages and defects and, if a rejection is intended, a
specification on the grounds thereof. Otherwise, the goods will be deemed
accepted as of the date of shipment.
5. LIMITED WARRANTY
Vendor warrants articles of its manufacture (excluding computer cables),
used under normal operating conditions against defective materials or
workmanship for the shorter of (i) twelve (12) months from the sale of
Product by Distributor, or (ii) fifteen (15) months from the date of
shipment from Vendor to Distributor. The liability of Vendor under this
warranty is limited, at Vendor's option, solely to repair or replace with
equivalent articles, or to provide an appropriate credit adjustment not
to exceed the sale price to Distributor, provided that the defective
articles are returned to Vendor, transportation charges prepaid, and
Vendor's examination of such article discloses to its satisfaction that
defects were not caused by negligence, misuse, improper installation,
accident or unauthorized repair or alteration. Warranty claims will only
be honored if Vendor is promptly notified in writing of the details of
the claim and Vendor has issued a Returns Materials Authorization ("RMA")
number to Distributor.
THIS WARRANTY IS EXPRESSLY IN LIEU OF AND VENDOR HEREBY DISCLAIMS ALL
OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING ANY WARRANTY OF
MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE, AND OF ALL OTHER
OBLIGATIONS OR LIABILITIES ON VENDOR'S PART RELATING TO ANY ALLEGEDLY
DEFECTIVE PRODUCT, AND VENDOR NEITHER ASSUMES NOR AUTHORIZES ANY OTHER
PERSON TO ASSUME FOR VENDOR ANY OTHER LIABILITIES.
C-1
<PAGE> 11
Out-of-warranty Product(s) may be returned to Vendor for repair, provided
that Distributor requests and is issued an RMA number and provides
Vendor with a Purchase Order to cover the repair charges. Both in-bound
and out-bound freight charges for non-warranty repairs will be paid by
Distributor. Non-warranty repairs will be made at a specified repair rate
to be agreed to in writing by both parties and from time to time.
Distributor will be notified by Vendor if the Product is determined
non-repairable and request disposition from Distributor at that time.
6. INFRINGEMENT CLAIMS
Vendor shall indemnify and hold Distributor harmless with respect to all
liabilities, losses, costs and expenses including reasonable attorney's
fees in connection with claims resulting from any third party claim made
against Distributor for the infringement of United States patents,
copyrights mass works or other proprietary rights by goods Distributor
hereunder, except if the claimed infringement has resulted from Vendor's
compliance with Distributor's designs, specifications, and instructions,
provided that Distributor notifies Vendor in writing of the claim of
infringement within thirty (30) days of Distributor's notice thereof.
Vendor shall have the option at any time to modify any goods sold
hereunder to avoid allegations of infringement provided such modification
does not materially affect performance hereunder.
7. GOVERNMENT CONTRACTS
If any Purchase Order indicates that the purchase is being made for use
under a U.S. Government Contract, only those terms and conditions which
are made mandatory by federal statue or regulation for inclusion in fixed
price supply subcontracts covering standard commercial proprietary items
sold to the public shall be deemed incorporated herein by reference.
Vendor retains the sole right to accept or reject such Purchase Orders.
8. TERMS AND METHOD OF PAYMENT
Where Vendor has extended credit to Distributor, the terms of payment
shall be 2% Net Ten (10) or Net Thirty (30) days from date of invoice.
The amount of credit, if any, may be changed or credit may be withdrawn
by Vendor at any time. On any order on which credit is not extended by
Vendor, shipment or delivery shall be made at Vendor's election, Cash
with Order or C.O.D.
9. SHIPPING AND HANDLING
Distributor may select from any of the normal shipping modes offered by
United Parcel Service ("UPS") or Federal Express ("FedEx") for delivery
of Product(s). Unless otherwise requested by Distributor, all shipment of
Product(s) by Vendor will be made via UPS Ground. Vendor will invoice
Distributor for shipping costs incurred by the common carrier. Vendor
reserves the right to change its charges for shipping and handling from
time to time without prior notice.
C-2
<PAGE> 12
Bell Microproducts
1941 Ringwood Ave.
San Jose, CA 95131-1721
Distributor Agreement Addendum
Bell Microproducts - Sage Inc.
Rev. 1.0 Sept. 12, 1996
Date of Agreement: _________________________
New Address: Sage Inc.
4633 Old Ironsides Dr. #420
Santa Clara, CA 95054
PH: (408) 748-0500 FAX: (408) 748-8542
Lead Time:
Sage, Inc. standard lead time is 4 weeks ARO. However, Sage Inc. shall use its
best efforts to ship the product within 15 working days after receipt of Bell
Micro's forecasted quantity for the product.
Minimum Orders:
Bell Micro will provide SAGE INC. a minimum board orders as follows:
1) Minimum Bare Board order = 100 units
2) Minimum kit order per line item = 50 units
Forecast:
Bell Micro will provide SAGE INC. a forecast of the stocking board and display
kits volume every (calendar) quarter.
- --------------------------------------------------------------------------------
Sage Inc. Bell Microproducts
4633 Old Ironsides Dr. #420 1941 Ringwood Ave.
Santa Clara, CA 95054 San Jose, CA 95131-1721
By: /s/ VIJAY P. DESAI By: /s/ PHIL ROUSSEY
---------------------------------- -----------------------------------
Name: VIJAY P. DESAI Name: PHIL ROUSSEY
-------------------------------- -----------------------------------
Title: Vice President - MKTG & SALES Title: SR VP-MKTG
------------------------------- ----------------------------
Date: 10/8/96 Date: 10-3-96
-------------------------------- -----------------------------
<PAGE> 1
EXHIBIT 10.8
SAGE, INC
DOMESTIC SALES REPRESENTATIVE AGREEMENT
THIS AGREEMENT made and entered into as of _________________ by and between
SAGE, INC. (herein called SAGE), and xxx (hereinafter called REPRESENTATIVE).
SAGE manufactures, distributes and sells various products that are subject to
change at SAGE'S discretion from time to time. The SAGE products covered by
this Agreement are those classified as "SAGE Products". REPRESENTATIVE is
knowledgeable of the industry in which SAGE'S products are used and familiar
with potential customers in the Territory (defined below).
In consideration of the mutual covenants contained herein, SAGE and
REPRESENTATIVE agree as follows:
1.0 APPOINTMENT OF REPRESENTATIVE
1.1 SAGE appoints REPRESENTATIVE, and REPRESENTATIVE accepts the
appointment, in REPRESENTATIVE'S capacity as an independent contractor, to
exclusively represent SAGE'S Products throughout the Territory specified in
Exhibit A (the "Territory") on a commission basis, subject to the provisions of
this Agreement and for the purposes set forth herein.
2.0 REPRESENTATIVE'S ACTIVITIES AND RESPONSIBILITIES
2.1 REPRESENTATIVE shall exercise its best efforts to promote the sale of
SAGE'S Products and to promote and protect the best interests of SAGE as well
as the responsibilities outlined in Exhibit C. REPRESENTATIVE shall, as a
minimum, meet the sales (booking quotas that are mutually agreed to by the
REPRESENTATIVE and SAGE for each year during the term of this Agreement. The
annual sales quotas established as well as the capacity of SAGE to fill
potential orders for its Products.
<PAGE> 2
2.2 REPRESENTATIVE shall provide and maintain, solely at Representative's
expense, a suitable place of business in the Territory and a sufficient number
of qualified salesmen having a reasonably thorough knowledge of SAGE's Products
and Product lines to contact (in person, by telephone and written
correspondence) and service existing and prospective customers (together
referred to as "Customers") throughout the Territory, in connection with
soliciting the purchase of SAGE's Products.
2.3 REPRESENTATIVE shall promptly notify SAGE of new product requirements
of Customers, within the scope of SAGE's Product lines.
2.4 REPRESENTATIVE shall submit to SAGE from time to time as requested by
SAGE forecasts of its expected sales and reports of its activity in the
Territory containing such information as SAGE may from time to time request.
2.5 REPRESENTATIVE shall supply SAGE with any credit information about
any Customer that may become available.
2.6 To assure that REPRESENTATIVE is using the best efforts to promote
SAGE's Product lines, REPRESENTATIVE shall not promote, market or act as a
sales representative for any products that directly compete with SAGE's
Products. REPRESENTATIVE shall notify SAGE in writing, promptly of any changes
in its representation of other manufacturers' product lines which may conflict
or appear to conflict with the representation of SAGE's Products hereunder.
3.0 PRICE LISTS AND OTHER MATERIALS
3.1 Price Lists: Prices will be quoted by SAGE. There are no OEM price
Lists.
3.2 Literature and Promotional Materials: SAGE shall endeavor or to
provide REPRESENTATIVE with such information, literature, catalogs, data
sheets, sales, and other relevant materials as SAGE may normally make available
for use by its sales representatives.
<PAGE> 3
4.0 ORDERS; ACCEPTANCE
4.1 Quotations and Orders: REPRESENTATIVE shall solicit orders from
Customers only in accordance with procedures established by SAGE and subject to
SAGE's terms and conditions of sale. SAGE's current form of terms and
conditions is attached as Exhibit "D". SAGE reserves the right to change its
terms and conditions of sale from time to time without prior notice to
REPRESENTATIVE, and any such changes shall be applicable to orders accepted
after the change.
