<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PACKETVIDEO CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7373 33-0816868
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
10350 SCIENCE CENTER DRIVE
SUITE 210
SAN DIEGO, CA 92121
(858) 455-2500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES Z. CAROL
CHIEF EXECUTIVE OFFICER
JAMES C. BRAILEAN
PRESIDENT AND CHIEF TECHNOLOGY OFFICER
PACKETVIDEO CORPORATION
10350 SCIENCE CENTER DRIVE
SUITE 210
SAN DIEGO, CA 92121
(858) 455-2500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENTS FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
FREDERICK T. MUTO, ESQ. GARY J. SINGER, ESQ.
ALEXANDER A. FITZPATRICK, ESQ. CHARLOTTE L. BISCHEL, ESQ.
KASIA M. BIERNACKI, ESQ. CHRISTOPHER M. LAL, ESQ.
COOLEY GODWARD LLP O'MELVENY & MYERS LLP
4365 EXECUTIVE DRIVE, SUITE 1100 610 NEWPORT CENTER DRIVE, 17TH FLOOR
SAN DIEGO, CA 92121-2128 NEWPORT BEACH, CA 92660-6429
(858) 550-6000 (949) 760-9600
</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, as amended (the "Securities Act") check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) of the Securities Act, please check the following box
and list the Securities Act registration serial 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 the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Common Stock ($0.001 par value).................... $64,400,000 $17,002
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares that the Underwriters will have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act.
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 AND IT IS NOT SOLICITING OFFERS TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER AND SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 14, 2000
Shares
[Packet Video Logo]
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $ and
$ per share. We have applied to list our common stock on The Nasdaq Stock
Market's National Market under the symbol "PVDO."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 6.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS PACKETVIDEO
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
BANC OF AMERICA SECURITIES LLC
DONALDSON, LUFKIN & JENRETTE
The date of this prospectus is , 2000.
<PAGE> 3
[INSIDE FRONT COVER]
[Graphic depicting "Subscribers to Rich Digital Media Services" in the center of
three concentric circles. Located around the first circle in separate sections
of the second circle are "Programming Providers," "Wireless Service Providers"
and "Semiconductor and Device Designers and Manufacturers" with arrows pointing
to the center circle. Located around the second circle in the outer circle are
"PVAuthor(TM) Rich Digital Media Encoder," "PVServer(TM) Rich Digital Media
Server Software" and "PVPlayer(TM) Rich Digital Media Decoder," each with the
PacketVideo logo and an arrow pointing to the center circle.]
<PAGE> 4
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 6
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 16
USE OF PROCEEDS....................... 17
DIVIDEND POLICY....................... 17
CAPITALIZATION........................ 18
DILUTION.............................. 19
SELECTED FINANCIAL DATA............... 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 21
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS.............................. 25
MANAGEMENT............................ 39
CERTAIN TRANSACTIONS.................. 47
PRINCIPAL STOCKHOLDERS................ 48
DESCRIPTION OF CAPITAL STOCK.......... 50
SHARES ELIGIBLE FOR FUTURE SALE....... 53
UNDERWRITING.......................... 55
NOTICE TO CANADIAN RESIDENTS.......... 58
LEGAL MATTERS......................... 59
EXPERTS............................... 59
ADDITIONAL INFORMATION................ 59
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS
DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL (25 DAYS AFTER COMMENCEMENT OF THE OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information you should consider before
buying shares in this offering. You should read the entire prospectus carefully.
PACKETVIDEO CORPORATION
------------------------
We develop software that enables the delivery, management and viewing of
full-motion video and audio over wireless networks. Our software is designed to
allow live and pre-encoded video and audio content, which we refer to as rich
digital media, to be viewed on mobile information devices, including
Internet-enabled cellular telephones, or smart phones, handheld devices,
wireless personal digital assistants, or PDAs, and laptop computers.
Our technology is based on our unique implementation of the Motion Pictures
Expert Group 4, or MPEG4, standard. The MPEG4 standard defines a framework for
encoding, transmitting and decoding multimedia content over error-prone
communications networks. We have applied our knowledge of MPEG4, mobile
information devices and wireless networks to create unique performance
enhancements to this standard, while maintaining interoperability with
fully-compliant MPEG4 products and technologies. We believe this will enable
wireless service providers to address a broader user base and allow programming
providers to deliver a wider array of multimedia content. Specifically, our
technology has been designed to address challenges inherent in the delivery of
multimedia content to mobile information devices over wireless networks. These
challenges include:
- Delivering rich digital media over wireless networks with high error
rates and low and varying transmission speeds;
- Delivering rich digital media without adversely affecting the delivery of
voice and data services; and
- Optimizing rich digital media for mobile information devices with limited
processing power and battery life and varying display sizes.
Our end-to-end software solution, which we call PVPlatform, represents the
initial implementation of our technology for use today in trials and
demonstrations. Our PVPlatform consists of our: PVAuthor, which encodes rich
digital media for transmission over wireless networks; PVServer, which stores
and distributes rich digital media to subscribers over wireless networks; and
PVPlayer, which decodes rich digital media for viewing on mobile information
devices. Over the next 12 months, we will incorporate additional aspects of our
technology into our PVPlatform in connection with the commercial deployment of
rich digital media services by wireless service providers. Our software has been
designed to support all major digital wireless telephony standards in use today,
as well as next-generation wireless networks currently being developed.
Our objective is to be the leading provider of software solutions that
enable the encoding, storage, transmission and decoding of rich digital media
over wireless networks. We intend to provide our software solutions through
license, sale and service arrangements. Our strategy includes the following key
elements:
- Initiate and extend relationships with wireless service providers;
- Propagate widespread use of our decoder in mobile information devices;
- Promote the development of multimedia content and applications;
- Maintain and extend our technology leadership;
- Capitalize on international opportunities; and
- Build the PacketVideo brand name.
We intend to market our software solutions primarily through our direct
sales force as well as through strategic relationships with leading wireless
service providers, semiconductor and device designers and
3
<PAGE> 6
manufacturers and programming providers. While we have only recently begun to
market our software and technologies, we have established a number of
preliminary relationships with wireless service providers, semiconductor and
device designers and manufacturers and programming providers, including Casio,
CNBC/ Dow Jones Business Video, Infineon Technologies, Intel, Philips, Sanyo,
Sonera, Sony Pictures Entertainment, Texas Instruments, The Weather Channel, US
West and Warner Bros.
Our current stockholders include the following companies and their
affiliates:
<TABLE>
<S> <C> <C>
Infineon Technologies Reuters Sony
Intel Siemens Texas Instruments
Philips Sonera Time Warner
QUALCOMM
</TABLE>
We were incorporated in Delaware on July 22, 1998 and our fiscal year is on
a calendar year basis. On February 29, 2000, we had 82 employees. Our principal
executive offices are located at 10350 Science Center Drive, Suite 210, San
Diego, California 92121. Our telephone number is (858) 455-2500. Our website is
www.packetvideo.com or www.pv.com. The information found on our website is not a
part of this prospectus.
PacketVideo, the PacketVideo logo, PV, PVPlatform, PVAuthor, PVServer and
PVPlayer are trademarks of PacketVideo Corporation. All other trade names and
trademarks appearing in this prospectus are the property of their holders.
THE OFFERING
Common stock offered............... shares
Common stock outstanding after this
offering........................... shares
Use of proceeds.................... We intend to use the net proceeds of this
offering to fund the growth of our
business, and for working capital and
general corporate purposes.
Proposed Nasdaq National Market
symbol............................. PVDO
The share amounts in this table are based on shares outstanding as of
December 31, 1999. This table:
- excludes 225,000 shares subject to outstanding options to purchase our
common stock and 2,151,000 shares of common stock available for future
issuance under our 2000 Equity Incentive Plan; and
- assumes conversion of all outstanding shares of convertible preferred
stock into shares of common stock.
------------------
ASSUMPTIONS USED IN THIS PROSPECTUS
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
- the conversion of all outstanding shares of our convertible preferred
stock into 19,913,790 shares of common stock upon the closing of this
offering;
- the filing of an amended and restated certificate of incorporation after
the closing of this offering; and
- no exercise of the underwriters' over-allotment option to purchase
shares.
4
<PAGE> 7
SUMMARY FINANCIAL DATA
The following financial information should be read together with the
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
JULY 22, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
--------------- ------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
Research and development.................................. $ 253 $ 1,584
Sales and marketing....................................... -- 861
General and administrative................................ 130 762
Amortization of deferred compensation..................... -- 4,976
------- -------
Loss from operations........................................ 383 8,183
Interest income........................................... 1 164
Net loss.................................................... $ (382) $(8,019)
------- -------
Basic and diluted net loss per share(1)..................... $ (0.02) $ (0.63)
======= =======
Weighted average shares used in computation of basic and
diluted net loss per share................................ 18,186 12,708
======= =======
Pro forma basic and diluted net loss per share(1)........... $ (0.34)
=======
Weighted average shares used in computation of pro forma
basic and diluted net loss per share(1)................... 23,846
=======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...... $23,087 $38,587 $
Working capital........................................ 22,375 37,875
Total assets........................................... 23,796 39,296
Total stockholders' equity............................. 22,890 38,390
</TABLE>
- ---------------
(1) For a description of the computation of the net loss per share, on a regular
and pro forma basis, and the number of shares used in the per share
calculations, see Note 1 of Notes to Financial Statements.
(2) The Pro Forma column reflects our receipt of net proceeds from the sale of
1,443,569 shares of series D convertible preferred stock in March 2000
estimated at $15.5 million.
(3) The Pro Forma As Adjusted column reflects our receipt of the net proceeds
from the offering after deducting estimated underwriting discounts and
commissions and estimated offering expenses. See "Capitalization" and "Use
of Proceeds."
5
<PAGE> 8
RISK FACTORS
You should carefully consider the risks described below before making a
decision to buy our common stock. If any of the following risks actually occurs,
our business could be harmed. In that case, the trading price of our common
stock could decline, and you may lose all or part of your investment. When
determining whether to buy our common stock you should also refer to the other
information in this prospectus, including our financial statements and the
related notes.
RISKS RELATING TO OUR BUSINESS AND INDUSTRY
THE WIRELESS MULTIMEDIA INDUSTRY IS NEW AND RAPIDLY EVOLVING, AND WE MAY NOT BE
ABLE TO ACCURATELY PREDICT ITS SIZE, NEEDS, DEVELOPMENT OR RATE OF GROWTH.
The industry for our software and technologies is new and rapidly evolving.
Wireless service providers do not offer commercial services that require our
software today and, as a result, we cannot assess current or future demand for
wireless delivery of rich digital media. We also do not know whether our
software will address the needs of the wireless multimedia market or whether
this market will be large enough to sustain our business. We may not be able to
develop and introduce software, software enhancements or services that respond
to market demands, technology developments, increased competition or industry
standards on a timely basis, or at all. If this market does not evolve in the
manner or in the timeframe that we anticipate, or if we are unable to respond to
new market developments promptly, our business will suffer.
THE SUCCESS OF OUR BUSINESS DEPENDS ON OUR ABILITY TO DEVELOP AND ENTER INTO
STRATEGIC RELATIONSHIPS WITH WIRELESS SERVICE PROVIDERS, SEMICONDUCTOR AND
DEVICE DESIGNERS AND MANUFACTURERS AND PROGRAMMING PROVIDERS.
Our business depends on our ability to develop relationships and enter into
agreements with key industry groups including:
- wireless service providers that we expect will deploy our technology to
deliver rich digital media services to their subscribers;
- semiconductor and device designers and manufacturers that we expect will
embed our technology in their products to enable the viewing of rich
digital media; and
- programming providers that we expect will rely upon our technology to
deliver rich digital media over wireless networks.
We are in the early stages of developing these relationships and many of
these relationships are not reflected in binding agreements. In particular, our
relationships with wireless service providers are at a very early stage and, as
a result, we have not yet determined whether our revenue model will be accepted
by them. We may need to modify our revenue model to suit the needs of particular
wireless service providers. If we are unable to establish a sufficient number of
strategic relationships on terms commercially favorable to us, our business will
suffer.
WE EXPECT COMPETITION IN OUR INDUSTRY TO INCREASE SIGNIFICANTLY IN THE FUTURE,
WHICH COULD CAUSE OUR BUSINESS TO SUFFER.
The market for our software and services is highly competitive. The
widespread adoption of open technology standards such as MPEG4 may make it
easier for existing and potential competitors to compete with us. We expect to
compete initially on the bases of time to market, functionality and breadth of
product and service offerings. As the market develops, we expect to compete
increasingly on the bases
6
<PAGE> 9
of price and quality. We will face competition from companies in a number of
industry segments. Some of our existing and potential competitors are:
- Wireless infrastructure, equipment and device manufacturers, including
Ericsson, Lucent, Matsushita, Motorola, NEC, Nokia, Nortel, Samsung and
Toshiba, many of which are developing or have announced plans to develop
competitive products;
- Microsoft, which has announced that it intends to support multimedia
capability in its Windows CE operating system for mobile information
devices;
- Developers of streaming media technologies such as Apple Computer,
GeoInteractive and RealNetworks;
- Developers of video compression technology such as Sarnoff Corporation;
- Wireless service providers, such as NTT DoCoMo, Orange, Sonera and US
West;
- Semiconductor designers and manufacturers such as Intel, QUALCOMM and
Texas Instruments, which may develop their own software to embed on the
hardware they already produce; and
- Providers of wireless software applications and content aggregation, such
as Phone.com and InfoSpace, which may capitalize on their existing market
share and expand their product offerings.
In addition, companies with which we have strategic relationships may
purchase products from our competitors and future competitors, or develop or
acquire products and technologies to deliver multimedia content over wireless
networks.
Many of our existing competitors as well as potential competitors have
substantially greater financial, technical, marketing and distribution resources
than we do. A number of these companies also have greater name recognition and
have established stronger relationships with our potential customers.
Furthermore, some of our competitors may be able to adopt more aggressive
pricing policies and offer more attractive terms to customers. Many of these
competitors also possess large intellectual property portfolios that they may
use to deter the development and deployment of our software solutions. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to compete more
effectively. Also, existing and potential competitors may develop enhancements
to, or future generations of, products that provide superior performance to our
software solutions.
WE DEPEND ON OTHERS TO PROVIDE MULTIMEDIA CONTENT AND DEVELOP APPLICATIONS FOR
MOBILE INFORMATION DEVICES.
The amount and availability of multimedia content and applications for
delivery over wireless networks will be key factors in determining whether, and
the rate at which, wireless service providers deploy our software and
technology. We will rely on third parties to adapt their existing content and
develop new content for delivery over wireless networks. We have only recently
established our programming division and our relationships with programming
providers are at a very early stage. We are not aware of any programming
providers that have committed to develop significant amounts of multimedia
content for wireless delivery. If our programming division is unsuccessful in
encouraging the timely development of, or if third parties fail to develop,
sufficient quantities of multimedia content and applications, wireless service
providers may not commercially deploy our software and technology, and our
business will be harmed.
UNLESS WE ESTABLISH A STRONG BRAND IDENTITY, OUR BUSINESS MAY NOT GROW AND OUR
FINANCIAL RESULTS WILL LIKELY SUFFER.
We believe that establishing, maintaining and enhancing the PacketVideo
brand name is essential to our business. We depend heavily on wireless service
providers, semiconductor and device designers and manufacturers and programming
providers to promote our brand through co-marketing activities. We may
7
<PAGE> 10
have to commit significant resources to establish and promote our brand. Brand
promotion may not result in revenue and the expenses associated with this effort
may make it more difficult for us to attain profitability. If we fail to
establish and maintain a strong brand identity, our business may suffer.
OUR SUCCESS DEPENDS ON OUR ABILITY TO RECRUIT, RETAIN AND INTEGRATE KEY
MANAGEMENT AND TECHNICAL PERSONNEL.
Because of the technical nature of our software and the competitive market
in which we operate, our performance depends on our ability to attract and
retain key management and technical personnel. We have competed, and will
continue to compete, for qualified personnel in the wireless, software and
digital media and programming industries, where competition is particularly
intense. If we fail to recruit, retain and integrate key management and
technical personnel, our business will suffer.
RISKS RELATING TO OUR SOFTWARE AND TECHNOLOGY
WE DEPEND ON WIRELESS SERVICE PROVIDERS TO ADOPT OUR SOFTWARE AND ON THEIR
SUBSCRIBERS' DEMAND FOR RICH DIGITAL MEDIA SERVICES.
Our success depends heavily on timely deployment by wireless service
providers of our software in their networks. Wireless service providers may not
deploy, or may be slow to deploy, our software due to a number of factors
including availability of competing products and lack of subscriber demand, as
well as interoperability, implementation, support or maintenance concerns. In
addition, if our current or future field trials with wireless service providers
are unsatisfactory, they may not deploy our software at all or may require
costly or time-consuming modifications to our software before deployment. We are
currently working with a small number of wireless service providers. If even a
few of these wireless service providers fail to deploy our software in their
networks, our business may be harmed.
Even if wireless service providers offer rich digital media services based
on our software, their subscribers may not be willing to buy these services.
Subscribers are accustomed to viewing video images on the large displays of
television screens and PC monitors and may not be willing to use mobile
information devices, which typically have smaller screen sizes, to view rich
digital media. Additionally, subscribers may not be willing to pay to view rich
digital media on mobile information devices because this content can be viewed
at a lower cost using other connections, such as satellite and wireline
connections. Also, subscribers may not be willing to purchase new devices or
upgrade their existing devices to include rich digital media viewing capability.
IF MOBILE INFORMATION DEVICES FOR DELIVERY OF RICH DIGITAL MEDIA ARE NOT WIDELY
ADOPTED OR IF SEMICONDUCTOR AND DEVICE DESIGNERS AND MANUFACTURERS FAIL TO EMBED
OUR PVPLAYER IN THEIR PRODUCTS, OUR BUSINESS WILL BE HARMED.
We believe that mobile information devices will be the principal means for
the wireless delivery of rich digital media. Only a small number of these
devices are currently capable of receiving and displaying rich digital media. In
order to enhance the viewing of rich digital media, new or upgraded devices that
offer more advanced displays and support higher bandwidth wireless services are
required. If semiconductor and device designers and manufacturers are unable to
design, manufacture and widely distribute mobile information devices capable of
displaying rich digital media in a timely manner, our business will suffer. In
addition, while we presently have strategic relationships with a number of
semiconductor and device designers and manufacturers and expect that they will
incorporate our PVPlayer in their respective devices, many of these
relationships are at an early stage. Even if we secure binding agreements with
these designers and manufacturers, they may not produce, promote or sell devices
that incorporate our PVPlayer. If we fail to achieve widespread distribution of
our PVPlayer in mobile information devices, our business will suffer. We are
currently testing PVPlayer with a number of semiconductor and device designers
and manufacturers. If current or future tests are unsatisfactory, semiconductor
and device designers and
8
<PAGE> 11
manufacturers may choose not to embed PVPlayer or may require costly and
time-consuming modifications to PVPlayer before they agree to embed it in their
products.
IF WE FAIL TO SUCCESSFULLY COMMERCIALIZE OUR SOFTWARE AND TECHNOLOGY, OR TO
DEVELOP AND COMMERCIALIZE ADDITIONAL ENHANCEMENTS TO OUR SOFTWARE AND
TECHNOLOGY, WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AND OUR BUSINESS WILL
SUFFER.
Our software and technology are new and have not yet been commercially
deployed. Our success depends on our ability to commercially release our
software based on our technology in a timely manner. Our success also depends on
our ability to develop and commercialize new enhancements to our software and
technology in a timely manner. We expect that certain enhancements to our
technology, such as quality of service and two-way capabilities, will be
incorporated in our software and commercially released over the next 12 months,
but delays and resource limitations may cause us to miss these predictions. If
we fail to successfully commercialize our software and technology, or to develop
new software and technology, we will not be able to compete effectively.
OUR BUSINESS WILL BE HARMED IF MPEG4 DOES NOT EMERGE AS THE DOMINANT INDUSTRY
STANDARD.
We have developed our software based on the MPEG4 standard, a framework for
encoding, transmitting and decoding multimedia content over error-prone
communications networks. We believe MPEG4 will become the dominant standard in
our industry. If MPEG4 does not become the dominant standard in our industry and
we are unable to adapt, or are precluded from adapting, to alternative
standards, our business will suffer.
The MPEG4 standard is based on a variety of techniques and methodologies,
some of which have been contributed by third parties and may be covered by U.S.
and international patents. Therefore, the commercialization of products and
services based on MPEG4 may infringe on these patent rights. Neither we, nor the
companies with whom we have strategic relationships, have licensed these rights.
In order to successfully commercialize products and services based on MPEG4,
including our software, these licenses may be necessary. If these licenses are
necessary and cannot be obtained, or can only be obtained at significant cost,
our business will suffer. See "-- Risks Relating to Intellectual Property and
Government Regulation -- We may be sued by third parties for infringement of
their intellectual property."
IF OUR SOFTWARE CONTAINS UNDETECTED DEFECTS OR ERRORS, OUR BUSINESS WILL BE
HARMED.
Our software is highly technical and is designed to be deployed in very
large and complex wireless networks as well as embedded in semiconductors and
devices. Although we have tested our software in limited laboratory and field
trials, it will only be fully tested when broadly deployed. Consequently, our
software may contain defects or errors, which may not be discovered until
commercially adopted. Any errors or defects in our software may result in:
- loss of, or delay in, revenue;
- failure to achieve market acceptance with wireless service providers,
semiconductor and device designers and manufacturers, and programming
providers;
- diversion of our research and development resources;
- litigation;
- injury to our business reputation and brand name; and
- increased costs for insurance, product support and warranties.
In addition, our software may be used in conjunction with products from other
vendors. As a result, when problems occur, we may have difficulty in identifying
the source of the problem. Any defects or errors in our software, or the
products into which it is incorporated, may cause our business to suffer.
9
<PAGE> 12
RISKS RELATING TO OUR OPERATIONS AND FINANCIAL RESULTS
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A VERY LIMITED OPERATING
HISTORY.
We have a very limited operating and financial history on which to base
your evaluation of our business. We commenced operations in July 1998 and have
not yet commercialized our software. We also have not yet entered into binding
agreements with, or received commitments from, wireless service providers to
deploy our software in their networks. In addition, the market for delivery of
rich digital media over wireless networks is new and uncertain, and we cannot
assess the demand for our software and services. We cannot accurately predict
our revenue, operating costs and expenses, or capital requirements. Before
investing you should evaluate the risks, uncertainties, expenses and
difficulties frequently encountered by early stage companies, particularly
companies that are seeking to establish a presence in new and evolving markets.
WE HAVE GENERATED NO REVENUE FROM OPERATIONS, HAVE INCURRED SIGNIFICANT LOSSES,
ANTICIPATE SIGNIFICANT FUTURE LOSSES AND MAY NEVER ACHIEVE PROFITABILITY.
Since our inception in July 1998, we have incurred significant losses and
have generated no revenue from operations. As of December 31, 1999, we had an
accumulated deficit of $8.4 million. We expect to incur significant operating
costs and expenses over the next several years in connection with the growth of
our business and do not expect to generate any significant revenue in the
foreseeable future. As a result, we expect to incur significant losses for the
foreseeable future. Our ability to become profitable and maintain profitability
will depend on our ability to generate revenue at a level sufficient to exceed
our operating expenses. Our future efforts to grow our business will increase
our expenses significantly and may not result in increased revenue. Thus, we may
never achieve profitability and, even if we do, we may not be able to sustain
profitability.
WE MAY FAIL TO ADEQUATELY ADDRESS THE CHALLENGES OF MANAGING A NEW AND GROWING
BUSINESS.
To successfully implement our business strategy, we will be required to
make significant investments in our research and development, sales and
marketing and administrative infrastructure. We will be required to locate and
procure additional facilities, recruit, train and integrate new personnel,
augment our financial and accounting systems and manage our operations in
several locations. If we are unsuccessful in addressing any of these issues, our
business will suffer. Furthermore, the majority of our senior management joined
our company recently and has very limited experience working together as a team.
If our senior management is unable to function cohesively, our business could
suffer.
WE HAVE NO SIGNIFICANT EXPERIENCE OPERATING IN INTERNATIONAL MARKETS AND WE MAY
NOT BE ABLE TO SUCCESSFULLY ESTABLISH AND MANAGE OUR INTERNATIONAL OPERATIONS.
We intend to develop our international operations and enter new markets.
This development will require significant management attention and resources. To
date, we have very limited experience in marketing, selling and supporting our
software and services internationally. If we are unable to grow our business
internationally in a timely manner, our business and operating results will be
harmed. In addition, conducting business internationally involves greater
expense and many additional risks, particularly:
- unexpected changes in regulatory requirements, taxes, trade laws and
tariffs;
- differing intellectual property protections;
- differing labor regulations;
- changes in a specific country or region's political or economic
conditions;
- protectionist laws and business practices that favor local competition;
- import and export licensing requirements;
10
<PAGE> 13
- greater difficulty in staffing and managing our international operations;
and
- fluctuating exchange rates.
WE MAY NEED ADDITIONAL FINANCING AND ADDITIONAL FINANCING MAY NOT BE AVAILABLE
AT ALL, OR MAY BE AVAILABLE ON TERMS UNFAVORABLE TO US.
Following this offering, we believe that our cash, cash equivalents and
short-term investments will be sufficient to fund our operations for at least
the next 12 months. After the next 12 months, we may need additional financing
in order to:
- Fund anticipated growth, including increases in personnel, office
facilities and computer systems;
- Enhance our software and technology and develop new software and
services;
- Expand our sales and marketing activities; or
- Acquire or invest in complementary businesses, technologies, products and
services.
Additional financing may not be available at all or, if available, may not
be obtainable on terms favorable to us or our stockholders. In addition, any
additional financing may be dilutive and new equity securities could have rights
senior to those of existing holders of our common stock. If we need to raise
funds and cannot do so on acceptable terms, we may not be able to respond to
market demands, meet anticipated requirements or take advantage of future
opportunities. If additional capital is raised through debt financing, our
operations and future opportunities also may be restricted.
OUR QUARTERLY OPERATING RESULTS MAY VARY DUE TO A NUMBER OF FACTORS.
We expect our quarterly operating results to fluctuate. We also expect a
significant portion of our costs and expenses in any period to be relatively
fixed and, therefore, if our revenue is below our expectations for a given
quarter, our operating results for that period will suffer. If our operating
results in future quarters fall below the expectations of market analysts or
investors, the trading price of our stock will fall. Factors that may cause our
operating results to fluctuate on a quarterly basis include:
- delayed market acceptance, or delays in deployment by wireless service
providers, of services based on our software;
- changes in demand for our software and services;
- announcements or introductions of new software by us or our competitors;
- errors, defects or other quality problems with our software;
- the length of our sales cycle;
- our ability to control costs;
- delays in developing and introducing new software and services due to
unsatisfactory trials or otherwise;
- changes in pricing policies by us, our competitors or wireless service
providers;
- unexpected accounting charges; and
- changes in accounting standards, including standards relating to revenue
recognition, business combinations and stock-based compensation.
11
<PAGE> 14
WE MAY ACQUIRE TECHNOLOGIES OR COMPANIES IN THE FUTURE, AND THESE ACQUISITIONS
COULD DILUTE THE VALUE OF OUR STOCK AND DISRUPT OUR BUSINESS.
We may acquire technologies or companies in the future. Entering into an
acquisition entails many risks, any of which could harm our business, including:
- diversion of management's attention from other business concerns;
- failure to integrate the acquired company with our pre-existing business;
- failure to motivate, or loss of, key employees from either our existing
business or the acquired business;
- inability to incorporate acquired technology into our software;
- potential impairment of relationships with our employees and companies
with whom we have strategic relationships;
- additional operating expenses not offset by additional revenue;
- incurrence of significant non-recurring charges; and
- dilution of our stock as a result of issuing equity securities.
RISKS RELATING TO INTELLECTUAL PROPERTY AND GOVERNMENT REGULATION
WE MAY BE UNABLE TO ADEQUATELY PROTECT THE INTELLECTUAL PROPERTY USED IN OUR
SOFTWARE.
We have applied for patents with respect to some of our technologies, and
expect to apply for additional patents in the future. These patent applications
may not be granted or, if granted, the resulting patents may be challenged or
invalidated. In addition to patents, we rely on copyright and trademark laws,
trade secrets, confidentiality provisions and other contractual provisions to
protect our proprietary rights. These measures, which will require the
expenditure of substantial resources, afford our intellectual property only
limited protection because our competitors and third parties independently may
develop similar technologies or may infringe our intellectual property.
Infringement is difficult to detect and costly to prevent. With respect to the
protection of our proprietary rights internationally, the laws of some foreign
countries may not protect our proprietary rights adequately. In addition, we
will not have patent protection in countries where we do not file patent
applications. Thus, the measures we are taking to protect our proprietary rights
in the United States and abroad may not be adequate and our business may be
harmed as a result.
WE MAY BE SUED BY THIRD PARTIES FOR INFRINGEMENT OF THEIR INTELLECTUAL PROPERTY.
The wireless equipment and software industries are subject to frequent
intellectual property litigation. As the number of entrants into our market
increases, the likelihood of infringement claims also increases. We may
unknowingly be infringing the intellectual property of others. In addition,
because patent applications can take many years to be approved, there may be one
or more patent applications now pending that could lead to infringement actions
against us if issued in the future. If we are unable to successfully defend
against a product infringement claim, we may be precluded from using the
intellectual property or may have to license it on commercially disadvantageous
terms, either of which could harm our business. Even if we successfully defend
against an infringement claim, we may have to devote significant time and
resources to litigation which could also harm our business. See "-- Risks
Relating to Our Software and Industry -- Our business will be harmed if MPEG4
does not emerge as the dominant industry standard".
12
<PAGE> 15
WE MAY BE SUBJECT TO LAWS AND REGULATIONS THAT IMPOSE DIFFICULT AND COSTLY
COMPLIANCE REQUIREMENTS AND SUBJECT US TO POTENTIAL LIABILITY.
We believe that we are not subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally. Because the delivery of rich digital media over wireless networks is
new and evolving, regulatory and governmental requirements are likely to change
in ways that we cannot predict and our industry may be heavily regulated in the
future. For example, wireless rich digital media services may be subject to user
privacy, child protection, advertising and other Internet-based laws and
regulations. If we are required to comply with these laws and regulations, we
may incur additional costs and liability, may be required to seek time-consuming
approvals and may have to implement costly compliance procedures.
RISKS RELATING TO THIS OFFERING
OUR SECURITIES HAVE NO PRIOR MARKET AND OUR STOCK PRICE IS LIKELY TO BE
VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR INVESTORS PURCHASING
SHARES IN THIS OFFERING.
Before this offering, there has been no public market for our common stock.
A consistent public market for our common stock may not develop or be sustained
after this offering. Fluctuations in the market price of our common stock could
occur in response to factors such as:
- actual or anticipated variations in quarterly operating results;
- loss of a strategic relationship;
- changes in business milestones and financial estimates by securities
analysts;
- failure to meet analyst predictions and projections;
- changes in market valuations of wireless infrastructure companies;
- changes in market valuations of networking and telecommunications
companies;
- announcements of technological innovations;
- new software or services offered by us or our competitors;
- announcements of significant acquisitions, strategic partnerships, joint
ventures or capital commitments by us or our competitors;
- additions or departures of key personnel; and
- our sales of common stock or other securities in the future.
In addition, stock markets in general, and The Nasdaq National Market and
technology companies in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of such companies. The trading prices and valuations of many
technology companies' stocks are at or near record highs, which are
substantially above historical levels. These trading prices and valuations may
not be sustainable. These broad market and industry factors may materially
adversely affect the market price of our common stock, regardless of our actual
operating performance.
SHARES YOU PURCHASE IN THIS OFFERING WILL BE IMMEDIATELY AND SUBSTANTIALLY
DILUTED AND MAY BE FURTHER DILUTED IN THE FUTURE.
The initial public offering price is substantially higher than the net
tangible book value of our common stock. As a result, if you purchase shares in
this offering, your ownership interest will be immediately and substantially
diluted. The dilution is expected to be $ per share. If additional shares
are sold by the underwriters following exercise of their over-allotment option,
or if outstanding options to purchase shares of our common stock are exercised,
your ownership interest will be further
13
<PAGE> 16
diluted. If additional equity securities are issued to parties with whom we have
strategic relationships or in connection with acquisitions, or if additional
capital is raised through the issuance of equity securities, your ownership
interest will be reduced further. As a result of these dilutions, in the event
of a liquidation you may receive significantly less than the purchase price that
you paid for your shares. In addition, any new equity securities may have
rights, preferences or privileges senior to those of your shares.
IF A LARGE NUMBER OF SHARES ARE SOLD IN THE MARKET FOLLOWING THIS OFFERING, THE
MARKET PRICE OF OUR COMMON STOCK MAY BE DEPRESSED.
If a substantial number of shares of our common stock are sold in the
public market following this offering, the market price of our common stock
could decline. Specifically, if there are more shares of our common stock
offered for sale than buyers are willing to purchase, then the market price of
our common stock may decline to a market price at which buyers are willing to
purchase the offered shares of common stock and sellers remain willing to sell
the shares. The number of shares of common stock available for sale in the
public market is limited by restrictions under federal securities law and under
lock-up agreements that our stockholders have entered into with the underwriters
and with us. The lock-up agreements restrict our stockholders from selling,
pledging or otherwise disposing of their shares for a period of 180 days after
the date of this prospectus without the prior written consent of Credit Suisse
First Boston. However, Credit Suisse First Boston may, in its sole discretion,
release all or any portion of the common stock from the restrictions of the
lock-up agreements. As a result of the lock-up agreements and the restrictions
of federal securities laws described above, the shares of our common stock that
are not being sold in this offering but which were outstanding as of February
29, 2000 will be eligible for sale into the public market as follows:
- no shares may be sold prior to 180 days from the date of this prospectus;
- shares may be sold 180 days after the date of this prospectus,
once they have been held for the required time under federal securities
laws; and
- shares may be sold more than 180 days after the date of this
prospectus, once they have been held for the required time under federal
securities laws.
Additionally, of the shares that may be issued upon the exercise
of options outstanding as of February 29, 2000, approximately shares
will be vested and eligible for sale 180 days after the date of this prospectus.
For a further description of the eligibility of shares for sale into the public
market following the offering, see "Shares Eligible for Future Sale."
OUR EXECUTIVE OFFICERS AND DIRECTORS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK
AND COULD EXERT SIGNIFICANT INFLUENCE OVER MATTERS REQUIRING STOCKHOLDER
APPROVAL.
As of February 29, 2000, our executive officers and directors and their
respective affiliates owned approximately % of our outstanding common
stock. Accordingly, these stockholders may exert significant influence over
matters requiring approval by our stockholders, including the election of
directors and the approval of mergers or other business combinations. This
concentration could have the effect of delaying or preventing a change in
control.
OUR MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF THE PROCEEDS OF THIS
OFFERING.
Most of the net proceeds of this offering have not been allocated for
specific uses. Our management has broad discretion to spend the proceeds from
this offering in ways with which our stockholders may not agree. The failure of
our management to apply these funds effectively could result in unfavorable
returns, causing our business to suffer.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY, AND THIS COULD
DEPRESS OUR STOCK PRICE.
Delaware corporate law and our amended and restated certificate of
incorporation and bylaws contain provisions that could delay, defer or prevent a
change in control of our company or our management.
14
<PAGE> 17
These provisions could also discourage proxy contests and make it difficult for
you and other stockholders to elect directors and take other corporate actions.
As a result, these provisions could limit the price that future investors are
willing to pay for your shares. These provisions:
- authorize us to issue "blank check" preferred stock, which is preferred
stock that can be created and issued by the board of directors without
prior stockholder approval, with rights senior to those of common stock;
- provide for a staggered board of directors, so that no more than two
directors could be replaced each year and it would take three successive
annual meetings to replace all directors;
- prohibit cumulative voting in the election of directors;
- prohibit stockholder action by written consent and limit the persons who
can call special meetings of stockholders; and
- establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by stockholders at a meeting.
15
<PAGE> 18
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. We have attempted
to identify forward-looking statements by terminology including "anticipates,"
"believes," "can," "continue," "could," "estimates," "expects," "intends,"
"may," "plans," "potential," "predicts," "should" or "will" or the negative of
these terms or other comparable terminology. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks outlined under "Risk Factors," that may cause our
or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels or
activity, performance or achievements expressed or implied by these
forward-looking statements.
This prospectus includes forward-looking statements about us as well as
market data relating to the growth in wireless subscribers and smart handheld
devices. These statements are based on estimates contained in studies published
by Dataquest and International Data Corporation, market research firms. These
firms arrived at their estimates by using methodologies and assumptions chosen
by them. These estimates include estimates of:
- the number of digital wireless subscribers worldwide;
- the number of smart handheld devices shipped annually worldwide; and
- the number of worldwide wireless subscribers with Internet browsing
capabilities.
If the methodologies and assumptions used to make these estimates prove to
be incorrect, actual results could differ from the estimates.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are not under any duty to update any
of the forward-looking statements after the date of this prospectus to conform
these statements to actual results, unless required by law.
16
<PAGE> 19
USE OF PROCEEDS
We estimate that the net proceeds from the sale of shares of
common stock that we are selling in this offering will be approximately $
million (approximately $ million if the underwriters' over-allotment option
is exercised in full) assuming an initial public offering price of $
per share, after deducting the estimated underwriting discounts and commissions
and estimated offering expenses.
The principal purposes of this offering are to obtain additional capital,
to create a public market for our common stock and to facilitate future access
to public equity markets. As of the date of this prospectus, we have not
allocated the net proceeds of this offering for specific uses. We intend to use
our net proceeds primarily to fund the growth of our business, and for working
capital and general corporate purposes. The actual amounts expended for specific
purposes will vary significantly depending on a number of factors, including
future revenue and the amount of cash generated from operations.
We may also use a portion of the net proceeds for acquisitions of
businesses, products and technologies that complement our business. We currently
have no commitments or agreements to make any acquisitions and may not make any
acquisitions in the future. Pending those uses, we intend to invest the net
proceeds in U.S. government securities and other short-term, investment-grade,
interest-bearing instruments.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth of our
business and do not anticipate paying any cash dividends in the foreseeable
future.
17
<PAGE> 20
CAPITALIZATION
The table below sets forth the following information:
- the actual capitalization of PacketVideo as of December 31, 1999;
- the pro forma capitalization of PacketVideo to give effect to the sale of
1,443,569 shares of series D convertible preferred stock in March 2000
resulting in net proceeds estimated at $15.5 million; and
- the pro forma as adjusted capitalization of PacketVideo to give effect to
the pro forma adjustment, the conversion of all outstanding shares of
convertible preferred stock into shares of common stock and the sale of
shares of common stock at the initial public offering price of
$ per share in this offering, less the estimated underwriting
discounts and commissions and estimated offering expenses payable by
PacketVideo.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, net of current portion............... $ -- $ -- $ --
Stockholders' equity:
Convertible preferred stock; par value in series, $0.001
per share; 18,470,221 shares authorized, 18,470,221
shares issued and outstanding, actual; 19,913,790
shares authorized, issued and outstanding, pro forma;
no shares authorized, issued or outstanding, pro forma
as adjusted
Series A, 5,139,996 designated, issued and
outstanding, actual and pro forma; none designated and
none issued and outstanding, pro forma as adjusted.... 5 5 --
Series B, 8,955,225 designated, issued and
outstanding, actual and pro forma; none designated and
none issued and outstanding, pro forma as adjusted.... 9 9 --
Series C, 4,375,000 designated, issued and
outstanding, actual and pro forma; none designated and
none issued and outstanding, pro forma as adjusted.... 4 4 --
Series D, 1,443,569 designated, issued and
outstanding, pro forma; none designated and none
issued and outstanding, actual and pro forma as
adjusted.............................................. -- 1 --
Preferred stock; $0.001 par value, no shares authorized,
issued or outstanding, actual or pro forma; 5,000,000
shares authorized, no shares issued or outstanding, pro
forma as adjusted...................................... -- -- --
Common stock, $0.001 par value; 60,000,000 shares
authorized and 22,862,802 shares issued and
outstanding, actual and pro forma; 200,000,000 shares
authorized and shares issued and outstanding,
pro forma as adjusted.................................. 23 23
Additional paid-in capital.................................. 50,823 66,322
Deferred compensation....................................... (19,573) (19,573) (19,573)
Deficit accumulated during development stage................ (8,401) (8,401) (8,401)
-------- -------- --------
Total stockholders' equity........................... 22,890 38,390
-------- -------- --------
Total capitalization................................. $ 22,890 $ 38,390 $
======== ======== ========
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999 and:
- excludes 225,000 shares subject to outstanding options to purchase our
common stock and 2,151,000 shares of common stock available for future
issuance under our 2000 Equity Incentive Plan; and
- assumes conversion of outstanding convertible preferred stock into
19,913,790 shares of common stock.
18
<PAGE> 21
DILUTION
The pro forma net tangible book value of our common stock at December 31,
1999 was $ million, or approximately $ per share. Pro forma net tangible
book value per share represents the amount of our total tangible assets less
total liabilities, divided by the number of shares of common stock outstanding
after giving effect to the issuance of 1,443,569 shares of series D convertible
preferred stock with net proceeds estimated at $15.5 million and then to the
conversion of all outstanding convertible preferred stock into common stock.
Dilution in net tangible book value per share represents the difference between
the amount per share paid by purchasers of shares of our common stock in this
offering and the net tangible book value per share of our common stock
immediately afterwards. After giving effect to our sale of shares of
common stock offered by this prospectus and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by us, our pro forma net tangible book value would have been approximately $
million, or $ per share. This represents an immediate increase in pro forma
net tangible book value of $ per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $ per share to
new investors purchasing shares of common stock in this offering. The following
table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $
-------
Pro forma net tangible book value per share as of December
31, 1999............................................... $
-------
Increase per share attributable to new investors..........
-------
Pro forma net tangible book value per share after the
offering..................................................
-------
Dilution in pro forma net tangible book value per share to
new investors............................................. $
=======
</TABLE>
The following table sets forth, as of December 31, 1999, on the pro forma
basis described above, the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by 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
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------- ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ % $ % $
New investors........................ % $ % $
------- --- ------ ---
Total.............................. 100% $ 100%
======= === ====== ===
</TABLE>
The foregoing discussion and tables excludes options to purchase 225,000
shares of common stock as of December 31, 1999, at a weighted average exercise
price of $.08 per share, that will remain outstanding upon completion of this
offering. Giving effect to the exercise of these options as of December 31,
1999, the pro forma net tangible book value per share as of December 31, 1999
would be $ , the dilution per share to new investors would be $ , and
the consideration paid by the existing stockholders and the new investors would
represent %, and %, respectively of the total consideration paid
for all shares. For more information about these options, see
"Management -- 2000 Equity Incentive Plan," "Description of Capital Stock" and
Notes 4 and 7 of Notes to Financial Statements.
19
<PAGE> 22
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
our financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus. The statement of operations data for the period from July 22,
1998 (inception) to December 31, 1998 and for the year ended December 31, 1999,
and the balance sheet data as of December 31, 1998 and 1999, are derived from
the audited financial statements included elsewhere in this prospectus. The pro
forma net loss per share is calculated as if the convertible preferred stock
outstanding as of December 31, 1999 was converted into shares of common stock on
the date of issuance on a one-for-one basis. The historical results are not
necessarily indicative of results to be expected for future periods.
<TABLE>
<CAPTION>
PERIOD FROM JULY 22, YEAR ENDED
1998 (INCEPTION) TO DECEMBER 31,
DECEMBER 31, 1998 1999
--------------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
Research and development.................................. $ 253 $ 1,584
Sales and marketing....................................... -- 861
General and administrative................................ 130 762
Amortization of deferred compensation..................... -- 4,976
------- -------
Loss from operations........................................ 383 8,183
Interest income........................................... 1 164
------- -------
Net loss.................................................... $ (382) $(8,019)
======= =======
Basic and diluted net loss per share........................ $ (0.02) $ (0.63)
======= =======
Weighted average shares used in computation of basic and
diluted net loss per share................................ 18,186 12,708
======= =======
Pro forma basic and diluted net loss per share.............. $ (0.34)
=======
Weighted average shares used in computation of pro forma
basic and diluted net loss per share...................... 23,846
=======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1998 1999
------ ---------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $275 $23,087
Working capital............................................. 238 22,375
Total assets................................................ 337 23,796
Total stockholders' equity.................................. 293 22,890
</TABLE>
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with our financial
statements and the related notes and the other financial information appearing
elsewhere in this prospectus. In addition to historical information, the
following discussion and other parts of this prospectus contain forward-looking
information that involves risks and uncertainties. Our actual results could
differ materially from those anticipated by forward-looking information due to
factors discussed under "Risk Factors," "Business" and elsewhere in this
prospectus.
OVERVIEW
We have developed an end-to-end software solution to enable the delivery,
management and viewing of rich digital media over error-prone wireless networks.
Our PVPlatform consists of our: PVAuthor, which encodes rich digital media for
transmission over wireless networks; PVServer, which stores and distributes rich
digital media to subscribers over wireless networks; and PVPlayer, which decodes
rich digital media for viewing on mobile information devices.
We intend to generate revenue primarily from software licenses, sales and
service arrangements with wireless service providers. The success of our
business model depends to a significant extent on our ability to generate
revenue from the delivery of rich digital media services in collaboration with
wireless service providers. We also may generate revenue from licensing our
PVAuthor to wireless service providers, programming providers and application
developers. To a lesser extent, we expect to generate revenue from the licensing
and sale of our PVPlayer to semiconductor and device designers and
manufacturers.
The success of our business model also depends on the widespread
propagation of PVPlayer-enabled devices through our relationships with
semiconductor and device designers and manufacturers. Through licensing
arrangements, we encourage semiconductor and device designers and manufacturers
to embed our PVPlayer in mobile information devices. As of March 2000, we had
agreed to provide our PVPlayer to 5 semiconductor and device designers and
manufacturers.
We are a development-stage company. Since July 1998 (inception), our
efforts have principally been devoted to research and development, raising
capital, recruiting personnel and establishing relationships with wireless
service providers, semiconductor and device designers and manufacturers and
programming providers. We have not generated any revenue to date, have incurred
significant operating losses and expect to continue to incur significant
operating losses for the foreseeable future in connection with funding the
growth of our business. We anticipate that our operating expenses will increase
substantially in absolute dollars for the foreseeable future as we expand our
product development, sales and marketing, and administrative staff. As of
December 31, 1999, we had an accumulated deficit of approximately $8.4 million.
On December 31, 1998, we had 7 employees. By February 29, 2000, the number of
employees had increased to 82.
We have recorded significant deferred compensation in connection with stock
option grants and stock sales to employees and consultants. As of December 31,
1999, we had recorded deferred compensation totaling approximately $24.5
million, representing the difference between the deemed value of our common
stock for accounting purposes and the purchase price of restricted stock or
exercise price of the stock options at their date of grant. Restricted stock and
stock options typically vest over a four-year period. The amount of deferred
compensation will be amortized over the applicable vesting periods of each
option, or repurchase periods for restricted stock grants or common stock
received upon the exercise of stock options. Amortization of deferred
compensation for the year ended December 31, 1999 was approximately $5.0
million.
21
<PAGE> 24
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE PERIOD FROM JULY 22, 1998
(INCEPTION) TO DECEMBER 31, 1998
Research and development expenses. Research and development expenses
consist primarily of salaries and related personnel costs, equipment, supplies
and other costs related to the design, development, testing and enhancement of
our software and technologies. Research and development expenses for the year
ended December 31, 1999 were approximately $1.6 million, which represented an
increase of approximately $1.3 million from approximately $253,000 for the
period from July 1998 (inception) through December 31, 1998. This increase was
primarily attributable to the hiring of additional engineering personnel, which
increased from five at December 31, 1998 to 18 at December 31, 1999 and
expenditures on travel, facilities, computer and office supplies and
depreciation of our property and equipment. In addition, we intend to establish
additional research and development facilities. We believe that continued
investment in research and development is critical to attaining our strategic
technology, product and service objectives, and therefore expect our research
and development expenses to increase significantly in absolute dollars in future
periods.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries and related personnel costs, travel, public relations activities,
promotional materials, trade show expenses and website design and maintenance.
Sales and marketing expenses for the year ended December 31, 1999 were
approximately $861,000, which increased from zero for the period from July 1998
(inception) through December 31, 1998. This increase was primarily attributable
to the establishment of our sales and marketing organization in 1999. We expect
our sales and marketing expenses to increase significantly in absolute dollars
due to planned growth of our sales, marketing and business development
activities and the establishment of additional offices.
General and administrative. General and administrative expenses consist
primarily of salaries and related personnel costs. General and administrative
expenses for the year ended December 31, 1999 were approximately $763,000, which
represented an increase of approximately $633,000 from approximately $130,000
for the period from July 1998 (inception) through December 31, 1998. This
increase was attributable primarily to hiring additional personnel, legal and
other professional fees, expanding our facility and travel expenses to support
the growth of our business. We expect our general and administrative expenses to
increase significantly in absolute dollars as we add personnel and incur
additional costs necessary to support the growth of our business.
Amortization of deferred compensation. Through December 31, 1999, we
recorded deferred compensation of approximately $24.5 million that will be
amortized over the applicable vesting periods of each option, or repurchase
periods for restricted stock grants or common stock received upon the exercise
of stock options. The portion of deferred compensation that remains unamortized
as of December 31, 1999 is approximately $19.6 million. The amount of deferred
compensation amortization actually recognized in future periods could decrease
if awards for which accrued but unvested compensation has been recorded are
forfeited in connection with terminations of employment. See Note 4 of Notes to
Financial Statements.
Interest income. Interest income for the year ended December 31, 1999 was
approximately $164,000, which represented an increase of approximately $163,000
from approximately $1,000 for the period from July 1998 (inception) through
December 31, 1998. This increase is primarily attributable to interest income
earned by investing higher average cash balances related to our capital
financing activities in interest-bearing accounts and other short-term
investments.
LIQUIDITY AND CAPITAL RESOURCES
From July 1998 (inception) through December 31, 1999, we financed our
operations through the sales of our common and convertible preferred stock,
which generated net proceeds of approximately $26.3 million. As of December 31,
1999, we had approximately $23.1 million in cash, cash equivalents and
22
<PAGE> 25
short-term investments. In March 2000, we raised additional net proceeds
estimated at $15.5 million through the sale of shares of our series D
convertible preferred stock. The growth of our business will require significant
additional capital to fund operating losses, capital expenditures and working
capital needs.
Net cash used in operating activities during the year ended December 31,
1999 was approximately $2.4 million, which represented an increase of
approximately $2.0 million from approximately $353,000 for the period from July
1998 (inception) through December 31, 1998. The use of approximately $353,000 of
cash during the period from July 1998 (inception) to December 31, 1998 is
primarily attributable to the net loss of approximately $382,000, increases in
prepaid expenses and other assets, offset primarily by increases in accrued
payroll, accrued benefits and other accrued liabilities. The use of
approximately $2.4 million of cash during the year ended December 31, 1999 was
primarily attributable to a net loss of approximately $8.0 million, offset
primarily by the non-cash amortization of deferred compensation amounting to
approximately $5.0 million.
Net cash used in investing activities during the year ended December 31,
1999 was approximately $21.8 million, which represented an increase of
approximately $21.7 million from approximately $47,000 for the period from July
1998 (inception) through December 31, 1998. Net cash used during these periods
was for the acquisition of property and equipment and in 1999 included the
purchase of approximately $21.4 million of short-term investments with proceeds
from sales of our convertible preferred stock in 1999. Although to date our
capital requirements for capital expenditures have been moderate, we anticipate
a substantial increase in expenditures and lease commitments consistent with
anticipated growth in operations, infrastructure and personnel.
Net cash provided by financing activities during the year ended December
31, 1999 was approximately $25.6 million, which represented an increase of
approximately $24.9 million from approximately $675,000 for the period from July
1998 (inception) through December 31, 1998. In 1998, we received net proceeds of
approximately $648,000 from the issuance of series A convertible preferred stock
to our founders. In mid-1999, we received net proceeds of $150,000 from the
additional issuance of series A convertible preferred stock to our founders and
net proceeds of approximately $4.0 million from the issuance of series B
convertible preferred stock to Intel Corporation and Siemens Information and
Communications Networks, Inc. Additionally, in late 1999, we received net
proceeds of approximately $21.0 million from the issuance of series C
convertible preferred stock to Intel Corporation, Siemens Information and
Communications Networks, Inc., QUALCOMM Incorporated, Sony Corporation of
America, Infineon Technologies, Reuters and other strategic, institutional and
private investors. In March 2000, we received net proceeds estimated at $15.5
million from the issuance of series D convertible preferred stock to Philips
Electronics, Sonera Corporation, Texas Instruments Incorporated, Time Warner
Entertainment, and one institutional investor.
We believe that the net proceeds from this offering, together with our
cash, cash equivalents and short-term investments, will be sufficient to meet
our working capital needs for at least the next 12 months. After the next 12
months, we may need additional financing in order to:
- Fund anticipated growth, including increases in personnel, office
facilities and computer systems;
- Enhance our software and service offerings and develop new software;
- Expand sales and marketing activities and respond to competitive
pressures; or
- Acquire or invest in complementary businesses, technologies, products and
services.
Additional financing may not be available at all or, if available, may not
be obtainable on terms favorable to us or our stockholders. In addition, any
additional financing may be dilutive and new equity securities could have rights
senior to those of existing holders of our common stock. If we need to raise
funds and cannot do so on acceptable terms, we may not be able to respond to
competitive pressures, meet anticipated requirements or take advantage of future
opportunities. If additional capital is raised through debt financing, our
operations and future opportunities may be restricted.
23
<PAGE> 26
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivatives and Hedging
Activities, which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in contracts and
for hedging activities. We will be required to adopt this standard in 2001. We
have not used any derivative instruments to date and believe that the adoption
of this new standard will not have a significant effect on our financial
position, results of operations or cash flows.
YEAR 2000 READINESS DISCLOSURE
We experienced no significant disruptions in our computer systems and
believe our systems successfully responded to the Year 2000 date change. We are
not aware of any material problems resulting from the Year 2000 issue with our
internal systems, or the products and services of third parties that we use in
our business. We will continue to monitor our computer systems to ensure that
any latent Year 2000 matters that may arise are addressed promptly.
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
In the normal course of business, we invest our excess cash reserves in
interest-bearing instruments that are subject to interest rate risk. We do not
use any form of derivative financial instruments. As of December 31, 1999, we
held cash, cash equivalents and short-term money market fund investments
totaling approximately $23.1 million. Due to the short-term nature of our
interest sensitive financial instruments, the impact of a hypothetical 100 basis
point change in interest rates along the entire interest rate yield curve would
not materially affect the fair value of these instruments.
24
<PAGE> 27
BUSINESS
OVERVIEW
We develop software that enables the encoding, storage, transmission and
decoding of full-motion video and audio over wireless networks. Our software is
designed to allow live and pre-encoded video and audio content to be viewed on
mobile information devices, including smart phones, handheld devices, wireless
PDAs and laptops. Our technology is based on our unique implementation of the
MPEG4 compression standard. We have applied our knowledge of MPEG4, mobile
information devices and wireless networks to create unique performance
enhancements to this standard, while maintaining interoperability with
fully-compliant MPEG4 products and technologies. We believe this will enable
wireless service providers to address a broader user base and allow programming
providers to deliver a wider array of multimedia content. Our target customers
include wireless service providers, semiconductor and device designers and
manufacturers and programming providers.
INDUSTRY BACKGROUND
Growth of Wireless Communications
Worldwide use of wireless technologies has grown rapidly as cellular
telephony and other emerging wireless communications services have become widely
available and increasingly affordable. Dataquest, a market research firm,
estimates that there were approximately 217 million digital wireless subscribers
worldwide at the end of 1998, and that this number will grow to 827 million by
the end of 2003. At the same time, advances in computing technology are fueling
the development of affordable, high performance handheld devices such as
wireless PDAs and smart phones, which allow subscribers to access Internet-
based content and services. International Data Corporation, estimates that the
number of worldwide smart handheld devices shipped annually, which includes
PDAs, smart phones and vertical application devices, will grow from 8.9 million
in 1999 to 35.2 million in 2003 and the number of wireless subscribers with
Internet-browsing capabilities will grow from 3.6 million in 1999 to 40.4
million in 2003.
Evolution of Internet Content
Similar to wireless communications, the Internet has grown rapidly in
recent years, becoming a global medium for communication, commerce and
entertainment. Initially, the Internet was used primarily to deliver text-based
content through applications such as email and file sharing. Continued
improvements in the processing power of PCs, the increasing availability of
broadband access technologies such as cable modems and digital subscriber lines,
or DSL, and advances in streaming media and compression technologies have
facilitated the delivery of content enhanced with video, audio, animation and
other multimedia. As a result, the Internet has become a media-rich environment,
capable of delivering audiovisual and interactive programming and services to
users. These users have become accustomed to the Internet providing them with
access to a wide variety of multimedia content. However, in order to access this
multimedia content, most users are limited to using PCs that connect to the
Internet using wireline connections. We believe users will increasingly demand
access to multimedia content and services using a wide variety of mobile
information devices, including PDAs, smart phones and laptop computers.
Competitive Wireless Service Provider Environment
Competition among wireless service providers is increasing as a result of
deregulation, privatization, industry consolidation and the continued deployment
of multiple competing wireless networks within the same geography. Although many
wireless service providers have experienced strong subscriber growth, efforts to
attract and retain these subscribers have resulted in significant price-based
competition. Furthermore, increased competition has resulted in higher customer
acquisition costs, lower average revenue per subscriber and a greater likelihood
that subscribers will switch from one wireless service provider to another, a
phenomenon known as "customer churn."
25
<PAGE> 28
In response to these trends, wireless service providers are seeking ways to
differentiate their services in order to generate additional revenue, attract
new subscribers and promote subscriber loyalty. For example, many wireless
service providers have already made significant investments to migrate from
analog networks to more robust digital networks in an effort to improve the
efficiency, capacity and bandwidth of their wireless networks. Similarly,
wireless service providers have introduced numerous value-added services such as
call waiting, call forwarding and specialized billing plans to their
subscribers. Even though today's digital wireless networks are capable of
delivering these value-added services, many wireless service providers have
begun developing and testing next-generation, higher bandwidth networks to
support the delivery of more bandwidth-intensive applications and services.
The Competitive Digital Media Environment
The emergence of the Internet as a distribution channel for multimedia
content has increased competition among programming providers. Programming
providers include traditional media companies, such as newspapers and television
networks, as well as new digital content providers. Traditional media companies
are seeking to adapt their existing content, as well as develop new content, for
deployment over the Internet, while new digital content providers are designing
content specifically for delivery over the Internet. Consequently, programming
providers are designing and deploying streaming interactive audio, video and
other multimedia content in an effort to enrich their websites and attract
users. These trends have led to a significant increase in content available on
the Internet, creating an intensely competitive environment among programming
providers to maintain and broaden their potential audience. As a result,
programming providers are seeking new platforms other than PCs for their
multimedia content, including PDAs, smart phones and other mobile information
devices.
Emergence of Multimedia Content Delivery over Wireless Networks
Similar to the Internet's evolution from a text-based communications medium
to one capable of delivering multimedia content, we believe wireless networks
will also evolve from basic voice and data transmission services to networks
capable of delivering multimedia content. We believe two factors will contribute
to this evolution:
- Wireless service providers' increasing need to deliver value-added
services to their subscribers to develop new revenue sources,
differentiate their service offerings, attract new subscribers and
encourage subscriber loyalty; and
- Programming providers' increasing need to leverage their multimedia
content to preserve and enhance their brands, generate new revenue
sources and broaden their audience.
Many wireless service providers, including NTT DoCoMo, Sonera and Sprint,
and programming and content providers, including Amazon.com, Fox and Yahoo!,
have already introduced Internet-based data services and content for wireless
delivery to PDAs and smart phones. As Internet-based data services become
increasingly widespread, we believe wireless service providers and programming
providers will seek to further expand their offerings to include the delivery of
multimedia content. However, in order to deliver multimedia content, the
following technical challenges must be addressed:
- Transmission difficulties caused by high error rates and low and varying
transmission speeds inherent in wireless networks;
- Delivery of multimedia content over wireless networks without adversely
affecting the delivery of voice and data services; and
- Limited processing power and battery life and varying display sizes of
mobile information devices.
We believe wireless service providers, semiconductor and device designers
and manufacturers, programming providers and users alike will require a robust,
scalable and high-performance solution to deliver the multimedia capabilities of
the Internet over wireless networks.
26
<PAGE> 29
THE PACKETVIDEO SOLUTION
We develop software that enables the delivery, management and viewing of
full-motion video and audio over wireless networks. Our end-to-end software
solution, which we call PVPlatform, represents the initial implementation of our
technology for use today in trials and demonstrations. Our PVPlatform consists
of our: PVAuthor, which encodes rich digital media for transmission over
wireless networks; PVServer, which stores and distributes rich digital media to
subscribers over wireless networks; and PVPlayer, which decodes rich digital
media for viewing on mobile information devices.
The following diagram depicts our end-to-end software solution:
[Diagram depicting Content, Encoder, Server, Digital Wireless Network and
Decoder with associated pictures illustrating the various components of our
PVPlatform.]
[DIAGRAM]
Key features and benefits of our software solution include:
- Based on Industry Standards. Our software is based on our unique
implementation of the MPEG4 compression standard. Because our software
adheres to industry standards, fully-compliant MPEG4 decoders developed
by other vendors can decode rich digital media that was encoded by our
software. Likewise, our software can decode rich digital media that was
encoded using fully-compliant MPEG4 encoders developed by other vendors.
We believe this interoperability will enable wireless service providers
to address a broader user base and allow programming providers to deliver
a wider array of rich digital media.
- Optimized for the Mobile Environment. We have designed our software to
deliver rich digital media to PDAs, smart phones and other mobile
information devices. Our technology addresses the limitations of mobile
information devices including limited memory, processor capabilities and
battery life. In addition, our technology can discern between differing
classes of mobile information devices (for example, PDA, smart phone or
laptop) and dynamically adjust the delivery of rich digital media
accordingly. Similarly, our error-resilient technology recognizes and
conceals errors inherent in wireless networks, enabling mobile
information devices to receive enhanced video image quality.
- Increased Flexibility for Wireless Service Providers. We have designed
our software solution to provide wireless service providers with
increased flexibility and control when transmitting voice, data and rich
digital media services to their subscribers. Our quality of service and
error resilience technologies will allow wireless service providers to
manage congestion on their networks by reducing bandwidth allocated to
error correction and dynamically allocating available bandwidth among
their users.
- Reduced Encoding Costs. Our software enables programming providers to
encode rich digital media once for delivery at all data rates between
14.4 kilobits per second, or kbps, and 64 kbps, and once for delivery of
the same content at data rates between 64 kbps, and 768 kbps. Our
encoding process reduces the encoding and storage costs of transmitting
rich digital media over a variety of wireless networks to mobile
information devices.
27
<PAGE> 30
- Two-Way Communication Capability. Our video communication technology is
based on international standards for two-way videoconference calls over
wireless networks. By adhering to these standards, our technology
facilitates interoperability between mobile information devices running
our embedded software and those of other manufacturers. Although our
PVPlatform is currently limited to one-way delivery of rich digital media
over wireless networks, we believe the two-way capabilities of our
technology will enable a wide array of applications and uses for mobile
information devices in the future.
- Support for Current and Future Wireless Technologies. Our technology has
been designed to support all major digital wireless telephony standards
in use today as well as next-generation wireless networks currently being
developed. These standards include:
<TABLE>
<S> <C>
CDMA (Code Division Multiple W-CDMA (Wideband CDMA)
Access)
TDMA (Time Division Multiple CDPD (Cellular Digital Packet Data)
Access)
GSM (Global System for Mobile GPRS (Generalized Packet Radio Service)
Communications)
iDEN (Integrate Digital Enhanced PHS (Personal Handyphone System)
Network)
</TABLE>
THE PACKETVIDEO STRATEGY
Our objective is to become the leading provider of software solutions that
enable the encoding, storage, transmission and viewing of rich digital media
over wireless networks. Our strategy to achieve this objective includes the
following key elements:
- Initiate and Extend Relationships with Wireless Service Providers. We
will continue to build strategic relationships with wireless service
providers to accelerate commercial deployment of rich digital media
services based on our software solution. We intend to enter into multiple
field trials to test our software solution in a variety of wireless
network infrastructures to gauge initial user demand. We also plan to
work closely with wireless service providers to develop marketing and
promotional activities designed to build subscriber awareness of, and
demand for, rich digital media services.
- Propagate Widespread Use of PVPlayer in Mobile Information Devices. We
will continue to actively pursue relationships with a number of
semiconductor and device designers and manufacturers to encourage the
embedding of PVPlayer in their products. We believe that increasing the
number of semiconductors and devices that incorporate PVPlayer will
enhance the attractiveness of our software solution to wireless service
providers. We are currently working to optimize PVPlayer for several of
the leading semiconductor platforms used in mobile information devices.
We plan to continue to optimize PVPlayer for these platforms, and to
publicly demonstrate PVPlayer operating on these platforms to highlight
PVPlayer's performance characteristics. In addition, we plan to actively
promote these platforms, in collaboration with semiconductor designers
and manufacturers with whom we have strategic relationships, to
manufacturers of mobile information devices.
- Promote Development of Multimedia Content and Applications. We plan to
assist programming providers with the development and distribution of
their multimedia content for delivery over wireless networks. We intend
to develop strategic relationships with programming providers to
encourage and support the development of new and adapted multimedia
content. We believe that widespread availability of multimedia content
will encourage wireless service providers to rapidly deploy commercial
services to their subscribers based on our software.
- Maintain and Extend our Technology Leadership. We intend to maintain and
extend our technology leadership, enhance our software and invest
significantly in research and development. In particular, we plan to
improve our software offering to include interactive and two-way
capabilities. We intend to enhance our software to capitalize on the
performance improvements offered by
28
<PAGE> 31
future generations of wireless network infrastructure. We currently have
34 engineers, including 15 with Ph.D. degrees, dedicated to the delivery
of rich digital media over wireless networks, and we intend to continue
to aggressively recruit and hire engineers with this expertise. We intend
to continue to file for U.S. and international patents on the innovations
that our team develops. In addition, we will actively promote the
adoption of international standards through our participation in
standards groups, forums and other organizations.
- Capitalize on International Opportunities. Many wireless service
providers outside the United States are beginning to deploy new
Internet-based data services to their subscribers. We believe these
international markets present attractive opportunities for the wireless
delivery of rich digital media services as well, and we plan to focus our
sales and marketing efforts accordingly. We have invested, and will
continue to invest, in designing and testing our software to be fully
compliant with international standards. We will initially pursue
international market opportunities by leveraging existing and entering
into new strategic relationships, as well as establishing sales offices
in key international markets. We will also work on a country-by-country
basis to establish strategic relationships with wireless service
providers and programming providers to offer rich digital media services
and localized programming.
- Build the PacketVideo Brand. We intend to establish PacketVideo as the
leader for the delivery of rich digital media over wireless networks. We
believe it is critical to build brand awareness among wireless service
providers, semiconductor and device designers and manufacturers and
programming providers. We intend to achieve this by actively promoting
our brand through industry events and public relations activities. We
also intend to build brand awareness of rich digital media services with
users and we believe increased brand recognition among users will
increase demand for our software solution. We plan to build this
awareness initially through co-marketing activities with semiconductor
and device designers and manufacturers. For example, we intend to work
with device manufacturers to include the PacketVideo logo on the
packaging of mobile information devices incorporating PVPlayer. Over
time, we plan to extend these co-marketing activities to include wireless
service providers and programming providers.
SOFTWARE AND SERVICES
We have developed software designed to enable the encoding, storage,
transmission and viewing of rich digital media over wireless networks. We have
designed our software using industry standards to facilitate interoperability
with systems and products developed by other vendors.
29
<PAGE> 32
Our software includes:
<TABLE>
- ----------------------------------------------------------------------------------------------
SOFTWARE DESCRIPTION STATUS
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
PVAuthor Software that encodes and Wireless service provider and
compresses video and audio programming provider lab
content from multiple formats trials commenced December 1999
into error-resilient MPEG4
video and GSM-AMR audio
- ----------------------------------------------------------------------------------------------
PVServer Software that stores and Wireless service provider lab
transmits live or pre-encoded trials commenced December 1999
MPEG4 video and GSM-AMR audio
content over wireless and
wireline networks
- ----------------------------------------------------------------------------------------------
PVPlayer Software that decodes and Wireless service provider lab
displays MPEG4 video and trials commenced December 1999
GSM-AMR audio content on and semiconductor and device
mobile information devices designers and manufacturers
initial implementations
commenced June 1999
- ----------------------------------------------------------------------------------------------
</TABLE>
PVAuthor
PVAuthor encodes video in MPEG4 format and encodes audio using the
GSM-adaptive multi-rate, or GSM-AMR, compression algorithm. PVAuthor includes
error-resilient technology that improves the decoding performance of fully
compliant MPEG4 decoders over error-prone wireless networks. PVAuthor supports
the delivery of rich digital media at pre-selected data rates ranging from as
low as 14.4 kbps to 768 kbps. PVAuthor is capable of encoding either live or
pre-encoded rich digital media. PVAuthor operates as a stand-alone application
or in conjunction with Microsoft's Media Encoder, and runs on Windows 98 and
Windows NT operating systems.
PVServer
PVServer stores and serves MPEG4 video and GSM-AMR audio over wireless and
wireline networks. PVServer supports requests from client devices at
pre-selected data rates ranging from as low as 14.4 kbps to 768 kbps. PVServer
is capable of delivering either live or pre-encoded rich digital media and
operates on Windows NT and Linux operating systems.
PVPlayer
PVPlayer decodes rich digital media from MPEG4 video and GSM-AMR audio
formats for viewing on mobile information devices. PVPlayer, designed for
incorporation into PDAs, smart phones and other mobile information devices,
recognizes and conceals errors that occur during wireless transmission. PVPlayer
supports the delivery of rich digital media over wireless or wireline networks
at data rates ranging from as low as 14.4 kbps to 768 kbps. PVPlayer is capable
of decoding either live or pre-encoded rich digital media and runs on multiple
operating systems including Windows, Windows CE, Linux and Symbian EPOC.
Services
Our research and development personnel and application engineers provide
consulting services to wireless service providers and semiconductor and device
designers and manufacturers of mobile information devices. Our consulting
services to wireless service providers consist of technology
30
<PAGE> 33
demonstrations and planning for wireless multimedia trials. Our consulting
services to semiconductor and device designers and manufacturers include the
creation of demonstrations and prototypes.
SOFTWARE IN DEVELOPMENT
Over the next 12 months, we may incorporate additional aspects of our
technology into our PVPlatform in connection with the commercial deployment of
rich digital media services by wireless services providers. Below are some
features that we may introduce:
PVAuthor
We are designing future versions of our PVAuthor to support multiple
MPEG4-compliant enhancement layers that enable video resolution to be enhanced
or downgraded in real-time depending on the available network bandwidth. These
enhancement layers will enable future versions of PVServer to provide real-time
adjustments to the number of video images displayed per second and the size of
the video image.
PVServer
Future versions of PVServer will include a number of functions to optimize
the delivery and management of rich digital media:
- Device-Specific Delivery of Rich Digital Media. Future versions of
PVServer will be able to communicate with future versions of PVPlayer to
determine the processor, operating system, display and input
characteristics of each device. As a result, PVServer will be able to
tailor the transmission of rich digital media to each device, providing
enhanced video image quality. Future versions of PVServer will be able to
use the enhancement layers created by PVAuthor to support dynamic quality
of service adjustments. PVServer will also include functionality that
ensures backward compatibility of rich digital media among different
generations of PVPlayer and PVServer.
- Caching and Load Balancing. Future versions of PVServer will support a
caching architecture that stores frequently accessed rich digital media
on local servers, while other content can be retrieved and delivered from
remote servers over the Internet. PVServer will also monitor network
traffic and usage patterns to optimize the caching and delivery of rich
digital media.
- Network Administration. Future versions of PVServer will include
Internet-based network monitoring and administration. In addition,
PVServer will have the ability to exchange information with wireless
service providers' customer care, network management, service
provisioning and billing systems.
PVPlayer
We are enhancing our PVPlayer to include the following features:
Device Optimization. We will optimize PVPlayer for a variety of
semiconductors and devices. These versions of PVPlayer will offer enhanced
performance features and take advantage of unique processor, operating system,
display, power consumption and input characteristics of these semiconductors and
devices.
Capability Query. This function will allow PVPlayer to provide PVServer
with information about the specific capabilities of the wireless device on which
PVPlayer resides, including display size, microprocessor speed and memory size.
This will allow PVServer to optimize the delivery of rich digital media to each
device.
Two-Way Capability. This feature will enable mobile information devices
equipped with digital cameras to operate as two-way video communication
terminals, or videophones. This feature will combine the functionality of
PVPlayer and PVAuthor on a single device, allowing subscribers to send and
receive rich digital media in real-time.
31
<PAGE> 34
Our two-way technology is designed to be compliant with the Third Generation
Partnership Project, or 3GPP, a two-way video standard for full interoperability
between mobile information devices. See "Technology -- Standards -- Compliant
Software."
Software Developer Kit
We are designing a software developer kit for semiconductor and device
designers and manufacturers, enabling them to efficiently adapt PVPlayer for
their specific processors, memory requirements, displays and other device
characteristics. In addition, we intend to provide a software developer kit for
programming providers that will enable them to adapt their existing content as
well as develop new content for delivery over wireless networks.
STRATEGIC RELATIONSHIPS
We believe that establishing strategic relationships with companies whose
business models and competencies complement our own will enable us to penetrate
various market segments with our software solutions. Toward this end, we have
entered into strategic relationships in a number of areas of our business,
including:
Wireless Service Providers
We expect our relationships with wireless service providers to proceed in
four stages. In the first stage, we sign a mutual nondisclosure agreement,
perform initial testing of our technology in the wireless service provider's
laboratory and engage their product marketing personnel to develop a field trial
and commercial deployment strategy. We expect the second stage to commence with
the signing of a letter of intent for a field trial and will include the field
trial. We expect the third stage to commence upon completion of the field trial
and to involve the signing of a definitive agreement for the deployment of
commercial services by the wireless service provider. We expect the final stage
to result in commercial deployment.
The following table summarizes some of our current relationships with
wireless service providers.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
NAME STAGE GEOGRAPHY TECHNOLOGY AND DATA RATE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WIRELESS Sonera One: Laboratory Testing Finland GSM: 43 and 64 kbps
SERVICE
PROVIDERS
-----------------------------------------------------------------------------------
US West One: Laboratory Testing United States Proprietary: Undisclosed
data rates
- -------------------------------------------------------------------------------------------------
</TABLE>
Semiconductor and Device Designers and Manufacturers
Our relationships with semiconductor and device designers and manufacturers
typically proceed in four stages. At the first stage, we execute a mutual
nondisclosure agreement and evaluate our respective technologies. This
evaluation often leads to technical collaboration where the engineering teams of
both companies define the challenges of, and opportunities for, implementing
PVPlayer. The second stage typically commences with the execution of a letter of
intent that defines the business and technology relationship. The third stage
consists of the negotiation and execution of a definitive agreement that covers
the details of this relationship. We expect the final stage to commence once
these designers and manufacturers commercially ship products that incorporate
PVPlayer.
Our relationships with these vendors typically entail the following:
- Implementation and optimization of our PVPlayer software for the
requirements of these designers' and manufacturers' specific hardware
platforms;
32
<PAGE> 35
- Non-exclusive licenses to distribute PVPlayer as an embedded component of
these designers' and manufacturers' hardware platforms;
- Co-marketing of multimedia solutions; and
- Software support and maintenance.
The following table summarizes some of our current relationships with
semiconductor and device designers and manufacturers.
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
NAME STAGE TECHNOLOGY OR APPLICATION
- ---------------------------------------------------------------------------------------------------------
SEMICONDUCTOR Infineon Technologies One: Technical GSM Chipsets for Smart Phones
DESIGNERS AND Collaboration
MANUFACTURERS
------------------------------------------------------------------------------------
Intel Three: Contract StrongARM Processors for PDAs,
Smart Phones and Internet
Appliances
------------------------------------------------------------------------------------
Texas Instruments One: Technical Digital Signal Processors for Smart
Collaboration Phones
- ---------------------------------------------------------------------------------------------------------
DEVICE Casio Two: Letter of PDAs
MANUFACTURERS Intent
------------------------------------------------------------------------------------
Philips One: Technical Smart Phones and Internet
Collaboration Appliances
------------------------------------------------------------------------------------
Sanyo Three: Contract Smart Phones
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Programming Providers
By entering into relationships with programming providers, we plan to
encourage and support the development of new and adapted multimedia content for
delivery over wireless networks. Toward this end, we have signed trial
agreements with several programming providers. These agreements authorize us to
encode sample multimedia content provided to us by the programming provider for
use in marketing and promotional activities, lab tests and field trials. We
believe many of these agreements will be instrumental in building support among
programming providers for our PVPlatform. We believe these activities will
encourage programming providers to develop applications and multimedia content
designed for mobile information devices.
33
<PAGE> 36
The following table summarizes some of our current relationships with
programming providers.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
NAME DESCRIPTION OF PROGRAMMING
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
PROGRAMMING PROVIDERS Atom Films Short Clips
--------------------------------------------------------------
CNBC/Dow Jones Business Video Financial Information
--------------------------------------------------------------
Eveo Short Clips
--------------------------------------------------------------
House of Blues Music
--------------------------------------------------------------
IFUSE Sports
--------------------------------------------------------------
KLAS Local News
--------------------------------------------------------------
Odyssey Networks Entertainment
--------------------------------------------------------------
Sony Pictures Entertainment Short Clips
--------------------------------------------------------------
The Weather Channel Weather
--------------------------------------------------------------
Traffic411.com Traffic Reports
--------------------------------------------------------------
Warner Bros. Entertainment
- ----------------------------------------------------------------------------------------------
</TABLE>
TECHNOLOGY
We design software to enable the delivery of rich digital media over
wireless networks. Our software is engineered to operate on existing and next
generation, higher bandwidth digital wireless networks. Our core enabling
technologies include our development staff's knowledge of multimedia compression
and communication standards, our unique performance enhancements to MPEG4,
including error resilience and quality of service and our extensive expertise in
developing embedded systems applications. Our primary areas of expertise
include:
Standards-Compliant Software
To facilitate interoperability and promote market acceptance, most existing
digital video communication systems conform to one of several widely accepted
industry standards. Our development staff, which includes 15 employees with
Ph.D. degrees in computer science and electrical engineering, has an extensive
background in developing software and systems based on a variety of video
compression and communication standards. We have designed our technology to be
fully compliant with multiple standards, including:
- MPEG4 -- an internationally recognized standard for encoding,
transmitting and decoding rich digital media;
- 3G-324M from 3GPP -- the Third Generation Partnership Project, an
international consortium of standards bodies that have identified
multimedia requirements for interoperability of next generation cellular
phones providing video communications. 3G-324M is a set of
internationally defined protocols and standards that govern mobile
telephony. These standards, which include H.263, G.723, H.223 Annexes A &
B and H.245, address a number of complex elements that are essential to
support two-way communications, including multimedia call signaling,
control, voice, data and video transfer commands; and
- GSM-AMR -- an internationally recognized extension of the widely
implemented GSM cellular telephone standard for the coding of speech at
multiple data rates.