4.2 REPRESENTATIVE shall not alter, limit, or enlarge orders without prior
written approval from SAGE.
4.3 Order Acceptance and Rejection: In no event shall no order be deemed
to have been accepted by SAGE until it is accepted by SAGE at its home office
in 4633 Old Ironsides Drive, #420, Santa Clara, CA 95054 and acknowledged in
writing by an authorized SAGE employee. REPRESENTATIVE shall advise Customers
that it is not authorized to accept orders on behalf of SAGE. SAGE reserves the
right to reject or not to accept any orders and shall have no liability of any
kind to REPRESENTATIVE by reason of such rejection or non-acceptance or for not
scheduling ay accepted order for shipment.
4.4 Orders which are accepted become Scheduled Backlog at the time the
order is scheduled in the ordinary course of SAGE's procedure for shipment to
the Customer. Until scheduled, an accepted order is considered Unscheduled
Backlog.
5.0 COMMISSION
5.1 General: A commission will be paid by SAGE to REPRESENTATIVE for all
services and activities performed pursuant to Section 2.0 of this Agreement as
set forth below.
<PAGE> 4
5.2 Sales by SAGE to Customers: Except as otherwise provided herein and as
specified in Exhibit B, REPRESENTATIVE shall earn a commission on the
dollar volume of sales of Products sold and delivered by SAGE to
retail or OEM Customers. The "Dollar Volume" of sales is calculated on
the basis of selling price net after deducting applicable discounts,
returns for credit, replacement or repair, shipping charges,
cancellation billings, deductions, offsets and the like (and not
including any taxes which SAGE might charge or collect).
If any Products are returned by a Customer, the selling price of which was
included in the Dollar Volume, any credit given such Customer shall reduce the
Dollar Volume of sales used in future commission calculations at the earliest
opportunity or, at SAGE's discretion. SAGE may require REPRESENTATIVE to repay
SAGE for all commission paid on account of such returned Products at any time
following their return. The Dollar Volume does not include such items as
development fees, qualification charges, items collected after the commencement
of litigation, or replacement of spare parts.
6.0 PAYMENT OF COMMISSION
6.1 Time Earned: Commission shall be deemed to have been earned by
REPRESENTATIVE at the time of shipment of the Products by SAGE to a Customer,
or as amended in Exhibit B; provided, however, that earned commission be offset
to the extent that products are returned for credit, replacement or repair.
6.2 Payments: Payment of commissions earned by REPRESENTATIVE hereunder
shall be made to REPRESENTATIVE one month after the end of the month in which
such commissions are earned on shipment by SAGE. Commissions will be earned on
all sales of Sage Inc. products into the defined territory, which is not
specifically excluded by this contract. Notwithstanding anything to the
contrary, SAGE may elect, at its sole discretion, to make payments to
REPRESENTATIVE for commission on sales to Customers only after receipt of
payment from the applicable Customer and to make pro-rated payment of
Commissions in the event of partial payment from such applicable Customer. In
the event of a dispute between REPRESENTATIVE and SAGE, SAGE reserves the right
to hold commissions until such disputes are resolved to the satisfaction of
both parties.
<PAGE> 5
7.0 RELATIONSHIP OF PARTIES
7.1 REPRESENTATIVE's sole authority under this Agreement is to solicit
orders in accordance with procedures established by SAGE for SAGE's acceptance
on SAGE's standard terms and conditions of sale as amended by SAGE from time to
time. REPRESENTATIVE is not authorized to enter into any agreement or to make
any commitment of any kind on behalf of SAGE. REPRESENTATIVE is an independent
contractor and nothing contained herein shall be construed or intended as
creating a relationship of principal and agent or employer and employee between
SAGE and REPRESENTATIVE. SAGE shall not incur any liability whatsoever to third
parties by reason of REPRESENTATIVE exceeding its authority under the
appointment granted herein or by reason of a misrepresentation by REPRESENTATIVE
of the relationship with SAGE, and if any claim is asserted against SAGE based
on conduct by REPRESENTATIVE, REPRESENTATIVE agrees to defend and hold SAGE
harmless from any loss, damage, liability or expense, including reasonable
attorneys' fees.
7.2 REPRESENTATIVE shall be responsible for payment of all applicable taxes
and withholdings on commissions paid to it by SAGE and REPRESENTATIVE shall hold
SAGE harmless from any claims regarding payment for same. REPRESENTATIVE shall
assume and discharge for its own account all costs and expenses necessary or
incidental to REPRESENTATIVE's activities hereunder.
8.0 CONFIDENTIAL INFORMATION
8.1 REPRESENTATIVE agrees it will not disclose to any other party any
confidential information of SAGE, including, but not limited to quantity of
Products shipped, Product pricing, Product returns, and in general such
information which if disclosed to others would be detrimental to the best
interests of SAGE to the extent that such information is acquired by
REPRESENTATIVE in the course of activities performed under this Agreement.
<PAGE> 6
9.0 TERMS AND TERMINATION OF AGREEMENT
9.1 Term: The term of this Agreement shall be one (1) year commencing on
the date of this Agreement. At the expiration of one (1) year period, this
Agreement will automatically be renewed for successive period of one (1) year.
Either party may give the other not less than thirty (30) days prior written
notice of its intention to terminate the Agreement without cause at any time as
provided in section 9.2.1, in which case this Agreement shall terminate and
cease as of the end of that notice period as stated in Section 9.2.
9.2 Either party may terminate this Agreement at any time during the
initial or any renewal term as follows:
9.2.1 Termination Without Cause: Either party may during the term of
this Agreement, or any renewal thereof, terminate this Agreement at any time
without cause by giving prior written notice to the other party. The notice
period for termination without cause shall be thirty (30) days. Termination
shall be effective upon the conclusion of the notice period; provided, however,
that either party may, at its option, waive all or any part of the notice
period, and termination shall be effective at the conclusion of such shortened
period. During the notice period, each party shall continue to perform all of
its obligations hereunder, failing which the other party may terminate for
cause.
9.2.2 Termination for Cause: Either party may terminate this
Agreement at any time upon notice in writing to the other party, to be in
effect immediately, if the party:
A. Fails to perform a material obligation as required by this
Agreement:
B. Assigns or attempts to assign this Agreement or any right
therein without the prior consent of SAGE, admits in writing an inability to
pay its debts as they mature, is adjudged to be bankrupt, makes an assignment
for the benefit of creditors, has a receiver appointed, files a petition in
bankruptcy, or initiated reorganization proceedings.
<PAGE> 7
9.3 Right of Termination Absolute: The rights of termination herein
contained are absolute. Neither party shall be liable to the other for any
loss, damage or liability by reason of the exercise of the rights of
termination and any and all claims of such liability and the right to make such
claims are hereby expressly waived. It is understood and agreed that both
parties shall be liable for any obligation that accrued under the terms of this
Agreement prior to termination.
9.4 Disposal of Materials: Upon expiration or termination of this
Agreement, REPRESENTATIVE shall deliver to SAGE or otherwise dispose of price
lists, sales aids, advertising matter, Product samples, other materials
furnished by SAGE and all Customer records showing sales of SAGE's Products in
the manner directed by SAGE; and REPRESENTATIVE shall immediately cease any
further use of SAGE's name, trademark, part numbers and similar identifying
symbols to which SAGE may have previously consented hereunder.
9.5 Commission Payments After Expiration or Termination:
9.5.1 In the event of expiration of this Agreement or termination by
SAGE without cause, the REPRESENTATIVE shall be paid commissions on shipments
of Scheduled Backlog of orders by SAGE customers in existence as of the
effective date of termination, expiration or non-renewal according to the
schedule below:
Commissions are Earned on Shipments of SAGE Scheduled Backlog in Existence on
the Date of Termination, Expiration or Non-Renewal for the period of shipment
within 60 days from date of termination.
No Commission shall become due on any order which has been obtained or accepted
after the effective date of termination of this Agreement, unless specifically
provided for and agreed to by Sage Inc. in writing at the time of termination.
9.5.2 In the event of termination of this Agreement by either party
for cause in accord with 9.2.2, SAGE shall not be obligated to pay any
commission to REPRESENTATIVE on account of shipments made subsequent to the
notice date of termination for cause. This provision shall prevail and take
precedence over any other provision in the event of conflict or inconsistency.
9.5.3 REPRESENTATIVE Termination: In the event REPRESENTATIVE
initiates termination, expiration or non-renewal of this Agreement, the period
within which commissions will be earned after the date of Notice will be
reduced to fifty percent (50%) of the period stated in Paragraph 9.5.1 and
9.5.3 SAGE may, at its discretion, elect to waive all or any part of the 30
day notice of termination period.
<PAGE> 8
9.6 Right to Appoint Another Representative: Notwithstanding anything to the
contrary herein, SAGE may at any time after giving the thirty (30) days notice
of termination provided for in Paragraph 9.2.1 appoint another representative
in the Territory.
10. GENERAL PROVISIONS
10.1 Entire Agreement. This Agreement sets forth the entire understanding
between the parties as to the subject matter hereof and supersedes all prior
and collateral understandings and agreements; regardless of form, between the
parties.
10.2 Extension and Modifications: This Agreement shall not be extended,
modified or supplemented except by an instrument in writing executed by a duly
authorized officer of each party.