34
<PAGE> 37
MPEG4
The MPEG4 standard is based on a combination of mathematical algorithms.
Leveraging the basic tools provided by the MPEG4 standard, we have developed a
set of technologies that compensate for:
- Variable data rates of current and future wireless networks;
- Errors inherent in wireless transmission due to geographic or physical
limitations; and
- Variable processing and memory capabilities of mobile information
devices.
We have leveraged our expertise in video compression algorithms and design
to develop value-added enhancements to the MPEG4 standard. We have filed patent
applications on several of these enhancements. The following diagram illustrates
the role of these enhancements in the encoding and decoding process.
[Diagram depicting the process of encoding, transmitting and decoding rich
digital media over an error-prone wireless network and the role of our value-add
technology within this process.]
[DIAGRAM]
Error Resilience
Any errors or packet loss while transmitting rich digital media to mobile
information devices significantly degrades the video image quality. As a result,
wireless service providers must either allocate more bandwidth in their networks
to accommodate the retransmission of lost data or contend with poor video image
quality. This problem is particularly acute in wireless networks. To provide
enhanced video image quality at any data rate over error-prone wireless
networks, we have developed a combination of technologies to compensate for
transmission errors without consuming valuable network capacity.
Our technology enables a mobile information device to display a usable
video image even when portions of the data are lost or corrupted during
transmission. We employ a set of algorithms to validate the received data,
recognize corrupted information, resynchronize the decoding process and conceal
portions of the video image corresponding to the corrupted area. This capability
will allow wireless network
35
<PAGE> 38
operators to deploy rich digital media services without devoting significant
network capacity to error correction.
Quality of Service
Quality of service is the ability to adjust the bandwidth allocated to
transmit the rich digital media stream. Reasons that wireless service providers
might elect to adjust bandwidth allocated to rich digital media include
management of network resources, different pricing plans and disparate network
and device viewing capabilities.
At the encoding phase, our technology separates the rich digital media
stream into a base layer of essential information and one or more enhancement
layers that include additional information about the media stream. Our server
technology intelligently adjusts the number of enhancement layers transmitted to
the mobile information device to control the quantity of network bandwidth
consumed or the amount of device resources required.
Expertise in Embedded Solutions
Our technology is optimized for use in embedded devices. Accordingly, we
have developed expertise in the following areas:
- Efficient use of processor capabilities;
- Economical use of memory; and
- Extension of battery life.
Our expertise in these areas originates from our development staff's
diverse and extensive background in wireless technologies and cellular handset
architectures. Further, in collaboration with semiconductor and device designers
and manufacturers with whom we have strategic relationships, we have devoted
significant resources to the development of next generation software
architectures utilizing their embedded system technologies.
RESEARCH AND DEVELOPMENT
Our success depends on a number of factors, including our ability to
identify and respond to emerging technological trends in our target markets and
to develop, maintain and enhance our software in response to these trends. As a
result, we have made, and will continue to make, significant investments in
research and development. Our research and development expenses were
approximately $253,000 for the period from July 1998 (inception) to December 31,
1998 and approximately $1.6 million for the year ended December 31, 1999. As of
February 29, 2000, we had 34 employees engaged in research and development.
SALES AND MARKETING
We intend to market our software primarily through our direct sales force
as well as through leading wireless service providers, semiconductor and device
designers and manufacturers and programming providers. We are continuing to
build a team of application and field engineers to support our direct sales
force in business development and sales activities. As of February 29, 2000, we
had 24 employees engaged in sales and sales support roles. We plan to expand our
sales organization significantly over the next 12 months. In addition, we are
planning to open sales offices in Asia and Europe.
We focus our marketing efforts primarily on increasing awareness of the
capabilities of our technology, promoting our brand name and creating demand for
our software and services. We market our software solution through participation
in major industry trade shows and technology conferences, public relations
initiatives and our website. In addition, we are actively working with a number
of trade publications and industry analysts to educate the market on the
deployment and benefits of our software solution. We also engage in co-marketing
activities with several semiconductor and device designers and manufacturers. In
the future, we intend to extend our co-marketing activities to include wireless
service
36
<PAGE> 39
providers as they deploy rich digital media services to their subscribers. As of
February 29, 2000, we had six employees in our marketing department, and we
expect this number to increase substantially over the next 12 months.
COMPETITION
The market for our software and services is intensely competitive, rapidly
evolving and subject to continuous technological change. Accordingly, it is
difficult to assess the specific companies that are, or may emerge, as our
competitors. As service providers implement higher bandwidth services and open
industry standards such as MPEG4 are adopted, we believe that numerous companies
will attempt to enter our markets. We expect that we will compete primarily on
the basis of completeness of solution, time-to-market, functionality, quality of
product and service offerings and price. Some of the companies with which we
have strategic relationships are also current and potential competitors. Our
current and potential competitors include:
- Wireless infrastructure, equipment and device manufacturers, including
Ericsson, Lucent, Matsushita, Motorola, NEC, Nokia, Nortel, Samsung, and
Toshiba, many of which are developing or have announced plans to develop
competitive products.
- Microsoft, which has announced that it intends to support multimedia
capability in its Windows CE operating system for mobile information
devices.
- Developers of streaming media technologies such as Apple Computer,
GeoInteractive and RealNetworks;
- Developers of video compression technology such as Sarnoff Corporation;
- Wireless service providers, such as NTT DoCoMo, Orange, Sonera and US
West;
- Semiconductor designers and manufacturers such as Intel, QUALCOMM and
Texas Instruments, which may develop their own software to embed on the
hardware they already produce; and
- Providers of wireless software applications and content aggregation, such
as Phone.com and InfoSpace, which may capitalize on their existing market
share and expand their product offerings.
INTELLECTUAL PROPERTY RIGHTS
Our success depends significantly on our ability to protect our proprietary
rights to the technologies used in our software. If we are unable to protect our
intellectual property, our competitors could use our proprietary knowledge to
enhance their products and services, which could harm our business. As of
February 29, 2000, we had five pending United States patent applications, as
well as foreign counterparts with respect to one of these applications. As of
February 29, 2000, we also had six pending United States trademark applications.
In addition, we rely on a combination of copyright and trademark laws,
trade secrets, confidentiality provisions and other contractual provisions to
protect our proprietary rights but these legal means afford only limited
protection. Despite any measures taken to protect our intellectual property,
unauthorized parties may copy aspects of our software or obtain and use
information that we regard as proprietary. In addition, the laws of some foreign
countries may not protect our proprietary rights as fully as do the laws of the
United States. In addition, we will not have patent protection in countries
where we do not file patent applications. Thus, the measures we are taking to
protect our proprietary rights in the United States and abroad may not be
adequate. Finally, our competitors may independently develop similar
technologies.
The telecommunications and wireless software industries are characterized
by the existence of a large number of patents and frequent litigation based on
allegations of patent infringement. Our software is based on numerous
international standards that may be the subject of patents held by third
parties. As the number of entrants into our market increases, the possibility of
an infringement claim against us grows. For example, we may be inadvertently
infringing a patent of which we are unaware. In addition, because
37
<PAGE> 40
patent applications can take many years to issue, there may be one or more
patent applications now pending of which we are unaware, which could lead to
infringement actions against us if issued in the future. To address any patent
infringement claims, we may have to enter into royalty or licensing agreements
on disadvantageous commercial terms. A successful claim of product infringement
against us, or our failure to license the infringed or similar technology, may
harm our business. In addition, any infringement claims, with or without merit,
would be time-consuming and expensive to litigate or settle and could divert
management attention from administering our core business.
EMPLOYEES
As of February 29, 2000, we had a total of 82 employees. None of our
employees is covered by any collective bargaining agreements. We believe that
our relations with our employees are good.
FACILITIES
Our principal offices are located in San Diego, California in a 20,955
square foot facility under a lease expiring October 31, 2003, with a renewal
option for an additional 2-year term. Our content programming group is located
in Los Angeles, California in a 1,350 square foot facility under a monthly
lease. We are in the process of establishing additional offices for our
engineering group to be located in Chicago and New Jersey and expect to lease
additional office space for our programming group in Los Angeles to support
planned growth.
LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings; however, we
may from time to time become a party to various legal proceedings arising in the
ordinary course of our business.
38
<PAGE> 41
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth information about our directors, executive
officers and key employees as of March 10, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William D. 51 Chairman of the Board
Cvengros(1)...........
James Z. Carol(2)....... 42 Chief Executive Officer and Director
James C. Brailean....... 38 President, Chief Technology Officer and Director
Peter A. Price.......... 38 Chief Financial Officer
Robert A. Tercek........ 37 President of Programming Division
Lauren Cole............. 37 Chief Operating Officer of Programming Division
Stephen M. Burke........ 40 Senior Vice President of Carrier Services
Edward M. Knapp......... 39 Senior Vice President of Wireless Distribution
Pamela A. York.......... 47 Vice President of Sales
Karen A. Brailean....... 36 Vice President of Product Marketing and Business Planning
Joel B. Espelien........ 28 Vice President of Legal Affairs and Secretary
Jack P. Donner.......... 45 Vice President of Engineering
Anthony Maher(3)(4)..... 54 Director
</TABLE>
- ---------------
(1) Mr. Cvengros is expected to become Chief Executive Officer of PacketVideo in
April 2000, resign as Chairman of the Board and remain a director.
(2) Mr. Carol is expected to resign as Chief Executive Officer of PacketVideo in
April 2000 to assume the role of Chairman of the Board.
(3) Member of Compensation Committee.
(4) Member of Audit Committee.
William D. Cvengros has served as Chairman of PacketVideo's Board of
Directors since April 1999 and as a director since July 1998. Mr. Cvengros is
Chief Executive Officer of PIMCO Advisors, L.P., the third largest publicly
traded investment management firm in the United States. Mr. Cvengros has served
as President of Pacific Financial Asset Management Corporation and, from 1987 to
1994, was chairman or president of five of the firms that now comprise PIMCO
Advisors. He also served as Vice Chairman and Chief Investment Officer at
Pacific Life Insurance Company from 1990 to 1994. He received an M.B.A. from
Northwestern University's Kellogg Graduate School of Management and a B.A. in
economics from the University of Notre Dame.
James Z. Carol co-founded PacketVideo and has served as Chief Executive
Officer and a member of the board since our inception. Prior to founding
PacketVideo, from 1986 to 1998, he served in various senior sales positions at
Motorola, Inc., including Area VP/Worldwide OEM Sales and Management (Motorola's
Information Systems Group). From 1986 to 1995 Mr. Carol had several senior sales
and management positions with Digital Equipment Corporation, including Global
Account Manager, Global Sales team management, Special Market Manager, Internet
Business Driver and Alpha Chip Driver. Mr. Carol received a B.A. from West
Virginia Wesleyan University.
James C. Brailean, Ph.D. co-founded PacketVideo and has served as our
President and Chief Technology Officer since April 1999. From inception to April
1999, he served as our Chief Technology Officer. Dr. Brailean has served on our
board of directors since inception. Dr. Brailean also served as the Chairman of
the Error Resilience Video Compression Ad Hoc Group within MPEG4 from 1994 to
1998. Prior to founding PacketVideo in 1998, Dr. Brailean was a principal staff
engineer within Motorola's Chicago Corporate Research and Development
Laboratories where he managed the Advanced Video Algorithm Group. This group was
responsible for the design and development of advanced video compression and
imaging algorithms. From 1985 to 1989, Dr. Brailean was a communication system
39
<PAGE> 42
engineer with Hughes Aircraft, Space and Communications Group. He received his
doctorate in electrical engineering from Northwestern University. Dr. Brailean
also holds an M.S.E.E. from the University of Southern California and a B.S.E.E.
degree from the University of Michigan. Dr. Brailean is the spouse of Karen A.
Brailean, PacketVideo's Vice President of Product Marketing and Business
Planning.
Peter A. Price has served as PacketVideo's Chief Financial Officer since
November 1999. Prior to joining PacketVideo, Mr. Price served as Chief Financial
Officer of WirelessKnowledge LLC, a wireless software services company, from
March to October 1999. From 1996 to 1999, Mr. Price served as Vice President of
Finance and Chief Financial Officer of Packet Engines, Inc., a privately held
gigabit routing switch company that was acquired by Alcatel in 1998. Prior to
Packet Engines, from 1994 to 1996, Mr. Price served as the North American
controller for Microsoft. From 1988 to 1994, Mr. Price was employed by Ernst &
Young LLP, where he attained the position of Senior Audit Manager. Mr. Price
received an M.B.A. in Finance from the University of Oregon and a B.S. in
Business Administration with an emphasis in Accounting from the University of
Montana. Mr. Price is a certified public accountant and a member of the American
Institute of Certified Public Accountants.
Robert A. Tercek has served as PacketVideo's President of the Programming
Division since January 2000. From 1997 to 1999, prior to joining PacketVideo,
Mr. Tercek served as the Senior Vice President of Digital Media at Columbia
TriStar Television, a division of Sony Pictures Entertainment, where he
established the studio's interactive TV production unit, and negotiated
distribution agreements for interactive television programming in the United
States and Europe. Mr. Tercek also co-founded and served as the creative
director of 7th Level, a CD-ROM game developer and served as a creative director
for MTV: Music Television, where he supervised the launch of MTV in Asia. Mr.
Tercek was distinguished with a Fulbright Grant for study of languages at the
Christian-Albrechts University in Germany. He received a B.A. from Williams
College and is currently an adjunct professor at the University of Southern
California School of Cinema-TV.
Lauren Cole has served as PacketVideo's Chief Operating Officer for the
Programming Division since January 2000. From 1993 to 2000, Ms. Cole previously
worked with Columbia TriStar International Television as Senior Vice President,
International Networks where she supervised the investment in and launch of
numerous cable and satellite channels in Europe, Asia and Latin America. She
also worked with Columbia TriStar Digital Media during 1999 to help develop
strategies and rollout plans for Sony Pictures Entertainment's games and other
brands for the United States and international markets in new media. Before
joining Sony, Ms. Cole served as Manager, Strategic Planning at Warner Bros. and
served as a management consultant with Bain and Company. She holds an A.B. in
Applied Mathematics from Harvard College and an M.B.A. from the Stanford
Graduate School of Business.
Stephen M. Burke joined PacketVideo in August 1999 and has served as
PacketVideo's Senior Vice President of Carrier Services since February 2000.
Prior to Joining PacketVideo, he worked with Sony Corporation in Japan and the
United States for 15 years. From 1997 to 1999, Mr. Burke served as Vice
President for Sony's Visual Communication Products Group in San Diego where he
led development and marketing of broadband wireline videoconferencing products.
Prior to that assignment, Mr. Burke was Chief Business Officer for Sony's
Wireless Telecommunications Company in San Diego where he oversaw sales,
marketing, product management, and business development and led the launch of
the Sony/ QUALCOMM CDMA handset sales efforts with U.S. wireless carriers. Mr.
Burke is completing an M.A. at the University of Michigan. He received a B.A.
from Middlebury College.
Edward M. Knapp has served as PacketVideo's Senior Vice President of
Wireless Distribution since March 2000. Prior to joining PacketVideo, Mr. Knapp
co-founded and served as the Senior Vice President Engineering and Chief
Technical Officer of NextWave Telecom, Inc., a wireless service provider, from
July 1995 to March 2000. Mr. Knapp founded Nextwave's Telecode subsidiary and
led its early development as a wireless consulting and software product
development company. He was responsible for engineering, implementing and
operating NextWave's nationwide 3G wireless PCS network. From 1990 to 1995, Mr.
Knapp was the Executive Director of Technical Services for Bell Atlantic/NYNEX
Mobile. He was responsible for the overall planning, engineering design, site
development and day to day operation of
40
<PAGE> 43
the New York Metro cellular system. Prior to 1990, Mr. Knapp held various
technical staff positions at NYNEX's Science and Technology division. Prior to
NYNEX, Mr. Knapp held various engineering design positions with Seimens
Transmission Systems and Sperry Defense Products Group. Mr. Knapp received his
B.S.E.E. degree from the State University of New York at Stony Brook, a M.S. in
Electrical Engineering from Polytechnic University in New York and an M.B.A.
from Columbia University.
Pamela A. York has served as PacketVideo's Vice President of Sales since
October 1999. Prior to joining PacketVideo, she served for 15 years at Motorola
where she had most recently been Area Vice President of Sales for Motorola's
Internet Networking Group, or ING. She also served as an Area Vice President in
Motorola's OEM/Worldwide Sales and Marketing for Transmission Products Division
and Area Vice President OEM, System Integration, ISP for ING. Prior to this
position, she served as General Manager of Business Innovation, a startup
company developing video networking products. She holds an M.S. in International
Management from McGill University and a B.S. from Rutgers University.
Karen A. Brailean has served as PacketVideo's Vice President of Product
Marketing and Business Planning since December 1999. Prior to joining
PacketVideo, she worked for ten years at Motorola in both engineering and
marketing. At Motorola, Ms. Brailean served as Director, Product Management in
the Commercial, Government and Industrial Solutions Sector developing wireless
products for business and government applications. She also managed the system
performance team that developed a wireless packet data service for Motorola's
iDEN infrastructure and held positions in both software development and
research. Prior to Motorola, Ms. Brailean worked as a satellite system engineer
for Hughes Aircraft Company. Ms. Brailean received an M.B.A. from the University
of Chicago, an M.S.E.E. from the University of Southern California and a
B.S.E.E. from Purdue University. Ms. Brailean is the spouse of Dr. James C.
Brailean, PacketVideo's President and Chief Technology Officer.
Joel B. Espelien has served as PacketVideo's Vice President of Legal
Affairs and Secretary since February 1999. Previously, he served as Director of
Business Development and Legal Affairs since joining the Company in May 1999.
Prior to joining PacketVideo, Mr. Espelien served as an attorney in the
Information Technology Group of Cooley Godward LLP from 1996 through May 1999,
focusing on the intellectual property and licensing needs of emerging technology
companies. Mr. Espelien received a J.D./ L.L.M. (International and Comparative
Law) from Duke University and a B.A. from St. Olaf College. He is a member of
the bar of the State of California.
Jack P. Donner has served as PacketVideo's Vice President of Engineering
since January 2000. Prior to joining PacketVideo, Mr. Donner served as Manager
of Architecture for the Cable Modem & Infrastructure business at Motorola, Inc.
from 1997 to 1999, where he supervised teams developing next generation
multimedia systems. From 1989 to 1997, Mr. Donner served as Engineering Manager
in various capacities at Motorola, Inc. Mr. Donner received a B.S. degree in
Computer Science and Electrical Engineering from West Virginia University and an
M.S. in International Management from Lancaster University in the United
Kingdom.
Anthony Maher has served as a member of PacketVideo's board of directors
since June 1999. Mr. Maher is currently the Chairman of the Board and member of
the Board of Directors of Siemens Mustang Ventures, the venture capital arm of
Siemens Information and Communication Networks Group. Mr. Maher has held
numerous positions at Siemens including the following: member of the Board of
Directors of the Information and Communications Networks Group from 1998 to the
present, member of the Board of Directors of the Public Communications Networks
Group from 1997 to 1998, Executive Director, Public Communications Networks
Group, Access Networks, from 1995 to 1997, and Executive Director, Product
Planning for Public Communications Networks Marketing, from 1993 to 1995. Mr.
Maher received an M.S. in electrical engineering and physics from the University
of Illinois in 1969.
41
<PAGE> 44
BOARD COMPOSITION
Upon the closing of this offering, in accordance with the terms of our
amended and restated certificate of incorporation, the terms of office of the
board of directors will be divided into three classes:
- Class I directors, whose term will expire at the annual meeting of
stockholders to be held in 2001;
- Class II directors, whose term will expire at the annual meeting of
stockholders to be held in 2002; and
- Class III directors, whose term will expire at the annual meeting of
stockholders to be held in 2003.
Our Class I directors will be William D. Cvengros and , our
Class II directors will be James C. Brailean and , and our Class
III directors will be James Z. Carol and Anthony Maher. At each annual meeting
of stockholders after the initial classification, the successors to directors
whose terms will then expire will be elected to serve from the time of election
and qualification until the third annual meeting following election. Any
additional directorships resulting from an increase in the number of directors
will be distributed among the three classes so that, as nearly as possible, each
class will consist of one-third of the directors. This classification of the
board of directors may have the effect of delaying or preventing changes in
control or management of our company.
BOARD COMMITTEES
The board of directors has established an audit committee and a
compensation committee. The audit committee consists of Anthony Maher,
and . The audit committee makes recommendations to
the board of directors regarding the selection of independent auditors, reviews
the results and scope of the audit and other services provided by our
independent auditors and reviews and evaluates our financial, accounting and
control functions.
The compensation committee consists of Anthony Maher, and
. The compensation committee makes recommendations regarding our
equity compensation plans and makes decisions concerning salaries and incentive
compensation for our employees and consultants.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998 and prior to July 1999, we did not have a compensation
committee and the board of directors made all decisions concerning executive
compensation. The board of directors established the compensation committee in
July 1999. The compensation committee was reconstituted in March 2000.
DIRECTOR COMPENSATION
Our directors do not currently receive cash compensation for services on
the board of directors or any committee thereof, but directors may be reimbursed
for expenses they incur in attending board and committee meetings. All directors
are eligible to participate in our 2000 Equity Incentive Plan and our
Non-Employee Directors' Stock Option Plan. Non-employee directors will be
eligible to participate in the Non-Employee Directors' Stock Option Plan at the
closing of this offering.
EXECUTIVE COMPENSATION
The following table sets forth summary information for the year ended
December 31, 1999, concerning compensation for our Chief Executive Officer and
our other most highly compensated executive officer whose salary and bonus for
1999 was in excess of $100,000. In accordance with Securities and Exchange
Commission rules, the compensation described in this table does not include
medical, group life insurance or other benefits which are available generally to
all of our salaried employees and perquisites
42
<PAGE> 45
and other personal benefits received that do not exceed the lesser of $50,000 or
10% of the salary and bonus listed in the table below.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-------------------
ANNUAL COMPENSATION NUMBER OF
---------------------------- SECURITIES
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER UNDERLYING OPTIONS
--------------------------- -------- --------- ----- -------------------
<S> <C> <C> <C> <C>
James Z. Carol
Chief Executive Officer(1)..................... $113,077 $95,000(2) -- --
James C. Brailean
President & Chief Technology Officer........... $113,077 $80,000(3) -- --
</TABLE>
- ---------------
(1) Mr. Carol is expected to resign as Chief Executive Officer of the Company in
April 2000 to assume the role of Chairman of the Board.
(2) Mr. Carol received discretionary merit bonuses totaling $95,000 in 1999.
(3) Mr. Brailean received discretionary merit bonuses totaling $80,000 in 1999.
2000 EQUITY INCENTIVE PLAN
In August 1998, the board of directors adopted, and the stockholders
approved, our 1998 Equity Incentive Plan. The 1998 Plan was subsequently amended
by the board on July 7, 1999, November 17, 1999 and November 30, 1999. On March
3, 2000, the 1998 Plan was amended and restated and renamed the 2000 Equity
Incentive Plan subject to approval by our stockholders. We have until March 3,
2001 to obtain this approval. The 2000 Plan will become effective upon the
closing of the initial public offering of our common stock. A total of
10,500,000 shares of common stock has been authorized for issuance under the
2000 Plan. The 2000 Plan provides for an annual increase to the share reserve,
which will be added on the first day of each calendar year beginning with
January 1, 2001 equal to the lesser of 5% of the Company's outstanding shares on
such date (calculated on a fully diluted basis, assuming the exercise or
conversion of all outstanding stock options, warrants to purchase common stock
and securities exercisable or convertible into common stock) or 5,000,000
shares. However, the board of directors may designate a smaller number of shares
of common stock to be added to the share reserve as of a particular January 1.
When a stock award expires or is terminated before it is exercised, the shares
set aside for that award are returned to the pool of shares available for future
awards. Shares that are issued when an award is exercised and that are
subsequently repurchased by us will not return to the pool and will not become
available for future awards.
The 2000 Plan permits the grant of options to our directors, officers, key
employees and consultants and our advisors. Options may be either incentive
stock options within the meaning of Section 422 of the Internal Revenue Code to
employees or nonstatutory stock options. In addition, the 2000 Plan permits the
grant of stock bonuses and rights to purchase restricted stock. No person may be
granted options covering more than 1,000,000 shares of common stock in any
calendar year.
The 2000 Plan is administered by the board of directors or a committee
appointed by the board. The board has delegated the authority to administer the
2000 Plan to the compensation committee. Under the guidelines in the 2000 Plan,
the administrator has the authority to:
- select the eligible persons to whom award grants will be made;
- designate the number of shares to be covered by each award;
- determine whether an option is to be an incentive stock option or a
nonstatutory stock option;
- establish vesting schedules;
43
<PAGE> 46
- specify the exercise price of options and the type of consideration to be
paid upon exercise; and
- specify other terms of awards.
The maximum term of options granted under the 2000 Plan is ten years.
Incentive stock options granted under the 2000 Plan generally are
nontransferable. Nonstatutory stock options typically are nontransferable,
although the applicable option agreement may permit transfers. Options expire
three months after the termination of an optionholder's service. However, if an
optionholder is permanently disabled or dies during his or her service, that
person's options generally may be exercised up to 12 months following disability
or 18 months following death.
The exercise price of options granted under the 2000 Plan is determined by
the administrator under the guidelines in the 2000 Plan. The exercise price of
an incentive stock option cannot be less than 100% of the fair market value of
the common stock on the date of the grant. The exercise price of a nonstatutory
stock option cannot be less than 85% of the fair market value of the common
stock on the date of grant.
Options granted under the 2000 Plan vest at the rate determined by the
administrator and specified in the option agreement. The terms of any stock
bonuses or restricted stock purchase awards granted under the 2000 Plan will be
determined by the administrator. The purchase price of restricted stock under
any restricted stock purchase agreement will not be less than 85% of the fair
market value of our common stock on the date of grant. Stock bonuses and
restricted stock purchase agreements awarded under the 2000 Plan are generally
nontransferable, although the applicable award agreement may permit transfers.
Upon changes in control in our ownership, all outstanding stock awards
under the 2000 Plan must either be assumed or substituted by the surviving
entity. In the event the surviving entity does not assume or substitute these
outstanding stock awards, then the vesting and exercisability of outstanding
awards will accelerate prior to the change in control and the awards will
terminate to the extent not exercised prior to the change in control.
The board may amend or terminate the 2000 Plan at any time. Amendments
generally will be submitted for stockholder approval only to the extent required
by applicable law.
As of March 10, 2000, we had issued and outstanding under the 2000 Plan
options to purchase approximately 626,000 shares of common stock and
approximately 5,700,000 shares of common stock had been purchased upon the
exercise of options under the 2000 Plan. The Company has the option to
repurchase, at the original price, unvested shares in the event of termination
of employment. The per share exercise prices of these options ranged from $0.03
to $1.00.
EMPLOYEE STOCK PURCHASE PLAN
In March 2000, our board of directors adopted the 2000 Employee Stock
Purchase Plan, and the plan was approved by our stockholders on .
A total of 500,000 shares of common stock has been authorized for issuance under
the Purchase Plan. This amount will be increased automatically for a period of
ten years on the first day of each calendar year commencing on January 1, 2001
and ending on January 1, 2010 by the lesser of the number of shares equal to 1%
of the fully diluted shares outstanding or 1,000,000 shares. However, the board
of directors may provide for a lesser increase in the number of shares
authorized for issuance in any given year. The Purchase Plan is intended to
qualify as an employee stock purchase plan within the meaning of Section 423 of
the Code. Under the Purchase Plan, eligible employees will be able to purchase
common stock at a discount in periodic offerings. The Purchase Plan will
commence on the effective date of this offering.
Unless otherwise determined by the board, all employees are eligible to
participate in the Purchase Plan so long as they are employed by us (or a
subsidiary designated by the board) for at least 20 hours per week and are
customarily employed by us (or a subsidiary designated by the board) for at
least 5 months per calendar year.
44
<PAGE> 47
Under the Purchase Plan, employees who participate in an offering may have
up to 15% of their earnings for the period of that offering withheld. The amount
withheld is used at the end of the offering period to purchase shares of common
stock. The price paid for common stock at the end of an offering period will
equal the lower of 85% of the fair market value of the common stock at the
commencement date of that offering period or 85% of the fair market value of the
common stock on the relevant purchase date. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment.
Upon changes in control in our ownership, the board has discretion to
provide that each right to purchase common stock will be assumed or an
equivalent right substituted by the successor corporation or the board may
provide for all sums collected by payroll deductions to be applied to purchase
stock immediately prior to the change in control transaction.
The board has the authority to amend or terminate the Purchase Plan;
provided, however, that no amendment or termination of the Purchase Plan may
adversely affect any outstanding rights to purchase common stock. Amendments
will generally be submitted for stockholder approval only to the extent required
by law.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In March 2000, our board of directors adopted our 2000 Non-Employee
Directors' Stock Option Plan, and the plan was approved by our stockholders on
. The Directors' Plan provides for the automatic grant of options
to purchase shares of common stock to our non-employee directors. The Directors'
Plan is administered by the board, unless the board delegates administration to
a committee of at least two disinterested directors.
A total of 200,000 shares of common stock have been reserved for issuance
under the Directors' Plan. The Directors' Plan provides for an annual increase
to the share reserve, which will be added on the first day of each calendar year
commencing on January 1, 2001, equal to the least of 0.1% of our outstanding
shares on that date (calculated on a fully diluted basis, that is assuming the
exercise or conversion of all outstanding stock options, warrants to purchase
common stock and securities exercisable or convertible into common stock),
75,000 shares or an amount determined by the board of directors.
Pursuant to the terms of the Directors' Plan:
- on the effective date of the Directors' Plan, each person who is then a
non-employee director will be granted an option to purchase 10,000 shares
of common stock;
- each person who, after the effective date of the Directors' Plan, for the
first time becomes a non-employee director automatically will be granted,
upon the date of his or her initial appointment or election to be a
non-employee director, a one-time option to purchase 10,000 shares of
common stock, pro-rated to the extent that a director did not serve as a
director for a full year prior to the annual meeting; and
- on the date of each annual meeting of our stockholders commencing with
the 2001 annual meeting of stockholders, each person who is elected to be
a non-employee director at such annual meeting automatically will be
granted an option to purchase 5,000 shares of common stock.
The exercise price of options under the Directors' Plan will equal 100% of
the fair market value of the common stock on the date of grant. Options granted
under the Directors' Plan are generally transferable to family members and
trusts under which the director or members of the director's family are
beneficiaries. Unless otherwise terminated by the board of directors, the
Directors' Plan will automatically terminate when all of our common stock
reserved for issuance under the Directors' Plan has been issued.
45
<PAGE> 48
EMPLOYMENT AGREEMENTS
We entered into an employment offer letter with William D. Cvengros to
serve as Chief Executive Officer at a base salary of $240,000 a year starting in
April 2000, in addition to cash-based performance compensation, as determined by
the board. Mr. Cvengros was offered the right to purchase 1,800,000 shares of
our common stock. Mr. Cvengros exercised this right in November 1999 and
acquired 1,800,000 shares of our common stock, which is subject to repurchase by
PacketVideo under certain circumstances.
We have an employment agreement with James C. Brailean, Ph.D., to serve as
our President and Chief Technology Officer at a base salary of $180,000 a year.
The agreement is at-will.
We have an employment agreement with James Z. Carol to serve as our
Chairman of the Board, effective April 2000, at a base salary of $180,000 a
year. The agreement is at-will.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION ON LIABILITY
Our bylaws provide that we shall indemnify our directors and officers and
may indemnify our other employees and agents to the fullest extent permitted by
Delaware law, except with respect to proceedings initiated by these persons. We
are also empowered under our bylaws to enter into indemnification contracts with
our directors and officers and to purchase insurance on behalf of any person we
are required or permitted to indemnify. We intend to enter into indemnification
agreements with each of our directors and officers.
In addition, our amended and restated certificate of incorporation provides
that our directors will not be personally liable to us or our stockholders for
monetary damages for any breach of fiduciary duty as a director, except for
liability:
- for any breach of the director's duty of loyalty to us or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derives an improper personal
benefit.
Our amended and restated certificate of incorporation will also provide
that if the Delaware General Corporation Law is amended after the approval by
our stockholders of the amended and restated certificate of incorporation to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of our directors shall be eliminated
or limited to the fullest extent permitted by the Delaware General Corporation
Law. The provision does not affect a director's responsibilities under any other
law, including the federal securities laws or state or federal environmental
laws.
46
<PAGE> 49
CERTAIN TRANSACTIONS
The following is a description of transactions since our inception in July
1998:
- to which we have been a party;
- in which the amount involved exceeds $60,000; and
- in which any director, executive officer or holder of more than 5% of our
capital stock had or will have a direct or indirect material interest.
These transactions do not include arrangements with our executive officers
that are described under "Management."
Series A Preferred Stock Financing. In August 1998, we issued 2,250,000
shares of our series A convertible preferred stock for $0.11 per share to one
accredited investor. In December 1998, we issued 1,599,996 shares of our series
A preferred stock for $0.25 per share to four accredited investors. The series A
convertible preferred stock will automatically convert into an aggregate of
3,849,996 shares of common stock upon the closing of this offering. Investors
owning 5% or more of our outstanding shares and directors and officers who
participated in these transactions include:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NUMBER OF COMMON STOCK UPON
INVESTOR SERIES A SHARES CONVERSION
-------- --------------- --------------------
<S> <C> <C>
William D. Cvengros................................. 2,649,999 2,649,999
James C. Brailean................................... 399,999 399,999
James Z. Carol...................................... 399,999 399,999
</TABLE>
Series B Preferred Stock Financing. In May 1999, we issued 6,716,418 shares
of our series B convertible preferred stock for $0.45 per share to one
accredited investor. In June 1999, we issued 2,238,807 shares of our series B
convertible preferred stock for $0.45 per share to one accredited investor. The
series B convertible preferred stock will automatically convert into an
aggregate of 8,955,225 shares of common stock upon the closing of this offering.
Investors owning 5% or more of our outstanding shares and directors and officers
who participated in this transaction include:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NUMBER OF COMMON STOCK UPON
INVESTOR SERIES B SHARES CONVERSION
-------- --------------- --------------------
<S> <C> <C>
Intel Corporation................................... 6,716,418 6,716,418
Siemens Information and Communication Network,
Inc. ............................................. 2,238,807 2,238,807
</TABLE>
Series C Preferred Stock Financing. In December 1999, we issued 4,375,000
shares of our series C convertible preferred stock for $4.80 per share to ten
accredited investors. The series C convertible preferred stock will
automatically convert into an aggregate of 4,375,000 shares of common stock upon
the closing of this offering. Investors owning 5% or more of our outstanding
shares and directors and officers who participated in these transactions
include:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NUMBER OF COMMON STOCK UPON
INVESTOR SERIES C SHARES CONVERSION
-------- --------------- --------------------
<S> <C> <C>
Intel Corporation..................................... 208,333 208,333
Siemens Information and Communication Network,
Inc. ............................................... 1,041,667 1,041,667
</TABLE>
Registration Rights. In connection with the preferred stock financings, we
granted registration rights to all of our preferred stockholders. See
"Description of Capital Stock -- Registration Rights" for a more complete
description of registration rights we granted to our stockholders.
47
<PAGE> 50
PRINCIPAL STOCKHOLDERS
The following table contains information about the beneficial ownership of
our common stock before and after our initial public offering for:
- each person who beneficially owns more than five percent of our common
stock;
- each of our directors;
- each named executive officer; and
- all directors and executive officers as a group.
Unless otherwise indicated, the address for each person or entity named below is
c/o PacketVideo Corporation, 10350 Science Center Drive, Suite 210, San Diego,
California 92121.
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. Except as indicated by footnote, and except
for community property laws where applicable, the persons named in the table
below have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them. The percentage of beneficial
ownership before the offering is based on shares of common stock
outstanding as of , 2000, as adjusted to reflect the conversion of
all outstanding shares of convertible preferred stock into common stock upon the
closing of this offering.
The table assumes no exercise of the underwriters' over-allotment option.
If the underwriters' over-allotment option is exercised in full, we will sell up
to an aggregate of additional shares of our common stock, and up to
shares of common stock will be outstanding after the completion
of this offering.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES
BENEFICIALLY OUTSTANDING
OWNED -----------------------
------------------ BEFORE AFTER
NUMBER OFFERING OFFERING
------------------ ---------- ----------
<S> <C> <C> <C>
NAME AND ADDRESS OF BENEFICIAL OWNER
William D. Cvengros......................................... 4,449,999 10.1% %
James C. Brailean(1)........................................ 8,904,000 20.2
James Z. Carol(2)........................................... 8,124,000 18.4
Anthony Maher(3)............................................ 3,280,474 7.4
4900 Old Ironsides Dr.
Bldg. 1, Mailstop 102
Santa Clara, CA 95054
Intel Corporation........................................... 6,924,751 15.7
2200 Mission College Blvd.
Mailstop RN6-46
Santa Clara, CA 95052
Siemens Services, Inc. ..................................... 3,280,474 7.4
4900 Old Ironsides Dr.
Bldg. 1, MS 102
Santa Clara, CA 95054
Officers and Directors as a group (9 persons)(4)............ 23,497,999 53.2% %
</TABLE>
- ---------------
(1) Includes 825,000 shares of common stock held by the Carol 1999 Children's
Trust of which James C. Brailean is the trustee. Dr. Brailean disclaims
beneficial ownership of the 825,000 shares of common stock held by the Carol
1999 Children's Trust.
48
<PAGE> 51
(2) Includes 435,000 shares of common stock held by the Brailean 1999 Children's
Trust of which James Z. Carol is the trustee. Mr. Carol disclaims beneficial
ownership of the 435,000 shares of common stock held by Trustees of the
Brailean 1999 Children's Trust.
(3) Includes 3,280,474 shares held by Siemens Services, Inc., all of which were
transferred from Siemens Information and Communication Networks, Inc. to
Siemens Services, Inc. in December 1999. Mr. Maher disclaims beneficial
ownership of the 3,280,474 shares held by Siemens Services, Inc.
(4) Includes shares listed in footnotes (1), (2) and (3) above.
49
<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering and the filing of our
amended and restated certificate of incorporation, our authorized capital stock
will consist of 200,000,000 shares of common stock, $0.001 par value per share,
and 5,000,000 shares of preferred stock, $0.001 par value per share. As of
, 2000 and after giving effect to the conversion of all outstanding
convertible preferred stock into common stock upon the closing of this offering,
there were shares of common stock, held of record by
stockholders, and options to purchase shares of
common stock.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters to be voted on by the stockholders. After payment of any dividends due
and owing to the holders of preferred stock, holders of common stock are
entitled to receive dividends declared by the board of directors out of funds
legally available for dividends. In the event of our liquidation, dissolution or
winding up, holders of common stock are entitled to share in all assets
remaining after payment of liabilities and liquidation preferences of
outstanding shares of preferred stock. Holders of common stock have no
preemptive, conversion, subscription or other rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are, and all shares of common stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of convertible
preferred stock will be converted into 19,913,790 shares of common stock. See
Notes 4 and 7 of Notes to Financial Statements for a description of the
currently outstanding convertible preferred stock. Following the conversion, our
certificate of incorporation will be amended and restated to delete all
references to these shares of convertible preferred stock. Under the amended and
restated certificate of incorporation, the board has the authority, without
further action by stockholders, to issue up to 5,000,000 shares of preferred
stock. The board may issue preferred stock in one or more series and may
determine the rights, preferences, privileges, qualifications and restrictions
granted to or imposed upon the preferred stock, including dividend rights,
conversion rights, voting rights, rights and terms of redemption, liquidation
preferences and sinking fund terms, any or all of which may be greater than the
rights of the common stock. The issuance of preferred stock could adversely
affect the voting power of holders of common stock and reduce the likelihood
that common stockholders will receive dividend payments and payments upon
liquidation. The issuance of preferred stock could also have the effect of
decreasing the market price of the common stock and could delay, deter or
prevent a change in control of our company. We have no present plans to issue
any additional shares of preferred stock.
REGISTRATION RIGHTS
On March 10, 2000, we entered into an Amended and Restated Investor Rights
Agreement with several of our investors. These investors, who hold an aggregate
of 19,913,790 shares of our common stock or common stock issuable upon
conversion of our convertible preferred stock, have registration rights
pertaining to the securities they hold as follows:
- DEMAND REGISTRATION RIGHTS. We may be required to prepare and file a
registration statement under the Securities Act at our expense if
requested to do so by the holders of at least 25% of these shares,
provided the anticipated aggregate offering price will equal or exceed
$5,000,000, or if requested to do so by holders holding a smaller
percentage of these shares, if the anticipated aggregate offering price
would exceed $40,000,000. We are required to use our best efforts to
effect the registration.
- PIGGYBACK REGISTRATION RIGHTS. If we propose to register any of our
securities under the Securities Act for our own account or the account of
any of our stockholders, holders of these shares are
50
<PAGE> 53
entitled to notice of the registration and to include these shares in
that offering, provided that the underwriters of that offering have the
right to limit the number of shares included in the registration. In
addition, we are obligated to effect a total of three
stockholder-initiated registrations.
- FORM S-3 REGISTRATION RIGHTS. Holders of registrable securities may
require us to file unlimited registration statements on Form S-3. We are
not required to effect any registrations on Form S-3 unless the aggregate
price to the public is $1,000,000 or more.
We are required to bear substantially all costs incurred in these
registrations, other than underwriting discounts and commissions. The
registration rights described above could result in substantial future expenses
for us and adversely affect any future equity or debt offerings.
ANTI-TAKEOVER PROVISIONS
Delaware Law
We are governed by the provisions of Section 203 of the Delaware Law. In
general, Section 203 prohibits a public Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales or other transactions
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the company's voting stock. The
statute could delay, defer or prevent a change in control of our company.
Certificate of Incorporation and Bylaw Provisions
Our amended and restated certificate of incorporation authorizes our board
of directors to establish one or more series of undesignated preferred stock,
the terms of which can be determined by the board of directors at the time of
issuance. See "-- Preferred Stock" for a description of our preferred stock. Our
amended and restated certificate of incorporation provides that the board of
directors, as of the date of this prospectus, will be divided into three classes
of directors, with each class serving a staggered three-year term. See
"Management -- Board Composition" for a list of our directors and the classes to
which they belong. As the classification of the board of directors generally
increases the difficulty of replacing a majority of the directors, it may tend
to discourage a third party from making a tender offer or otherwise attempting
to obtain control of us and may maintain the composition of the board of
directors. Our amended and restated certificate of incorporation provides that
any action required or permitted to be taken by our stockholders must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by any consent in writing. In addition, our bylaws provide that
special meetings of our stockholders may be called only by the Chairman of the
board of directors, our Chief Executive Officer, by the board of directors after
a resolution is adopted by a majority of the total number of authorized
directors, or by the holders of 10% of our outstanding voting stock. Our amended
and restated certificate of incorporation also specifies that the authorized
number of directors may be changed only by resolution of the board of directors
and does not permit cumulative voting for directors, unless required under
applicable California law. Under cumulative voting, a minority stockholder
holding a sufficient percentage of a class of shares may be able to ensure the
election of one or more directors; however, it is expected that following the
closing of the offering, cumulative voting will not be available to our
stockholders. These and other provisions contained in our amended and restated
certificate of incorporation and bylaws could delay or discourage some
transactions involving an actual or potential change in control of us or our
management (including transactions in which stockholders might otherwise receive
a premium for their shares over then current prices) and may limit the ability
of stockholders to remove current management or approve transactions that
stockholders may deem to be in their best interests and could adversely affect
the price of our common stock.
51
<PAGE> 54
THE NASDAQ STOCK MARKET'S NATIONAL MARKET
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the trading symbol "PVDO."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust.
52
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for our common stock will
develop or be sustained after this offering. As described below, no shares
currently outstanding will be available for sale immediately after this offering
due to certain contractual and securities law restrictions on resale. Sales of
substantial amounts of our common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding
shares of common stock, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options. Of these shares, the
shares offered for sale through the underwriters will be freely
tradable without restriction under the Securities Act unless purchased by our
affiliates or another of our securityholders who are covered by a separate
lock-up agreement with the underwriters.
The remaining shares of common stock held by existing
stockholders are restricted securities. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration described below under Rules 144, 144(k) or 701 promulgated under
the Securities Act.
As a result of the lock-up agreements and the provisions of Rules 144,
144(k) and 701 described below, these restricted shares will be available for
sale in the public market as follows:
- no shares may be sold prior to 180 days from the date of this prospectus;
- shares will have been held long enough to be sold under Rule
144 or Rule 701 beginning 181 days after the date of this prospectus; and
- the remaining shares may be sold under Rule 144 or 144(k) once they have
been held for the required time.
Lock-Up Agreements. All of our stockholders have agreed not to transfer or
dispose of, directly or indirectly, any shares of our common stock or any
securities convertible into or exercisable or exchangeable for shares of our
common stock, for a period of 180 days after the date the registration statement
of which this prospectus is a part is declared effective. In most cases,
transfers or dispositions can be made sooner with the prior written consent of
Credit Suisse First Boston Corporation.
Rule 144. In general, under Rule 144, a person who has beneficially owned
restricted securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding that will
equal approximately shares immediately after this
offering; or
- the average weekly trading volume of our common stock on The Nasdaq Stock
Market's National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to the sale.
Sales under Rule 144 are also limited by manner-of-sale provisions and
notice requirements and to the availability of current public information about
us.
Rule 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years is
entitled to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144 discussed above.
Rule 701. In general, under Rule 701, any of our employees, consultants or
advisors who purchase or receive shares from us under a compensatory stock
purchase plan or option plan or other written agreement will be eligible to
resell their shares beginning 90 days after the date of this prospectus. Non-
affiliates will be able to sell their shares subject only to the manner-of-sale
provisions of Rule 144.
53
<PAGE> 56
Affiliates will be able to sell their shares without compliance with the holding
period requirements of Rule 144.
Registration Rights. Upon completion of this offering, the holders of
shares of our common stock will be entitled to rights with
respect to the registration of their shares under the Securities Act. See
"Description of Capital Stock -- Registration Rights." Except for shares
purchased by affiliates, registration of their shares under the Securities Act
would result in these shares becoming freely tradable without restriction under
the Securities Act immediately upon the effectiveness of the registration.
Stock Options. Immediately after this offering, we intend to file a
registration statement under the Securities Act covering the shares of common
stock reserved for issuance upon exercise of outstanding options. The
registration statement is expected to be filed and become effective as soon as
practicable after the closing of this offering. Accordingly, shares registered
under the registration statement will be available for sale in the open market
beginning 180 days after the effective date of the registrant statement of which
this prospectus is a part, except with respect to Rule 144 volume limitations
that apply to our affiliates.
54
<PAGE> 57
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation, Banc
of America Securities LLC and Donaldson, Lufkin & Jenrette Securities
Corporation are acting as representatives, the following respective numbers of
shares of common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Banc of America Securities LLC..............................
Donaldson, Lufkin & Jenrette Securities Corporation.........
---------
Total.............................................
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and the selling group members may allow a discount of $
per share on sales to other broker/dealers. After the initial public offering,
the public offering price and concession and discount to dealers may be changed
by the representatives.
The following table summarizes the compensation and expenses we will pay
with respect to the shares to be issued under the underwriting agreement.
<TABLE>
<CAPTION>
Per Share Total
------------------------------- -------------------------------
Without With Without With
Over- Over- Over- Over-
Allotment Allotment Allotment Allotment
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Underwriting Discounts and Commissions
paid by us.............................. $ $ $ $
Expenses payable by us.................... $ $ $ $
</TABLE>
In March 2000, we sold 1,443,569 shares of our series D convertible
preferred stock in a private placement at a purchase price of $11.43 per share.
Credit Suisse First Boston Corporation acted as the placement agent for the
series D convertible preferred stock financing. For its services as placement
agent, we have agreed to pay Credit Suisse First Boston Corporation a placement
agent fee of $865,000. In this private placement, an affiliate of Credit Suisse
First Boston Corporation purchased 43,745 shares on the same terms as other
investors in the private placement.
The underwriters have informed us that they do not expect discretionary
sales to exceed % of the shares of common stock being offered.
We have agreed, subject to specific exceptions, that we will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or indirectly,
or file with the Securities and Exchange Commission a registration statement
under the Securities Act of 1933 relating to, any shares of common stock or
55
<PAGE> 58
securities convertible into or exchangeable or exercisable for any shares of our
common stock, or publicly disclose the intention to make any such offer, sale,
pledge, disposition or filing, without the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus, except grants of employee stock options and issuances pursuant to
the exercise of employee stock options outstanding on the date hereof.
Our officers and directors and substantially all of our stockholders have
agreed that they will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, enter into a transaction which would have the same effect, or enter into
any swap, hedge or other arrangement that transfers, in whole or in part, any of
the economic consequences of ownership of common stock or such other securities,
in case or otherwise, or publicly disclose the intention to make any such offer,
sale, pledge or disposition, or to enter into any such transaction, swap, hedge
or other arrangement, without, in each case, the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the sale of the
prospectus.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares of common stock for employees,
directors, consultants and other persons associated with us who have expressed
an interest in purchasing common stock in this offering. As a result, the number
of shares available for sale to the general public in the offering will be
reduced to the extent that these persons purchase the reserved shares. Any
reserved shares not so purchased will be offered by the underwriters to the
general public on the same basis as the other shares of common stock offered by
this prospectus.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the trading symbol "PVDO."
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price include the following:
- the information included in this prospectus and otherwise available to
the representatives;
- market conditions for initial public offerings;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
56
<PAGE> 59
- Syndicate covering transactions involve purchases of common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these kinds of transactions. These transactions
may be effected on The Nasdaq National Market or otherwise and, if commenced,
may be discontinued at any time.
A prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make Internet distributions on the same
basis as other allocations.
Other than the prospectus in electronic format, the information contained
on any underwriter's website and any information contained on any other website
maintained by an underwriter is not part of this prospectus or the registration
statement of which this prospectus forms a part, has not been approved or
endorsed by us or any underwriter in its capacity as an underwriter and should
not be relied upon by investors.
57
<PAGE> 60
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that: (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. This report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
58
<PAGE> 61
LEGAL MATTERS
The validity of the shares of common stock offered in this prospectus will
be passed upon for us by Cooley Godward LLP, San Diego, California. O'Melveny &
Myers LLP, Newport Beach, California will pass upon certain legal matters in
connection with this offering for the underwriters.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1998 and 1999 and for the period from July 22, 1998
(Inception) through December 31, 1998 and the year ended December 31, 1999 as
described in their report. We have included our financial statements in our
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act, with respect to the common stock
offered by this prospectus. As permitted by the rules and regulations of the
Commission, this prospectus, which is a part of the registration statement,
omits certain information, exhibits, schedules and undertakings included in the
registration statement. For further information pertaining to us and the common
stock offered under this prospectus, reference is made to the registration
statement and the attached exhibits and schedules. Although required material
information has been presented in this prospectus, statements contained in this
prospectus as to the contents or provisions of any contract or other document
referred to in this prospectus may be summary in nature, and in each instance
reference is made to the copy of this contract or other document filed as an
exhibit to the registration statement, and each statement is qualified in all
respects by this reference. A copy of the registration statement may be
inspected without charge at the office of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Securities and Exchange Commission's regional
offices located at the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies of all or any part of the registration
statement may be obtained from the Securities and Exchange Commission's offices
upon the payment of the fees prescribed by the Securities and Exchange
Commission. In addition, registration statements and certain other filings made
with the commission through its Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system, including our registration statement and all
exhibits and amendments to our registration statement, are publicly available
through the commission's website at http://www.sec.gov.
After this offering, we will have to provide the information and reports
required by the Exchange Act and we will file periodic reports, proxy statements
and other information with the Securities and Exchange Commission. Upon approval
of the common stock for listing on Nasdaq, these reports, proxy and information
statements and other information may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
PacketVideo, the PacketVideo logo, PV, PVPlatform, PVAuthor, PVServer and
PVPlayer are trademarks of PacketVideo Corporation. All other trade names and
trademarks appearing in this prospectus are the property of their holders.
59
<PAGE> 62
PACKETVIDEO CORPORATION
(A DEVELOPMENT STAGE COMPANY]
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets as of December 31, 1998 and December 31,
1999...................................................... F-3
Statements of Operations for the period from July 22, 1998
(Inception) to December 31, 1998, the year ended December
31, 1999 and the period from July 22, 1998 (Inception) to
December 31, 1999......................................... F-4
Statements of Stockholders' Equity for the period from July
22, 1998 (Inception) through December 31, 1999............ F-5
Statements of Cash Flows for the period from July 22, 1998
(Inception) to December 31, 1998, the year ended December
31, 1999 and the period from July 22, 1998 (Inception) to
December 31, 1999......................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 63
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
PacketVideo Corporation
We have audited the accompanying balance sheets of PacketVideo Corporation
(a development stage company) as of December 31, 1998 and 1999 and the related
statements of operations, stockholders' equity and cash flows for the period
from July 22, 1998 (inception) to December 31, 1998, the year ended December 31,
1999 and for the period from July 22, 1998 (inception) to December 31, 1999.
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 in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PacketVideo Corporation (a
development stage company) at December 31, 1998 and 1999, and the results of its
operations and its cash flows for the period from July 22, 1998 (inception) to
December 31, 1998, the year ended December 31, 1999 and for the period from July
22, 1998 (inception) to December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Diego, California
January 14, 2000,
except for Note 7, as to which the date is
March 13, 2000
F-2
<PAGE> 64
PACKETVIDEO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------------- DECEMBER 31,
1998 1999 1999
--------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 275,182 $ 1,732,972
Short-term investments.................................... -- 21,354,132
Prepaid expenses and other current assets................. 6,574 194,437
--------- ------------
Total current assets............................... 281,756 23,281,541
Property and equipment, net................................. 43,549 439,843
Other assets................................................ 11,225 74,806
--------- ------------
Total assets....................................... $ 336,530 $ 23,796,190
========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,717 $ 47,382
Accrued payroll and benefits.............................. 34,160 307,410
Other accrued liabilities................................. 7,499 301,475
Deferred revenue.......................................... -- 250,000
--------- ------------
Total current liabilities.......................... 43,376 906,267
Commitments (Note 3)
Stockholders' equity:
Convertible preferred stock, $0.001 par value: 18,470,221
shares authorized;
Series A convertible preferred stock,
Designated -- 5,139,996 shares:
Issued and outstanding shares -- 4,539,996 at December
31, 1998 and 5,139,996 at December 31, 1999;
Liquidation preference -- $747,800 at December 31,
1998 and $897,800 at December 31, 1999............. 4,540 5,140 $ --
Series B convertible preferred stock,
Designated -- 8,955,225 shares:
Issued and outstanding shares -- 8,955,225 at December
31, 1999;
Liquidation preference -- $4,000,000 at December 31,
1999............................................... -- 8,955 --
Series C convertible preferred stock,
Designated -- 4,375,000 shares:
Issued and outstanding shares -- 4,375,000 at December
31, 1999;
Liquidation preference -- $21,000,000 at December 31,
1999............................................... -- 4,375 --
Common stock, $0.001 par value: 60,000,000 shares
authorized;
Issued and outstanding shares -- 18,210,000 at December
31, 1998; 22,862,802 at December 31, 1999 (41,333,023
pro forma)............................................ 18,210 22,863 41,333
Additional paid in capital................................ 758,310 50,822,588 50,822,588
Notes receivable from stockholders........................ (106,000) -- --
Deferred compensation..................................... -- (19,573,464) (19,573,464)
Deficit accumulated during development stage.............. (381,906) (8,400,534) (8,400,534)
--------- ------------ ------------
Total stockholders' equity......................... 293,154 22,889,923 $ 22,889,923
--------- ------------ ============
Total liabilities and stockholders' equity......... $ 336,530 $ 23,796,190
========= ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 65
PACKETVIDEO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JULY 22, 1998 JULY 22, 1998
(INCEPTION) TO YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
-------------- ------------ --------------
<S> <C> <C> <C>
Operating expenses:
Research and development (excluding amortization
of deferred compensation of $667,377 in
1999).......................................... $ 253,232 $ 1,583,474 $ 1,836,706
Sales and marketing (excluding amortization of
deferred compensation of $1,285,090 in 1999)... -- 860,897 860,897
General and administrative (excluding amortization
of deferred compensation of $3,023,475 in
1999).......................................... 130,134 762,500 892,634
Amortization of deferred compensation............. -- 4,975,942 4,975,942
----------- ----------- -----------
Loss from operations................................ 383,366 8,182,813 8,566,179
Interest income..................................... 1,460 164,185 165,645
----------- ----------- -----------
Net loss............................................ $ (381,906) $(8,018,628) $(8,400,534)
=========== =========== ===========
Basic and diluted net loss per share................ $ (.02) $ (.63)
=========== ===========
Weighted average shares used in computation of basic
and diluted net loss per share.................... 18,186,000 12,708,000
=========== ===========
Pro forma basic and diluted net loss per share...... $ (.34)
===========
Weighted average shares used in computation of pro
forma basic and diluted net loss per share........ 23,846,000
===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 66
PACKETVIDEO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 22, 1998 (INCEPTION) THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
-------------------- -------------------- PAID IN FROM DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
---------- ------- ---------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 22, 1998
(Inception)......................... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of Founders stock at $.001
per share in August 1998.......... -- -- 18,180,000 18,180 (12,120) (6,000) --
Shares contributed to capital....... -- -- (1,572,000) (1,572) 1,572 -- --
Issuance of series A convertible
preferred stock at $.11 per share
in August 1998.................... 2,250,000 2,250 -- -- 247,750 (100,000)
Issuance of common stock at $.02 per
share in October 1998............. -- -- 1,572,000 1,572 24,628 -- --
Issuance of series A convertible
preferred stock at $.14 per share
in November 1998.................. 690,000 690 -- -- 97,110 -- --
Issuance of common stock pursuant to
exercise of stock options......... -- -- 30,000 30 970 -- --
Issuance of series A convertible
preferred at $.25 per share in
December 1998..................... 1,599,996 1,600 -- -- 398,400 -- --
Net loss............................ -- -- -- -- -- -- --
---------- ------- ---------- ------- ----------- --------- ------------
Balance at December 31, 1998......... 4,539,996 4,540 18,210,000 18,210 758,310 (106,000) --
Issuance of series A convertible
preferred stock at $.25 per share
in April 1999..................... 600,000 600 -- -- 149,400 -- --
Issuance of series B convertible
preferred stock at $.45 per share
in May and June of 1999, net of
issuance costs of $22,409......... 8,955,225 8,955 -- -- 3,968,636 -- --
Issuance of series C convertible
preferred stock at $4.80 per share
in December 1999, net of issuance
costs of $20,000.................. 4,375,000 4,375 -- -- 20,975,625 -- --
Repayments of notes receivable from
stockholders...................... -- -- -- -- -- 106,000 --
Repurchase of restricted stock at
$.017 per share................... -- -- (1,632,000) (1,632) (24,588) -- --
Issuance of common stock pursuant to
exercise of stock options......... -- -- 4,426,002 4,426 294,258 -- --
Issuance of common stock for cash in
November 1999..................... -- -- 1,858,800 1,859 151,541 -- --
Deferred compensation related to
stock options and restricted
common shares..................... -- -- -- -- 24,549,406 -- (24,549,406)
Amortization of deferred
compensation...................... -- -- -- -- -- -- 4,975,942
Net loss............................ -- -- -- -- -- -- --
---------- ------- ---------- ------- ----------- --------- ------------
Balance at December 31, 1999......... 18,470,221 $18,470 22,862,802 $22,863 $50,822,588 $ -- $(19,573,464)
========== ======= ========== ======= =========== ========= ============
<CAPTION>
DEFICIT
ACCUMULATED
DURING TOTAL
DEVELOPMENT STOCKHOLDERS'
STAGE EQUITY
----------- -------------
<S> <C> <C>
Balance at July 22, 1998
(Inception)......................... $ -- $ --
Issuance of Founders stock at $.001
per share in August 1998.......... -- 60
Shares contributed to capital....... -- --
Issuance of series A convertible
preferred stock at $.11 per share
in August 1998.................... -- 150,000
Issuance of common stock at $.02 per
share in October 1998............. -- 26,200
Issuance of series A convertible
preferred stock at $.14 per share
in November 1998.................. -- 97,800
Issuance of common stock pursuant to
exercise of stock options......... -- 1,000
Issuance of series A convertible
preferred at $.25 per share in
December 1998..................... -- 400,000
Net loss............................ (381,906) (381,906)
----------- -----------
Balance at December 31, 1998......... (381,906) 293,154
Issuance of series A convertible
preferred stock at $.25 per share
in April 1999..................... -- 150,000
Issuance of series B convertible
preferred stock at $.45 per share
in May and June of 1999, net of
issuance costs of $22,409......... -- 3,977,591
Issuance of series C convertible
preferred stock at $4.80 per share
in December 1999, net of issuance
costs of $20,000.................. -- 20,980,000
Repayments of notes receivable from
stockholders...................... -- 106,000
Repurchase of restricted stock at
$.017 per share................... -- (26,220)
Issuance of common stock pursuant to
exercise of stock options......... -- 298,684
Issuance of common stock for cash in
November 1999..................... -- 153,400
Deferred compensation related to
stock options and restricted
common shares..................... -- --
Amortization of deferred
compensation...................... 4,975,942
Net loss............................ (8,018,628) (8,018,628)
----------- -----------
Balance at December 31, 1999......... $(8,400,534) $22,889,923
=========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 67
PACKETVIDEO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JULY 22, 1998 JULY 22, 1998
(INCEPTION) TO YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
--------------- ------------ ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss......................................... $(381,906) $ (8,018,628) $ (8,400,534)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 3,171 42,480 45,651
Amortization of deferred compensation....... -- 4,975,942 4,975,942
Changes in operating assets and liabilities:
Prepaid expenses and other current
assets................................. (6,574) (187,863) (194,437)
Other assets.............................. (11,225) (63,581) (74,806)
Accounts payable.......................... 1,717 45,665 47,382
Accrued payroll and benefits.............. 34,160 273,250 307,410
Other accrued liabilities................. 7,499 293,976 301,475
Deferred revenue.......................... - 250,000 250,000
--------- ------------ ------------
Net cash used in operating
activities........................... (353,158) (2,388,759) (2,741,917)
INVESTING ACTIVITIES
Purchase of short-term investments............... -- (21,354,132) (21,354,132)
Purchases of property and equipment.............. (46,720) (438,774) (485,494)
--------- ------------ ------------
Net cash used in investing
activities........................... (46,720) (21,792,906) (21,839,626)
FINANCING ACTIVITIES
Issuance of common stock for exercise of stock
options........................................ 1,000 298,684 299,684
Issuance of preferred stock...................... 647,800 25,107,591 25,755,391
Issuance of common stock......................... 26,260 153,400 179,660
Repurchase of common stock....................... - (26,220) (26,220)
Repayment of stockholder notes receivable........ - 106,000 106,000
--------- ------------ ------------
Net cash provided by financing
activities........................... 675,060 25,639,455 26,314,515
--------- ------------ ------------
Net increase in cash and cash equivalents........ 275,182 1,457,790 1,732,972
Cash and cash equivalents at beginning of
period......................................... -- 275,182 --
--------- ------------ ------------
Cash and cash equivalents at end of period....... $ 275,182 $ 1,732,972 $ 1,732,972
========= ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 68
PACKETVIDEO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
PacketVideo Corporation (the "Company") was organized under the laws of the
State of Delaware. The Company is developing software and technologies that
enable the delivery, management and viewing of full-motion video and audio over
wireless networks.
As of December 31, 1999, the Company has not initiated its commercial
operations; accordingly, the Company is considered to be in the development
stage.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents consist of cash, money market funds and other
highly liquid investments with a maturities of three months or less from the
date of purchase. The Company applies Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115), to its short-term investments. Under SFAS No. 115, the
Company classifies its short-term investments as "available-for-sale" and
records such assets at estimated fair value in the balance sheets with
unrealized gains and losses, if any, reported in stockholders' equity. As of
December 31, 1999, the cost of short-term investments approximated fair value
and all of the Company's short-term investments were in money markets that
invest in short-term securities with average maturities of less than one year.
The Company has not experienced any losses on its cash, cash equivalents, or
short-term investments.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, cash equivalents, short-term investments,
accounts payable and accrued liabilities approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets (3 - 7
years).
LONG-LIVED ASSETS
The Company investigates potential impairments of its long-lived assets
when there is evidence that events or changes in circumstances may have made
recovery of an asset's carrying value unlikely. An impairment loss is recognized
when the sum of the expected undiscounted future cash flows is less than the
carrying amount of the asset. The Company has not identified any such losses.
F-7
<PAGE> 69
PACKETVIDEO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
STOCK OPTIONS
SFAS No. 123, Accounting for Stock-Based Compensation, and EITF 96-18,
Accounting for Equity Instruments that are Issued to Other than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services, establishes the
use of the fair value based method of accounting for stock-based compensation
arrangements, under which compensation cost is determined using the fair value
of the stock determined as of the grant date, and is recognized over the periods
in which the related services are rendered. Deferred compensation for options
granted to non-employees has been determined in accordance with SFAS No. 123 and
EITF 96-18 as the fair value of the consideration received or the fair value of
the equity instruments issued, whichever is more reliably measured. Deferred
charges for options granted to non-employees are periodically remeasured as the
underlying options vest. SFAS No. 123 also permits companies to elect to
continue using the intrinsic value accounting method specified in Accounting
Principles Board (APB) Opinion No. 25 to account for stock-based compensation.
The Company has decided to retain the intrinsic value based method, and has
disclosed the pro forma effect of using the fair value based method to account
for its stock-based compensation.
INCOME TAXES
Current income tax expense or benefit is the amount of income taxes
expected to be payable or refundable for the current year. A deferred income tax
asset or liability is computed for the expected future impact of differences
between the financial reporting and tax basis of assets and liabilities and for
the expected future tax benefit to be derived from tax credits and loss
carryforwards. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized.
COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998, the Company adopted SFAS 130, Reporting
Comprehensive Income. SFAS 130 establishes new rules for the reporting and
display of comprehensive income (loss) and its components. The Company's
comprehensive loss is the same as its net loss for all periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivatives and
Hedging Activities, which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. In May 1999, the FASB voted to delay the effective date of SFAS 133
by one year, meaning that the Company will be required to adopt this standard in
2001. The Company has not used any derivative instruments to date. Management
does not anticipate that the adoption of this new standard will have a
significant effect on the financial position or results of operations of the
Company.
NET LOSS PER SHARE AND UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
The Company calculates net loss per share in accordance with SFAS 128,
"Earnings Per Share." Basic earnings per share ("EPS") is calculated by dividing
the income or loss available to common
F-8
<PAGE> 70
PACKETVIDEO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
stockholders by the weighted average number of common shares outstanding for the
period, without consideration for common stock equivalents. Diluted EPS is
computed by dividing the income or loss available to common stockholders by the
weighted average number of common shares outstanding for the period. For
purposes of this calculation, common stock subject to repurchase by the Company,
convertible
preferred stock and options are considered to be common stock equivalents. Under
the provisions of SEC Staff Accounting Bulletin No. 98, common shares issued for
nominal consideration, if any, would be included in the per share calculations
as if they were outstanding for all periods presented. No common shares have
been issued for nominal consideration.
The unaudited pro forma basic and diluted net loss per share calculations
assume the conversion of all outstanding shares of preferred stock into common
shares as if the shares had converted immediately upon their issuance. Unaudited
pro forma stockholders' equity at December 31, 1999, as adjusted for the
conversion of the preferred stock, is disclosed in the accompanying balance
sheet.
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 22, 1998 PRO FORMA
(INCEPTION) TO YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
---------------- ------------ ------------
<S> <C> <C> <C>
Numerator:
Net loss......................................... $ (381,906) $(8,018,628) $(8,018,628)
=========== =========== ===========
Denominator:
Weighted average common shares outstanding....... 18,186,000 17,966,000 17,966,000
Weighted average unvested common shares subject
to repurchase................................. (5,258,000) (5,258,000)
Assumed weighted average number of shares upon
conversion of preferred stock................. 11,138,000
----------- ----------- -----------
18,186,000 12,708,000 23,846,000
=========== =========== ===========
Net loss per share (basic and diluted)........... $ (0.02) $ (0.63) $ (0.34)
=========== =========== ===========
</TABLE>
The Company reported a net loss during the period from July 22, 1998
(Inception) to December 31, 1998 and 1999. Accordingly, common stock equivalents
totaling 5,469,996 and 31,506,723 shares at December 31, 1998 and 1999,
respectively, have been excluded from the computation since their effect would
be antidilutive.
F-9
<PAGE> 71
PACKETVIDEO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
------- --------
<S> <C> <C>
Equipment................................................... $10,653 $227,657
Furniture, office equipment and vehicles.................... 35,000 199,464
Software.................................................... 1,067 41,935
Leasehold improvements...................................... -- 4,941
------- --------
46,720 473,997
Less accumulated depreciation and amortization.............. (3,171) (34,154)
------- --------
$43,549 $439,843
======= ========
</TABLE>
3. COMMITMENTS
The Company leases its facilities under operating leases which expire in
November 2003. Rent expense was $96,791, $9,779 and $106,570 for the year ended
December 31, 1999 and the period from July 22, 1998 (Inception) through December
31, 1998 and 1999, respectively. At December 31, 1999 annual minimum future
payments under the operating leases are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASE
----------
<S> <C>
2000..................................................... $ 357,072
2001..................................................... 369,648
2002..................................................... 382,224
2003..................................................... 394,788
----------
Total future lease payments............................ $1,503,732
==========
</TABLE>
4. STOCKHOLDERS' EQUITY
SHARES AUTHORIZED
In December 1999, the Company amended its amended and restated certificate
of incorporation to increase authorized shares of common stock from 20,000,000
to 60,000,000 and convertible preferred stock from 14,095,221 to 18,470,221.
STOCK SPLIT
In December 1999, the Board of Directors declared a three-for-one stock
split for all common and preferred stock. All applicable share, per share and
stock option information have been restated to reflect the stock split.
COMMON STOCK
Employees have purchased 18,228,000 shares of common stock at prices
ranging from $0.001 and $0.08 per share. The Company has the option to
repurchase, at the original price, unvested shares upon certain events of
termination of employment. Shares issued under these agreements generally vest
between two and four years. At December 31, 1999, 8,416,866 shares are subject
to repurchase by the Company.
F-10
<PAGE> 72
PACKETVIDEO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS
The Company adopted the 1998 Equity Incentive Plan (the "Plan") and
reserved 6,832,002 shares of common stock for grants under the Plan. The Plan
provides for the grant of incentive and nonstatutory stock options, stock
bonuses and rights to purchase restricted stock to employees, directors or
consultants of the Company. The Plan provides that incentive stock options will
be granted only to employees at no less than the fair value of the Company's
common stock (no less than 85% of the fair value for nonstatutory stock
options), as determined by the Board of Directors at the date of the grant.
Options generally vest 25% one year from date of grant and ratably each month
thereafter for a period of 36 months and expire up to ten years from date of
grant.
Certain option grants under the Plan are subject to an early exercise
provision. Common shares obtained on early exercise of unvested options are
subject to repurchase by the Company at the original issue price and will vest
according to the respective option agreement. At December 31, 1999, there were
4,327,000 common shares outstanding which are subject to repurchase by the
Company.
A summary of the Company's stock option activity, and related information
for the period from July 22, 1998 (Inception) through December 31, 1999 follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
Granted................................................... 960,000 $.03
Exercised................................................. 30,000 .03
Cancelled................................................. -- --
--------- ----
Outstanding at December 31, 1998............................ 930,000 .03
Granted................................................... 3,828,504 .08
Exercised................................................. 4,426,002 .07
Cancelled................................................. 107,502 .08
========= ====
Outstanding at December 31, 1999............................ 225,000 $.08
========= ====
</TABLE>
The weighted-average fair value of options granted during 1999 was $.03 and
the weighted-average remaining contractual life of these options is 9.5 years.
Pro forma information regarding net income is required by SFAS No. 123, and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of SFAS No. 123. The fair value for these
options was estimated at the dates of grant using the minimum value option
pricing model with the following weighted-average assumptions for 1999 and 1998:
(a) weighted average risk-free interest rate of 6.25% and 5.5%, respectively,
(b) expected dividend yield of 0%, and (c) five year estimated life of the
options.
The effect of applying the minimum value of SFAS No. 123 to the stock
options did not result in pro forma net loss for the period ended December 31,
1998 and 1999, which is materially different from the reported amount.
Therefore, such pro forma information is not presented herein. The effects of
applying Statement 123 for pro forma disclosure is not likely to be
representative of the pro forma effect on net income in future years.
F-11
<PAGE> 73
PACKETVIDEO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. STOCKHOLDERS' EQUITY (CONTINUED)
DEFERRED COMPENSATION
Through December 31, 1999, the Company recorded deferred compensation for
the difference between the price per share of restricted stock issued or the
exercise price of stock options granted and the fair value for financial
statement presentation purposes of the Company's common stock at the date of
issuance or grant. The deferred compensation is being amortized over the vesting
period of the related restricted stock or options, generally four years, using
the aggregation methodology prescribed by FASB Interpretation No. 28. Gross
deferred compensation at December 31, 1999 totaled $23,609,043 and related
amortization expense totaled $4,628,178 for the year ended December 31, 1999 and
for the period from July 22, 1998 (Inception) to December 31, 1999.
During 1999, the Company granted options to various consultants. Deferred
compensation related to these options totaled $940,363. These amounts are being
amortized to expense over the life of the respective consulting arrangements
using the aggregation methodology prescribed by FASB Interpretation No. 28. Such
amortization totaled $347,764 in 1999 and in the period from July 22, 1998
(Inception) through December 31, 1999.
CONVERTIBLE PREFERRED STOCK
During 1998, the Company issued an aggregate of 4,539,996 shares of series
A convertible preferred stock with net proceeds of $747,800. In 1999, the
Company issued an additional 600,000 shares of series A convertible preferred
stock and 8,955,225 and 4,375,000 shares of series B and series C convertible
preferred stock, respectively.
The holders of the series A, B and C convertible preferred stock are
entitled to receive cash dividends at a rate of eight percent of the original
issue price per share per annum. The dividends on preferred stock are
non-cumulative and payable only when and if declared by the Board of Directors.
The holders of the series A, B and C convertible preferred stock may at any
time elect to convert any or all shares into common shares of the Company at the
then applicable conversion rate, subject to certain antidilutive adjustments.
Each share is automatically converted into common stock, at the then applicable
conversion rate, upon the closing of a firmly underwritten public offering of
shares of common stock of the Company at a fully diluted pre-money valuation of
at least $250 million with gross proceeds of at least $25 million and a per
share price of at least $8.25. Each holder of series A, B and C convertible
preferred stock is entitled to one vote for each share of common stock into
which such convertible preferred share would convert.
The holders of series A, B and C convertible preferred stock are entitled
to receive liquidation preferences in an amount equal to such shares original
issuance price plus all declared and unpaid dividends, prior and in preference
to any distribution of assets to the holders of common stock.
F-12
<PAGE> 74
PACKETVIDEO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. STOCKHOLDERS' EQUITY (CONTINUED)
SHARES RESERVED FOR FUTURE ISSUANCE
The following common stock is reserved for future issuance at December 31:
<TABLE>
<CAPTION>
1998 1999
--------- ----------
<S> <C> <C>
Conversion of preferred stock............................... 4,539,996 18,470,221
Stock options issued and outstanding........................ 930,000 225,000
Authorized for future grants................................ 2,040,000 2,151,000
--------- ----------
7,509,996 20,846,221
========= ==========
</TABLE>
5. INCOME TAXES
At December 31, 1999, the Company has federal and state tax net operating
loss carryforwards of approximately $2.8 million. The federal and state tax loss
carryforwards will begin expiring in 2018 and 2006, respectively, unless
previously utilized. The Company also has federal and state research and
development tax credit carryforwards of approximately $92,000 and $51,000,
respectively, which will begin expiring in 2013 unless previously utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use
of the Company's net operating loss and credit carryforwards may be limited in
the event of a cumulative change in ownership of more than 50% within a three
year period; however, the Company does not believe that this will significantly
impact the utilization of the tax carryforwards.
Significant components of the Company's deferred tax assets as of December
31, 1998 and 1999 are shown below. A valuation allowance has been recognized to
offset the deferred tax assets as realization of such assets is uncertain.
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $147,000 $1,146,000
Research and development credit carryforwards............. 19,000 126,000
Other..................................................... -- 160,000
-------- ----------
Total deferred tax assets................................... 166,000 1,432,000
Valuation allowance for deferred tax assets................. (166,000) (1,432,000)
-------- ----------
Net deferred taxes.......................................... $ -- $ --
======== ==========
</TABLE>
6. EMPLOYEE BENEFITS
In 1999, the Company adopted a defined contribution 401(k) plan for
employees. Under the terms of the plan, employees may make voluntary
contributions as a percent of compensation, but not in excess of the maximum
amounts allowed under the Internal Revenue Code. The Company's contributions to
the plan are discretionary and no contributions were made by the Company in
1999.
7. SUBSEQUENT EVENTS
ISSUANCE OF CONVERTIBLE PREFERRED STOCK
In March 2000, the Company approved an increase in the number of authorized
shares of preferred stock to 19,913,790 and sold 1,443,569 shares of series D
convertible preferred stock at $11.43 per share
F-13
<PAGE> 75
PACKETVIDEO CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
7. SUBSEQUENT EVENTS (CONTINUED)
for net proceeds estimated at $15,500,000. The series D convertible preferred
stock has rights and preferences similar to the series A, B and C convertible
preferred stock. The series D convertible preferred stock will convert
automatically upon the completion of an initial public offering.