10.3 Assignment: This Agreement is personal to REPRESENTATIVE and is not
assignable without the prior written consent of SAGE. Any voluntary or
involuntary assignment or attempted assignment shall be void and of no effect.
If REPRESENTATIVE is a corporation or partnership, a change in the management
or shareholder or partnership, a change in the management or shareholders or
partners (as applicable) shall be deemed an assignment of this Agreement.
10.4 Notice: Any notice required or contemplated by this Agreement must be in
writing, delivered by confirmed fax, certified or registered mail, addressed to
the respective party at its address herein above set forth, or to such other
address as may from time to time be substituted therefor by notice in writing
sent by the party changing its address. All notices shall be effective as of
the date of mailing or fax by the party giving the notice.
TO SAGE INC. TO REPRESENTATIVE:
Sage Inc. Electro Source Inc.
Attn: Mr. Vijay Desai Attn: Mr. Sherman Cunningham
4633 Old Ironsides Dr. #420 230 Galaxy Blvd.
Santa Clara, CA 95054 Rexdale, Ontario M9W 5R8
Ph: (408) 748-0500, X101 Ph: (416) 675-4490
Fax: (408) 748-8540 Fax: (416) 675-6871
10.5 Waiver: The failure to take action shall not be a waiver of the right to
take other or later action. The waiver of any breach shall not act as a waiver
of any subsequent breach of the same or different nature.
11. CONSTRUCTION AND VALIDITY
<PAGE> 9
11.1 Governing Law: The validity, construction and enforcement of this
Agreement shall be governed by the laws of the State of California SAGE and
REPRESENTATIVE agree that any litigation which may be initiated between them
shall be filed and heard only in a state or federal court located within Santa
Clara County, in the state of California, and both parties agree to personal
jurisdiction and venue in Santa Clara County, in the State of California.
11.2 Invalidity. In the event any provision of this Agreement is prohibited by
or under the laws of any jurisdiction in which the Agreement may be used or to
which it may be applicable, such provision shall be, as to that jurisdiction,
ineffective to the extent of such prohibition without invalidating thereby any
of the remaining provisions of the Agreement.
11.3 Counterparts: This Agreement may be executed in counterparts, each of which
shall be deemed to be an original.
12. DAMAGES AND CLAIM
12.1 Damages: Except as otherwise provided herein neither party shall by reason
of, or upon termination of this Agreement, be liable to the other for
compensation or damages on account of the loss of present or prospective
profits or commissions on sales or anticipated sales, or expenditures,
investments of commitments made in connection therewith or in connection with
the establishment, development or maintenance of the representative hereunder.
The acceptance by SAGE of any order after notice of termination shall not be
construed as a renewal or extension of this Agreement or as a waiver of
termination.
12.2 In consideration of the execution or renewal of this Agreement by SAGE,
REPRESENTATIVE hereby releases SAGE from all claims, demand or other
liabilities, if any there be, as of the date of the execution of this Agreement
by REPRESENTATIVE, except indebtedness due under a written contract with SAGE.
REPRESENTATIVE waives all claims to commissions arising under any prior
agreement with respect to shipments for which a commission is payable under the
terms of this Agreement.
<PAGE> 10
This agreement made and entered into as of August 14, 1998.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the year and day first above written.
SIGNATURE:
REPRESENTATIVE NAME:
TITLE:
DATE:
SIGNATURE:
SAGE INC. NAME:
TITLE:
DATE:
<PAGE> 1
SAGE, INC.
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
DATED AS OF JULY 19, 1999
<PAGE> 2
This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered into as
of July __, 1999, by and between GENERAL BANK ("BANK") and SAGE, INC., a
California corporation ("BORROWER").
RECITALS
A. Borrower and Bank entered into that certain Loan Agreement with an
effective date of November 4, 1998 (the "PRIOR LOAN AGREEMENT"), pursuant to
which Bank agreed to extend and make loans available to Borrower up to the
maximum amount of $2,000,000 (the "ORIGINAL COMMITMENT") subject to the terms
and conditions contained herein.
B. Borrower and Bank desire to amend and restate the Prior Loan
Agreement in its entirety to, among other things, amend and restate the terms of
the Original Commitment, all as more fully set forth herein.
C. Bank has agreed to make and maintain the credit facilities described
in this Agreement, but only upon the terms and subject to the conditions
hereinafter set forth and in reliance on the representations and warranties set
forth herein.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms shall have
the following definitions:
"ACCOUNTS" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of
the foregoing.
"AFFILIATE" means, with respect to any Person, any Person that owns
or controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person
that is a limited liability company, such Persons, managers and members.
"BANK EXPENSES" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Document;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents, (including fees and expenses of
appeal or review, or those incurred in any Insolvency Proceeding) whether or
not suit is brought.
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"BORROWER'S BOOKS" means all of Borrower's books and records including,
without limitation; ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and
all computer programs, or tape files, and the equipment, containing such
information.
"BORROWING BASE" means an amount equal to eighty five percent (85%) of
Eligible Accounts plus Six Hundred Thousand Dollars ($600,000), as determined
by Bank with reference to the most recent Borrowing Base Certificate delivered
by Borrower.
"BUSINESS DAY" means any day that is not a Saturday, Sunday, or other day
on which banks in the State of California are authorized or required to close.
"CLOSING DATE" means the date of this Agreement.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means the property described on EXHIBIT A attached hereto.
"COMMITTED REVOLVING LINE" means a credit extension of up to Two Million
Dollars ($2,000,000).
"CONTINGENT OBLIGATION" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i)
any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate
cap agreement, interest rate collar agreement, or other agreement or
arrangement designated to protect a Person against fluctuation in interest
rates, currency exchange rates or commodity prices; provided, however, that the
term "CONTINGENT OBLIGATION" shall not include endorsements for collection or
deposit in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determined
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good faith;
provided, however, that such amount shall not in any event exceed the maximum
amount of the obligations under the guarantee or other support arrangement.
"COPYRIGHTS" means any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not
the same also constitutes a trade secret, now or hereafter existing, created,
acquired or held.
"CREDIT EXTENSION" means each Revolving Advance or any other extension of
credit by Bank for the benefit of Borrower hereunder.
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<PAGE> 4
"CURRENT ASSETS" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"CURRENT LIABILITIES" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Credit
Extensions made under this Agreement, including all Indebtedness that is
payable upon demand or within one year from the date of determination thereof
unless such Indebtedness is renewable or extendable at the option of Borrower
or any Subsidiary to a date more than one year from the date of determination,
but excluding Subordinated Debt.
"ELIGIBLE ACCOUNTS" means those Accounts that arise in the ordinary course
of Borrower's business that comply with all of Borrower's representations and
warranties to Bank set forth in Section 5.4; provided, that standards of
eligibility may be fixed and revised from time to time by Bank in Bank's
reasonable judgment and upon notification thereof to Borrower in accordance
with the provisions hereof. Unless otherwise agreed to by Bank in writing,
Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within one
hundred twenty (120) days of the invoice date, or in certain instances with
prior written approval from Bank, within one hundred fifty (150) days of the
invoice date;
(b) Accounts with respect to an account debtor, fifty percent (50%)
of whose Accounts the account debtor has failed to pay within one hundred
twenty (120) days of the invoice date;
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed thirty percent (30%) of
all Accounts, except as approved in writing by Bank;
(d) Accounts with respect to which the account debtor does not have
its principal place of business in the United States;
(e) Accounts with respect to which the account debtor is a federal,
state, or local governmental entity or any department, agency, or
instrumentality thereof;
(f) Accounts with respect to which Borrower is liable to the account
debtor for goods sold or services rendered by the account debtor to Borrower,
but only to the extent of any amounts owing to the account debtor (sometimes
referred to as "contra" accounts, e.g. accounts payable, customer deposits,
credit accounts, etc.) against amounts owed to Borrower.
(g) Accounts generated by demonstration or promotional equipment, or
with respect to which goods are placed on consignment, guaranteed sale, sale or
return, sale on approval, bill and hold, or other terms by reason of which the
payment by the account debtor may be conditional;
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<PAGE> 5
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(j) Accounts the collection of which Bank reasonably determines to
be doubtful by reason of the account debtor's financial condition or otherwise.
"EQUIPMENT" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"FINANCIAL COVENANT DEFAULT" means a default under SECTION 6.8, 6.9, 6.10,
or 6.12.
"GAAP" means generally accepted accounting principles as in effect in the
United States from time to time.
"INDEBTEDNESS" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or against any
person or entity under any provision of the United States Bankruptcy Code, as
amended, or under any other bankruptcy or insolvency law, including assignments
for the benefit of creditors, formal or informal moratoria, compositions,
extension generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INTELLECTUAL PROPERTY" means
(a) Copyrights, Trademarks, Patents, and Mask Works;
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower now
or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but
not the obligation, to sue for and collect such damages for said use or
infringement of the intellectual property rights identified above;
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<PAGE> 6
(e) All licenses or other rights to use any of the Copyrights,
Patents, Trademarks, or Mask Works, and all license fees and royalties arising
from such use to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the Copyrights,
Trademarks, Patents, or Mask Works; and
(g) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
"INVENTORY" means all present and future inventory in which Borrower has
any interest, including merchandise, raw materials, parts, supplies, packing
and shipping materials, work in process and finished products intended for sale
or lease or to be furnished under a contract of service, of every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as
is temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above.
"INVESTMENT" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"LIEN" means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" means, collectively, this Agreement, any note or notes
executed by Borrower, and any other present or future agreement entered into
between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated from time to time.
"MASK WORKS" means all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired;
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"MATURITY DATE" means June 30, 2000.
"NEGOTIABLE COLLATERAL" means all of Borrower's present and future letters
or credit of which it is a beneficiary, notes, drafts, instruments, securities,
documents of title, and chattel paper.
"OBLIGATIONS" means all debt, principal, interest, Bank Expenses and other
amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing
or hereafter arising, including any interest that accrues after the
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commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"PATENTS" means all patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same.
"PAYMENT DATE" means the last calendar day of each month commencing
on the first such date after the Closing Date and ending on the Maturity Date.
"PERMITTED INDEBTEDNESS" means:
(a) Indebtedness of Borrower in favor of Bank arising under
this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business; and
(e) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENT" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank.
"PERMITTED LIENS" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges
or levies, either not delinquent or being contested in good faith by
appropriate proceedings and as to which adequate reserves are maintained on
Borrower's Books in accordance with GAAP, provided the same have no priority
over any of Bank's security interest;
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<PAGE> 8
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment; and
(d) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently published in the Money Rate Section of the New York Edition of The
Wall Street Journal, as the "prime rate", whether or not such published rate is
the lowest rate available from Bank. When a range of rates is published, the
higher of the rates shall apply at the time the rate is changed.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Advance" or "Revolving Advances" means a loan advance
under the Committed Revolving Line.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity
of which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.
"Tangible Net Worth" means as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries minus, without
duplication, (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expenses, patents, trade
and service marks and names, copyrights and research and development expenses
except prepaid expenses, and (c) all reserves not already deducted from assets,
and (ii) Total Liabilities.
"Total Liabilities" means as of any applicable date, any date as of
which the amount thereof shall be determined, all obligations that should, in
accordance with GAAP be classified as
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<PAGE> 9
liabilities on the consolidated balance sheet of Borrower, including in any
event all Indebtedness, but specifically excluding Subordinated Debt.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Assignor connected
with and symbolized by such trademarks.
1.2 Accounting and Other Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include notes and schedules
thereto. The terms "including"/"includes" shall always be read as meaning
"including (or includes) without limitation", when used herein or in any other
Loan Document.
2. LOAN AND TERMS OF PAYMENT. Borrower promises to pay to the order of Bank,
in lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of such Credit
Extensions at rates in accordance with the terms hereof.
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2.1 Committed Revolving Line.
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Revolving Advances to Borrower in an aggregate
outstanding amount not to exceed the Committed Revolving Line or the Borrowing
Base, whichever is less. Subject to the terms and conditions of this Agreement,
amounts borrowed pursuant to this Section 2.1 may be repaid and reborrowed at
any time during the term of this Agreement.
(b) Whenever Borrower desires an Revolving Advance,
Borrower will notify Bank by facsimile transmission or telephone no later than
2:00 p.m. Pacific time, on the Business Day that the Revolving Advance is to be
made. Each such notification shall be promptly confirmed by a Payment/Advance
Form in substantially the form of Exhibit B attached hereto and incorporated
herein by this reference. Bank is authorized to make Revolving Advances under
this Agreement, based upon instructions received from a Responsible Officer or a
designee of a Responsible Officer, or without instructions if in Bank's
discretion such Revolving Advances are necessary to meet Obligations which have
become due and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a Responsible
Officer or a designee thereof, and Borrower shall indemnify and hold Bank
harmless for any damages or loss suffered by Bank as a result of such reliance.
Bank will credit the amount of Revolving Advances made under this Section 2.1 to
Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the
Maturity Date, at which time all Revolving Advances under this Section 2.1 and
other amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
(d) If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to this Section 2.1 is greater
than the lessor of (i) the Committed Revolving Line or (ii) the Borrowing Base,
Borrower shall immediately pay to Bank, in cash, the amount of such excess.
2.2 Letters of Credit.
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to issue or cause to be issued letters of credit (each a
"Letter of Credit", collectively, the "Letters of Credits") for the account of
Borrower in an aggregate face amount not to exceed (i) the lesser of the
Committed Revolving Line or the Borrowing Base minus (ii) the sum of the then
outstanding principal balance of the Revolving Advances and the face amount of
outstanding Letters of Credit and Acceptances. Each such Letter of Credit shall
have an expiry date no later than the Maturity Date; provided that the expiry
date may be up to 90 days after the Maturity Date as long as Borrower secures
its reimbursement and other obligations in connection with any Letter of Credit
outstanding after such date with cash on terms reasonably acceptable to Bank.
All such Letters of Credit shall be, in form and substance, acceptable to Bank
in its sole discretion and shall be subject to the terms and conditions of
Bank's form of application and letter of credit agreement.
(b) All amounts actually paid by Bank in respect of a
Letter of Credit shall, when paid, constitute a Revolving Advance under this
Agreement. All shipping bills shall
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be settled within seven (7) Business Days, in the event that Borrower desires
to pay for the shipping bills with its own funds, Borrower shall notify Bank at
the time Bank notifies Borrower of the arrival of the shipping documents. Any
draft drawn under a Letter of Credit will be paid on the fourth Business Day
after the day Bank receives the documents. If there is insufficient
availability under the Committed Revolving Line, Bank shall advance the
necessary funds to pay the presenting bank and hold the documents until Bank is
paid in full; provided that, Bank, at its sole discretion, may debit Borrower's
account for the amount settled.
(c) The obligation of Borrower to reimburse Bank for drawings
made under Letters of Credit shall be absolute, unconditional and irrevocable,
and shall be performed strictly in accordance with the terms of this Agreement
and such Letters of Credit, under all circumstances whatsoever, including,
without limitation, the following circumstances:
(i) Any lack of validity of enforceability of the Letter
of Credit, the obligation supported by the Letter of Credit or any other
agreement or instrument relating thereto (collectively, the "Related
Documents");
(ii) Any Amendment or waiver of or any consent to or
departure from all or any of the Related Documents;
(iii) The existence of any claim, set-off, defense or other
rights which Borrower may have at any time against any beneficiary or any
transferee of the Letter of Credit (or any persons or entities for whom any
such beneficiary or any such transferee may be acting), Bank or any other
Person, whether in connection with the Loan Documents, the Related Documents or
any unrelated transaction;
(iv) Any breach of contract or other dispute between
Borrower and any beneficiary or any transferee of the Letter of Credit (or any
persons or entities for whom such beneficiary or any such transferee may be
acting), Bank or any other Person;
(v) Any draft, statement or any other document presented
under the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect whatsoever;
(vi) Any delay, extension of time, renewal, compromise or
other indulgence or modification granted or agreed to by the Letter of Credit
issuing bank, with or without notice to or approval by Borrower in respect of
any of Borrower's indebtedness under this Agreement; or
(vii) Any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing.
(d) Borrower assumes all risks of the acts or omissions of any
beneficiary and any transferee of each Letter of Credit; provided, however,
this assumption with
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respect to Bank, is not intended to, and shall not, preclude Borrower's
pursuing such risks and remedies as it may have against any such beneficiary or
transferee of a Letter of Credit at law or under any other agreement. Neither
Bank, nor any of its officers or directors shall be liable or responsible for:
(i) the use which may be made of any Letter of Credit or for any acts or
omissions of any beneficiary and any transferee of any Letter of Credit in
connection therewith; (ii) the validity, sufficiency or genuineness of
documents, or of any endorsement thereon, even if such documents should in fact
prove to be in any or all respects invalid, insufficient, fraudulent or forged;
or (iii) any other circumstances whatsoever in making or failing to make
payment under the Letter of Credit; provided, however, notwithstanding anything
to the contrary contained in the preceding clauses (i), (ii) and (iii),
Borrower shall have a claim against Bank, and Bank shall be liable to Borrower
for any direct damages, but not for any consequential or punitive damages,
suffered by Borrower which Borrower proves were caused by Bank's willful
failure to pay under a Letter of Credit after the presentation to it by any
beneficiary (or Person to whom such Letter of Credit has been transferred in
accordance with its terms) of a sight draft and certificate strictly complying
with the terms and conditions of such Letter of Credit. In furtherance and not
in limitation of the foregoing, bank may accept documents that appear on their
face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary.
2.3 ACCEPTANCE AVAILABILITY.
(a) Subject to and upon the terms and conditions of this
Agreement, at any time and from time to time from the date hereof through the
Business Day immediately prior to the Maturity Date, Bank shall issue
documentary credits, including, but not limited to trust receipts, acceptances,
banker's acceptances (each an "Acceptance", collectively, the "Acceptances")
for the account of Borrower by accepting drafts drawn on Bank by Borrower, in
an aggregate face amount not to exceed (i) the lesser of the Committed
Revolving Line or the Borrowing Base minus (ii) the sum of the then outstanding
principal balance of the Revolving Advances and the face amount of outstanding
Letters of Credit and Acceptances. Each such Acceptance shall have an expiry
date no later than the Maturity Date. All such Acceptances shall be, in form
and substance, acceptable to Bank in its sole discretion and shall be subject
to the terms and conditions of Bank's form of application and acceptance
agreement.
(b) All amounts actually paid by Bank in respect of an
Acceptance shall, when paid, constitute a Revolving Advance under this
Agreement.