INCREASE IN SHARES AUTHORIZED
On March 3, 2000, the Board of Directors modified, effective upon the
closing of an initial public offering, the Company's capital structure to
authorize 200 million shares of common stock, ($0.001 par value) and 5 million
shares of preferred stock ($0.001 par value). Also effective upon an initial
public offering, the 1998 Equity Incentive Plan will be renamed the 2000 Equity
Incentive Plan and the number of shares available under the 2000 Plan will be
increased to 10,500,000. The shares issuable under the 2000 Plan increase
automatically on an annual basis by the lessor of 5,000,000 or 5% of the
Company's outstanding shares on such date.
2000 EMPLOYEE STOCK PURCHASE PLAN
The Company's 2000 Employee Stock Purchase Plan was adopted by the Board of
Directors on March 3, 2000, subject to stockholder approval and to be effective
upon the completion of an initial public offering. A total of 500,000 shares of
Common Stock are reserved for issuance under the Purchase Plan. The Purchase
Plan allows for automatic annual increase over a period of ten years of the
lesser of 1% of the diluted shares outstanding or 1,000,000 shares.
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The Company's 2000 Non-Employee Directors' Stock Option Plan was adopted by
the Board of Directors on March 3, 2000, subject to stockholder approval and the
completion of an initial public offering. A total of 200,000 shares of common
stock are reserved for issuance under the Directors' Plan. The Directors' Plan
provides for the automatic grant of options to non-employee directors of the
Company. The Directors' Plan allows for automatic annual increases to the number
of shares reserved equal to the lesser of 0.1% of the diluted shares outstanding
or 75,000 shares.
AUTHORIZATION OF PREFERRED STOCK
On March 3, 2000 the Board of Directors adopted an amendment to the
certificate of incorporation to allow, upon the closing of the initial public
offering, the issuance of up to 5,000,000 shares of 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.
F-14
<PAGE> 76
Inside Back Cover
"The PacketVideo Solution: Rich Digital Media Distribution Over Wireless
Networks."
[ARTWORK]
Graphic depicts the schematic of components of PVPlatform in three cloud-shaped
figures. The cloud labeled "Rich Digital Media Encoding" contains a picture of a
computer labeled "PVAuthor" and a computer labeled "PVServer" that is connected
to the other two clouds by dashed lines. The cloud labeled "Wireless Network
(14.4-64 Kbps)" contains pictures of a radio tower and a personal digital
assistant with a screen shot of a child labeled "PVPlayer." The cloud labeled
"Next Generation Network (64-384 Kbps)" contains pictures of a radio tower and a
subscriber using a laptop computer labeled "PVPlayer."
<PAGE> 77
[Packet Video Logo]
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the common stock being registered. All of the
amounts shown are estimates, except for the SEC registration fee, the NASD
filing fee and The Nasdaq National Market application fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
Registration fee............................................ $ 17,002
NASD filing fee............................................. $ 6,100
Nasdaq Stock Market Listing Application fee................. *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer agent and registrar fees........................... *
Miscellaneous............................................... *
---------
Total..................................................... $ *
=========
</TABLE>
- ---------------
* Estimated.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Bylaws require that directors and officers be indemnified to
the maximum extent permitted by Delaware law.
The Delaware General Corporation Law (the "Delaware GCL") provides that a
director of officer of a corporation (i) shall be indemnified by the corporation
for all expenses of litigation or other legal proceedings when he is successful
on the merits, (ii) may be indemnified by the corporation for the expenses,
judgments, fines and amounts paid in settlement of such litigation (other than a
derivative suit) even if he is not successful on the merits if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reason to believe his conduct was unlawful), and (iii) may be indemnified by the
corporation for expenses of a derivative suit (a suit by a stockholder alleging
a breach by a director or officer of a duty owed to the corporation), even if he
is not successful on the merits, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, provided that no such indemnification may be made in accordance
with this clause (iii) if the director or officer is adjudged liable to the
corporation, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. The indemnification described in clauses (ii) and (iii) above shall be
made upon order by a court or a determination by (i) a majority of disinterested
directors, (ii) if there are no such directors or if such directors so direct,
by independent legal counsel in a written opinion or (iii) the stockholders that
indemnification is proper because the applicable standard of conduct is met.
Expenses incurred by a director or officer in defending an action may be
advanced by the corporation prior to the final disposition of such action upon
receipt of an undertaking by such director or officer to repay such expenses if
it is ultimately determined that he is not entitled to be indemnified in
connection with the proceeding to which the expenses relate. The Company's
amended and restated certificate of incorporation includes a provision
eliminating, to the fullest extent permitted by Delaware law, director liability
for monetary damages for breaches of fiduciary duty.
The Company expects to enter into indemnity agreements (the "Indemnity
Agreements") with each director or officer designated by the board of directors.
The Indemnity Agreements require that the Company indemnify directors and
officers who are parties thereto in all cases to the fullest extent
II-1
<PAGE> 79
permitted by Delaware law. Under the Delaware GCL, except in the case of
litigation in which a director of officer is successful on the merits,
indemnification of a director or officer is discretionary rather than mandatory.
Consistent with the Company's Bylaw provision on the subject, the Indemnity
Agreements require the Company to make prompt payment of litigation expenses at
the request of the director or officer in advance of indemnification provided
that he undertakes to repay the amounts if it is ultimately determined that he
is not entitled to indemnification for such expenses. The advance of litigation
expenses is mandatory; under the Delaware GCL such advance would be
discretionary. Under the Indemnity Agreements, the director or officer is
permitted to bring suit to seek recovery of amounts due under the Indemnity
Agreements and is entitled to recover the expenses of seeking such recovery
unless a court determines that the action was not made in good faith or was
frivolous. Without the Indemnity Agreements, the Company would not be required
to pay the director or officer for his expenses in seeking indemnification
recovery against the Company. Under the Indemnity Agreements, directors and
officers are not entitled to indemnity or advancing of expenses (i) if such
director or officer has recovered payment under an insurance policy for the
subject claim, or has otherwise been indemnified against the subject claim, (ii)
for actions initiated or brought by the director or officer and not by way of
defense (except for actions seeking indemnity or expenses from the Company),
(iii) if the director or officer violated section 16(b) of the Exchange Act or
similar provisions of law or (iv) if a court of competent jurisdiction
determines that the director or officer failed to act in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
Company or, with respect to any proceeding which is of a criminal nature, had
reasonable cause to believe his conduct was unlawful. Absent the Indemnity
Agreements, indemnification that might be made available to directors and
officers could be changed by amendments to the Company's Certificate of
Incorporation or Bylaws.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
The Registrant has applied for an insurance policy covering the officers
and directors of the Registrant with respect to certain liabilities, including
liabilities arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since inception (July 22, 1998) the Registrant has sold and issued the
following unregistered securities:
(a) On August 5, 1998, the Registrant issued and sold 9,000,000 shares
of common stock to one accredited investor for an aggregate purchase price
of $3,000. The Registrant relied on the exemption provided by Section 4(2)
under the Securities Act and Regulation D promulgated thereunder.
(b) On August 5, 1998, the Registrant issued and sold 9,000,000 shares
of common stock to one accredited investor for an aggregate purchase price
of $3,000. The Registrant relied on the exemption provided by Section 4(2)
under the Securities Act and Regulation D promulgated thereunder.
(c) On August 5, 1998, the Registrant issued and sold 150,000 shares
of common stock to one accredited investor for an aggregate purchase price
of $50. The Registrant relied on the exemption provided by Section 4(2)
under the Securities Act and Regulation D promulgated thereunder. On June
25, 1999 the Company repurchased 60,000 of these shares.
(d) On August 5, 1998, the Registrant issued and sold 30,000 shares of
common stock to one accredited investor for an aggregate purchase price of
$10. The Registrant relied on the exemption provided by Section 4(2) under
the Securities Act and Regulation D promulgated thereunder
(e) On August 26, 1998 the Registrant issued and sold 2,250,000 shares
of series A convertible preferred stock (convertible into 2,250,000 shares
of common stock) to one accredited investor for an aggregate purchase price
of $247,500. The Registrant relied on the exemption provided by Section
4(2) under the Securities Act and Regulation D promulgated thereunder.
II-2
<PAGE> 80
(f) On October 10, 1998 the Registrant issued and sold 1,572,000
shares of common stock to one accredited investor for an aggregate purchase
price of $26,200. The Registrant relied on the exemption provided by
Section 4(2) under the Securities Act and Regulation D promulgated
thereunder. On June 25, 1999 the Company repurchased 1,572,000 of these
shares.
(g) On November 4, 1998 the Registrant issued and sold 690,000 shares
of series A convertible preferred stock (convertible into 690,000 shares of
common stock) to one accredited investor for an aggregate purchase price of
$97,750. The Registrant relied on the exemption provided by Section 4(2)
under the Securities Act and Regulation D promulgated thereunder.
(h) On December 5, 1998, the Registrant issued and sold 30,000 shares
of common stock to one accredited investor for an aggregate purchase price
of $1000. The Registrant relied on the exemption provided by Section 4(2)
under the Securities Act and Regulation D promulgated thereunder.
(i) On December 30, 1998 the Registrant issued and sold 1,599,996
shares of series A convertible preferred stock (convertible into 1,599,996
shares of common stock) to four accredited investors for an aggregate
purchase price of $400,000. The Registrant relied on the exemption provided
by Section 4(2) under the Securities Act and Regulation D promulgated
thereunder.
(j) On April 30, 1999 the Registrant issued and sold 600,000 shares of
series A convertible preferred stock (convertible into 600,000 shares of
common stock) to two accredited investors for an aggregate purchase price
of $150,000. The Registrant relied on the exemption provided by Section
4(2) under the Securities Act and Regulation D promulgated thereunder.
(k) On May 17, 1999, the Registrant issued and sold 30,000 shares of
common stock to one accredited investor for an aggregate purchase price of
$1000. The Registrant relied on the exemption provided by Section 4(2)
under the Securities Act and Regulation D promulgated thereunder.
(l) On May 21, 1999 the Registrant issued and sold 6,716,418 shares of
its series B convertible preferred stock (convertible into 6,716,418 shares
of common stock) to one accredited investor for an aggregate purchase price
of $3,000,000. The Registrant relied on the exemption provided by Section
4(2) under the Securities Act and Regulation D promulgated thereunder.
(m) On June 18, 1999 the Registrant issued and sold 2,238,807 shares
of its series B convertible preferred stock (convertible into 2,238,807
shares of common stock) to one accredited investor for an aggregate
purchase price of $1,000,000. The Registrant relied on the exemption
provided by Section 4(2) under the Securities Act and Regulation D
promulgated thereunder.
(n) On August 10, 1999, the Registrant issued and sold 28,800 shares
of common stock to one accredited investor for an aggregate purchase price
of $2400. The Registrant relied on the exemption provided by Section 4(2)
under the Securities Act and Regulation D promulgated thereunder.
(o) On November 24, 1999, the Registrant issued and sold 1,800,000
shares of common stock to one accredited investor for an aggregate purchase
price of $150,000. The Registrant relied on the exemption provided by
Section 4(2) under the Securities Act and Regulation D promulgated
thereunder
(p) On December 2, 1999 the Registrant issued and sold 4,375,000
shares of its series C convertible preferred stock (convertible into
4,375,000 shares of common stock) to ten accredited investors for an
aggregate purchase price of $21,000,000. The Registrant relied on the
exemption provided by Section 4(2) under the Securities Act and Regulation
D promulgated thereunder.
(q) In March 2000 the Registrant issued and sold 1,443,569 shares of
its series D convertible preferred stock (convertible into 1,443,569 shares
of common stock) to 5 accredited investors for an aggregate purchase price
of $16,500,000. The Registrant relied on the exemption provided by Section
4(2) under the Securities Act and Regulation D promulgated thereunder.
(r) From time to time since July 22, 1998, the Registrant has granted
stock options to purchase shares of its common stock to various employees
and consultants pursuant to its 2000 Equity
II-3
<PAGE> 81
Incentive Plan. With respect to all grants of options, exemption from
registration was unnecessary in that the transactions did not involve a
"sale" of securities as that term is used in Section 2(a)(3) of the
Securities Act.
(s) As of March 10, 2000, the Registrant had issued and sold, in the
aggregate, 6,356,054 shares of its common stock for per share exercise
prices ranging from $0.03 to $1.00 to employees and consultants pursuant to
their exercise of stock options granted under the Registrant's 2000 Equity
Incentive Plan. The Registrant relied on the exemption provided by Rule 701
under the Securities Act.
The recipients of the above-described securities represented their
intention to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. All recipients had adequate access, through
employment or other relationships, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation, as
currently in effect.
3.2 Form of Amended and Restated Certificate of Incorporation,
to be filed and become effective upon the closing of this
offering.
3.3 Bylaws, as currently in effect.
3.4 Form of Bylaws, as amended, to become effective upon the
closing of this offering.
4.2* Specimen Stock Certificate.
5.1* Opinion of Cooley Godward LLP.
10.1 2000 Equity Incentive Plan (the "2000 Plan"), to become
effective upon the closing of this offering.
10.2 Form of Stock Option Agreement and Stock Option Grant Notice
pursuant to the 2000 Plan.
10.3* 2000 Employee Stock Purchase Plan and related offering
documents.
10.4* 2000 Non-Employee Directors' Stock Option Plan.
10.5 Amended and Restated Investor Rights Agreement, dated March
10, 2000 by and among the Company and certain stockholders
of the Company.
10.6 Common Stock Purchase Agreement, dated November 24, 1999, by
and between William Cvengros and the Company.
10.7* Offer Letter, dated November 19, 1999 between William D.
Cvengros and the Company.
10.8* Employment Agreement between James C. Brailean and the
Company.
10.9* Employment Agreement between James Z. Carol and the Company.
10.10 Form of Indemnity Agreement.
10.11 Standard Industrial/Commercial Multi-Tenant Lease, dated
September 1, 1998, by and between General Atomics and the
Company.
10.12 Amendment #1 to Sublease, dated September 1, 1999, by and
between General Atomics and the Company.
10.13 Amendment #2 to Sublease, dated December 1, 1999, by and
between General Atomics and the Company.
10.14 Technology Development and License Agreement, dated May 21,
1999, by and between Intel Corporation and the Company.+
10.15 PacketVideo-Sanyo Agreement, dated February 24, 2000, by and
between Sanyo North America Corporation and the Company.+
</TABLE>
II-4
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.16 Common Stock Purchase Agreement, dated August 5, 1998, by
and between James C. Brailean and the Company.
10.17 Common Stock Purchase Agreement, dated August 5, 1998, by
and between James Z. Carol and the Company.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
Reference is made to page II-8.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
24.1 Power of Attorney. Reference is made to page II-7.
27 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
+ Confidential treatment has been granted with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
(B) FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because they are not required, are not applicable
or the information is included in our financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to provisions described in Item 14 or otherwise, the registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the 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 Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
County of San Diego, State of California, on March 14, 2000.
By: /s/ WILLIAM D. CVENGROS
------------------------------------
William D. Cvengros
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William D. Cvengros and Peter A. Price,
and each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place, and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments, exhibits thereto and other documents in connection
therewith) to this Registration Statement and any subsequent registration
statement filed by the registrant pursuant to Rule 462(b) of the Securities Act
of 1933, as amended, which relates to this Registration Statement, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JAMES Z. CAROL Chief Executive Officer and Director March 14, 2000
- ------------------------------------------ (Principal Executive Officer)
James Z. Carol
/s/ JAMES C. BRAILEAN President, Chief Technology Officer and March 14, 2000
- ------------------------------------------ Director
James C. Brailean
/s/ PETER A. PRICE Chief Financial Officer March 14, 2000
- ------------------------------------------ (Principal Financial and Accounting
Peter A. Price Officer)
/s/ WILLIAM D. CVENGROS Chairman of the Board March 14, 2000
- ------------------------------------------
William D. Cvengros
/s/ ANTHONY MAHER Director March 14, 2000
- ------------------------------------------
Anthony Maher
</TABLE>
II-6
<PAGE> 84
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation, as
currently in effect.
3.2 Form of Amended and Restated Certificate of Incorporation,
to be filed and become effective upon the closing of this
offering.
3.3 Bylaws, as currently in effect.
3.4 Form of Bylaws, as amended, to become effective upon the
closing of this offering.
4.2* Specimen Stock Certificate.
5.1* Opinion of Cooley Godward LLP.
10.1 2000 Equity Incentive Plan (the "2000 Plan"), to become
effective upon the closing of this offering.
10.2 Form of Stock Option Agreement and Stock Option Grant Notice
pursuant to the 2000 Plan.
10.3* 2000 Employee Stock Purchase Plan and related offering
documents.
10.4* 2000 Non-Employee Directors' Stock Option Plan.
10.5 Amended and Restated Investor Rights Agreement, dated March
10, 2000 by and among the Company and certain stockholders
of the Company.
10.6 Common Stock Purchase Agreement, dated November 24, 1999, by
and between William Cvengros and the Company.
10.7* Offer Letter, dated November 19, 1999 between William D.
Cvengros and the Company.
10.8* Employment Agreement between James C. Brailean and the
Company.
10.9* Employment Agreement between James Z. Carol and the Company.
10.10 Form of Indemnity Agreement.
10.11 Standard Industrial/Commercial Multi-Tenant Lease, dated
September 1, 1998, by and between General Atomics and the
Company.
10.12 Amendment #1 to Sublease, dated September 1, 1999, by and
between General Atomics and the Company.
10.13 Amendment #2 to Sublease, dated December 1, 1999, by and
between General Atomics and the Company.
10.14 Technology Development and License Agreement, dated May 21,
1999, by and between Intel Corporation and the Company.+
10.15 PacketVideo-Sanyo Agreement, dated February 24, 2000, by and
between Sanyo North America Corporation and the Company.+
10.16 Common Stock Purchase Agreement, dated August 5, 1998, by
and between James C. Brailean and the Company.
10.17 Common Stock Purchase Agreement, dated August 5, 1998, by
and between James Z. Carol and the Company.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
Reference is made to page II-8.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
24.1 Power of Attorney. Reference is made to page II-7.
27 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
+ Confidential treatment has been granted with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PACKETVIDEO CORPORATION
JAMES CAROL and JAMES C. BRAILEAN hereby certify that:
ONE: The name of this corporation is PACKETVIDEO CORPORATION and the
date of filing of the original Certificate of Incorporation (the "Original
Certificate") of this corporation with the Secretary of State of the State of
Delaware is July 22, 1998 under the original name M4, Inc.
TWO: They are the duly elected and acting Chief Executive Officer and
Assistant Secretary, respectively, of PacketVideo Corporation, a Delaware
corporation.
THREE: The Certificate of Incorporation of this corporation is hereby
amended and restated to read as follows:
I.
The name of this corporation is PACKETVIDEO CORPORATION (the
"Corporation" or the "Company").
II.
The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of the registered agent of this Corporation in the State of Delaware at
such address is the Corporation Service Company.
III.
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is seventy nine million
nine hundred thirteen thousand seven hundred ninety (79,913,790) shares, sixty
million (60,000,000) shares of which shall be Common Stock (the "Common Stock")
and nineteen million nine hundred thirteen thousand seven hundred ninety
(19,913,790) shares of which shall be Preferred Stock (the "Preferred Stock").
The Preferred Stock shall have a par value of one tenth of one cent ($.001) per
share and the Common Stock shall have a par value of one tenth of one cent
($.001) per share.
1
<PAGE> 2
B. The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares of Common Stock then outstanding)
by the affirmative vote of the holders of a majority of the stock of the
Corporation (voting together on an as-if-converted basis).
C. Five million one hundred thirty-nine thousand nine hundred ninety-six
(5,139,996) of the authorized shares of Preferred Stock are hereby designated
"Series A Preferred Stock." Eight million nine hundred fifty-five thousand two
hundred twenty-five (8,955,225) of the authorized shares of Preferred Stock are
hereby designated "Series B Preferred Stock." Four million three hundred
seventy-five thousand (4,375,000) of the authorized shares of Preferred Stock
are hereby designated "Series C Preferred Stock." One million four hundred
forty-three thousand five hundred sixty-nine (1,443,569) of the authorized
shares of Preferred Stock are hereby designated "Series D Preferred Stock" (the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock are collectively referred to herein as the "Series
Preferred").
D. The rights, preferences, privileges, restrictions and other matters
relating to the Series Preferred are as follows:
1. DIVIDEND RIGHTS.
(a) Holders of each series of Series Preferred, prior and in
preference to the holders of any other stock (including the Common Stock) of the
Company ("Junior Stock"), shall be entitled to receive, when and as declared by
the Board of Directors, but only out of funds that are legally available
therefor, cash dividends at the rate of eight percent (8%) of their applicable
Original Issue Price (as defined below) per annum on each outstanding share of
Series Preferred (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares). The "Original Issue
Price" of the Series A Preferred shall be twenty-five cents ($0.25). The
"Original Issue Price" of the Series B Preferred shall be forty-four and
sixty-seven hundredths cents ($0.4467). The "Original Issue Price" of the Series
C Preferred shall be four dollars and eighty cents ($4.80). The "Original Issue
Price" of the Series D Preferred shall be eleven dollars and forty-three cents
($11.43). Such dividends shall be payable only when, as and if declared by the
Board of Directors and shall be non-cumulative. Each share of Series Preferred
shall rank on a parity with each other share of Series Preferred, irrespective
of series, with respect to dividends, and no dividends shall be declared or paid
or set apart for payment on any series of Series Preferred unless at the same
time a dividend, bearing the same proportion to the applicable dividend rate,
shall be declared or paid or set apart for payment, as the case may be, on each
other series of Series Preferred then outstanding.
(b) So long as any shares of Series Preferred shall be
outstanding, no dividend, whether in cash or property (including any security of
the Company other than Common Stock), shall be paid or declared, nor shall any
other distribution be made, on any Junior Stock, nor shall any shares of any
Junior Stock of the Company be purchased, redeemed, or otherwise acquired for
value by the Company (except for acquisitions of Common Stock by the Company
pursuant to agreements which permit the Company to repurchase such shares upon
2
<PAGE> 3
termination of services to the Company or in exercise of the Company's right of
first refusal upon a proposed transfer) until all dividends (set forth in
Section 1(a) above) on the Series Preferred shall have been paid or declared and
set apart. In the event dividends or any other distributions are paid on any
share of Common Stock, an additional dividend shall be paid with respect to all
outstanding shares of Series Preferred in an amount equal per share (on an
as-if-converted to Common Stock basis) to the amount paid or set aside for each
share of Common Stock. The provisions of this Section 1(b) shall not, however,
apply to (i) a dividend payable in Common Stock, or (ii) the acquisition of
shares of any Junior Stock in exchange for shares of any other Junior Stock.
2. VOTING RIGHTS.
(a) GENERAL RIGHTS. Except as otherwise provided herein or as
required by law, the Series Preferred shall be voted equally with the shares of
the Common Stock of the Company and not as a separate class, at any annual or
special meeting of stockholders of the Company, and may act by written consent
in the same manner as the Common Stock, in either case upon the following basis:
each holder of shares of Series Preferred shall be entitled to such number of
votes as shall be equal to the whole number of shares of Common Stock into which
such holder's aggregate number of shares of Series Preferred are convertible
(pursuant to Section 4 hereof) immediately after the close of business on the
record date fixed for such meeting or the effective date of such written
consent.
(b) SEPARATE VOTE OF SERIES PREFERRED. For so long as at least
two million two hundred fifty thousand (2,250,000) shares of Series Preferred
(subject to adjustment for any stock split, reverse stock split or other similar
event affecting the Series Preferred) remain outstanding, in addition to any
other vote or consent required herein or by law, the vote or written consent of
the holders of at least sixty-six and two-thirds percent (66-2/3%) of the
outstanding Series Preferred shall be necessary for effecting or validating the
following actions:
(i) Any amendment, alteration, or repeal of any
provision of the Certificate of Incorporation of the Company (including any
filing of a Certificate of Designation), that alters or changes the voting
powers, preferences, or other rights or privileges, or restrictions provided for
the benefit of, of the Series Preferred;
(ii) Any increase or decrease in the authorized
number of shares of Preferred Stock or Series Preferred;
(iii) Any increase or decrease in the authorized
number of members of the Company's Board of Directors;
(iv) Any authorization, issuance or any
designation, whether by reclassification or otherwise, of any new class or
series of stock or any other securities convertible into equity securities of
the Company ranking on a parity with or senior to the Series Preferred in right
of redemption, liquidation preference, voting or dividends or any increase in
the authorized or designated number of any series of Series Preferred;
3
<PAGE> 4
(v) Any redemption, repurchase, reacquisition,
payment of dividends (other than a dividend payable solely in shares of Common
Stock) or other distributions with respect to Junior Stock (except for
acquisitions of Common Stock by the Company pursuant to agreements which permit
the Company to repurchase such shares upon termination of services to the
Company or in exercise of the Company's right of first refusal upon a proposed
transfer);
(vi) Any agreement by the Company or its
stockholders regarding an Asset Transfer or Acquisition (each as defined in
Section 3(c));
(vii) Any voluntary dissolution or liquidation of
the Company; or
(VIII) Incurrence of new indebtedness in excess of
ten million dollars ($10,000,000) after the Original Issue Date (as defined in
Section 4(e) below).
(c) ELECTION OF BOARD OF DIRECTORS. The authorized size of the
Company's Board of Directors shall be five (5) or such larger number as may be
approved by the Board in accordance with the Bylaws. The holders of Common
Stock, voting as a separate class, shall be entitled to elect three (3) members
of the Board of Directors at each meeting or pursuant to each consent of the
Company's stockholders for the election of directors, and to remove from office
such directors and to fill any vacancy caused by the resignation, death or
removal of such directors. The holders of Series A Preferred, voting as a
separate class, shall be entitled to elect one (1) member of the Company's Board
of Directors at each meeting or pursuant to each consent of the Company's
stockholders for the election of directors, and to remove from office such
directors and to fill any vacancy caused by the resignation, death or removal of
such directors. For so long as at least two million two hundred fifty
(2,250,000) shares of Series B Preferred remain outstanding (subject to
adjustment for any stock split, reverse stock split or similar event affecting
the Series B Preferred), the holders of Series B Preferred, voting as a separate
class, shall be entitled to elect one (1) member of the Company's Board of
Directors at each meeting or pursuant to each consent of the Company's
stockholders for the election of directors, and to remove from office such
directors and to fill any vacancy caused by the resignation, death or removal of
such directors. The holders of Common Stock and Series Preferred, voting
together as a single class on an as-if-converted basis, shall be entitled to
elect all remaining members of the Board of Directors at each meeting or
pursuant to each consent of the Company's stockholders for the election of
directors, and to remove from office such directors and to fill any vacancy
caused by the resignation, death or removal of such directors. No person
entitled to vote at an election for directors may cumulate votes to which such
person is entitled.
(d) REMOVAL. In the case of any vacancy (other than a vacancy caused
by removal) in the office of a director occurring among the directors elected by
the holders of a class or series of stock pursuant to Section 2(c), the
remaining directors so elected by that class or series may by affirmative vote
of a majority thereof (or the remaining director so elected if there be but one,
or if there are no such directors remaining, by the affirmative vote of the
4
<PAGE> 5
holders of a majority of the shares of that class or series), elect a successor
or successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the holders of a class or series of stock or by any directors so elected as
provided in the immediately preceding sentence hereof may be removed during the
aforesaid term of office, either with or without cause, by, and only by, the
affirmative vote of the holders of the shares of the class or series of stock
entitled to elect such director or directors, given either at a special meeting
of such stockholders duly called for that purpose or pursuant to a written
consent of stockholders, and any vacancy thereby created may be filled by the
holders of that class or series of stock represented at the meeting or pursuant
to unanimous written consent.
3. LIQUIDATION RIGHTS.
(a) Upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, before any distribution or payment
shall be made to the holders of any Junior Stock, the holders of Series
Preferred shall be entitled to be paid out of the assets of the Company an
amount per share of Series Preferred equal to the applicable Original Issue
Price plus all declared and unpaid dividends on the Series Preferred (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares) for each share of Series Preferred held by
them. If, upon any such liquidation, distribution, or winding up, the assets of
the Company shall be insufficient to make payment in full to all holders of
Series Preferred of the liquidation preference set forth in this Section 3(a),
then such assets shall be distributed among the holders of Series Preferred at
the time outstanding, ratably in proportion to the full amounts to which they
would otherwise be respectively entitled.
(b) After the payment of the full liquidation preference of the
Series Preferred as set forth in Section 3(a) above, the assets of the Company
legally available for distribution, if any, shall be distributed ratably to the
holders of the Common Stock and Series Preferred on an as-if-converted to Common
Stock basis until such time as the holders of Series A Preferred Stock have
received pursuant to Section 3(a) above and this Section 3(b) an aggregate
amount per share of Series A Preferred Stock equal to three (3) times the
Original Issue Price for the Series A Preferred Stock (as adjusted for any
stock, dividends, combinations, splits, recapitalizations and the like with
respect to such shares); thereafter the remaining assets of the Company legally
available for distribution, if any, shall be distributed ratably to the holders
of the Common Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock on an as-if-converted to Common Stock basis until such
time as the holders of Series B Preferred Stock have received pursuant to
Section 3(a) above and this Section 3(b) an aggregate amount per share of Series
B Preferred Stock equal to three (3) times the Original Issue Price for the
Series B Preferred Stock (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to such shares); thereafter
the remaining assets of the Company legally available for distribution, if any,
shall be distributed ratably to the holders of the Common Stock, Series C
Preferred Stock and Series D Preferred Stock on an as-if-converted to Common
Stock basis until such time as the holders of Series C Preferred Stock have
received pursuant to Section 3(a) above and this Section 3(b) an aggregate
amount per share of Series C Preferred Stock equal to three (3) times the
Original Issue Price for the Series C Preferred Stock
5
<PAGE> 6
(as adjusted for any stock dividends, combinations, splits, recapitalizations
and the like with respect to such shares); thereafter the remaining assets of
the Company legally available for distribution, if any, shall be distributed
ratably to the holders of the Common Stock and Series D Preferred Stock on an
as-if-converted to Common Stock basis until such time as the holders of Series D
Preferred Stock have received pursuant to Section 3(a) above and this Section
3(b) an aggregate amount per share of Series D Preferred Stock equal to three
(3) times the Original Issue Price for the Series D Preferred Stock (as adjusted
for any stock dividends, combinations, splits, recapitalizations and the like
with respect to such shares); thereafter the remaining assets of the Company
legally available for distribution, if any, shall be distributed ratably to the
holders of the Common Stock.
(c) The following events shall be considered a liquidation under this
Section:
(i) any consolidation or merger of the Company with
or into any other corporation or other entity or person, or any other corporate
reorganization, in which the stockholders of the Company immediately prior to
such consolidation, merger or reorganization, own less than 50% of the Company's
voting power immediately after such consolidation, merger or reorganization, or
any transaction or series of related transactions to which the Company is a
party in which in excess of fifty percent (50%) of the Company's voting power is
transferred, excluding any consolidation or merger effected exclusively to
change the domicile of the Company (an "Acquisition"); or
(ii) a sale, lease or other disposition of all or
substantially all of the assets of the Company in one transaction or a series of
related transactions (an "Asset Transfer").
(iii) In any of such events set forth in (i) and
(ii) above, if the consideration received by this Corporation is other than
cash, its value will be deemed its fair market value as determined in good faith
by the Board of Directors after consultation with a nationally recognized
investment bank, except that any securities shall be valued as follows:
(A) Securities not subject to investment
letter or other similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities
exchange or through the Nasdaq National Market, the value shall be deemed to be
the average of the closing prices of the securities on such quotation system
over the thirty (30) day period ending three (3) days prior to the closing;
(2) If actively traded
over-the-counter, the value shall be deemed to be the average of the closing bid
or sale prices (whichever is applicable) over the thirty (30) day period ending
three (3) days prior to the closing; and
6
<PAGE> 7
(3) If there is no active public
market, the value shall be the fair market value thereof, as determined by the
Board of Directors after consultation with a nationally recognized investment
bank.
(B) The method of valuation of securities
subject to investment letter or other restrictions on free marketability (other
than restrictions arising solely by virtue of a stockholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount from the
market value determined as above in (A) (1), (2) or (3) to reflect the
approximate fair market value thereof, as determined in good faith by the Board
of Directors.
4. CONVERSION RIGHTS.
The holders of the Series Preferred shall have the following rights
with respect to the conversion of the Series Preferred into shares of Common
Stock (the "Conversion Rights"):
(a) OPTIONAL CONVERSION. Subject to and in compliance with the
provisions of this Section 4, any shares of Series Preferred may, at the option
of the holder, be converted at any time into fully-paid and nonassessable shares
of Common Stock. The number of shares of Common Stock to which a holder of
Series Preferred shall be entitled upon conversion shall be the product obtained
by multiplying the applicable "Series Preferred Conversion Rate" then in effect
(determined as provided in Section 4(b)) by the number of shares of applicable
Series Preferred being converted.
(b) SERIES PREFERRED CONVERSION RATE. The conversion rate in effect
at any time for conversion of the Series Preferred (the "Series Preferred
Conversion Rate") shall be the quotient obtained by dividing the applicable
Original Issue Price of the applicable Series Preferred by the applicable
"Series Preferred Conversion Price," calculated as provided in Section 4(c).
(c) SERIES PREFERRED CONVERSION PRICE. The conversion price for the
Series Preferred shall initially be the applicable Original Issue Price of the
applicable Series Preferred (the "Series Preferred Conversion Price"). Such
initial Series Preferred Conversion Price shall be adjusted from time to time in
accordance with this Section 4. All references to the Series Preferred
Conversion Price herein shall mean the Series Preferred Conversion Price as so
adjusted.
(d) MECHANICS OF CONVERSION. Each holder of Series Preferred who
desires to convert the same into shares of Common Stock pursuant to this Section
4 shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Company or any transfer agent for the Series Preferred, and
shall give written notice to the Company at such office that such holder elects
to convert the same. Such notice shall state the number of shares of Series
Preferred being converted. Thereupon, the Company shall promptly issue and
deliver at such office to such holder a certificate or certificates for the
number of shares of Common Stock to which such holder is entitled and shall
promptly pay (i) in cash any declared and unpaid
7
<PAGE> 8
dividends on the shares of Series Preferred being converted and (ii) in cash (at
the Common Stock's fair market value determined in good faith by the Board of
Directors as of the date of conversion) the value of any fractional share of
Common Stock otherwise issuable to any holder of Series Preferred. Such
conversion shall be deemed to have been made at the close of business on the
date of such surrender of the certificates representing the shares of Series
Preferred to be converted, and the person entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such shares of Common Stock on such date.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Company
shall at any time or from time to time after the date that the first share of
Series D Preferred Stock is issued (the "Original Issue Date") effect a
subdivision of the outstanding Common Stock without a corresponding subdivision
of the Preferred Stock, the Series Preferred Conversion Price in effect
immediately before that subdivision shall be proportionately decreased.
Conversely, if the Company shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock into a
smaller number of shares without a corresponding combination of the Preferred
Stock, the Series Preferred Conversion Price in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
Section 4(e) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(f) ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If the
Company at any time or from time to time after the Original Issue Date makes, or
fixes a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, in each such event the Series Preferred Conversion Price that is then in
effect shall be decreased as of the time of such issuance or, in the event such
record date is fixed, as of the close of business on such record date, by
multiplying the Series Preferred Conversion Price then in effect by a fraction
(i) the numerator of which is the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (ii) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Series Preferred Conversion Price shall be recomputed
accordingly as of the close of business on such record date and thereafter the
Series Preferred Conversion Price shall be adjusted pursuant to this Section
4(f) to reflect the actual payment of such dividend or distribution.
(g) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If at
any time or from time to time after the Original Issue Date, the Common Stock
issuable upon the conversion of the Series Preferred is changed into the same or
a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than an Acquisition or
Asset Transfer as defined in Section 3(c) or a subdivision or combination of
shares or stock dividend or a reorganization, merger, consolidation or sale of
assets provided for
8
<PAGE> 9
elsewhere in this Section 4), in any such event each holder of Series Preferred
shall have the right thereafter to convert such stock into the kind and amount
of stock and other securities and property receivable upon such
recapitalization, reclassification or other change by holders of the maximum
number of shares of Common Stock into which such shares of Series Preferred
could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided herein
or with respect to such other securities or property by the terms thereof.
(h) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If
at any time or from time to time after the Original Issue Date, there is a
capital reorganization of the Common Stock or the merger or consolidation of the
Company with or into another corporation or another entity or person (other than
an Acquisition or Asset Transfer as defined in Section 3(c) or a
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in this Section 4), as a part of
such capital reorganization, merger or consolidation, provision shall be made so
that the holders of the Series Preferred shall thereafter be entitled to receive
upon conversion of the Series Preferred the number of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
deliverable upon conversion of the Series Preferred would have been entitled on
such capital reorganization, merger or consolidation, subject to adjustment in
respect of such stock or securities by the terms thereof. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of Series Preferred
after the capital reorganization to the end that the provisions of this Section
4 (including adjustment of the Series Preferred Conversion Price then in effect
and the number of shares issuable upon conversion of the Series Preferred) shall
be applicable after that event and be as nearly equivalent as practicable.
(i) SALE OF SHARES BELOW SERIES PREFERRED CONVERSION PRICE.
(i) If at any time or from time to time after the Original
Issue Date, the Company issues or sells, or is deemed by the express provisions
of this subsection (i)(i) to have issued or sold, Additional Shares of Common
Stock (as defined in subsection (i)(iv) below), other than as a dividend or
other distribution on any class of stock as provided in Section 4(f) above, and
other than a subdivision or combination of shares of Common Stock as provided in
Section 4(e) above, for an Effective Price (as defined in subsection (i)(iv)
below) less than the then effective applicable Series Preferred Conversion
Price, then and in each such case the then existing applicable Series Preferred
Conversion Price shall be reduced, as of the opening of business on the date of
such issue or sale, to a price determined by multiplying the applicable Series
Preferred Conversion Price by a fraction (i) the numerator of which shall be (A)
the number of shares of Common Stock deemed outstanding (as defined below)
immediately prior to such issue or sale, plus (B) the number of shares of Common
Stock which the aggregate consideration received (as defined in subsection
(i)(ii)) by the Company for the total number of Additional Shares of Common
Stock so issued would purchase at such applicable Series Preferred Conversion
Price, and (ii) the denominator of which shall be the number of shares of Common
Stock deemed outstanding (as defined below) immediately prior to such issue or
sale plus the total number of Additional Shares of Common Stock so issued. For
the purposes of the
9
<PAGE> 10
preceding sentence, the number of shares of Common Stock deemed to be
outstanding as of a given date shall be the sum of (A) the number of shares of
Common Stock actually outstanding, (B) the number of shares of Common Stock into
which the then outstanding shares of Series Preferred could be converted if
fully converted on the day immediately preceding the given date, and (C) the
number of shares of Common Stock which could be obtained through the exercise or
conversion of all other rights, options and convertible securities outstanding
on the day immediately preceding the given date.