2.4 INTEREST RATES, PAYMENTS, AND CALCULATIONS.
(a) INTEREST RATE. Except as set forth in Section 2.4(c), any
Revolving Advances shall bear interest, on the average daily balance thereof,
at a floating per annum rate equal to one half of one percentage point (0.5%)
above the Prime Rate.
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(b) DEFAULT RATE. All Obligations shall bear interest, from and
after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points (5%) above the interest rate applicable immediately prior to
the occurrence of the Event of Default.
(c) PAYMENTS. Interest hereunder shall be due and payable on
each Payment Date. Borrower hereby authorizes Bank to debit any accounts with
Bank, including, without limitation, Account Number 5400025010 for payments of
principal and interest due on the Obligations and any other amounts owing by
Borrower to Bank. Bank will notify Borrower of all debits which Bank has made
against Borrower's accounts. Any such debits against Borrower's accounts in no
way shall be deemed a set-off. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) LATE CHARGE. If a payment is ten (10) days or more late,
Borrower will be charged the greater of five percent (5.0%) of the unpaid
portion of the regularly scheduled payments or Ten dollars ($10.00).
(e) COMPUTATION. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.5 CREDITING PAYMENTS. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, whether directed to Borrower's deposit account
with Bank or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is
honored when presented for payment. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Bank after 12:00
noon Pacific time shall be deemed to have been received by Bank as of the
opening of business on the immediately following Business Day. Whenever any
payment to Bank under the Loan Documents would otherwise be due (except by
reason of acceleration) on a date that is not a Business Day, such payment
shall instead be due on the next Business Day, and additional fees or
interest, as the case may be, shall accrue and be payable for the period of
such extension.
2.6 FEES. Borrower shall pay to Bank the following:
(a) A facility fee with respect to the Committed Revolving Line
equal to Two Thousand Dollars ($2,000), which fee shall be due on the Closing
Date and shall be duly earned and non-refundable;
(b) Bank's customary fees and out-of-pocket expenses for Bank's
audits of Borrower's Accounts, and for each appraisal of Collateral and
financial analysis and examination of Borrower performed from time to time by
Bank or its agents;
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(c) Upon demand from Bank, including, without limitation, upon
the date hereof, all Bank Expense incurred through the date hereof, including
reasonable attorneys' fees and expenses, and, after the date hereof, all Bank
Expenses, including reasonable attorneys' fees and expenses, as and when they
become due.
2.7 ADDITIONAL COSTS. In case any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for
taxes on the overall net income of Bank imposed by the United States of America
or any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement;
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.8 TERM. Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to SECTION 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSIONS. The obligation of
Bank to make the initial Credit Extension is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
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(c) a warrant to purchase stock issued by Borrower in favor of
Bank;
(d) financing statements (Forms UCC-1);
(e) insurance certificate;
(f) payment of the fees and Bank Expenses then due specified in
SECTION 2.6 hereof;
(g) Certificate of Foreign Qualification (if applicable); and
(h) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. The obligation of Bank
to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in SECTION 2.1; and
(b) the representations and warranties contained in SECTION 5
shall be true and correct in all material respects on and as of the date of
such Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the accuracy of
the facts referred to in this SECTION 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired
or arising Collateral, including Intellectual Property, in order to secure
prompt payment of any and all Obligations and in order to secure prompt
performance by Borrower of each of its covenants and duties under the Loan
Documents. Except as set forth in the Schedule, such security interest
constitutes a valid, first priority security interest in the Collateral and
will constitute a valid, first priority security interest in the Collateral
acquired after the date hereof. Borrower acknowledges that Bank may place a
"hold" on any Deposit Account pledged as Collateral to secure the Obligations.
Notwithstanding termination of this Agreement, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.
4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall from
time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
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4.3 RIGHT TO INSPECT. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as
follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could have a Material Adverse Effect.
5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 BONA FIDE ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the
account debtor's agent for immediate shipment to and unconditional acceptance
by the account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included in any
Borrowing Base Certificate as an Eligible Account.
5.5 MERCHANTABLE INVENTORY. All Inventory is in all material respects
of good and marketable quality, free from all material defects.
5.6 INTELLECTUAL PROPERTY. Borrower is the sole owner of the Intellectual
Property, except for non-exclusive licenses granted by Borrower to its
customers in the ordinary course of business. Each of the Patents is valid and
enforceable, and no part of the Intellectual Property has been judged invalid
or unenforceable, in whole or in part, and no claim has been made that any part
of the Intellectual Property violates the rights of any third party. Except for
and upon the filing with the United States Patent and Trademark Office with
respect to the Patents and Trademarks and the Register of Copyrights with
respect to the Copyrights and Mask Works necessary to perfect the security
interest created hereunder, and except as has been already made or obtained, no
authorization, approval or other action by, and no notice to or filing with,
any United States governmental authority or United States regulatory body is
required either (i) for the grant by Borrower of the security interest granted
hereby or for the execution, delivery or performance of Loan Documents by
Borrower in the United States or (ii) for the perfection in the United States
or the exercise by Bank of its rights and remedies hereunder.
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5.7 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed in the
Schedule, Borrower has not done business and will not without at least thirty
(30) days prior written notice to Bank do business under any name other than
that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in SECTION 10 hereof.
5.8 LITIGATION. Except as set forth in the Schedule, there are no actions
or proceedings pending, or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary before any court or administrative agency in which
an adverse decision could have a Material Adverse Effect or a material adverse
effect on Borrower's interest or Bank's security interest in the Collateral.
5.9 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All consolidated
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank on or about the Closing Date.
5.10 SOLVENCY. The fair saleable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities;
the Borrower is not left with unreasonably small capital after the transactions
contemplated by this Agreement; and Borrower is able to pay its debts
(including trade debts) as they mature.
5.11 REGULATORY COMPLIANCE. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit
plans subject to ERISA. No event has occurred resulting from Borrower's failure
to comply with ERISA that is reasonably likely to result in Borrower's
incurring any liability that could have a Material Adverse Effect. Borrower is
not an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940. Borrower is
not engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulations T and U of the Board of Governors of the
Federal Reserve System). Borrower has complied with all the provisions of the
Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.12 ENVIRONMENTAL CONDITION. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to
the best of Borrower's knowledge, by previous owners or operators, in the
disposal of, or to produce, store, handle, treat, release, or transport, any
hazardous waste or hazardous substance other than in accordance with applicable
law; to the best of Borrower's knowledge, none of Borrower's properties or
assets has ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute; no lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned by
Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has
received a summons, citation, notice, or directive from the Environmental
Protection Agency or any other federal, state or other governmental agency
concerning any action or omission by Borrower or any Subsidiary
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resulting in the release, or other disposition of hazardous waste or hazardous
substances into the environment.
5.13 TAXES. Borrower and each Subsidiary has filed or caused to be filed
all tax returns required to be filed on a timely basis, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein.
5.14 SUBSIDIARIES. Borrower does not own any stock, partnership interest
or other equity securities of any Person, except for Permitted Investments.
5.15 GOVERNMENT CONSENTS. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.16 FULL DISCLOSURE. No representation, warranty or other statement made
by Borrower in any certificate or written statement furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to
make a Credit Extension hereunder, Borrower shall do all of the following:
6.1 GOOD STANDING. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have Material
Adverse Effect.
6.2 GOVERNMENT COMPLIANCE. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall deliver
to Bank: (a) as soon as available, but in any event within thirty (30) days
after the end of each month, a company prepared consolidated balance sheet and
income statement covering Borrower's consolidated operations during such
period, in a form and certified by an officer of Borrower reasonably acceptable
to Bank; (b) as soon as available, but in any event within ninety (90) days
after the end of Borrower's fiscal year (March 31), audited consolidated
financial statements of Borrower prepared in accordance with GAAP.
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consistently applied, together with an unqualified opinion on such financial
statements of an independent certified public accounting firm reasonably
acceptable to Bank; (c) within five (5) days of filing, copies of all
statements, reports and notices sent or made available generally by Borrower to
its security holders or to any holders of Subordinated Debt and all reports on
Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission; (d)
promptly upon receipt of notice thereof, a report of any legal actions pending
or threatened against Borrower or any Subsidiary that could result in damages
or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars
($100,000) or more; (e) prompt notice of any material change in the composition
of the Intellectual Property, including but not limited to, any subsequent
ownership right of the Borrower in or to any Copyright, Patent or Trademark not
specified in any intellectual property security agreement between Borrower and
Bank or knowledge of an event that materially adversely affects the value of
the Intellectual Property; and (f) such budgets, sales projections, operating
plans or other financial information as Bank may reasonably request from time
to time.
Within fifteen (15) days after the last day of each month, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of EXHIBIT C hereto, together with aged listings of
accounts receivable and accounts payable and an inventory list and open
purchase order report.
Within thirty (30) days after the last day of each month, Borrower shall
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in substantially the form of EXHIBIT B hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often once every fiscal year unless an Event of Default has occurred and
is continuing.
6.4 INVENTORY; RETURNS. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances,
if any, as between Borrower and its account debtors shall be on the same basis
and in accordance with the usual customary practices of Borrower, as they exist
at the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 TAXES. Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute
and deliver to Bank, on demand, appropriate certificates attesting to the
payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with
proof satisfactory to Bank indicating that Borrower or a Subsidiary has made
such payments or deposits; provided that Borrower or a Subsidiary need not make
any payment if the amount or validity of such payment is (i) contested in good
faith by appropriate proceedings, (ii) is reserved against (to the extent
required by GAAP) by Borrower and (iii) no lien other than a Permitted Lien
results.