(ii) For the purpose of making any adjustment required
under this Section 4(i), the consideration received by the Company for any issue
or sale of securities shall (A) to the extent it consists of cash, be computed
at the net amount of cash received by the Company after deduction of any
underwriting or similar commissions, compensation or concessions paid or allowed
by the Company in connection with such issue or sale but without deduction of
any expenses payable by the Company, (B) to the extent it consists of property
other than cash, be computed at the fair value of that property as determined in
good faith by the Board of Directors, and (C) if Additional Shares of Common
Stock, Convertible Securities (as defined in subsection (i)(iii)) or rights or
options to purchase either Additional Shares of Common Stock or Convertible
Securities are issued or sold together with other stock or securities or other
assets of the Company for a consideration which covers both, be computed as the
portion of the consideration so received that may be reasonably determined in
good faith by the Board of Directors to be allocable to such Additional Shares
of Common Stock, Convertible Securities or rights or options.
(iii) For the purpose of the adjustment required under
this Section 4(i), if the Company issues or sells (i) stock or other securities
convertible into, Additional Shares of Common Stock (such convertible stock or
securities being herein referred to as "Convertible Securities") or (ii) rights
or options for the purchase of Additional Shares of Common Stock or Convertible
Securities and if the Effective Price of such Additional Shares of Common Stock
is less than the applicable Series Preferred Conversion Price, in each case the
Company shall be deemed to have issued at the time of the issuance of such
rights or options or Convertible Securities the maximum number of Additional
Shares of Common Stock issuable upon exercise or conversion thereof and to have
received as consideration for the issuance of such shares an amount equal to the
total amount of the consideration, if any, received by the Company for the
issuance of such rights or options or Convertible Securities, plus, in the case
of such rights or options, the minimum amounts of consideration, if any, payable
to the Company upon the exercise of such rights or options, plus, in the case of
Convertible Securities, the minimum amounts of consideration, if any, payable to
the Company (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) upon the conversion thereof; provided that if in
the case of Convertible Securities the minimum amounts of such consideration
cannot be ascertained, but are a function of antidilution or similar protective
clauses, the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses; provided further that if the
minimum amount of consideration payable to the Company upon the exercise or
conversion of rights, options or Convertible Securities is reduced over time or
on the occurrence or non-occurrence of specified events other than by reason of
antidilution adjustments, the Effective Price shall be recalculated using the
10
<PAGE> 11
figure to which such minimum amount of consideration is reduced; provided
further that if the minimum amount of consideration payable to the Company upon
the exercise or conversion of such rights, options or Convertible Securities is
subsequently increased, the Effective Price shall be again recalculated using
the increased minimum amount of consideration payable to the Company upon the
exercise or conversion of such rights, options or Convertible Securities. No
further adjustment of the applicable Series Preferred Conversion Price, as
adjusted upon the issuance of such rights, options or Convertible Securities,
shall be made as a result of the actual issuance of Additional Shares of Common
Stock on the exercise of any such rights or options or the conversion of any
such Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire without
having been exercised, the applicable Series Preferred Conversion Price as
adjusted upon the issuance of such rights, options or Convertible Securities
shall be readjusted to the applicable Series Preferred Conversion Price which
would have been in effect had an adjustment been made on the basis that the only
Additional Shares of Common Stock so issued were the Additional Shares of Common
Stock, if any, actually issued or sold on the exercise of such rights or options
or rights of conversion of such Convertible Securities, and such Additional
Shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise, plus the consideration, if
any, actually received by the Company for the granting of all such rights or
options, whether or not exercised, plus the consideration received for issuing
or selling the Convertible Securities actually converted, plus the
consideration, if any, actually received by the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion of such Convertible Securities, provided that such
readjustment shall not apply to prior conversions of Series Preferred.
(iv) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Company or deemed to be issued pursuant to
this Section 4(i), other than (A) shares of Common Stock issued upon conversion
of the Series Preferred; (B) shares of Common Stock and/or options, warrants or
other Common Stock purchase rights, and the Common Stock issued pursuant to such
options, warrants or other rights (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like) after the Original Issue
Date to employees, officers or directors of, or consultants or advisors to the
Company or any subsidiary pursuant to stock purchase or stock option plans or
other arrangements that are approved by the Board; (C) shares of Common Stock
issued pursuant to the exercise of options, warrants or convertible securities
outstanding as of the Original Issue Date, (D) shares of Common Stock and/or
options, warrants or other Common Stock purchase rights, and the Common Stock
issued pursuant to such options, warrants or other rights issued for
consideration other than cash pursuant to a merger, consolidation, acquisition
or similar business combination approved by the Board and (E) shares of Common
Stock issued pursuant to any equipment leasing arrangement, or debt financing
from a bank or similar financial institution and that are for other than equity
financing purposes approved by the Board. References to Common Stock in the
subsections of this clause (iv) above shall mean all shares of Common Stock
issued by the Company or deemed to be issued pursuant to this Section 4(i). The
"Effective Price" of Additional Shares of Common Stock shall mean the quotient
determined by dividing the total number of Additional Shares of Common Stock
issued or sold, or deemed to have been issued or
11
<PAGE> 12
sold by the Company under this Section 4(i), into the aggregate consideration
received, or deemed to have been received by the Company for such issue under
this Section 4(i), for such Additional Shares of Common Stock.
(j) CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the applicable Series Preferred Conversion Price, if the Series
Preferred is then convertible pursuant to this Section 4, the Company, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to each registered holder of Series Preferred at the holder's address
as shown in the Company's books. The certificate shall set forth such adjustment
or readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (i) the consideration received
or deemed to have been received by the Company for any Additional Shares of
Common Stock issued or sold or deemed to have been issued or sold, (ii) the
applicable Series Preferred Conversion Price at the time in effect, (iii) the
number of Additional Shares of Common Stock issued or sold or deemed to have
been issued or sold, (iv) the type and amount, if any, of other property which
at the time would be received upon conversion of the Series Preferred, and (v)
the number of shares of Common Stock deemed to be outstanding.
(k) NOTICES OF RECORD DATE. Upon (i) any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, or (ii) any Acquisition (as defined in Section 3(c)) or other
capital reorganization of the Company, any reclassification or recapitalization
of the capital stock of the Company, any merger or consolidation of the Company
with or into any other corporation, or any Asset Transfer (as defined in Section
3(c)), or any voluntary or involuntary dissolution, liquidation or winding up of
the Company, the Company shall mail to each holder of Series Preferred at least
ten (10) days prior to the record date specified therein (or such shorter period
approved by the holders of a majority of the outstanding Series Preferred) a
notice specifying (A) the date on which any such record is to be taken for the
purpose of such dividend or distribution and a description of such dividend or
distribution, (B) the date on which any such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset Transfer, dissolution,
liquidation or winding up is expected to become effective, and (C) the date, if
any, that is to be fixed as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up.
(l) AUTOMATIC CONVERSION.
(i) Each share of Series Preferred shall automatically be
converted into shares of Common Stock, based on the then-effective Series
Preferred Conversion Price, (A) at any time upon the affirmative election of the
holders of at least a majority of the outstanding shares of the Series
Preferred, or (B) immediately upon the closing of a firmly
12
<PAGE> 13
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the Company in which (x) the gross cash proceeds
to the Company (before underwriting discounts, commissions and fees) are at
least forty million dollars ($40,000,000) and (y) the per share offering price
to the public is at least $11.43 (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such shares
following the Original Issue Date). Upon such automatic conversion, any declared
and unpaid dividends shall be paid in accordance with the provisions of Section
4(d).
(ii) Upon the occurrence of either of the events specified
in Section 4(l)(i) above, the outstanding shares of Series Preferred shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Company or its transfer agent; provided, however, that the Company shall not
be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless the certificates evidencing such shares of
Series Preferred are either delivered to the Company or its transfer agent as
provided below, or the holder notifies the Company or its transfer agent that
such certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such certificates. Upon the occurrence of such automatic
conversion of the Series Preferred, the holders of Series Preferred shall
surrender the certificates representing such shares at the office of the Company
or any transfer agent for the Series Preferred. Thereupon, there shall be issued
and delivered to such holder promptly at such office and in its name as shown on
such surrendered certificate or certificates, a certificate or certificates for
the number of shares of Common Stock into which the shares of Series Preferred
surrendered were convertible on the date on which such automatic conversion
occurred, and any declared and unpaid dividends shall be paid in accordance with
the provisions of Section 4(d).
(m) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of Series Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series Preferred by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional share, the Company shall, in lieu of
issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined in good faith
by the Board of Directors) on the date of conversion.
(n) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series Preferred, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series Preferred. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series Preferred, the
Company will promptly take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but
13
<PAGE> 14
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
(o) NOTICES. Any notice required by the provisions of this Section 4
shall be in writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified, (ii) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient; if not, then on
the next business day, (iii) five (5) days after having been sent by registered
or certified mail, return receipt requested, postage prepaid, or (iv) one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All notices shall be
addressed to each holder of record at the address of such holder appearing on
the books of the Company.
(p) PAYMENT OF TAXES. The Company will pay all taxes (other than
taxes based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion of
shares of Series Preferred.
(q) NO DILUTION OR IMPAIRMENT. Without the consent of the holders of
the then outstanding Series Preferred as required under Section 2(b), the
Company shall not amend its Certificate of Incorporation or participate in any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or take any other voluntary action, for the purpose of
avoiding or seeking to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but shall at all times in
good faith assist in carrying out all such action as may be reasonably necessary
or appropriate in order to protect the conversion rights of the holders of the
Series Preferred against dilution or other impairment.
5. NO REISSUANCE OF SERIES PREFERRED.
Any and all shares of Series Preferred acquired by the Company by
reason of redemption, purchase, conversion or otherwise shall be cancelled and
shall not be reissued. This Amended and Restated Certificate of Incorporation
shall be promptly and appropriately amended to effect the corresponding
reduction in the Company's authorized Series Preferred.
V.
A. A director of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
made not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
14
<PAGE> 15
B. Any repeal or modification of this Article V shall only be
prospective and shall not effect the rights under this Article V in effect at
the time of the alleged occurrence of any action or omission to act giving rise
to liability.
VI.
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. Subject to Article IV,
Section D(2)(b)(iii), the number of directors which shall constitute the whole
Board of Directors shall be fixed by the Board of Directors in the manner
provided in this Certificate of Incorporation and the Bylaws.
B. Subject to the indemnification provisions in the Bylaws, the Board of
Directors may from time to time make, amend, supplement or repeal the Bylaws;
provided, however, that the stockholders may change or repeal any Bylaw adopted
by the Board of Directors by the affirmative vote of the percentage of holders
of capital stock as provided therein; and, provided further, that no amendment
or supplement to the Bylaws adopted by the Board of Directors shall vary or
conflict with any amendment or supplement thus adopted by the stockholders.
C. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
* * * *
FOUR: This Amended and Restated Certificate of Incorporation has been
duly approved by the Board of Directors of this Corporation.
FIVE: This Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Sections 228, 242 and 245 of
the General Corporation Law of the State of Delaware by the Board of Directors
and the stockholders of the Corporation. The total number of outstanding shares
entitled to vote or act by written consent was 22,862,802 shares of Common
Stock, 5,139,996 shares of Series A Preferred Stock, 8,955,225 shares of Series
B Preferred Stock and 4,375,000 shares of Series C Preferred Stock. A majority
of the outstanding shares of Common Stock, a majority of the outstanding shares
of Series A Preferred Stock, a majority of the outstanding shares of Series B
Preferred Stock, a majority of the outstanding shares of Series C Preferred
Stock and 2/3 of the outstanding Preferred Stock voting as a single class
approved this Amended and Restated Certificate of
15
<PAGE> 16
Incorporation by written consent in accordance with Section 228 of the General
Corporation Law of the State of Delaware and written notice of such was given by
the Corporation in accordance with said Section 228.
16
<PAGE> 17
IN WITNESS WHEREOF, PacketVideo Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by its President and attested
to by its Secretary in San Diego, California this 9th day of March, 2000.
PACKETVIDEO CORPORATION
By: /s/ JAMES C. BRAILEAN
---------------------------------------
James C. Brailean, President
ATTEST:
By: /s/ JOEL B. ESPELIEN
---------------------------------
Joel B. Espelien, Secretary
<PAGE> 1
EXHIBIT 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF
PACKETVIDEO CORPORATION
PACKETVIDEO CORPORATION (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"), hereby certifies as follows:
FIRST: The name of the Corporation is PacketVideo Corporation. A
Certificate of Incorporation of the Corporation was originally filed by the
Corporation with the Secretary of State of Delaware on July 22, 1999. The
Corporation was originally incorporated under the name M4, Inc.
SECOND: This Restated Certificate of Incorporation which restates,
amends and supersedes the Certificate of Incorporation of the Corporation as
originally filed and thereafter amended and restated, was duly adopted in
accordance with the provisions of Sections 242 and 245 of the DGCL, and was
approved by written consent of the stockholders of the Corporation given in
accordance with the provisions of Section 228 of the DGCL (prompt notice of such
action having been given to those stockholders who did not consent in writing).
THIRD: The text of the Certificate of Incorporation of the Corporation
is hereby amended, restated and superseded to read in its entirety as follows:
ARTICLE I.
NAME
The name of this Corporation is PacketVideo Corporation.
ARTICLE II.
PURPOSE
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE III.
CAPITAL STOCK
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is two hundred five
million (205,000,000) shares. Two hundred million (200,000,000) shares shall be
Common Stock, each having a par value of one-tenth of one cent ($.001). Five
million (5,000,000) shares shall be Preferred Stock, each having a par value of
one-tenth of one cent ($.001).
1.
<PAGE> 2
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the DGCL, to fix or alter from time
to time the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions of any wholly
unissued series of Preferred Stock, and to establish from time to time the
number of shares constituting any such series or any of them; and to increase or
decrease the number of shares of any series subsequent to the issuance of shares
of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be decreased in
accordance with the foregoing sentence, the shares constituting such decrease
shall resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
ARTICLE IV.
REGISTERED AGENT
The address of the registered office of the Corporation in the State of
Delaware is Corporation Service Company, 1013 Centre Road, City of Wilmington,
County of New Castle.
ARTICLE V.
MANAGEMENT AND BYLAWS
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
1. The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. BOARD OF DIRECTORS
a. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1993
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three
2.
<PAGE> 3
years. At the third annual meeting of stockholders following the Initial Public
Offering, the term of office of the Class III directors shall expire and Class
III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting. During such time or times that the Corporation is subject
to Section 2115(b) of the California General Corporation Law ("CGCL"), this
Section A.2.a of this Article V shall become effective and be applicable only
when the Corporation is a "listed" corporation within the meaning of Section
301.5 of the CGCL.
b. In the event that the Corporation is unable to have a
classified board under applicable law, Section 301.5 of the CGCL, Section A. 2.
a. of this Article V shall not apply and all directors shall be elected at each
annual meeting of stockholders to hold office until the next annual meeting.
c. No stockholder entitled to vote at an election for
directors may cumulate votes to which such stockholder is entitled, unless, at
the time of such election, the Corporation (i) is subject to Section 2115(b) of
the CGCL AND (ii) is not or ceases to be a "listed" corporation under Section
301.5 of the CGCL. During this time, every stockholder entitled to vote at an
election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,
however, shall be entitled to so cumulate such stockholder's votes unless (i)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (ii) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. Under cumulative voting, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. REMOVAL OF DIRECTORS
a. During such time or times that the Corporation is
subject to Section 2115(b) of the CGCL, the Board of Directors or any individual
director may be removed from office at any time without cause by the affirmative
vote of the holders of at least a majority of the outstanding shares entitled to
vote on such removal; provided, however, that unless the entire Board is
removed, no individual director may be removed when the votes cast against such
director's removal, or not consenting in writing to such removal, would be
sufficient to elect that director if voted cumulatively at an election which the
same total number of votes were cast (or, if such action is taken by written
consent, all shares entitled to vote were voted) and the entire number of
directors authorized at the time of such director's most recent election were
then being elected.
3.
<PAGE> 4
b. At any time or times that the Corporation is not
subject to Section 2115(b) of the CGCL and subject to any limitations imposed by
law, Section A. 3. a. above shall no longer apply and the Board of Directors or
any individual director may be removed from office at any time without cause by
the affirmative vote of the holders of at least a majority of the outstanding
shares entitled to vote on such removal.
4. VACANCIES
a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
b. If at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the total
number of the shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the directors
then in offices as aforesaid, which election shall be governed by Section 211 of
the DGCL.
c. At any time or times that the Corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall constitute
less than a majority of the directors then in office, then
(i) Any holder or holders of an aggregate of five
percent (5%) or more of the total number of shares at the time outstanding
having the right to vote for those directors may call a special meeting of
stockholders; or
(ii) The Superior Court of the proper county shall,
upon application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
B.
1. BYLAW AMENDMENTS
Subject to paragraph (h) of Section 43 of the Bylaws, the
Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote
of at least sixty-six and two-
4.
<PAGE> 5
thirds percent (66-2/3%) of the voting power of all of the then-outstanding
shares of the voting stock of the Corporation entitled to vote. The Board of
Directors shall also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the
Corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
ARTICLE VI.
LIMITATION OF LIABILITY
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. This Corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the CGCL) for breach of duty to the Corporation
and its shareholders through bylaw provisions or through agreements with the
agents, or through shareholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject, at any
time or times the Corporation is subject to Section 2115(b) to the limits on
such excess indemnification set forth in Section 204 of the CGCL.
C. Any repeal or modification of this Article VI shall be prospective
and shall not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
ARTICLE VII.
AMENDMENTS AND REPEAL
A. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
5.
<PAGE> 6
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the voting stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI,
and VII.
IN WITNESS WHEREOF, the undersigned has caused this Restated Certificate
of Incorporation to be duly executed on behalf of the Corporation on
__________________, 2000.
PACKETVIDEO CORPORATION
By:
-------------------------------
6.
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED BYLAWS
OF
PACKETVIDEO CORPORATION
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I Offices................................................................... 1
Section 1. Registered Office..................................................... 1
Section 2. Other Offices......................................................... 1
ARTICLE II Corporate Seal............................................................ 1
Section 3. Corporate Seal........................................................ 1
ARTICLE III Stockholders' Meetings.................................................... 1
Section 4. Place of Meetings..................................................... 1
Section 5. Annual Meeting........................................................ 1
Section 6. Special Meetings...................................................... 2
Section 7. Notice of Meetings.................................................... 2
Section 8. Quorum................................................................ 3
Section 9. Adjournment and Notice of Adjourned Meetings.......................... 3
Section 10. Voting Rights......................................................... 3
Section 11. Joint Owners of Stock................................................. 4
Section 12. List of Stockholders.................................................. 4
Section 13. Action Without Meeting................................................ 4
Section 14. Organization.......................................................... 5
ARTICLE IV Directors................................................................. 6
Section 15. Number and Term of Office............................................. 6
Section 16. Powers................................................................ 6
Section 17. Term of Directors..................................................... 6
Section 18. Vacancies............................................................. 7
Section 19. Resignation........................................................... 7
Section 20. Removal............................................................... 8
Section 21. Meetings.............................................................. 8
Section 22. Quorum and Voting..................................................... 9
Section 23. Action Without Meeting................................................ 10
Section 24. Fees and Compensation................................................. 10
Section 25. Committees............................................................ 10
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 26. Organization.......................................................... 12
ARTICLE V Officers.................................................................. 12
Section 27. Officers Designated................................................... 12
Section 28. Tenure and Duties of Officers......................................... 12
Section 29. Delegation of Authority............................................... 14
Section 30. Resignations.......................................................... 14
Section 31. Removal............................................................... 14
ARTICLE VI Execution Of Corporate Instruments And Voting Of Securities Owned
By The Corporation........................................................ 15
Section 32. Execution of Corporate Instruments.................................... 15
Section 33. Voting of Securities Owned by the Corporation......................... 15
ARTICLE VII Shares Of Stock........................................................... 16
Section 34. Form and Execution of Certificates.................................... 16
Section 35. Lost Certificates..................................................... 16
Section 36. Transfers............................................................. 17
Section 37. Fixing Record Dates................................................... 17
Section 38. Registered Stockholders............................................... 18
ARTICLE VIII Other Securities Of The Corporation....................................... 18
Section 39. Execution of Other Securities......................................... 18
ARTICLE IX Dividends................................................................. 19
Section 40. Declaration of Dividends.............................................. 19
Section 41. Dividend Reserve...................................................... 19
ARTICLE X Fiscal Year............................................................... 19
Section 42. Fiscal Year........................................................... 19
ARTICLE XI Indemnification........................................................... 20
Section 43. Indemnification of Directors, Executive Officers, Other
Officers, Employees and Other Agents.................................. 20
ARTICLE XII Notices................................................................... 23
Section 44. Notices............................................................... 23
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE XIII Amendments................................................................ 25
Section 45. Amendments............................................................ 25
ARTICLE XIV Loans To Officers......................................................... 25
Section 46. Loans to Officers..................................................... 25
ARTICLE XV Right of First Refusal.................................................... 26
Section 47. Right of First Refusal................................................ 26
ARTICLE XVI Miscellaneous............................................................. 29
Section 48. Annual Report......................................................... 29
</TABLE>
iii.
<PAGE> 5
AMENDED AND RESTATED BYLAWS
OF
PACKETVIDEO CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETING. The annual meeting of the stockholders of the
corporation, for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time as may be designated from time to time by the Board of Directors.
1.
<PAGE> 6
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), or (iv) by the holders of shares entitled to cast not
less than ten percent (10%) of the votes at the meeting, and shall be held at
such place, on such date, and at such time as the Board of Directors, shall fix.
At any time or times that the corporation is subject to Section 2115(b) of the
California Corporations Code, stockholders holding five percent (5%) or more of
the outstanding shares shall have the right to call a special meeting of
stockholders as set forth in Section 18(b) herein.
(b) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
general nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these Bylaws. If the notice is not given within sixty
(60) days after the receipt of the request, the person or persons requesting the
meeting may set the time and place of the meeting and give the notice. Nothing
contained in this paragraph (b) shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the Board
of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of
2.
<PAGE> 7
stock entitled to vote shall constitute a quorum for the transaction of
business. In the absence of a quorum, any meeting of stockholders may be
adjourned, from time to time, either by the chairman of the meeting or by vote
of the holders of a majority of the shares represented thereat, but no other
business shall be transacted at such meeting. The stockholders present at a duly
called or convened meeting, at which a quorum is present, may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. Except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws, all action taken by the
holders of a majority of the vote cast, excluding abstentions, at any meeting at
which a quorum is present shall be valid and binding upon the corporation;
provided, however, that directors shall be elected by a plurality of the votes
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors. Where a separate vote by a class
or classes or series is required, except where otherwise provided by the statute
or by the Certificate of Incorporation or these Bylaws, a majority of the
outstanding shares of such class or classes or series, present in person or
represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and, except where otherwise provided by the
statute or by the Certificate of Incorporation or these Bylaws, the affirmative
vote of the majority (plurality, in the case of the election of directors) of
the votes cast, including abstentions, by the holders of shares of such class or
classes or series shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
3.
<PAGE> 8
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the General Corporation Law of the State of Delaware if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed under
4.
<PAGE> 9
such section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written notice and written consent
have been given as provided in Section 228 of the General Corporation Law of
Delaware.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed by resolutions adopted by the Board
of Directors from time to time. Directors need not be stockholders unless so
required by the Certificate of Incorporation. If for any cause, the directors
shall not have been elected at an annual meeting, they may be elected as soon
thereafter as convenient at a special meeting of the stockholders called for
that purpose in the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. TERM OF DIRECTORS.
5.
<PAGE> 10
(a) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
directors shall be elected at each annual meeting of stockholders for a term of
one year. Each director shall serve until his successor is duly elected and
qualified or until his death, resignation or removal. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of any
incumbent director.
(b) No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115(b) of the California
Corporations Code. During such time or times that the corporation is subject to
Section 2115(b) of the California Corporations Code, every stockholder entitled
to vote at an election for directors may cumulate such stockholder's votes and
give one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,
however, shall be entitled to so cumulate such stockholder's votes unless (a)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (b) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. Under cumulative voting, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Bylaw in the case
of the death, removal or resignation of any director.
(b) At any time or times that the corporation is subject to
Section 2115(b) of the California Corporations Code, if, after the filling of
any vacancy, the directors then in office who have been elected by stockholders
shall constitute less than a majority of the directors then in office, then
(1) any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders; or
6.
<PAGE> 11
(2) the Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of the stockholders, to be held to elect the entire board, all in
accordance with Section 305(c) of the California Corporations Code, the term of
office of any director shall terminate upon that election of a successor.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL.
(a) If the corporation is not subject to Section 2115 of the
California Corporations Code, subject to the rights of the holders of any series
of Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of all the then-outstanding shares of the Voting Stock.
(b) During such time that the corporation is subject to Section
2115 of the California Corporations Code, subject to the rights of the holders
of any series of Preferred Stock, the Board of Directors or any individual
director may be removed from office at any time (i) with cause by the
affirmative vote of the holders of a majority of the voting power of all the
then-outstanding shares of voting stock of the corporation, entitled to vote at
an election of directors (the "Voting Stock") or (ii) without cause by the
affirmative vote of a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal would be sufficient to elect that director if voted cumulatively at an
election at which the same total number of votes cast were cast and the entire
number of directors authorized at the time of such director's most recent
election were then being elected.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and
7.
<PAGE> 12
such meeting shall be held for the purpose of electing officers and transacting
such other business as may lawfully come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the Chief Executive Officer or any two of
the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, facsimile, telegraph or telex, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in
8.
<PAGE> 13
accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a quorum
is present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be required
by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, including without limitation the power or authority
to declare a dividend, to authorize the issuance of stock and to adopt a
certificate of ownership and merger, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the
9.
<PAGE> 14
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the bylaws of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall such committee have the powers denied to the Executive Committee
in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee. The
membership of a committee member shall terminate on the date of his death or
voluntary resignation from the committee or from the Board of Directors. The
Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members of
the committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
10.
<PAGE> 15
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the Chief Executive Officer, or if the Chief Executive Officer is
absent, the most senior Vice President, or, in the absence of any such officer,
a chairman of the meeting chosen by a majority of the directors present, shall
preside over the meeting. The Secretary, or in his absence, an Assistant
Secretary directed to do so by the Chief Executive Officer, shall act as
secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, one or more Vice Presidents,
the Secretary, the Chief Financial Officer, the Treasurer, the Controller, all
of whom, if and when designated, shall be elected at the annual organizational
meeting of the Board of Directors. The Board of Directors may also appoint one
or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and
such other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no Chief Executive Officer, then
the Chairman of the Board of Directors shall also serve as the Chief Executive
Officer of the corporation and shall have the powers and duties prescribed in
paragraph (c) of this Section 28.
(c) DUTIES OF CHIEF EXECUTIVE OFFICER. The Chief Executive
Officer shall preside at all meetings of the stockholders and at all meetings of
the Board of Directors, unless the Chairman of the Board of Directors has been
appointed and is present. The Chief Executive Officer shall, subject to the
control of the Board of Directors, have general supervision, direction and
control of the business and officers of the corporation. The Chief Executive
Officer shall
11.
<PAGE> 16
perform other duties commonly incident to his office and shall also perform such
other duties and have such other powers as the Board of Directors shall
designate from time to time.
(d) DUTIES OF PRESIDENT. If there is no Chief Executive Officer,
the President shall be the Chief Executive Officer and shall perform the duties
as indicated in subsection (c) above. If there is a Chief Executive Officer, the
President shall perform such duties and have such powers as the Board of
Directors shall designate from time to time.
(e) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the Chief Executive Officer in the absence or disability
of the Chief Executive Officer or whenever the office of Chief Executive Officer
is vacant. The Vice Presidents shall perform other duties commonly incident to
their office and shall also perform such other duties and have such other powers
as the Board of Directors or the Chief Executive Officer shall designate from
time to time.
(f) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The Chief Executive Officer may direct any
Assistant Secretary to assume and perform the duties of the Secretary in the
absence or disability of the Secretary, and each Assistant Secretary shall
perform other duties commonly incident to his office and shall also perform such
other duties and have such other powers as the Board of Directors or the Chief
Executive Officer shall designate from time to time.
(g) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the Chief Executive Officer. The Chief Financial Officer, subject
to the order of the Board of Directors, shall have the custody of all funds and
securities of the corporation. The Chief Financial Officer shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the Chief Executive
Officer shall designate from time to time. The Chief Executive Officer may
direct the Treasurer or any Assistant Treasurer, or the Controller or any
Assistant Controller to assume and perform the duties of the Chief Financial
Officer in the absence or disability of the Chief Financial Officer, and each
Treasurer and Assistant Treasurer and each Controller and Assistant Controller
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
or the Chief Executive Officer shall designate from time to time.
12.
<PAGE> 17
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the Chief Executive Officer or to
the Secretary. Any such resignation shall be effective when received by the
person or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the Chief Executive Officer or any Vice President,
and by the Secretary or Treasurer or any Assistant Secretary or Assistant
Treasurer. All other instruments and documents requiring the corporate
signature, but not requiring the corporate seal, may be executed as aforesaid or
in such other manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositories on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
13.
<PAGE> 18
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, or any
Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the Chief
Executive Officer or any Vice President and by the Treasurer or Assistant
Treasurer or the Secretary or Assistant Secretary, certifying the number of
shares owned by him in the corporation. Any or all of the signatures on the
certificate may be facsimiles. In case any officer, transfer agent, or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued with the same effect as if he were such
officer, transfer agent, or registrar at the date of issue. Each certificate
shall state upon the face or back thereof, in full or in summary, all of the
powers, designations, preferences, and rights, and the limitations or
restrictions of the shares authorized to be issued or shall, except as otherwise
required by law, set forth on the face or back a statement that the corporation
will furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional, or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Within a
reasonable time after the issuance or transfer of uncertificated stock, the
corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to this section or otherwise required by law or with respect to this
section a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same class
and series shall be identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost,
14.
<PAGE> 19
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. The
corporation may require, as a condition precedent to the issuance of a new
certificate or certificates, the owner of such lost, stolen, or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require or to give the corporation a surety bond in
such form and amount as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost, stolen, or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the Delaware General Corporation Law.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. Any stockholder of record
seeking to have the stockholders authorize or take corporate action by written
consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within 10 days after the date on which such a request is received,
adopt a resolution fixing the record date. If no record date has been fixed by
the Board of Directors within 10 days of the date on which such a request is
received, the record date for determining stockholders
15.
<PAGE> 20
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is required by applicable law, shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the Chief Executive Officer or any Vice President, or such other
person as may be authorized by the Board of Directors, and the corporate seal
impressed thereon or a facsimile of such seal imprinted thereon and attested by
the signature of the Secretary or an Assistant Secretary, or the Chief Financial
Officer or Treasurer or an Assistant Treasurer; provided, however, that where
any such bond, debenture or other corporate security shall be authenticated by
the manual signature, or where permissible facsimile signature, of a trustee
under an indenture pursuant to which such bond, debenture or other corporate
security shall be issued, the signatures of the persons signing and attesting
the corporate seal on such bond, debenture or other corporate security may be
the imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant
16.
<PAGE> 21
Treasurer of the corporation or such other person as may be authorized by the
Board of Directors, or bear imprinted thereon the facsimile signature of such
person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and officers to the fullest extent not prohibited by the
Delaware General Corporation Law; provided, however, that the corporation may
modify the extent of such indemnification by
17.
<PAGE> 22
individual contracts with its directors and officers; and, provided, further,
that the corporation shall not be required to indemnify any director or officer
in connection with any proceeding (or part thereof) initiated by such person
unless (i) such indemnification is expressly required to be made by law, (ii)
the proceeding was authorized by the Board of Directors of the corporation,
(iii) such indemnification is provided by the corporation, in its sole
discretion, pursuant to the powers vested in the corporation under the Delaware
General Corporation Law or (iv) such indemnification is required to be made
under subsection (d).
(b) EMPLOYEES AND OTHER AGENTS. The corporation shall have power
to indemnify its employees and other agents as set forth in the Delaware General
Corporation Law.
(c) EXPENSES. The corporation shall advance to any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer, of
the corporation, or is or was serving at the request of the corporation as a
director or executive officer of another corporation, partnership, joint
venture, trust or other enterprise, prior to the final disposition of the
proceeding, promptly following request therefor, all expenses incurred by any
director or officer in connection with such proceeding upon receipt of an
undertaking by or on behalf of such person to repay said amounts if it should be
determined ultimately that such person is not entitled to be indemnified under
this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph
(e) of this Bylaw, no advance shall be made by the corporation to an officer of
the corporation (except by reason of the fact that such officer is or was a
director of the corporation in which event this paragraph shall not apply) in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, if a determination is reasonably and promptly made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to the proceeding, or (ii) if such quorum is not obtainable,
or, even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate clearly
and convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation.
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or officer. Any right to indemnification or
advances granted by this Bylaw to a director or officer shall be enforceable by
or on behalf of the person holding such right in any court of competent
jurisdiction if (i) the claim for indemnification or advances is denied, in
whole or in part, or (ii) no disposition of such claim is made within ninety
(90) days of request therefor. The claimant in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make
18.
<PAGE> 23
it permissible under the Delaware General Corporation Law for the corporation to
indemnify the claimant for the amount claimed. In connection with any claim by
an officer of the corporation (except in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such executive officer is or was a director of the corporation) for advances,
the corporation shall be entitled to raise a defense as to any such action clear
and convincing evidence that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
19.
<PAGE> 24
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
20.
<PAGE> 25
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing,
and all notices given by facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any
21.
<PAGE> 26
action or meeting which shall be taken or held without notice to any such person
with whom communication is unlawful shall have the same force and effect as if
such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least a majority of the voting power of all of the
then-outstanding shares of the Voting Stock. The Board of Directors shall also
have the power to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
22.
<PAGE> 27
ARTICLE XV
RIGHT OF FIRST REFUSAL
SECTION 47. RIGHT OF FIRST REFUSAL. No stockholder shall sell, assign,
pledge, or in any manner transfer any of the shares of stock of the corporation
or any right or interest therein, whether voluntarily or by operation of law, or
by gift or otherwise, except by a transfer which meets the requirements
hereinafter set forth in this Bylaws:
(a) If the stockholder receives from anyone a bona fide offer
acceptable to the stockholder to purchaser any of his shares of Stock, then the
stockholder shall first given written notice thereof to the corporation. The
notice shall name the proposed transferee and state the number of shares to be
transferred, the price per share and all other terms and conditions of the
offer.
(b) For fifteen (15) days following receipt of such notice, the
corporation shall have the option to purchase all or any lesser part of the
shares specified in the notice at the price and upon the terms set forth in such
bona fide offer. In the event the corporation elects to purchase all the shares,
it shall give written notice to the selling stockholder of its election and
settlement for said shares shall be made as provided below in paragraph (d).
(c) In the event the corporation does not elect to acquire all of
the shares specified in the selling stockholder's notice, the Secretary of the
corporation shall, within fifteen (15) days of receipt of said selling
stockholder's notice, given written notice thereof to the stockholders of the
corporation other than the selling stockholder. Said written notice shall state
the number of shares that the corporation has elected to purchase and the number
of shares remaining available for purchase (which shall be the same as the
number contained in said selling stockholder's notice, less any such shares that
the corporation has elected to purchase). Each of the other stockholders shall
have the option to purchase that proportion of the shares available for purchase
as the number of shares owned by each of said other stockholders bears to the
total issued and outstanding shares of the corporation, excepting those shares
owned by the selling stockholder. A stockholder electing to exercise such option
shall, within ten (10) days after mailing of the corporation's notice, give
notice to the corporation specifying the number of shares such stockholder will
purchase. Within such ten-day period, each of said other stockholders shall give
written notice stating how many additional shares such stockholder will purchase
if additional shares are made available. Failure to response in writing within
said ten-day period to the notice given by the Secretary of the corporation
shall be deemed a rejection of such stockholder's right to acquire a
proportionate part of the shares of the selling stockholder. In the event one or
more stockholders do not elect to acquire the shares available to them, said
shares shall be allocated on a pro rata basis to the stockholders who requested
shares in addition to their pro rata allotment.
(d) In the event the corporation and/or stockholder, other than
the selling stockholder, elect to acquire any of the shares of the selling
stockholder as specified in said selling stockholder's notice, the Secretary of
the corporation shall so notify the selling
23.
<PAGE> 28
stockholder and settlement thereof shall be made in cash within thirty (30) days
after the Secretary of the corporation receives said selling stockholder's
notice; provided that if the terms of payment set forth in said selling
stockholder's notice were other than cash against delivery, the corporation
and/or its other stockholders shall pay for said shares on the same terms and
conditions set forth in said selling stockholder's notice.
(e) In the event the corporation and/or its other stockholders do
not elect to acquire all of the shares specified in the selling stockholder's
notice, said selling stockholder may, within the sixty-day period following the
expiration of the option rights granted to the corporation and other
stockholders herein, sell elsewhere the shares specified in said selling
stockholder's notice which were not acquired by the corporation and/or its other
stockholders, in accordance with the provisions of paragraph (d) of this bylaw,
provided that said sale shall not be on terms and conditions more favorable to
the purchaser than those contained in the bona fide offer set forth in said
selling stockholder's notice.
(f) Anything to the contrary contained herein notwithstanding,
the following transactions shall be exempt from the provisions of this Bylaw:
(1) A stockholder's transfer of any or all shares held
either during such stockholder's lifetime or on death by will or intestacy to
such stockholder's immediate family. "Immediate family" as used herein shall
mean spouse, lineal descendant, father, mother, brother, or sister of the
stockholder making such transfer and shall include any trust established
primarily for the benefit of the stockholder or his immediately family.
(2) A stockholder's bona fide pledge or mortgage of any
shares with a commercial lending institution, provided that any subsequent
transfer of said shares by said institution shall be conducted in the manner set
forth in this Section 47.
(3) A stockholder's transfer of any or all of such
stockholder's shares to the corporation or to any other stockholder of the
corporation.
(4) A stockholder's transfer of any or all of such
stockholder's shares to a person who, at the time of such transfer, is an
officer or director of the corporation.
(5) A corporate stockholder's transfer of any or all of
its shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate stockholder, or pursuant to a sale of all or substantially all of the
stock or assets of a corporate stockholder.
(6) A corporate stockholder's transfer of any or all of
its shares to any or all of its stockholders.
(7) A transfer by a stockholder which is a limited or
general partnership to any or all of its partners or retired partners.
24.
<PAGE> 29
(8) A transfer of shares of Series B Preferred, Series C
Preferred Stock or Series D Preferred Stock or shares of Common Stock issued
upon conversion of Series B Preferred Stock, Series C Preferred Stock or Series
D Preferred Stock;
In any such case, the transferee, assignee, or other recipient shall
receive and hold such stock subject to the provisions of this Bylaw, and there
shall be no further transfer of such stock except in accordance with this Bylaw.
(g) The provisions of this Section 47 may be waived with respect
to any transfer either by the corporation, upon duly authorized action of its
Board of Directors, or by the stockholders, upon the express written consent of
the owners of a majority of the voting power of the corporation (excluding the
votes represented by those shares to be sold by the selling stockholder). This
Section 47 may be amended or repealed either by a duly authorized action of the
Board of Directors or by the stockholders, upon the express vote or written
consent of the owners of a majority of the voting power of the corporation.
(h) Any sale or transfer, or purported sale or transfer, of
securities of the corporation shall be null and void unless the terms,
conditions, and provisions of this Bylaw are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate on
either of the following date, whichever shall first occur:
(1) On August 1, 2008; or
(2) Upon the date securities of the corporation are first
offered to the public pursuant to a registration statement filed with, and
declared effective by, the United States Securities and Exchange Commission
under the Securities Act of 1933, as amended.