6.6 INSURANCE.
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(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) Borrower, at its expense, shall obtain marine insurance for all
FOB and CFR shipments.
(c) Borrower, at its expense, shall obtain insurance for all foreign
account receivables;
(d) All such policies of insurance shall be in such form, with such
companies, and in such amounts as are reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least
twenty (20) days notice to Bank before canceling its policy for any reason. At
Bank's request, Borrower shall deliver to Bank certified copies of such
policies of insurance and evidence of the payments of all premiums therefor. All
proceeds payable under any such policy shall, at the option of Bank, be payable
to Bank to be applied on account of the Obligations.
6.7 PRINCIPAL DEPOSITORY. Borrower shall maintain all of its depository
and operating accounts with Bank. Borrower shall obtain Bank's prior written
consent to establish any operating accounts at other financial institutions.
6.8 CURRENT RATIO. Borrower shall maintain, as of the last day of each
calendar month, a ratio of Current Assets to Current Liabilities of at least
1.25 to 1.0. As used herein, "Current Ratio" means Current Assets divided by
Current Liabilities.
6.9 TANGIBLE NET WORTH. Borrower shall maintain, as of the last day of
each calendar month, a Tangible Net Worth of not less than Two Million Dollars
($2,000,000).
6.10 MAXIMUM RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH. Borrower
shall, on a consolidated basis, at all times, maintain a Maximum Ratio of Total
Liabilities to Tangible Net Worth not to exceed 2.00 to 1.00. As used herein,
"Ratio of Total Liabilities to Tangible Net Worth" means Total Liabilities
divided by Tangible Net Worth.
6.11 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
(a) Borrower shall register or cause to be registered (to the extent
not already registered) with the United States Patent and Trademark Office or
the United States Copyright Office, as applicable, those intellectual property
rights listed on Exhibit A, B and C to the Intellectual Property Security
Agreement delivered to Bank by Borrower in connection with this Agreement
within thirty (30) days of the date of this Agreement. Borrower shall register
or cause to be registered with the United
19
<PAGE> 21
States Patent and Trademark Office or the United States Copyright Office, as
applicable, those additional intellectual property rights developed or acquired
by Borrower from time to time in connection with any product prior to the sale
or licensing of such product to any third party, including without limitation
revisions or additions to the intellectual property rights listed on such
Exhibits A, B and C.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in the Intellectual Property.
(c) Borrower shall (i) protect, defend and maintain the validity
and enforceability of the Trademarks, Patents, Copyrights, and Mask Works,
(ii) use its best efforts to detect infringements of the Trademarks, Patents,
Copyrights and Mask Works and promptly advise Bank in writing of material
infringements detected and (iii) not allow any Trademarks, Patents, Copyrights,
or Mask Works to be abandoned, forfeited or dedicated to the public without the
written consent of Bank, which shall not be unreasonably withheld, unless Bank
determines that reasonable business practices suggest that abandonment is
appropriate.
(d) Bank shall have the right, but not the obligation, to take,
at Borrower's sole expense, any actions that Borrower is required under this
SECTION 6.12 to take but which Borrower fails to take, after fifteen (15) days'
notice to Borrower. Borrower shall reimburse and indemnify Bank for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this SECTION 6.11.
6.12 FURTHER ASSURANCES. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS. Borrower covenants and agrees that, so long as any
Credit Extension hereunder shall be available and until payment in full of the
outstanding Obligations or for so long as Bank may have any commitment to make
any Revolving Advances, Borrower will not do any of the following:
7.1 DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "TRANSFER"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than Transfers: (i) of
inventory in the ordinary course of business, (ii) of non-exclusive licenses
and similar arrangements for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business; (iii) that constitute payment
of normal and usual operating expenses in the ordinary course of business; or
(iv) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, OR MANAGEMENT, BUSINESS LOCATIONS.
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a material change in Borrower's ownership. Borrower will not, without
thirty (30) days prior written notification to Bank, change its general or
financial management, provided, further, that in the event of such a change in
the general or financial management of a Borrower, Borrower shall notify
20
<PAGE> 22
Bank within seven (7) days after such occurrence. Borrower will not, without at
least thirty (30) days prior written notification to Bank, relocate its chief
executive office or add any new offices or business locations.
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of its
Subsidiaries to merger or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 INDEBTEDNESS. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 ENCUMBRANCES. Create, incur, assume or suffer to exist any Lien
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 DISTRIBUTIONS. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock other than repurchase of Common Stock, at cost, pursuant to the terms of
Borrower's employee equity plans or agreements.
7.7 INVESTMENTS. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a nonaffiliated Person.
7.9 SUBORDINATED DEBT. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.10 INVENTORY. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of any warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in SECTION 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.11 INTELLECTUAL PROPERTY AGREEMENTS. Borrower shall not permit the
inclusion in any material contract to which it becomes a party of any
provisions that could or might in any way prevent the creation of a security
interest in Borrower's rights and interests in any property included within the
definition of the Intellectual Property acquired under such contracts.
7.12 COMPLIANCE. Become an "investment company" or a company controlled
by an "investment company," within the meaning of the Investment Company Act of
1940, or become
21
<PAGE> 23
principally engaged in, or undertake as one of its important activities, the
business of extending credit for the purpose of purchasing or carrying margin
stock, or use the proceeds of any Revolving Advance for such purpose; fail to
meet the minimum funding requirements or ERISA; permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral; or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT. Any one or more of the following events shall
constitute an Event of Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay, when due, any of the
Obligations.
8.2 COVENANTS DEFAULT.
(a) If Borrower fails to perform any obligation under Sections
6.3, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11 or 6.12 or violates any of the covenants
contained in Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or observe
any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after the
occurrence thereof; provided, however, that if the default cannot by its nature
be cured within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is likely
to be cured within a reasonable time, then Borrower shall have an additional
reasonable period (which shall not in any case exceed thirty (30) days) to
attempt to cure such default, and within such reasonable time period the
failure to have cured such default shall not be deemed an Event of Default
(provided that no Revolving Advances will be required to be made during such
cure period);
8.3 MATERIAL ADVERSE CHANGE. If there (i) occurs a material adverse
change in the business, operations, or condition (financial or otherwise) of
the Borrower, or (ii) is a material impairment of the prospect of repayment of
any portion of the Obligations or (iii) is a material impairment of the value
or priority of Bank's security interests in the Collateral;
8.4 ATTACHMENT. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon,
or comes into the possession of any trustee, receiver or person acting in a
similar capacity and such attachment, seizure, writ or distress warrant or levy
has not been removed, discharged or rescinded within ten (10) days, or if
Borrower is enjoined, restrained, or in any way prevented by court order from
continuing to conduct all or any material part of its business affairs, or if a
judgment or other claim becomes a lien or encumbrances upon any material
portion of Borrower's assets, or if a notice of lien, levy, or assessment is
filed of record with respect to any of Borrower's assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, and the same is not paid
within ten (10) days after Borrower receivers notice thereof, provided that
none of the foregoing shall constitute an Event of Default where such action or
event is stayed or an adequate bond has been posted pending a
22
<PAGE> 24
good faith contest by Borrower (provided that no Credit Extensions will be made
during such cure period);
8.5 INSOLVENCY. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is
commenced against Borrower and is not dismissed or stayed within 10 days
(provided that no Revolving Advances will be made prior to the dismissal of
such Insolvency Proceeding);
8.6 OTHER AGREEMENTS. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could have a Material Adverse Effect;
8.7 SUBORDINATED DEBT. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 JUDGMENTS. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Credit Extensions will
be made prior to the satisfaction or stay of such judgment); or
8.9 MISREPRESENTATIONS. If any material misrepresentations or material
misstatement exists now or hereafter in any warranty or representation set
forth herein or in any certificate or writing delivered to Bank by Borrower or
any Person acting on Borrower's behalf pursuant to this Agreement or to induce
Bank to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the continuance
of an Event of Default, Bank may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrower.
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due
and payable (provided that upon the occurrence of an Event of Default described
in SECTION 8.5 all Obligations shall become immediately due and payable without
any action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower or Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral, if Bank so requires, and to make the Collateral available to
23
<PAGE> 25
Bank as Bank may designate. Borrower authorizes Bank to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or lien which in Bank's determination appears to be prior
or superior to its security interest and to pay all expenses incurred in
connection therewith. With respect to any of Borrower's premises, Borrower
hereby grants Bank a license to enter such premises and to occupy the same,
without charge in order to exercise any of Bank's rights or remedies provided
herein, at law, in equity, or otherwise;
(e) Without notice to Borrower set off and apply to the Obligations
any and all (i) balances and deposits of Borrower held by Bank, or (ii)
indebtedness at any time owing to or for the credit or the account of Borrower
held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Bank is hereby granted a non-exclusive, royalty-free license or
other right, solely pursuant to the provisions of this SECTION 9.1, to use,
without charge, Borrower's labels, patents, copyrights, mask works, rights of
use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any
Collateral and, in connection with Bank's exercise of its rights under this
SECTION 9.1, Borrower's rights under all licenses and all franchise agreements
shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower's premises) as Bank determines is
commercially reasonable, and apply the proceeds thereof to the Obligations in
whatever manner or order it deems appropriates;
(h) Bank may credit bid and purchase at any public sale, or at any
private sale as permitted by law;
(i) Demand that Borrower (1) deposit cash with Bank in an amount
equal to the amount of any Letters of credit remaining undrawn, as collateral
security for the repayment of any future drawings under such Letters of Credit,
and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in
advance all Letter of Credit commissions scheduled to or payable over the
remaining term of such Letters of Credit; and
(j) Any deficiency that exists after disposition of the Collateral
as provided above will be paid immediately by Borrower.
9.2 POWER OF ATTORNEY. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle
24
<PAGE> 26
and adjust disputes and claims respecting the accounts directly with account
debtors, for amounts and upon terms which Bank determines to be reasonable; (f)
to modify, in its sole discretion, any intellectual property security agreement
entered into between Borrower and Bank without first obtaining Borrower's
approval of or signature to such modification by amending Exhibit A, Exhibit B,
Exhibit C, and Exhibit D, thereof, as appropriate, to include reference to any
right, title or interest in any Copyrights, Patents, Trademarks, Mask Works
acquired by Borrower after the execution hereof or to delete any reference to
any right, title or interest in any Copyrights, Patents, Trademarks, or Mask
Works in which Borrower no longer has or claims any right, title or interest;
and (g) to file, in its sole discretion, one or more financing or continuation
statements and amendments thereto, relative to any of the Collateral, without
the signature of Borrower where permitted by law. The appointment of Bank as
Borrower's attorney in fact, and each and every one of Bank's rights and
powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully repaid and performed and Bank's obligation to
provide advances hereunder is terminated.
9.3 ACCOUNTS COLLECTION. Upon the occurrence and during the continuance
of an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under
the Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action
with respect to such policies as Bank deems prudent. Any amounts so paid or
deposited by Bank shall constitute Bank Expenses, shall be immediately due and
payable, and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Collateral. Any payments made by Bank
shall not constitute an agreement by Bank to make similar payments in the
future or a waiver by Bank of any Event of Default under this Agreement.
9.5 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk
of loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 REMEDIES CUMULATIVE. Bank's rights and remedies under this Agreement,
the Loan Documents, and all other agreements shall be cumulative. Bank shall
have all other rights and remedies not expressly set forth herein as provided
under the Code, by law, or in equity. No exercise by Bank of one right or
remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by
Bank shall constitute a waiver, election, or acquiescence by it. No waiver by
Bank shall be effective unless made in a written document
25
<PAGE> 27
signed on behalf of Bank and then shall be effective only in the specific
instance and for the specific purpose for which it was given.
9.7 DEMAND; PROTEST. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
10. NOTICES. Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by facsimile to Borrower or to Bank, as the case may be, at its
addresses set forth below:
If to Borrower: Sage, Inc.
Attn:
FAX:
If to Bank: General Bank
1001 North De Anza Boulevard
Cupertino, California 95014
Attn:
FAX:
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE. The Loan Documents shall be governed by, and
construed in accordance with, the internal laws of the State of California,
without regard to principles of conflicts of law. Each of Borrower and Bank
hereby submits to the exclusive jurisdiction of the state and Federal courts
located in the County of Santa Clara, State of California. BORROWER AND BANK
EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
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<PAGE> 28
12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights
hereunder may be assigned by Borrower without Bank's prior written consent,
which consent may be granted or withheld in Bank's sole discretion. Bank shall
have the right without the consent of or notice to Borrower to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits hereunder.
12.2 INDEMNIFICATION. Borrower shall, indemnify, defend, protect and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential
to transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and
expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot be amended
or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this
Agreement, if any, are merged into this Agreement and the Loan Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 SURVIVAL. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY. In handling any confidential information Bank shall
exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of
any non-public information thereby received or received pursuant to this
Agreement except that disclosure of such information may be made (i) to the
subsidiaries or affiliates of Bank in connection with their present or
prospective business relations with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, provided that they have entered
into a comparable confidentiality agreement in favor of Borrower and have
delivered a copy to Borrower, (iii) as required by law, regulations, rule or
order, subpoena, judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of Bank, and
(v) as Bank may deem
27
<PAGE> 29
appropriate in connection with the exercise of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to
Bank through no fault of Bank; or (b) is disclosed to Bank by a third party,
provided Bank does not have actual knowledge that such third party is
prohibited from disclosing such information.
28
<PAGE> 30
BORROWING BASE CERTIFICATE
COLLATERAL SCHEDULE
- --------------------------------------------------------------------------------
BORROWER: Sage Inc. LENDER: General Bank
4633 Old Ironsides Drive #420 10001 N. De Anza Blvd.
Santa Clara, CA 95054 Cupertino, CA 95014
COMMITMENT AMOUNT: $2,000,000.00
- --------------------------------------------------------------------------------
BORROWING BASE
<TABLE>
<S> <C> <C> <C>
1. Accounts Receivable Book Value as of $
------------ ------------
[X] 2. Amounts over 120 days from invoice date $
------------
Account Name:
----------------------
----------------------
----------------------
[X] 3. Balance of 50% over 120 days past due $
("crossing aging" account) ------------
[X] 4. Excess 30% concentration $
------------
[X] 5. Governmental Accounts $
------------
[X] 6. Contra Accounts $
------------
[X] 7. Consignment $
------------
[X] 8. Promotion or Demo Accounts $
------------
[X] 9. Intercompany/Employee Accounts $
------------
[X] 10. Affiliate accounts $
------------
[X] 11. Credit memos $
------------
[X] 12. Account deemed by the Bank as
uncollectible or unacceptable $
------------
[ ] 13. Other (please explain on reverse) $
------------
14. Total A/R Deductions $
------------
15. ELIGIBLE ACCOUNTS (LINE 1 MINUS LINE 14) $
------------
16. LOAN VALUE OF ACCOUNTS (85% OF LINE 15) $
------------
17. NON-FORMULA BORROWING BASE $ 600,000.00
------------
18. TOTAL BORROWING BASE (LINE 16 + LINE 17) $
------------
LOAN ACTIVITY
19. Maximum Loan Amount $2,000,000.00
------------
20. Total Funds Available (Limited to the Lesser of Line #18 or Line #19) $
------------
21. Loan Balance as of $
-------------- ------------
22. Outstanding Letters of Credit as of $
-------------- ------------
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete
and correct, and that the information reflected in this Borrowing Base
Certificate complies with the representations and warranties set forth in the
Business Loan Agreement, which agreement may be amended from time to time,
between the undersigned and General Bank, dated as of.
COMMENTS:
COMMENTS:
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
BANK USE ONLY
Received by:
--------------------------
Date:
---------------------------------
Verified by:
--------------------------
* Certain accounts can be extended to 150 days invoice date upon Bank's
approval.
<PAGE> 31
COMPLIANCE CERTIFICATE
FROM: SAGE INC., LENDER: GENERAL BANK
4633 OLD IRONSIDES DRIVE, #420 10001 N. DEANZA BLVD.
SANTA CLARA, CA 96054 CUPERTINO, CA 95014
COMMITMENT AMOUNT: $2,000,000.00
================================================================================
The undersigned authorized Officer hereby certifies that in accordance with the
terms and conditions of the Business Loan Agreement the borrower is in complete
compliance for the period ending _____________ of all required conditions and
terms except as noted below. Attached herewith are the required documents
supporting the above certification. The Officer further certifies that these
are prepared in accordance with Generally Accepted Accounting Principles (GAAP)
and are consistent from one period to the next except as explained in an
accompanying letter of footnotes.
PLEASE INDICATE COMPLIANCE WITH STATUS BY CIRCLING
YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
REPORTING COVENANT REQUIRED COMPLIES
- ------------------------------------------------------------------------------------
<S> <C> <C>
CPA Audited Annual Business F/S w/in 90 days from FYE (3/31) YES/NO
Co. prepared Interim Financial Stmt Monthly w/in 30 days YES/NO
Compliance Certificate Monthly w/in 30 days YES/NO
AR, AP, Inventory List Monthly w/in 15 days YES/NO
Borrowing Base Certificate Monthly w/in 15 days YES/NO
- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
-- TO BE MAINTAINED ON A MONTHLY BASIS --
Minimum Current Ration 1.25:1.00 _____ : 1.00 YES/NO
Maximum Debt/T. Net Worth Ratio 2.00:1.00 _____ : 1.00 YES/NO
Minimum Tangible Net Worth $2,000,000 YES/NO
No new credit facilities established YES/NO
No outside investment or loan YES/NO
- ------------------------------------------------------------------------------------
</TABLE>
OTHERS:
COMMENTS REGARDING EXCEPTIONS:
----------------------------------
BANK USE ONLY
Very truly yours,
Received By: _____________________
Date: ____________________________
By: Verified By: _____________________
Name:
Title: COMPLIANCE STATUS: YES/NO
----------------------------------
<PAGE> 32
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: Sage, Inc. Bank: General Bank
LOAN TYPE. This is a Revolving Line of Credit of a principal amount up to
$2,000,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
REVOLVING LINE
--------------
Amount paid to Borrower directly: $________
Undisbursed Funds $________
Principal $________
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
Prepaid Finance Charges Paid in Cash: $______
$______ Loan Fee
$______ Accounts Receivables Audit
Other Charges Paid in Cash: $______
$_______ UCC Search Fees
$_______ UCC Filing Fees
$_______ Patent Filing Fees
$_______ Trademark Filing Fees
$_______ Copyright Filing Fees
$_______ Outside Counsel Fees and Expenses
Total Charges Paid in Cash $______
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct
from Borrower's account numbered ______________ the amount of any loan payment.