(j) The certificates representing shares of stock of the
corporation shall bear on their face the following legend so long as the
foregoing right of first refusal remains in effect:
"The shares represented by this certificate are subject to a right of
first refusal option in favor of the corporation and/or its assignee(s),
as provided in the bylaws of the corporation."
ARTICLE XVI
MISCELLANEOUS
SECTION 48. ANNUAL REPORT.
(a) At such a time when Section 2115 of the California
Corporations Code shall apply to the Company, subject to the provisions of
paragraph (b) of this Bylaw, the Board of Directors shall cause an annual report
to be sent to each stockholder of the corporation not later than one hundred
twenty (120) days after the close of the corporation's fiscal year. Such
25.
<PAGE> 30
report shall include a balance sheet as of the end of such fiscal year and an
income statement and statement of changes in financial position for such fiscal
year, accompanied by any report thereon of independent accounts or, if there is
no such report, the certificate of an authorized officer of the corporation that
such statements were prepared without audit from the books and records of the
corporation. When there are more than 100 stockholders of record of the
corporation's shares, as determined by Section 605 of the California
Corporations Code, additional information as required by Section 1501(b) of the
California Corporations Code shall also be contained in such report, provided
that if the corporation has a class of securities registered under Section 12 of
the 1934 Act, that Act shall take precedence. Such report shall be sent to
stockholders at least fifteen (15) days prior to the next annual meeting of
stockholders after the end of the fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders of record
of the corporation's shares, the requirement of sending of an annual report to
the stockholders of the corporation is hereby expressly waived.
26.
<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
PACKETVIDEO CORPORATION
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I Offices....................................................................1
Section 1. Registered Office......................................................1
Section 2. Other Offices..........................................................1
ARTICLE II Corporate Seal.............................................................1
Section 3. Corporate Seal.........................................................1
ARTICLE III Stockholders' Meetings.....................................................1
Section 4. Place Of Meetings......................................................1
Section 5. Annual Meetings........................................................1
Section 6. Special Meetings.......................................................3
Section 7. Notice Of Meetings.....................................................4
Section 8. Quorum.................................................................5
Section 9. Adjournment And Notice Of Adjourned Meetings...........................5
Section 10. Voting Rights..........................................................5
Section 11. Joint Owners Of Stock..................................................6
Section 12. List Of Stockholders...................................................6
Section 13. Action Without Meeting.................................................6
Section 14. Organization...........................................................6
ARTICLE IV Directors..................................................................7
Section 15. Number And Term Of Office..............................................7
Section 16. Powers.................................................................7
Section 17. Classes of Directors...................................................7
Section 18. Vacancies..............................................................8
Section 19. Resignation............................................................9
Section 20. Removal................................................................9
Section 21. Meetings..............................................................10
Section 22. Quorum And Voting.....................................................10
Section 23. Action Without Meeting................................................11
Section 24. Fees And Compensation.................................................11
Section 25. Committees............................................................11
Section 26. Organization..........................................................12
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE V Officers..................................................................13
Section 27. Officers Designated...................................................13
Section 28. Tenure And Duties Of Officers.........................................13
Section 29. Delegation Of Authority...............................................14
Section 30. Resignations..........................................................14
Section 31. Removal...............................................................14
ARTICLE VI Execution Of Corporate Instruments And Voting Of Securities Owned
By The Corporation........................................................15
Section 32. Execution Of Corporate Instruments....................................15
Section 33. Voting Of Securities Owned By The Corporation.........................15
ARTICLE VII Shares Of Stock...........................................................15
Section 34. Form And Execution Of Certificates....................................15
Section 35. Lost Certificates.....................................................16
Section 36. Transfers.............................................................16
Section 37. Fixing Record Dates...................................................16
Section 38. Registered Stockholders...............................................17
ARTICLE VIII Other Securities Of The Corporation.......................................17
Section 39. Execution Of Other Securities.........................................17
ARTICLE IX Dividends.................................................................18
Section 40. Declaration Of Dividends..............................................18
Section 41. Dividend Reserve......................................................18
ARTICLE X Fiscal Year...............................................................18
Section 42. Fiscal Year...........................................................18
ARTICLE XI Indemnification...........................................................18
Section 43. Indemnification Of Directors, Officers, Employees And Other
Agents................................................................18
ARTICLE XII Notices...................................................................21
Section 44. Notices...............................................................21
ARTICLE XIII Amendments................................................................23
Section 45. Amendments............................................................23
ARTICLE XIV Loans To Officers.........................................................23
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 46. Loans To Officers.....................................................23
</TABLE>
iii
<PAGE> 5
BYLAWS
OF
PACKETVIDEO CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETINGS.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors. Nominations of persons
for election to the Board of Directors of the corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders: (i) pursuant to the corporation's notice of meeting of
stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by
any stockholder of the corporation who was a stockholder of record at the time
of giving of notice provided for in the following paragraph,
1
<PAGE> 6
who is entitled to vote at the meeting and who complied with the notice
procedures set forth in Section 5.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (c) of Section 5(a) of these Bylaws, (i) the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation, (ii) such other business must be a proper matter for
stockholder action under the Delaware General Corporation Law ("DGCL"), (iii) if
the stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the corporation with a Solicitation Notice (as
defined in this Section 5(b)), such stockholder or beneficial owner must, in the
case of a proposal, have delivered a proxy statement and form of proxy to
holders of at least the percentage of the corporation's voting shares required
under applicable law to carry any such proposal, or, in the case of a nomination
or nominations, have delivered a proxy statement and form of proxy to holders of
a percentage of the corporation's voting shares reasonably believed by such
stockholder or beneficial owner to be sufficient to elect the nominee or
nominees proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice, and (iv) if no
Solicitation Notice relating thereto has been timely provided pursuant to this
section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving of
a stockholder's notice as described above. Such stockholder's notice shall set
forth: (A) as to each person whom the stockholder proposed to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (C) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the corporation's books, and of such beneficial
owner, (ii) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder and such beneficial owner, and
(iii)
2
<PAGE> 7
whether either such stockholder or beneficial owner intends to deliver a proxy
statement and form of proxy to holders of, in the case of the proposal, at least
the percentage of the corporation's voting shares required under applicable law
to carry the proposal or, in the case of a nomination or nominations, a
sufficient number of holders of the corporation's voting shares to elect such
nominee or nominees (an affirmative statement of such intent, a "Solicitation
Notice").
(c) Notwithstanding anything in the second sentence of Section
5(b) of these Bylaws to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the corporation
at least one hundred (100) days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Section 5 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5,
in order to include information with respect to a stockholder proposal in the
proxy statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
3
<PAGE> 8
directorships at the time any such resolution is presented to the Board of
Directors for adoption) or (iv) the holders of shares entitled to cast not less
than 10% of the votes at the meeting.
At any time or times that the corporation is subject to Section 2115(b) of the
California General Corporation Law ("CGCL"), stockholders holding five percent
(5%) or more of the outstanding shares shall have the right to call a special
meeting of stockholders only as set forth in Section 18(c) herein.
(b) If a special meeting is properly called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors are to be
elected pursuant to the corporation's notice of meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the event
the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of
4
<PAGE> 9
stockholders may be waived in writing, signed by the person entitled to notice
thereof, either before or after such meeting, and will be waived by any
stockholder by his attendance thereat in person or by proxy, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Any stockholder so waiving notice of such
meeting shall be bound by the proceedings of any such meeting in all respects as
if due notice thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by statute, the Certificate of Incorporation or these Bylaws,
in all matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes cast
by the holders of shares of such class or classes or series shall be the act of
such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
5
<PAGE> 10
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the DGCL, Section 217(b). If the instrument filed with the
Secretary shows that any such tenancy is held in unequal interests, a majority
or even-split for the purpose of subsection (c) shall be a majority or
even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING. No action shall be taken by the
stockholders except at an annual or special meeting of stockholders called in
accordance with these Bylaws, and no action shall be taken by the stockholders
by written consent.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without
6
<PAGE> 11
limitation, establishing an agenda or order of business for the meeting, rules
and procedures for maintaining order at the meeting and the safety of those
present, limitations on participation in such meeting to stockholders of record
of the corporation and their duly authorized and constituted proxies and such
other persons as the chairman shall permit, restrictions on entry to the meeting
after the time fixed for the commencement thereof, limitations on the time
allotted to questions or comments by participants and regulation of the opening
and closing of the polls for balloting on matters which are to be voted on by
ballot. Unless and to the extent determined by the Board of Directors or the
chairman of the meeting, meetings of stockholders shall not be required to be
held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. CLASSES OF DIRECTORS.
(a) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), covering the offer and sale of Common Stock of the corporation (the
"Initial Public Offering"), the directors shall be divided into three classes
designated as Class I, Class II and Class III, respectively. Directors shall be
assigned to each class in accordance with a resolution or resolutions adopted by
the Board of Directors. At the first annual meeting of stockholders following
the closing of the Initial Public Offering, the term of office of the Class I
directors shall expire and Class I directors shall be elected for a full term of
three years. At the second annual meeting of stockholders following the Initial
Public Offering, the term of office of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the third
annual meeting of stockholders following the Initial Public Offering, the term
of office of the Class III directors shall expire and Class III directors shall
be elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
During such time or times that the corporation is subject to Section 2115(b) of
the CGCL, this Section 17(a) shall become effective and apply only when the
corporation is a "listed" corporation within the meaning of Section 301.5 of the
CGCL.
7
<PAGE> 12
(b) In the event that the corporation is unable to have a
classified Board of Directors under applicable law, Section 17(a) of these
Bylaws shall not apply and all directors shall be elected at each annual meeting
of stockholders to hold office until the next annual meeting.
(c) No stockholder entitled to vote at an election for directors
may cumulate votes to which such stockholder is entitled, unless, at the time of
the election, the corporation (i) is subject to Section 2115(b) of the CGCL and
(ii) is not or ceases to be a "listed" corporation under Section 301.5 of the
CGCL. During this time, every stockholder entitled to vote at an election for
directors may cumulate such stockholder's votes and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which such stockholder's shares are otherwise entitled, or
distribute the stockholder's votes on the same principle among as many
candidates as such stockholder thinks fit. No stockholder, however, shall be
entitled to so cumulate such stockholder's votes unless (i) the names of such
candidate or candidates have been placed in nomination prior to the voting and
(ii) the stockholder has given notice at the meeting, prior to the voting, of
such stockholder's intention to cumulate such stockholder's votes. If any
stockholder has given proper notice to cumulate votes, all stockholders may
cumulate their votes for any candidates who have been properly placed in
nomination. Under cumulative voting, the candidates receiving the highest number
of votes, up to the number of directors to be elected, are elected.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Section 18 in the
case of the death, removal or resignation of any director.
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the
8
<PAGE> 13
directors chosen by the directors then in offices as aforesaid, which election
shall be governed by Section 211 of the DGCL.
(c) At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy, the directors
then in office who have been elected by stockholders shall constitute less than
a majority of the directors then in office, then
(1) Any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders; or
(2) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL.
(a) During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
(b) Following any date on which the corporation is no longer
subject to Section 2115(b) of the CGCL and subject to any limitations imposed by
law, Section 20(a) above shall no longer apply and the Board of Directors or any
individual director may be removed from office at any time without cause by the
affirmative vote of the holders of at least a majority of the outstanding shares
entitled to vote on such removal.
9
<PAGE> 14
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) REGULAR MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may be
held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of Directors and publicized
among all directors. No formal notice shall be required for regular meetings of
the Board of Directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance
10
<PAGE> 15
with the Certificate of Incorporation, a quorum of the Board of Directors shall
consist of a majority of the exact number of directors fixed from time to time
by the Board of Directors in accordance with the Certificate of Incorporation;
provided, however, at any meeting whether a quorum be present or otherwise, a
majority of the directors present may adjourn from time to time until the time
fixed for the next regular meeting of the Board of Directors, without notice
other than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a quorum
is present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be required
by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
11
<PAGE> 16
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President (if a director), or if the President is absent, the
most senior Vice President (if a director), or, in the absence of any such
person, a chairman of the meeting chosen by a majority of the directors present,
shall preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
12
<PAGE> 17
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers, as
the Board of Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
13
<PAGE> 18
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
14
<PAGE> 19
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights
15
<PAGE> 20
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the DGCL.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall, subject to applicable law, not be more than sixty (60) nor less than ten
(10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
16
<PAGE> 21
(b) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
17
<PAGE> 22
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation and applicable law.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS.
(a) DIRECTORS AND OFFICERS. The corporation shall indemnify its
directors and officers to the fullest extent not prohibited by the DGCL or any
other applicable law; provided, however, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
officers; and, provided, further, that the corporation shall not be required to
indemnify any director or officer in connection with any proceeding (or part
thereof) initiated by such person unless (i) such indemnification is expressly
required to be made by law, (ii) the proceeding was authorized by the Board of
Directors of the corporation, (iii) such indemnification is provided by the
corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the DGCL or any other applicable law or (iv) such
indemnification is required to be made under subsection (d).
(b) EMPLOYEES AND OTHER AGENTS. The corporation shall have power
to indemnify its employees and other agents as set forth in the DGCL or any
other applicable law. The Board of Directors shall have the power to delegate
the determination of whether indemnification shall be given to any such person
to such officers or other persons as the Board of Directors shall determine.
18
<PAGE> 23
(c) EXPENSES. The corporation shall advance to any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer, of
the corporation, or is or was serving at the request of the corporation as a
director or executive officer of another corporation, partnership, joint
venture, trust or other enterprise, prior to the final disposition of the
proceeding, promptly following request therefor, all expenses incurred by any
director or officer in connection with such proceeding upon receipt of an
undertaking by or on behalf of such person to repay said amounts if it should be
determined ultimately that such person is not entitled to be indemnified under
this Section 43 or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Section 43, no advance shall be made by the corporation to
an officer of the corporation (except by reason of the fact that such officer is
or was a director of the corporation in which event this paragraph shall not
apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
corporation.
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or officer. Any right to indemnification or
advances granted by this Section 43 to a director or officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
DGCL or any other applicable law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an officer of the
corporation (except in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such executive
officer is or was a director of the corporation) for advances, the corporation
shall be entitled to raise a defense as to any such action clear and convincing
evidence that such person acted in bad faith or in a manner that such person did
not believe to be in or not opposed to the best interests of the corporation, or
with respect to any criminal action or proceeding that such person acted without
reasonable cause to believe that his conduct was lawful. Neither the failure of
the corporation (including its Board of Directors, independent legal counsel or
its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the DGCL or
any other applicable law, nor an actual determination by the corporation
(including its Board of Directors,
19
<PAGE> 24
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct. In
any suit brought by a director or officer to enforce a right to indemnification
or to an advancement of expenses hereunder, the burden of proving that the
director or officer is not entitled to be indemnified, or to such advancement of
expenses, under this Section 43 or otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any applicable statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law, or by any other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the DGCL or any
other applicable law, the corporation, upon approval by the Board of Directors,
may purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Section 43.
(h) AMENDMENTS. Any repeal or modification of this Section 43
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and officer to the full
extent not prohibited by any applicable portion of this Section 43 that shall
not have been invalidated, or by any other applicable law. If this Section 43
shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
officer to the full extent under any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or
20
<PAGE> 25
judgment and any other costs and expenses of any nature or kind incurred in
connection with any proceeding.
(3) The term the "corporation" shall include, in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Section 43 with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Section 43.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex or telegram, except that such notice other
than one which is delivered personally shall be sent to such address as such
director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.
21
<PAGE> 26
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the DGCL, the certificate shall state, if such is the fact and if
notice is required, that notice was given to all persons entitled to receive
notice except such persons with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action
22
<PAGE> 27
taken by the corporation is such as to require the filing of a certificate under
any provision of the DGCL, the certificate need not state that notice was not
given to persons to whom notice was not required to be given pursuant to this
paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
23
<PAGE> 1
EXHIBIT 10.1
PACKETVIDEO CORPORATION
2000 EQUITY INCENTIVE PLAN
ORIGINALLY ADOPTED AS THE 1998 EQUITY INCENTIVE PLAN AUGUST 5, 1998
ORIGINALLY APPROVED BY THE STOCKHOLDERS AUGUST 12, 1998
AMENDED AND RESTATED MARCH 3, 2000
APPROVED BY STOCKHOLDERS MARCH ___, 2000
TERMINATION DATE: _______________, 2010
1. PURPOSES.
(a) AMENDMENT AND RESTATEMENT. The Plan amends and restates the
PacketVideo Corporation 1998 Equity Incentive Plan adopted August 5, 1998 (the
"PRIOR PLAN"). All outstanding options granted under the Prior Plan also shall
be governed by this Plan.
(b) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(c) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.
(d) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CHANGE IN CONTROL" means: (i) a sale or other disposition of all or
substantially all of the assets of the Company; (ii) a merger or consolidation
in which the Company is not the surviving entity; (iii) a reverse merger in
which the Company is the surviving entity but the shares of Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise; or (iv) an acquisition by any person, entity or group within the
meaning of Section 13(d) or 14(d) of the
1
<PAGE> 2
Exchange Act, or any comparable successor provisions (excluding any employee
benefit plan, or related trust, sponsored or maintained by the Company or an
Affiliate) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of securities
of the Company representing at least fifty percent (50%) of the combined voting
power entitled to vote in the election of Directors.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).
(f) "COMMON STOCK" means the common stock of the Company.
(g) "COMPANY" means PacketVideo Corporation, a Delaware corporation.
(h) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company for their services as Directors
or Directors who are merely paid a director's fee by the Company for their
services as Directors.
(i) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.
(j) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(k) "DIRECTOR" means a member of the Board of Directors of the Company.
(l) "DISABILITY" means the inability of a person, in the opinion of a
qualified physician acceptable to the Company, to perform the major duties of
that person's position with the Company or an Affiliate of the Company because
of the sickness or injury of the person.
2
<PAGE> 3
(m) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(o) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(p) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(s) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
3
<PAGE> 4
(v) "OPTIONHOLDER" OR "OPTIONEE" means a person to whom an Option is
granted pursuant to the Plan or, if applicable, such other person who holds an
outstanding Option.
(w) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(x) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
(y) "PLAN" means this PacketVideo Corporation 2000 Equity Incentive
Plan.
(z) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(aa) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(bb) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.
(cc) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(dd) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be
4
<PAGE> 5
permitted to receive Common Stock pursuant to a Stock Award; and the number of
shares of Common Stock with respect to which a Stock Award shall be granted to
each such person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan to a
Committee or Committees of one (1) or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or) (2)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.
(d) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
5
<PAGE> 6
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate ten million
(10,500,000) shares of Common Stock plus an annual increase to be added on the
first day of each calendar year beginning with January 1, 2001 equal to the
lesser of (i) five percent (5%) of the Company's outstanding shares on such date
(rounded to the nearest whole share and calculated on a fully diluted basis,
that is assuming the exercise (or conversion, as the case may be) of all
outstanding stock options, warrants to purchase common stock and securities
exercisable or convertible into common stock) or (ii) five million (5,000,000)
shares. Notwithstanding the foregoing, the Board may designate a smaller number
of shares of Common Stock to be added to the share reserve as of a particular
January 1.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the shares of Common Stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan. If any Common Stock acquired pursuant to the exercise of an Option
shall for any reason be repurchased by the Company under an unvested share
repurchase option provided under the Plan, the stock repurchased by the Company
under such repurchase option shall not be used for grants of Incentive Stock
Options.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS.
(i) A Ten Percent Stockholder shall not be granted an Incentive
Stock Option unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of the Common Stock at the date of
grant and the Option is not exercisable after the expiration of five (5) years
from the date of grant.
(c) SECTION 162(M) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options covering more than one million
(1,000,000) shares of Common Stock during any calendar year; provided, however
that to the extent that Options are granted in connection with the commencement
of employment of any person, the total number of shares of the Company's common
stock covered under such Options shall not exceed seven hundred thousand
(700,000) shares.
6
<PAGE> 7
(d) CONSULTANTS.
(i) A Consultant shall not be eligible for the grant of a Stock
Award if, at the time of grant, a Form S-8 Registration Statement under the
Securities Act ("Form S-8") is not available to register either the offer or the
sale of the Company's securities to such Consultant because of the nature of the
services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (e.g.,
on a Form S-3 Registration Statement) or (B) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.
(ii) Form S-8 generally are available to consultants and advisors
only if (i) they are natural persons; (ii) they provide bona fide services to
the issuer, its parents, its majority-owned subsidiaries or majority-owned
subsidiaries of the issuer's parent; and (iii) the services are not in
connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the issuer's securities.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:
(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option granted shall be exercisable
after the expiration of ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option on the
date the Option is granted. Notwithstanding the foregoing, an Incentive Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the Common Stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an
7
<PAGE> 8
assumption or substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.
(d) CONSIDERATION. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board. Unless otherwise specifically
provided in the Option, the purchase price of Common Stock acquired pursuant to
an Option that is paid by delivery to the Company of other Common Stock
acquired, directly or indirectly from the Company, shall be paid only by shares
of the Common Stock of the Company that have been held for more than six (6)
months (or such longer or shorter period of time required to avoid a charge to
earnings for financial accounting purposes). At any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.
8
<PAGE> 9
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement, or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.
(i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(j) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement, or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.
(k) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement or (2) the expiration of the term of such Option as set
forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
(l) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option
9
<PAGE> 10
prior to the full vesting of the Option. Any unvested shares of Common Stock so
purchased may be subject to a repurchase option in favor of the Company or to
any other restriction the Board determines to be appropriate. The Company will
not exercise its repurchase option until at least six (6) months (or such longer
or shorter period of time required to avoid a charge to earnings for financial
accounting purposes) have elapsed following exercise of the Option unless the
Board otherwise specifically provides in the Option.
(m) RE-LOAD OPTIONS.
(i) Without in any way limiting the authority of the Board to make
or not to make grants of Options hereunder, the Board shall have the authority
(but not an obligation) to include as part of any Option Agreement a provision
entitling the Optionholder to a further Option (a "Re-Load Option") in the event
the Optionholder exercises the Option evidenced by the Option Agreement, in
whole or in part, by surrendering other shares of Common Stock in accordance
with this Plan and the terms and conditions of the Option Agreement. Unless
otherwise specifically provided in the Option, the Optionholder shall not
surrender shares of Common Stock acquired, directly or indirectly from the
Company, unless such shares have been held for more than six (6) months (or such
longer or shorter period of time required to avoid a charge to earnings for
financial accounting purposes).
(ii) Any such Re-Load Option shall (1) provide for a number of
shares of Common Stock equal to the number of shares of Common Stock surrendered
as part or all of the exercise price of such Option; (2) have an expiration date
which is the same as the expiration date of the Option the exercise of which
gave rise to such Re-Load Option; and (3) have an exercise price which is equal
to one hundred percent (100%) of the Fair Market Value of the Common Stock
subject to the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option shall be subject to the same
exercise price and term provisions heretofore described for Options under the
Plan.
(iii) Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on the exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus
10
<PAGE> 11
agreement shall include (through incorporation of provisions hereof by reference
in the agreement or otherwise) the substance of each of the following
provisions:
(i) CONSIDERATION. A stock bonus may be awarded in consideration for
past services actually rendered to the Company or an Affiliate for its benefit.
(ii) VESTING. Shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event
a Participant's Continuous Service terminates, the Company may reacquire any or
all of the shares of Common Stock held by the Participant which have not vested
as of the date of termination under the terms of the stock bonus agreement.
(iv) TRANSFERABILITY. Rights to acquire shares of Common Stock under
the stock bonus agreement shall be transferable by the Participant only upon
such terms and conditions as are set forth in the stock bonus agreement, as the
Board shall determine in its discretion, so long as Common Stock awarded under
the stock bonus agreement remains subject to the terms of the stock bonus
agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
(i) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. The purchase price shall
not be less than eighty-five percent (85%) of the Common Stock's Fair Market
Value on the date such award is made or at the time the purchase is consummated.
(ii) CONSIDERATION. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other similar arrangement with the Participant; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion; provided, however, that at any time that the Company is
incorporated in Delaware, then payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by deferred
payment.
(iii) VESTING. Shares of Common Stock acquired under the restricted
stock purchase agreement may, but need not, be subject to a share repurchase
option in favor of the Company in accordance with a vesting schedule to be
determined by the Board.
11
<PAGE> 12
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event a
Participant's Continuous Service terminates, the Company may repurchase or
otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.
(v) TRANSFERABILITY. Rights to acquire shares of Common Stock under
the restricted stock purchase agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in the restricted stock
purchase agreement, as the Board shall determine in its discretion, so long as
Common Stock awarded under the restricted stock purchase agreement remains
subject to the terms of the restricted stock purchase agreement.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
12
<PAGE> 13
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of
Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award, provided, however, that no
shares of Common Stock are
13
<PAGE> 14
withheld with a value exceeding the minimum amount of tax required to be
withheld by law; or (iii) delivering to the Company owned and unencumbered
shares of Common Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common
Stock subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)
(b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then all outstanding Stock Awards shall terminate
immediately prior to such event.
(c) CHANGE IN CONTROL. In the event of a Change in Control, then any
surviving corporation or acquiring corporation shall assume any Stock Awards
outstanding under the Plan or shall substitute similar stock awards (including
an award to acquire the same consideration paid to the stockholders in the
transaction described in subsection 2(c) for those outstanding under the Plan).
In the event any surviving corporation or acquiring corporation refuses to
assume such Stock Awards or to substitute similar stock awards for those
outstanding under the Plan, then with respect to Stock Awards held by
Participants whose Continuous Service has not terminated, the vesting of such
Stock Awards (and, if applicable, the time during which such Stock Awards may be
exercised) shall be accelerated in full, and the Stock Awards shall terminate if
not exercised (if applicable) at or prior to such event. With respect to any
other Stock Awards outstanding under the Plan, such Stock Awards shall terminate
if not exercised (if applicable) prior to such event.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations
14
<PAGE> 15
thereunder regarding the exclusion of performance-based compensation from the
limit on corporate deductibility of compensation paid to certain executive
officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be granted)
unless and until the Plan has been approved by the stockholders of the Company,
which approval shall be within twelve (12) months before or after the date the
Plan is adopted by the Board.
15. CHOICE OF LAW.
The law of the State of California shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.
15
<PAGE> 1
EXHIBIT 10.2
PACKETVIDEO CORPORATION
2000 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
(INCENTIVE AND NONSTATUTORY STOCK OPTIONS)
Pursuant to the Stock Option Grant Notice ("Grant Notice") and this
Stock Option Agreement, PacketVideo Corporation (the "Company") has granted you
an option under its 2000 Equity Incentive Plan (the "Plan") to purchase the
number of shares of the Company's Common Stock indicated in the Grant Notice at
the exercise price indicated in the Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option
will vest as provided in the Grant Notice, provided that vesting will cease upon
the termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares subject to
your option and your exercise price per share referenced in the Grant Notice may
be adjusted from time to time for Capitalization Adjustments, as provided in the
Plan.
3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in the
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of this option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:
(a) a partial exercise of your option shall be deemed to cover first
vested shares and then the earliest vesting installment of unvested shares;
(b) any shares so purchased from installments which have not vested
as of the date of exercise shall be subject to the purchase option in favor of
the Company as described in the Company's then-current form of Early Exercise
Stock Purchase Agreement; and
(c) you shall enter into the Company's then-current form of Early
Exercise Stock Purchase Agreement with a vesting schedule that will result in
the same vesting as if no early exercise had occurred;
The following subsections (d) and (e) apply to Incentive Stock Options
only.
(d) the aggregate Fair Market Value of the shares with respect to
which you may exercise your option for the first time during any calendar year,
when added to the aggregate Fair Market Value of the shares subject to any other
options designated as Incentive
1
<PAGE> 2
Stock Options granted to you under all stock option plans of the Company or an
Affiliate prior to the Date of Grant with respect to which such options are
exercisable for the first time during the same calendar year, shall not exceed
$100,000 (the "ISO Exercise Limitation"); provided, however, that the ISO
Exercise Limitation shall terminate upon the earlier of (i) termination of your
Continuous Service, (ii) the day immediately prior to the effective date of a
Change in Control in which your option is not assumed or substituted for (as
provided in Section 11(c) of the Plan), or (iii) the day 10 days prior to the
Expiration Date of your option, and upon such termination of the ISO Exercise
Limitation your option shall be deemed a Nonstatutory Stock Option to the extent
of the number of shares subject to your option that would otherwise exceed the
ISO Exercise Limitation. (1)
(e) if compliance with the ISO Exercise Limitation as set forth in
subparagraph 3(d) will result in the exercisability of any vested shares being
delayed more than thirty (30) days beyond the date such shares become vested
shares (the "Vesting Date"), your option shall be deemed to be two options as
follows:
(i) The first option shall be for the maximum portion of the
shares that can comply with the ISO Exercise Limitation without causing your
option to be unexercisable in the aggregate as to vested shares on the Vesting
Date for such shares, and
(ii) the second option, which shall not be treated as an
Incentive Stock Option as described in section 422(b) of the Code, shall be for
the balance of the shares (that is, those such shares which, on the respective
Vesting Date for such shares, would be unexercisable if included in the first
option and thereby made subject to the ISO Exercise Limitation);
provided, however, that the shares treated as subject to the second
option shall be exercisable on the same terms and at the same time as set forth
in your option except that (i) subparagraph 3(d) shall not apply to the second
option and (ii) each such share shall become a vested share on the Vesting Date
on which such share must first be allocated to the second option pursuant to
this subsection 3(e).(2)
4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or in any other manner permitted by the Grant
Notice.
5. WHOLE SHARES. Your option may only be exercised for whole shares.
- ----------------------
(1) For purposes of this provision, your options designated as Incentive
Stock Options shall be taken into account in the order in which they were
granted to you, and the Fair Market Value of shares shall be determined as of
the time the option with respect to such shares is granted. If Section 422 of
the Code is amended to provide for a different limitation from that set forth in
this provision, the ISO Exercise Limitation shall be deemed amended effective as
of the date required or permitted by such amendment to the Code.
(2) Unless you specifically elect to the contrary in the your written notice
of exercise, the first option shall be deemed to be exercised first to the
maximum possible extent and then the second option shall be deemed to be
exercised.
2
<PAGE> 3
6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, your option may not be exercised unless the shares issuable
upon exercise of your option are then registered under the Securities Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act. The exercise of your option must also comply with other
applicable laws and regulations governing the option, and the option may not be
exercised if the Company determines that the exercise would not be in material
compliance with such laws and regulations.
7. TERM. The term of your option commences on the Date of Grant and
expires upon the EARLIEST of the following:
(a) immediately upon the termination of your Continuous Service for
Cause;
(b) three (3) months after the termination of your Continuous Service
for any reason other than Cause, Disability or death, provided that if during
any part of such three- (3-) month period the option is not exercisable solely
because of the condition set forth in paragraph 6, the option shall not expire
until the earlier of the Expiration Date or until it shall have been exercisable
for an aggregate period of three (3) months after the termination of your
Continuous Service;
(c) twelve (12) months after the termination of your Continuous
Service due to Disability;
(d) eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates for reason other than Cause;
(e) the Expiration Date indicated in the Grant Notice; or
(f) the tenth (10th) anniversary of the Date of Grant.
The following paragraph applies to Incentive Stock Options only.
To obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
date of grant of the option and ending on the day three (3) months before the
date of the option's exercise, you must be an employee of the Company or an
Affiliate, except in the event of your death or your Disability. The Company has
provided for extended exercisability of your option under certain circumstances
for your benefit, but cannot guarantee that your option will necessarily be
treated as an "incentive stock option" if you provide services to the Company or
an Affiliate as a Consultant or Director or if you exercise your option more
than three (3) months after the date your employment with the Company or an
Affiliate terminates.
3
<PAGE> 4
8. EXERCISE.
(a) You may exercise the vested portion of your option (and the
unvested portion of your option if the Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of your option,
(2) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise, or (3) the disposition of shares acquired upon
such exercise.
The following subsection (c) applies to Incentive Stock Options only.
(c) If your option is an Incentive Stock Option, by exercising your
option you agree that you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of your option that occurs within two (2) years after the
date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.
(d) By exercising your option you agree that the Company (or a
representative of the underwriters) may, in connection with the first
underwritten registration of the offering of any securities of the Company under
the Securities Act, require that you not sell, dispose of, transfer, make any
short sale of, grant any option for the purchase of, or enter into any hedging
or similar transaction with the same economic effect as a sale, any shares of
Common Stock or other securities of the Company held by you, for a period of
time specified by the underwriter(s) (not to exceed one hundred eighty (180)
days) following the effective date of the registration statement of the Company
filed under the Securities Act. You further agree to execute and deliver such
other agreements as may be reasonably requested by the Company and/or the
underwriter(s) which are consistent with the foregoing or which are necessary to
give further effect thereto. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to your Common Stock
until the end of such period.
9. TRANSFERABILITY. Your option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.
10. RIGHT OF FIRST REFUSAL/RIGHT OF REPURCHASE. Vested shares that are
received upon exercise of your option are subject to any right of first refusal
that may be described in the Company's bylaws in effect at such time the Company
elects to exercise its right. The Company's right of first refusal shall expire
on the date of the first registration of an equity security of the Company under
Section 12 of the Exchange Act. In addition, to the extent
4
<PAGE> 5
provided in the Company's bylaws as amended from time to time, the Company shall
have the right to repurchase all or any part of the shares received pursuant to
the exercise of your option.
11. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.
12. WITHHOLDING OBLIGATIONS.
(a) At the time your option is exercised, in whole or in part, or at
any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option.
(b) Upon your request and subject to approval by the Company, in its
sole discretion, and compliance with any applicable conditions or restrictions
of law, the Company may withhold from fully vested shares of Common Stock
otherwise issuable to you upon the exercise of your option a number of whole
shares having a Fair Market Value, determined by the Company as of the date of
exercise, not in excess of the minimum amount of tax required to be withheld by
law. If the date of determination of any tax withholding obligation is deferred
to a date later than the date of exercise of your option, share withholding
pursuant to the preceding sentence shall not be permitted unless you make a
proper and timely election under Section 83(b) of the Code, covering the
aggregate number of shares of Common Stock acquired upon such exercise with
respect to which such determination is otherwise deferred, to accelerate the
determination of such tax withholding obligation to the date of exercise of your
option. Notwithstanding the filing of such election, shares shall be withheld
solely from fully vested shares of Common Stock determined as of the date of
exercise of your option that are otherwise issuable to you upon such exercise.
Any adverse consequences to you arising in connection with such share
withholding procedure shall be your sole responsibility.
(c) Your option is not exercisable unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares or release such shares from any escrow provided for herein.
13. NOTICES. Any notices provided for in your option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by
5
<PAGE> 6
the Company to you, five (5) days after deposit in the United States mail,
postage prepaid, addressed to you at the last address you provided to the
Company.
14. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.
6
<PAGE> 7
PACKETVIDEO CORPORATION
STOCK OPTION GRANT NOTICE
(2000 EQUITY INCENTIVE PLAN)
PACKETVIDEO CORPORATION (the "Company"), pursuant to its 2000 Equity Incentive
Plan (the "Plan"), hereby grants to Optionholder an option to purchase the
number of shares of the Company's Common Stock set forth below. This option is
subject to all of the terms and conditions as set forth herein and in the Stock
Option Agreement, the Plan and the Notice of Exercise, all of which are attached
hereto and incorporated herein in their entirety.
Optionholder:
-------------------------
Date of Grant:
-------------------------
Vesting Commencement Date:
-------------------------
Number of Shares Subject to Option:
-------------------shares
Exercise Price Per Share:
$---------------per share
Expiration Date:
-------------------------
TYPE OF GRANT: [X] Incentive Stock Option [ ] Nonstatutory Stock Option
EXERCISE SCHEDULE: [X] Same as Vesting Schedule [ ] Early Exercise Permitted
VESTING SCHEDULE:
--------------------------
--------------------------
PAYMENT: By one or a combination of the following items (described in
the Stock Option Agreement):
By cash or check
Pursuant to a Regulation T Program if the Shares are
publicly traded
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:
OTHER AGREEMENTS: [X] None.
[ ] See Attached Sheet.
PACKETVIDEO CORPORATION OPTIONEE
By:
------------------------------- ------------------------------------
Signature Signature
Title: Date:
---------------------------- -------------------------------
Date:
-----------------------------
ATTACHMENTS: Stock Option Agreement, 2000 Equity Incentive Plan and Notice of
Exercise
<PAGE> 1
EXHIBIT 10.5
PACKETVIDEO CORPORATION
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
MARCH 10, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. GENERAL...................................................................... 1
1.1 Definitions.................................................................. 1
SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER....................................... 3
2.1 Restrictions on Transfer..................................................... 3
2.2 Demand Registration.......................................................... 4
2.3 Piggyback Registrations...................................................... 5
2.4 Form S-3 Registration........................................................ 7
2.5 Expenses of Registration..................................................... 7
2.6 Obligations of the Company................................................... 8
2.7 Termination of Registration Rights........................................... 9
2.8 Delay of Registration; Furnishing Information................................ 9
2.9 Indemnification.............................................................. 9
2.10 Assignment of Registration Rights............................................ 11
2.11 Amendment of Registration Rights............................................. 12
2.12 Limitation on Subsequent Registration Rights................................. 12
2.13 "Market Stand-Off" Agreement; Agreement to Furnish Information............... 12
2.14 Rule 144 Reporting and Form S-3.............................................. 13
SECTION 3. COVENANTS OF THE COMPANY..................................................... 13
3.1 Basic Financial Information and Reporting.................................... 13
3.2 Inspection Rights............................................................ 14
3.3 Reservation of Common Stock.................................................. 14
3.4 Stock Vesting................................................................ 14
3.5 Proprietary Information and Inventions Agreement............................. 15
3.6 Termination of Covenants..................................................... 15
SECTION 4. RIGHTS OF FIRST REFUSAL...................................................... 15
4.1 Subsequent Offerings......................................................... 15
4.2 Exercise of Rights........................................................... 15
4.3 Issuance of Equity Securities to Other Persons............................... 16
4.4 Termination and Waiver of Rights of First Refusal............................ 16
4.5 Transfer of Rights of First Refusal.......................................... 16
4.6 Excluded Securities.......................................................... 16
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 5. MISCELLANEOUS................................................................ 17
5.1 Governing Law................................................................ 17
5.2 Survival..................................................................... 17
5.3 Successors and Assigns....................................................... 17
5.4 Entire Agreement............................................................. 18
5.5 Severability................................................................. 18
5.6 Amendment and Waiver......................................................... 18
5.7 Delays or Omissions.......................................................... 18
5.8 Notices...................................................................... 18
5.9 Attorneys' Fees.............................................................. 19
5.10 Titles and Subtitles......................................................... 19
5.11 Additional Investors......................................................... 19
5.12 Counterparts................................................................. 19
5.13 Confidentiality and Non-Disclosure........................................... 19
5.14 Dispute Resolution........................................................... 20
</TABLE>
ii
<PAGE> 4
PACKETVIDEO CORPORATION
SECOND AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the "AGREEMENT") is
entered into as of the 10th day of March 2000 (the "Effective Date"), by and
among PACKETVIDEO Corporation, a Delaware corporation (the "COMPANY"), the
holders of the Company's Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock set forth on Exhibit A hereto, and the purchasers of
the Company's Series D Preferred Stock under that certain Series D Preferred
Stock Purchase Agreement of even date herewith (the "PURCHASE AGREEMENT") as set
forth on Exhibit A hereto. The holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and the purchasers of the Series D
Preferred Stock shall collectively be referred to hereinafter as the "INVESTORS"
and each individually as an "INVESTOR."