If the funds in the account are insufficient to cover any payment, Bank shall
not be obligated to advance funds to cover the payment.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF ________, 19 ____.
BORROWER, SAGE, INC.
[SIG. ILLEGIBLE]
- ----------------------------
Authorized Officer
5
<PAGE> 33
AGREEMENT TO PROVIDE INSURANCE
GRANTOR: Sage, Inc. BANK: General Bank
INSURANCE REQUIREMENTS. Sage, Inc. ("Grantor") understands that
insurance coverage is required in connection with the extending of a loan or the
providing of other financial accommodations to Grantor by Bank. These
requirements are set forth in the Loan Documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral").
Collateral: All Inventory, Equipment and Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full insurable value.
Basis: Replacement value.
Endorsements: Loss payable clause to Bank with stipulation that
coverage will not be cancelled or diminished
without a minimum of twenty (20) days' prior
written notice to Bank.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance
company. Grantor may choose that is reasonably acceptable to Bank. Grantor
understands that credit may not be denied solely because insurance was not
purchased through Bank.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank, on or
before closing, evidence of the required insurance as provided above, with an
effective date of _________________, 19__, or earlier. Grantor acknowledges and
agrees that if Grantor fails to provide any required insurance or fails to
continue such insurance in force, Bank may do so at Grantor's expense as
provided in the Loan and Security Agreement. The cost of such insurance, at the
option of Bank, shall be payable on demand or shall be added to the indebtedness
as provided in the security document. GRANTOR ACKNOWLEDGES THAT IF BANK SO
PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION
AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN;
HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE
INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral,
Grantor authorizes Bank to provide to any person (including any insurance agent
or company) all information Bank deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO
PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED
__________________, 19__.
GRANTOR: SAGE, INC.
/s/ [Signature Illegible]
- --------------------------------------
Authorized Officer
- --------------------------------------------------------------------------------
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE:______________________________ PHONE: __________________________________
AGENT'S NAME: __________________________________________________________________
INSURANCE COMPANY: _____________________________________________________________
POLICY NUMBER: _________________________________________________________________
EFFECTIVE DATES: _______________________________________________________________
COMMENTS: ______________________________________________________________________
- --------------------------------------------------------------------------------
6
<PAGE> 34
CORPORATE BORROWING RESOLUTION
Borrower: Sage, Inc. Bank: General Bank
10001 N. De Anza Boulevard
Cupertino, CA 95014
I, the undersigned Secretary or Assistant Secretary of Sage, Inc.
("Borrower"), hereby certify that Borrower is a corporation duly organized and
existing under and by virtue of the laws of the State of California.
I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or by
other duly authorized corporate action in lieu of a meeting), duly called and
held, at which a quorum was present and voting, the following resolutions were
adopted.
BE IT RESOLVED, that any one (1) of the following named officers,
employees, or agents of Borrower, whose actual signatures are shown below:
<TABLE>
<CAPTION>
NAMES POSITIONS ACTUAL SIGNATURES
- --------------------- ------------------------- -------------------------
<S> <C> <C>
Same as before C. Reddy
- --------------------- ------------------------- -------------------------
P. Reddy
- --------------------- ------------------------- -------------------------
V. Desai
- --------------------- ------------------------- -------------------------
A. Johary
- --------------------- ------------------------- -------------------------
S. Westbrook /s/ S. WESTBROOK
- --------------------- ------------------------- -------------------------
</TABLE>
acting for and on behalf of Borrower and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from General Bank ("Bank"), on
such terms as may be agreed upon between the officers of Borrower and Bank,
such sum or sums of money as in their judgment should be borrowed.
EXECUTE LOAN DOCUMENTS. To execute and deliver to Bank the loan documents
of Borrower, on Bank's forms, at such rates of interest and on such terms as
may be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of Borrower to Bank, and also to execute and deliver to Bank one
or more renewals, extensions, modifications, refinancings, consolidations, or
substitutions for one or more of the loan documents, or any portion of the loan
documents.
GRANT SECURITY. To grant a security interest to Bank in any of Borrower's
assets, which security interest shall secure all of Borrower's obligations to
Bank.
<PAGE> 35
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts, trade
acceptances, promissory notes, or other evidences of indebtedness payable to or
belonging to Borrower or in which Borrower may have an interest, and either to
receive cash for the same or to cause such proceeds to be credited to the
account of Borrower with Bank, or to cause such other disposition of the
proceeds derived therefrom as they may deem advisable.
ISSUE WARRANTS. To issue warrants to purchase Borrower's capital stock, for
such class, series and number, and on such terms, as an officer of Borrower
shall deem appropriate.
FURTHER ACTS. In case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and
in all cases, to do and perform such other acts and things, to pay any and all
fees and costs, and to execute and deliver such other documents and agreements,
including agreements waiving the right to a trial by jury, as they may in their
discretion deem reasonably necessary or proper in order to carry into effect
the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of Borrower's agreements or commitments in effect at the
time notice is given.
I FURTHER CERTIFY that the persons named above are principal officers of
the Borrower and occupy the positions set opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Borrower, and
that they are in full force and effect and have not been modified or revoked in
any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on July __, 1999 and
attest that the signatures set opposite the names listed above are their
genuine signatures.
CERTIFIED TO AND ATTESTED BY:
/s/ [ILLEGIBLE]
- ---------------------------------
*Secretary or Assistant Secretary
Co. Secretary
- ---------------------------------
*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution should
also be signed by a second Officer or Director of Borrower.
2
<PAGE> 36
In Witness Whereof, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BORROWER SAGE, INC.
By: /s/ SIMON WESTBROOK
------------------------------------
Name: Simon Westbrook
----------------------------------
Title: Chief Financial Officer
---------------------------------
BANK GENERAL BANK
By: /s/ JANE HO
------------------------------------
Name: Jane Ho
----------------------------------
Title: VP & Loan Officer
---------------------------------
29
<PAGE> 37
EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patent applications, leases, license agreements,
franchise agreements, blueprints, drawings, purchase orders, customer lists,
route lists, infringements, claims, computer programs, computer discs, computer
tapes, literature, reports, catalogs, design rights, income tax refunds,
payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and
any and all credit insurance, guaranties, and other security therefor, as well
as all merchandise returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities, investment
property, letter of credit, certificates of deposit, instruments and chattel
paper now owned or hereafter acquired and Borrower's Books relating to the
foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any
of the foregoing; and
(g) All Borrower's Books relating to the foregoing and any and all
claims, rights and interests in any of the above and all substitutions for,
additions and accessions to and proceeds thereof.
1
<PAGE> 38
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
- -------------------------------------------------------------------------------
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
- -------------------------------------------------------------------------------
FAX #: (408) TIME:
- -------------------------------------------------------------------------------
FROM: SAGE, INC.
- -------------------------------------------------------------------------------
FROM:
-------------------------------------------------------
AUTHORIZED SIGNER'S NAME
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AUTHORIZED SIGNATURE
- -------------------------------------------------------------------------------
PHONE:
- -------------------------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT #
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------------------------------------------------------------
PRINCIPAL INCREASE (ADVANCE) $
- -------------------------------------------------------------------------------
PRINCIPAL PAYMENT (ONLY) $
- -------------------------------------------------------------------------------
INTEREST PAYMENT (ONLY) $
- -------------------------------------------------------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
- -------------------------------------------------------------------------------
OTHER INSTRUCTIONS:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
- -------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as of
the date of the telephone request for and Revolving Advance confirmed by this
Advance Request; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.
- -------------------------------------------------------------------------------
BANK USE ONLY: TELEPHONE REQUEST:
- -------------------------------------------------------------------------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- -------------------------------------------------------------------------------
- ----------------------------------- ---------------------------------------
Authorized Requester Authorized Signature (Bank)
Phone#:
-------------------------
- -------------------------------------------------------------------------------
2
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
------------------ -----------------------------
<S> <C>
1. Sage Design Systems (India) Private Limited India
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 30, 1999 relating to
the consolidated financial statements of Sage, Inc., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ PricewaterhouseCoopers LLP
San Jose, California
October 7, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 2,473
<SECURITIES> 0
<RECEIVABLES> 893
<ALLOWANCES> 89
<INVENTORY> 412
<CURRENT-ASSETS> 3,861
<PP&E> 846
<DEPRECIATION> 414
<TOTAL-ASSETS> 4,293
<CURRENT-LIABILITIES> 2,390
<BONDS> 0
0
77
<COMMON> 95
<OTHER-SE> 1,731
<TOTAL-LIABILITY-AND-EQUITY> 1,309
<SALES> 7,132
<TOTAL-REVENUES> 7,132
<CGS> 4,914
<TOTAL-COSTS> 4,914
<OTHER-EXPENSES> 7,000
<LOSS-PROVISION> 80
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> (4,751)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,751)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,751)
<EPS-BASIC> (0.67)
<EPS-DILUTED> (0.67)
</TABLE>