RECITALS
WHEREAS, the undersigned Investors who hold Series A Preferred Stock and
Series B Preferred Stock and Series C Preferred Stock wish to accept the rights
created pursuant hereto in lieu of any other registration rights granted to
them;
WHEREAS, certain of the Investors are parties to the Purchase Agreement
pursuant to which the Company proposes to sell and issue up to one million four
hundred forty-three thousand five hundred sixty-nine (1,443,569) shares of its
Series D Preferred Stock;
WHEREAS, as a condition of completing the transactions contemplated by
the Purchase Agreement, the Investors have requested that the Company extend to
them certain registration rights, information rights and other rights as set
forth below; and
WHEREAS, the Company and certain of the Investors constitute the parties
necessary to amend the registration rights, information rights and other rights
given to them in the Amended and Restated Investor Rights Agreement dated
December 2, 1999 by replacing such rights in their entirety with the rights set
forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:
SECTION 1. GENERAL
1.1 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
1.
<PAGE> 5
"FORM S-3" means such form under the Securities Act as in effect
on the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"HOLDER" means any person owning of record Registrable Securities
that have not been sold to the public or any assignee of record of such
Registrable Securities in accordance with Section 2.10 hereof.
"INITIAL OFFERING" means the Company's first firm commitment
underwritten public offering of its Common Stock registered under the Securities
Act.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.
"REGISTRABLE SECURITIES" means (a) Common Stock of the Company
issued or issuable upon conversion of the Shares; and (b) any 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, such
above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferor's rights under Section 2 of this Agreement
are not assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of
shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (a) are then issued and
outstanding or (b) are issuable pursuant to then exercisable or convertible
securities.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, reasonable fees and disbursements of a
single special counsel for the Holders, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding underwriting discounts and commissions and the compensation of
regular employees of the Company which shall be paid in any event by the
Company).
"SEC" or "COMMISSION" means the Securities and Exchange
Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SELLING EXPENSES" shall mean, in connection with a registration
effected by the Company, all underwriting discounts and selling commissions
applicable to the sale.
"SHARES" shall mean the Company's Series A Preferred Stock,
Series B Preferred, Series C Preferred Stock and Series D Preferred Stock held
by the Investors listed on Exhibit A hereto and their permitted assigns.
2.
<PAGE> 6
SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER
2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all or any
portion of the Shares or Registrable Securities unless and until:
(i) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound
by the terms of this Agreement, (B) such Holder shall have notified the Company
of the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition, and (C) if
reasonably requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(iii) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder which is (A) a partnership to its partners
or former partners in accordance with partnership interests, (B) a corporation
to its stockholders in accordance with their interest in the corporation, (C) a
limited liability company to its members or former members in accordance with
their interest in the limited liability company, (D) a partnership, corporation,
limited liability company or similar entity, to its affiliates or (E) to the
Holder's family member or trust for the benefit of an individual Holder;
provided that in each case the transferee will be subject to the terms of this
Agreement to the same extent as if he were an original Holder hereunder.
(b) Each certificate representing Shares or Registrable
Securities shall, to the extent an opinion of counsel is required and unless
otherwise permitted by the provisions of this Agreement or applicable law, be
stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable state securities
laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of
3.
<PAGE> 7
counsel (which counsel may be counsel to the Company) reasonably acceptable to
the Company to the effect that the securities proposed to be disposed of may
lawfully be so disposed of without registration, qualification or legend or if
sold under Rule 144 in accordance with Section 2.1(a)(ii) above.
(d) Any legend endorsed on an instrument pursuant to applicable
state securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an opinion of counsel
reasonably satisfactory to the Company or if sold under Rule 144 in accordance
with Section 2.1(a)(ii) above.
2.2 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 2.2, if the Company
shall receive a written request from at least three (3) unaffiliated Holders of
an aggregate of at least twenty-five percent (25%) of the Registrable Securities
then outstanding (the "INITIATING HOLDERS") that the Company file a registration
statement under the Securities Act covering the registration of Registrable
Securities having an anticipated aggregate offering price to the public of not
less than $5,000,000 (or a lesser percent of the Holders if the anticipated
aggregate offering price, net of underwriting discounts and commissions, would
exceed $40,000,000), then the Company shall, within fifteen (15) days of the
receipt thereof, give written notice of such request to all Holders, and subject
to the limitations of this Section 2.2, use its best efforts to effect, as soon
as practicable (but in no event more than ninety (90) days), the registration
under the Securities Act of all Registrable Securities that such Holders (who
shall also be deemed to be "Initiating Holders" for the purposes of this Section
2) request to be registered.
(b) If the 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 2.2 or any request pursuant to Section 2.4 and the Company shall
include such information in the written notice referred to in Section 2.2(a) or
Section 2.4(a), as applicable. In such event, the right of any Holder to include
its 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 to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by a majority in interest of the
Initiating Holders (which underwriter or underwriters shall be reasonably
acceptable to the Company). Notwithstanding any other provision of this Section
2.2 or Section 2.4, if the underwriter advises the Company that marketing
factors require a limitation of the number of securities to be underwritten
(including Registrable Securities) then the Company shall so advise all Holders
of Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares that may be included in the underwriting shall be
allocated to the Holders of such Registrable Securities on a pro rata basis
based on the number of Registrable Securities held by all such Holders
(including the Initiating Holders); provided, however, that (i) the number of
shares of Registrable Securities to be included in such underwriting and
registration shall not be reduced unless all other securities of the Company and
any other holders requesting inclusion in such registration are first entirely
excluded from the underwriting and registration and (ii) no such reduction shall
reduce the amount of securities of the selling Holders included in the
4.
<PAGE> 8
registration below fifteen percent (15%) of the total amount of securities
requested by the Holders to be registered. Any Registrable Securities excluded
or withdrawn from such underwriting shall be withdrawn from the registration.
(c) The Company shall not be required to effect a registration
pursuant to this Section 2.2:
(i) prior to the earlier of (A) four (4) years from the
Effective Date of this Agreement or (B) one hundred eighty (180) days following
the effective date of the registration statement pertaining to the Initial
Offering;
(ii) after the Company has effected three (3)
registrations pursuant to this Section 2.2, and such registrations have been
declared or ordered effective;
(iii) during the period starting with the date of filing
of, and ending on the date one hundred eighty (180) days following the effective
date of the registration statement pertaining to a Company-initiated
registration statement pursuant to Section 2.3; provided that the Company makes
reasonable good faith efforts to cause such registration statement to become
effective (and such registration statement does in fact become effective) within
one hundred twenty (120) days of such filing;
(iv) if within fifteen (15) days of receipt of a written
request from Initiating Holders pursuant to Section 2.2(a), the Company gives
notice to the Holders of the Company's intention to file a Company-initiated
registration statement pursuant to Section 2.3 within sixty (60) days;
(v) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 2.2, a certificate signed by the
Chairman of the Board 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 stockholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than ninety (90) days after receipt of the request of the Initiating
Holders; provided that such right to delay a request shall be exercised by the
Company not more than once in any twelve (12) month period; or
(vi) 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 2.4 below.
2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least fifteen (15) days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of securities of the Company for its own benefit or for the account of
others (including, but not limited to, registration statements relating to
secondary offerings of securities of the Company, but excluding registration
statements relating to employee benefit plans or with respect to corporate
reorganizations or other transactions under Rule 145 of the Securities Act) and
will afford each such Holder an opportunity to include in such registration
statement all or part of such Registrable Securities held by such Holder. Each
Holder desiring to include in any such registration statement all or
5.
<PAGE> 9
any part of the Registrable Securities held by it shall, within fifteen (15)
days after the above-described notice from the Company, so notify the Company in
writing. Such notice shall state the intended method of disposition of the
Registrable Securities by such Holder. If a Holder decides not to include all of
its Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(a) UNDERWRITING. If the registration statement under which the
Company gives notice under this Section 2.3 is for an underwritten offering, the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder to be included in a registration pursuant to this
Section 2.3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of the Agreement, if the underwriter determines in good faith that
marketing factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the underwriting
shall be allocated, first, to the Company; second, to the Holders on a pro rata
basis based on the total number of Registrable Securities held by the Holders;
and third, to any stockholder of the Company (other than a Holder) on a pro rata
basis. No such reduction shall (i) reduce the securities being offered by the
Company for its own account to be included in the registration and underwriting,
or (ii) reduce the amount of securities of the selling Holders included in the
registration below fifteen percent (15%) of the total amount of securities
requested by the Holders to be registered, unless such offering is the Initial
Offering and such registration does not include shares of any other selling
stockholders, in which event any or all of the Registrable Securities of the
Holders may be excluded in accordance with the immediately preceding sentence.
If any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least ten (10) business days prior to the effective
date of the registration statement. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration. For any Holder which is a partnership, limited liability company,
corporation or similar entity, the partners, retired partners, stockholders and
affiliates 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 person shall be deemed to be a single "HOLDER", and any pro rata
reduction with respect to such "Holder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "Holder," as defined in this sentence.
(b) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration. The Registration
Expenses of such withdrawn registration shall be borne by the Company in
accordance with Section 2.5 hereof.
6.
<PAGE> 10
2.4 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders of Registrable Securities a written request or requests that
the Company effect a registration on Form S-3 (or any successor to Form S-3) or
any similar short-form registration statement 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 of Registrable
Securities; 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
fifteen (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 2.4:
(i) if Form S-3 (or any successor or similar form) 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 of less than one million dollars ($1,000,000);
(iii) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors 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 stockholders
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 ninety (90) days after receipt of the
request of the Holder or Holders under this Section 2.4; provided, that such
right to delay a request shall be exercised by the Company not more than once in
any twelve (12) month period; or
(iv) 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.
(c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable (but in no event more than
sixty (60) days) after receipt of the request or requests of the Holders.
Registrations effected pursuant to this Section 2.4 shall not be counted as
demands for registration or registrations effected pursuant to Sections 2.2 or
2.3, respectively.
2.5 EXPENSES OF REGISTRATION. Except as specifically provided herein,
all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.2 or any registration under
Section 2.3 or Section 2.4 herein shall be borne
7.
<PAGE> 11
by the Company. All Selling Expenses incurred in connection with any
registrations hereunder, shall be borne by the holders of the securities so
registered pro rata on the basis of the number of shares so registered. The
Company shall not, however, be required to pay for expenses of any registration
proceeding begun pursuant to Section 2.2, the request of which has been
subsequently withdrawn by the Initiating Holders unless (a) the withdrawal is
based upon material adverse information concerning the Company of which the
Initiating Holders were not aware at the time of such request or (b) the holders
of a majority of Registrable Securities held by the Initiating Holders agree to
forfeit their right to one requested registration pursuant to Section 2.2, as
applicable (in which event such right shall be forfeited by all Initiating
Holders). If such Initiating Holders are required to pay the Registration
Expenses, such expenses shall be borne by the Initiating Holders of securities
(including Registrable Securities) requesting such registration in proportion to
the number of shares for which registration was requested. If the Company is
required to pay the Registration Expenses of a withdrawn offering pursuant to
clause (a) above, then the Initiating Holders shall not forfeit their rights
pursuant to Section 2.2 to a demand registration.
2.6 OBLIGATIONS OF THE COMPANY. Whenever required 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 all reasonable 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 120 days or, if earlier,
until the Holder or Holders have completed the distribution related thereto.
(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 the period set forth in paragraph (a) above.
(c) Furnish to the Holders such number 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 reasonable best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering.
8.
<PAGE> 12
(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.
(g) Use its best efforts to furnish, on the date that such
Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, (i) an opinion, dated as of 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 (ii)
a letter dated as of 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. A copy of each of the foregoing
shall be provided to the Holders upon request.
2.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted
under this Section 2 shall terminate and be of no further force and effect three
(3) years after the date of the Company's Initial Offering. In addition, a
Holder's registration rights shall expire if (a) the Company has completed its
Initial Offering and is subject to the provisions of the Securities Act of 1934,
as amended from time to time, and (b) all Registrable Securities held by and
issuable to such Holder (and its affiliates, partners, former partners, members
and former members) may be sold under Rule 144 during any ninety (90) day
period.
2.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) 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 2.
(b) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
2.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers, stockholders, affiliates
and directors of 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 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
9.
<PAGE> 13
based upon any of the following statements, omissions or violations
(collectively a "VIOLATION") by the Company: (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 to be stated therein, or necessary to
make the statements therein not misleading in light of the circumstances under
which they were made, 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 in connection with the offering covered by such registration
statement; and the Company will pay as incurred to each such Holder, partner,
stockholder, affiliate, officer, director, underwriter or controlling person for
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 Section 2.9(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 in any such case 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 such Holder, partner, stockholder,
affiliate, officer, director, underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers and
each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, underwriter or other such Holder, or
partner, director, officer or controlling person of such other Holder 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 under an
instrument duly executed by such Holder and stated to be specifically for use in
connection with such registration; and each such Holder will pay as incurred any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, or partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Violation; provided, however,
that the indemnity agreement contained in this Section 2.9(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 further, that in no event shall any
indemnity under this Section 2.9 exceed the proceeds from the offering received
by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 2.9 of notice of the commencement of any action (including any
governmental action), such
10.
<PAGE> 14
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 2.9, 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 shall have the right to retain its own
counsel, with the 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 materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 2.9, 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 2.9.
(d) If the indemnification provided for in this Section 2.9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability 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 Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law 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; provided, that in no event shall any contribution by a
Holder hereunder exceed the proceeds from the offering received by such Holder.
(e) The obligations of the Company and Holders under this Section
2.9 shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this agreement. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.
2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 2 may be assigned by
a Holder to a transferee or assignee of Registrable Securities which (a) is a
subsidiary, parent, general partner, limited partner, retired partner,
affiliate, member or retired member of a Holder, (b) is a Holder's family member
or trust for the benefit of an individual Holder, or (c) is also a Holder and
after such transfer or assignment, holds at least one hundred thousand (100,000)
shares of Registrable Securities (as adjusted for stock splits and
combinations); provided, however, (i) the transferor
11.
<PAGE> 15
shall, within ten (10) days after such transfer, furnish to the Company 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 (ii) such
transferee shall agree to be subject to all restrictions set forth in this
Agreement.
2.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 2
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of at least a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this Section 2.11 shall be binding upon each Holder and the
Company. By acceptance of any benefits under this Section 2, Holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of
this Agreement, the Company shall not, without the prior written consent of the
Holders of at least a majority of the Registrable Securities then outstanding,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would grant such holder registration rights; provided,
however, that with only the written consent of the Company, and for a period of
sixty (60) days following the Effective Date of this Agreement, this Agreement
may be amended to add additional holders of shares of the Company's Preferred
Stock authorized and designated as such as of the Effective Date of this
Agreement as "Investors," "Holders" and parties hereto and to designate such
shares as "Shares" for purposes of this Agreement.
2.13 "MARKET STAND-OFF" AGREEMENT; AGREEMENT TO FURNISH INFORMATION.
Each Holder hereby agrees that such Holder shall not sell, transfer, make any
short sale of, grant any option for the purchase of, or enter into any hedging
or similar transaction with the same economic effect as a sale, any Common Stock
(or other securities) of the Company held by such Holder (other than those
included in the registration) for a period specified by the representative of
the underwriters of Common Stock (or other securities) of the Company not to
exceed one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act; provided
that:
(i) such agreement shall apply only to the Company's Initial
Offering; and
(ii) all officers and directors of the Company and all
stockholders holding 1% or more of the Company's
outstanding equity securities enter into similar
agreements.
Each Holder agrees to execute and deliver such other agreements as may
be reasonably requested by the Company or the underwriter which are consistent
with the foregoing or which are necessary to give further effect thereto. In
addition, if requested by the Company or the representative of the underwriters
of Common Stock (or other securities) of the Company, each Holder shall provide,
within ten (10) days of such request, such information as may be required by the
Company or such representative in connection with the completion of any public
offering of the Company's securities pursuant to a registration statement filed
under the Securities Act. The obligations described in this Section 2.13 shall
not apply to a registration relating solely to
12.
<PAGE> 16
employee benefit plans on Form S-8 or a similar form that may be promulgated in
the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-4 or similar forms that may be promulgated in the future.
The Company may impose stop-transfer instructions with respect to the shares of
Common Stock (or other securities) subject to the foregoing restriction until
the end of said one hundred eighty (180) day period.
Nothing in this Section 2.13 shall affect, impair or diminish any
Holder's right to sell, transfer or assign any or all of its Registrable
Securities to such Holder's subsidiary, parent, affiliate or partner.
2.14 RULE 144 REPORTING AND FORM S-3. With a view to making available to
the Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without registration
or pursuant to a registration statement on Form S-3, the Company agrees to use
its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act; and
(c) So long as a Holder owns any Registrable Securities, furnish
to such Holder forthwith upon request: a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 of the
Securities Act, and of the Exchange Act (at any time after it has become subject
to such reporting requirements); a copy of the most recent annual or quarterly
report of the Company; and such other reports and documents as a Holder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing it to sell any such securities without registration or pursuant to a
registration statement on Form S-3.
SECTION 3. COVENANTS OF THE COMPANY
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will maintain true books and records of account
in which full and correct entries will be made of all its business transactions
pursuant to a system of accounting established and administered in accordance
with generally accepted accounting principles consistently applied, and will set
aside on its books all such proper accruals and reserves as shall be required
under generally accepted accounting principles consistently applied.
(b) As soon as practicable after the end of each fiscal year of
the Company, and in any event within ninety (90) days thereafter, the Company
will furnish each Investor holding at least 200,000 Shares (a "Major Investor")
a balance sheet of the Company, as at the end of such fiscal year, and a
statement of income and a statement of cash flows of the Company, for such year,
all prepared in accordance with generally accepted accounting principles
consistently applied and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail. Such financial
statements shall be accompanied by
13.
<PAGE> 17
a report and opinion thereon by independent public accountants of national
standing selected by the Company's Board of Directors.
(c) The Company will furnish each Major Investor, as soon as
practicable after the end of the first, second and third quarterly accounting
periods in each fiscal year of the Company, and in any event within forty-five
(45) days after each such period, a balance sheet of the Company as of the end
of each such quarterly period, and a statement of income and a statement of cash
flows of the Company for such period and for the current fiscal year to date,
prepared in accordance with generally accepted accounting principles, with the
exception that no notes need be attached to such statements and year-end audit
adjustments may not have been made.
(d) The Company will furnish each Major Investor (i) at least
thirty (30) days following the end of each fiscal year an annual budget and
operating plans for the then-current fiscal year (and as soon as available, any
subsequent revisions thereto); and (ii) as soon as practicable after the end of
each month, and in any event within forty-five (45) days thereafter, a balance
sheet of the Company as of the end of each such month, and a statement of income
and a statement of cash flows of the Company for such month and for the current
fiscal year to date, prepared in accordance with generally accepted accounting
principles consistently applied, with the exception that no notes need be
attached to such statements and year-end audit adjustments may not have been
made.
(e) Following the Initial Offering (to the extent requested by
each holder of Common Stock issued upon conversion of the Shares), the Company
will furnish each such holder copies of the Company's 10-K's, 10-Q's, 8-K's and
Annual Reports promptly after such documents are filed with the SEC.
3.2 INSPECTION RIGHTS. So long as any Shares remain outstanding, and
subject to Section 5.13 ("Confidentiality and Non-Disclosure"), each Major
Investor shall have the right to visit and inspect any of the properties of the
Company or any of its subsidiaries, and to discuss the affairs, finances and
accounts of the Company or any of its subsidiaries with its officers, and to
review such information as is reasonably requested all at such reasonable times
and as often as may be reasonably requested; provided, however, that the Company
shall not be obligated under this Section 3.2 with respect to a competitor of
the Company.
3.3 RESERVATION OF COMMON STOCK. The Company will at all times reserve
and keep available, solely for issuance and delivery upon the conversion of the
Preferred Stock, all Common Stock issuable from time to time upon such
conversion.
3.4 STOCK VESTING. Unless otherwise unanimously approved by the Board of
Directors, all stock options and other stock equivalents issued after the date
of this Agreement to employees, directors, consultants and other service
providers shall be subject to vesting as follows: (a) twenty-five percent (25%)
of such stock shall vest at the end of the first year following the earlier of
the date of issuance or such person's services commencement date with the
company, and (b) seventy-five percent (75%) of such stock shall vest monthly
over the remaining three (3) years. With respect to any shares of stock
purchased by any such person, the Company's repurchase option shall provide that
upon such person's termination of employment
14.
<PAGE> 18
or service with the Company, with or without cause, the Company or its assignee
(to the extent permissible under applicable securities laws and other laws)
shall have the option to purchase at cost any unvested shares of stock held by
such person.
3.5 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The Company shall
require all officers and employees to execute and deliver a Proprietary
Information and Inventions Agreement in the form attached to the Purchase
Agreement. The Company shall require all consultants to execute and deliver the
Company's standard form of independent consultant agreement containing
substantially similar terms with respect to ownership of intellectual property.
3.6 TERMINATION OF COVENANTS. All covenants of the Company contained in
Section 3 of this Agreement shall expire and terminate as to each Investor upon
the earlier of (i) the effective date of the registration statement pertaining
to the Initial Offering (except for Section 3.1(e)) or (ii) upon (a) the sale,
lease or other disposition of all or substantially all of the assets of the
Company or (b) an acquisition of the Company by another corporation or entity by
consolidation, merger or other reorganization in which the holders of the
Company's outstanding voting stock immediately prior to such transaction own,
immediately after such transaction, securities representing less than fifty
percent (50%) of the voting power of the corporation or other entity surviving
such transaction (a "CHANGE IN CONTROL"); provided that this Section 3.6(ii)(b)
shall not apply to a merger effected exclusively for the purpose of changing the
domicile of the Company.
SECTION 4. RIGHTS OF FIRST REFUSAL
4.1 SUBSEQUENT OFFERINGS. Each Investor shall have a right of first
refusal to purchase its pro rata share of all Equity Securities, as defined
below, that the Company may, from time to time, propose to sell and issue after
the date of this Agreement, other than the Equity Securities excluded by Section
4.6 hereof. Each Investor's pro rata share is equal to the ratio of (a) the
number of shares of the Company's Common Stock (including all shares of Common
Stock issued or issuable upon conversion of the Shares) which such Investor is
deemed to be a holder of immediately prior to the issuance of such Equity
Securities to (b) the total number of shares of the Company's outstanding Common
Stock (including all shares of Common Stock issued or issuable upon conversion
of the Shares or upon the exercise of any outstanding warrants or options)
immediately prior to the issuance of the Equity Securities. The term "EQUITY
SECURITIES" shall mean (i) any Common Stock, Preferred Stock or other security
of the Company, (ii) any security convertible, with or without consideration,
into any Common Stock, Preferred Stock or other security (including any option
to purchase such a convertible security), (iii) any security carrying any
warrant or right to subscribe to or purchase any Common Stock, Preferred Stock
or other security or (iv) any such warrant or right.
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any Equity
Securities, it shall give each Investor written notice of its intention,
describing the Equity Securities, the price and the terms and conditions upon
which the Company proposes to issue the same. Each Investor shall have fifteen
(15) days from the giving of such notice to agree to purchase its pro rata share
of the Equity Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of Equity
15.
<PAGE> 19
Securities to be purchased. Notwithstanding the foregoing, the Company shall not
be required to offer or sell such Equity Securities to any Investor who would
cause the Company to be in violation of applicable federal securities laws by
virtue of such offer or sale.
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If one or more of
the Investors elect not to purchase their pro rata share of the Equity
Securities, then the Company shall promptly notify in writing the Investors who
do so elect and shall offer such Investors the right to acquire such
unsubscribed shares. The Investors shall have five (5) days after receipt of
such notice to notify the Company of its election to purchase all or their pro
rata share of the unsubscribed shares. If the Investors fail to exercise in full
the rights of first refusal, the Company shall have sixty (60) days thereafter
to sell the Equity Securities in respect of which the Investor's rights were not
exercised, at a price and upon general terms and conditions materially no more
favorable to the purchasers thereof than specified in the Company's notice to
the Investors pursuant to Section 4.2 hereof. If the Company has not sold such
Equity Securities within such sixty (60)-day period, the Company shall not
thereafter issue or sell any Equity Securities without first offering such
securities to the Investors in the manner provided above.
4.4 TERMINATION AND WAIVER OF RIGHTS OF FIRST REFUSAL. The rights of
first refusal established by this Section 4 shall not apply to, and shall
terminate upon the earlier of (i) the effective date of the registration
statement pertaining to the Company's Initial Offering or (ii) a Change in
Control. The rights of first refusal established by this Section 4 may be
amended, or any provision waived with the written consent of Investors holding a
majority of the Registrable Securities held by all Investors, or as permitted by
Section 5.6.
4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first refusal of
each Investor under this Section 4 may be transferred to the same parties,
subject to the same restrictions as any transfer of registration rights pursuant
to Section 2.10.
4.6 EXCLUDED SECURITIES. The rights of first refusal established by this
Section 4 shall have no application to any of the following Equity Securities:
(a) shares of Common Stock (and/or options, warrants or other
Common Stock purchase rights issued pursuant to such options, warrants or other
rights) as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like issued previously or to be issued after the
Series D Original Issue Date (as defined in the Company's Certificate of
Incorporation) to employees, officers or directors of, or consultants or
advisors to the Company or any subsidiary, pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board of Directors;
(b) stock issued pursuant to any rights or agreements outstanding
as of the date of this Agreement, options and warrants outstanding as of the
date of this Agreement, and stock issued pursuant to any such rights or
agreements granted after the date of this Agreement; provided that the rights of
first refusal established by this Section 4 shall apply with respect to the
initial sale or grant by the Company of such rights or agreements;
16.
<PAGE> 20
(c) any Equity Securities issued for consideration other than
cash pursuant to a merger, consolidation, acquisition or similar business
combination approved by the Board of Directors;
(d) shares of Common Stock issued in connection with any stock
split, stock dividend or similar recapitalization by the Company;
(e) shares of Common Stock issued upon conversion of any of the
Company's convertible preferred stock;
(f) any Equity Securities issued pursuant to any equipment
leasing or loan arrangement, or debt financing from a bank or similar financial
or lending institution unanimously approved by the Board of Directors and that
are for other than equity financing purposes;
(g) any Equity Securities that are issued by the Company pursuant
to a registration statement filed under the Securities Act pertaining to the
Company's Initial Offering;
(h) additional shares of Series D Preferred Stock authorized and
designated as such as of the Series D Original Issue Date and issued subsequent
to the date of this Agreement; and
(i) shares of the Company's Common Stock or Preferred Stock
issued in connection with strategic transactions involving the Company and other
entities, including (i) joint ventures, manufacturing, marketing or distribution
arrangements or (ii) technology transfer or development arrangements; provided
that such strategic transactions and the issuance of shares therein, have been
unanimously approved by the Company's Board of Directors and that are for other
than equity financing purposes.
SECTION 5. MISCELLANEOUS
5.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California, without regard to any state's conflict of laws principles.
5.2 SURVIVAL. The representations and warranties made herein shall
survive any investigation made by any Holder and the closing of the transactions
contemplated hereby until the earlier of (i) the effective date of the
registration statement pertaining to the Initial Offering or (ii) twelve months
from the date hereof. All statements as to factual matters contained in any
certificate or other instrument delivered by or on behalf of the Company
pursuant hereto in connection with the transactions contemplated hereby shall be
deemed to be representations and warranties by the Company hereunder solely as
of the date of such certificate or instrument.
5.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
17.
<PAGE> 21
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
5.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules hereto,
the Purchase Agreement and the other documents delivered pursuant thereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein. The Company's Investor
Rights Agreement dated May 21, 1999 and the Company's Amended and Restated
Investor Rights Agreement dated December 2, 1999 are hereby null and void and
superseded in full by the rights and obligations set forth in this Agreement.
5.5 SEVERABILITY. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
5.6 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this Agreement may be
amended or modified, either prospectively or retroactively, only upon the
written consent of the Company and the holders of at least a majority of the
Registrable Securities.
(b) Except as otherwise expressly provided, the obligations of
the Company and the rights of the Holders under this Agreement may be waived
only with the written consent of the holders of at least a majority of the
Registrable Securities.
5.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.
5.8 NOTICES. Except as may be otherwise provided herein, all notices,
requests, waivers and other communications made pursuant to this Agreement shall
be in writing and shall be conclusively deemed to have been duly given (a) when
hand delivered to the other party; (b) when received when sent by facsimile at
the address and number set forth on the signature page; (c) three business days
after deposit in the U.S. mail with first class or certified mail receipt
18.
<PAGE> 22
requested postage prepaid and addressed to the other party as set forth on the
signature page; or (d) the next business day after deposit with a national
overnight delivery service, postage prepaid, addressed to the parties as set
forth on the signature page with next-business-day delivery guaranteed, provided
that the sending party receives a confirmation of delivery from the service
provider.
5.9 ATTORNEYS' FEES. In the event that any suit or action is instituted
to enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
5.10 TITLES AND SUBTITLES. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
5.11 ADDITIONAL INVESTORS. Notwithstanding anything to the contrary
contained herein, if the Company shall issue additional shares of its Series D
Preferred Stock pursuant to the Purchase Agreement, any purchaser of such shares
of Series D Preferred Stock may become a party to this Agreement by executing
and delivering an additional counterpart signature page to this Agreement and
shall be deemed an "INVESTOR" hereunder.
5.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. Facsimile signatures are deemed equivalent to
original signatures for purposes of this Agreement.
5.13 CONFIDENTIALITY AND NON-DISCLOSURE.
(a) DISCLOSURE OF TERMS. The terms and conditions of this
Agreement, the Purchase Agreement and the Right of First Refusal and Co-Sale
Agreement (collectively, the "Financing Terms"), including their existence,
shall be considered confidential information and shall not be disclosed by any
party hereto to any third party except in accordance with the provisions set
forth below.
(b) PRESS RELEASES. Within sixty (60) days of the Closing, the
Company may issue a press release disclosing that the Investors have invested in
the Company; provided that the release does not disclose any of the Financing
Terms and the final form of the press release is approved in advance in writing
by each Investor mentioned in such press release. The Company may reuse this
press release without further approval from the Investors. No other announcement
regarding any Investor in a press release, conference, advertisement,
announcement, professional or trade publication, mass marketing materials or
otherwise to the general public may be made without such Investor's prior
written consent. To the extent one or more Investor has entered into written
agreements with the Company setting forth additional or alternative requirements
related to press releases and other public disclosures, such additional or
alternative requirements shall apply in lieu of (and not in addition to) the
foregoing Section 5.13(b) with regards to Company disclosures related to such
Investor.
19.
<PAGE> 23
(c) PERMITTED DISCLOSURES. Notwithstanding the foregoing, (i) any
party may disclose any of the Financing Terms to its current or bona fide
prospective investors, employees, investment bankers, lenders, accountants and
attorneys, in each case only where such persons or entities are under
appropriate nondisclosure obligations; and (ii) each Investor may disclose its
investment in the Company to third parties or to the public at its sole
discretion and without the requirement of obtaining the consent of any other
Investor, but without disclosure of the Financing Terms (except under
appropriate non-disclosure obligation) or the identity of other Investors in the
Company not previously disclosed to the public (except with the prior consent of
such other Investors); provided, however, that if it does so, the other parties
hereto shall have the right to disclose to third parties any such information
disclosed in a press release or other public announcement by such Investor.
(d) LEGALLY COMPELLED DISCLOSURE. In the event that any party is
requested or becomes legally compelled (including without limitation, pursuant
to securities laws and regulations) to disclose the existence of this Agreement,
the Purchase Agreement and the Right of First Refusal and Co-Sale Agreement or
any of the Financing Terms hereof in contravention of the provisions of this
Section 5.13, such party (the "Disclosing Party") shall provide the other
parties (the "Non-Disclosing Parties") with prompt written notice of that fact
so that the appropriate party may seek (with the cooperation and reasonable
efforts of the other parties) a protective order, confidential treatment or
other appropriate remedy. In such event, the Disclosing Party shall furnish only
that portion of the information which is legally required and shall exercise
reasonable efforts to obtain reliable assurance that confidential treatment will
be accorded such information to the extent reasonably requested by any
Non-Disclosing Party.
(e) RELATIONSHIP TO NON-DISCLOSURE AGREEMENTS. Additional
disclosures and exchange of confidential information between the Company and any
Investor (including without limitation, any exchanges of information with any
board observer designated by such Investor) shall be governed by the separate
confidentiality terms, if any, under any separate written agreement in effect
between such Investor and the Company.
(f) All notices required under this section shall be made
pursuant to Section 5.8 of this Agreement.
5.14 DISPUTE RESOLUTION. The Company and the Investors agree to
negotiate in good faith to resolve any dispute between them regarding the terms
and conditions of this Investor Rights Agreement, the Purchase Agreement and the
Right of First Refusal and Co-Sale Agreement. If the negotiations do not resolve
the dispute to the reasonable satisfaction of the Company and the Investor or
Investors involved in such dispute (the "Involved Investor(s)"), then the
Company and such Involved Investors shall nominate one senior officer of the
rank of Vice President or higher as its representative. These representatives
shall, within thirty (30) days of a written request to call such a meeting, meet
in person and alone (except for one assistant for each party) and shall attempt
in good faith to resolve the dispute. If such dispute cannot be resolved by such
senior managers in such meeting, the Company and such Involved Investors agree
that they shall, if requested in writing by the Company or any Involved
Investors, meet within thirty (30) days after such written notification for one
day with an impartial mediator and consider dispute resolution alternatives
other than litigation. If an alternative method of dispute resolution is not
agreed upon within thirty (30) days after such one day mediation, then either
the
20.
<PAGE> 24
Company or any Involved Investors may begin litigation proceedings. This
procedure shall be a prerequisite before taking any additional action hereunder.
21.
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY:
PACKETVIDEO CORPORATION
By: /s/ WILLIAM D. CVENGROS
-----------------------------
William D. Cvengros
Chairman of the Board
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
INVESTOR:
PHILIPS VENTURE CAPITAL FUND, B.V.
By: /s/ [illegible]
-------------------------------
Print Name: [illegible]
-----------------------
Title: Member Group Management Committee
-----------------------------
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
INVESTOR:
SONERA OYJ
By: /s/ [illegible]
-------------------------------
Print Name: [illegible]
-----------------------
Title: Vice President
-----------------------------
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
INVESTOR:
TIME WARNER ENTERTAINMENT COMPANY, L.P.
By: /s/ [illegible]
------------------------------
Print Name:
-----------------------
Title: Vice President
-----------------------------
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
INVESTOR:
TEXAS INSTRUMENTS INCORPORATED
By: /s/ GILLES DEL FASSY
---------------------------------
Print Name: Gilles Del Fassy
-----------------------
Title: V.P. Wireless Communications
-----------------------------
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
INVESTOR:
CREDIT SUISSE FIRST BOSTON VENTURE FUND I, L.P.
By: QBB Management I, LLC, its General Partner
By: /s/ FRANK P. QUATTRONE
-------------------------------
Print Name: Frank P. Quattrone
-----------------------
Title: Member
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
INVESTOR:
INTEL CORPORATION
By: /s/ NOEL LAZO
-------------------------------
Print Name: Noel Lazo
-----------------------
Title: Assistant Treasurer
-----------------------------
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
INVESTOR:
SIEMENS INFORMATION AND COMMUNICATIONS NETWORKS, INC.
By:/s/ ANTHONY MAHER
-------------------------------
Print Name: Anthony Maher
-----------------------
Title: Member of the Group Board
Siemens Information and Communication Networks
-----------------------------
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
INVESTOR:
INTERVU, INC.
By:
-------------------------------
Print Name:
-----------------------
Title:
-----------------------------
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
INVESTOR:
INFINEON TECHNOLOGIES AG
By:
-------------------------------
Print Name:
-----------------------
Title:
-----------------------------
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
INVESTOR:
ROCKEFELLER & CO., INC.
By:
-------------------------------
Print Name:
-----------------------
Title:
-----------------------------
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
INVESTOR:
GRACIE PARTNERS LLC
By:
-------------------------------
Print Name:
-----------------------
Title:
-----------------------------
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
INVESTOR:
NEXUS CAPITAL PARTNERS II, L.P.
By:
-------------------------------
Print Name:
-----------------------
Title:
-----------------------------
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
INVESTOR:
SONY CORPORATION OF AMERICA
By:
-------------------------------
Print Name:
-----------------------
Title:
-----------------------------
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
INVESTOR:
QUALCOMM INCORPORATED
By: /s/ ANTHONY S. THORNLEY
------------------------------------
Print Name: Anthony S. Thornley
----------------------------
Title: Executive Vice President and CFO
----------------------------------
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
INVESTOR:
REUTERS HOLDINGS SWITZERLAND SERIES A
By:
-------------------------------
Print Name:
-----------------------
Title:
-----------------------------
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
THE CVENGROS LIVING TRUST
U/D/T DATED AS OF 11/1/95
By: /s/ WILLIAM D. CVENGROS
------------------------------------
William D. Cvengros, Trustee
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
KEMSLEY REVOCABLE FAMILY LIVING TRUST
DATED MARCH 26, 1986
By:
--------------------------------------
Graham Kemsley, Trustee
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
GUARANTEE & TRUST CO. TTEE FBO JON E. JENETT
GTC IRA ACCOUNT #714-90005
By:
-------------------------------
Print Name:
-----------------------
Title:
-----------------------------
WILLOUGHBY CHARLES JENETT TRUST U/A DTD 12/24/92
FBO WILLOUGHBY CHARLES JENETT
By:
--------------------------------------------
Bruce W. Jenett, Trustee
BENJAMIN ERIC JENETT TRUST U/A DTD 12/24/92
FBO BENJAMIN ERIC JENETT
By:
---------------------------------------------
Bruce W. Jenett, Trustee
KATHERINE LOUISE JENETT TRUST U/A DTD 12/24/92
FBO KATHERINE LOUISE JENETT
By:
---------------------------------------------
Bruce W. Jenett, Trustee
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have executed this SECOND AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
MP3.COM, INC.
By:
-------------------------------
Print Name:
-----------------------
Title:
-----------------------------
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 45
EXHIBIT A
SCHEDULE OF INVESTORS
SERIES A INVESTORS:
William D. Cvengros, Trustee
Guarantee & Trust Co., TTEE F/B/O Jon Jenett
Bruce W. Jenett, Trustee
Graham Kemsley, Trustee
MP3.com, Inc
SERIES B INVESTORS:
Intel Corporation
Siemens Services, Inc.
SERIES C INVESTORS:
Intel Corporation
Siemens Services, Inc.
InterVu, Inc.
Infineon Technologies AG
Rockefeller & Co., Inc.
Credit Suisse First Boston Venture Fund I, L.P.
Nexus Capital Partners II, L.P.
Sony Corporation of America
Qualcomm Incorporated
Reuters Holdings Switzerland Series A
SERIES D INVESTORS:
Philips Venture Capital Fund, B.V.
Texas Instruments Incorporated
Credit Suisse First Boston Venture Fund I, L.P.
Sonera OYJ
Time Warner Entertainment Company, L.P.
<PAGE> 46
EXHIBIT E
CAPITALIZATION TABLE
<TABLE>
<CAPTION>
DESCRIPTION AUTHORIZED ISSUED
----------- ---------- ------
<S> <C> <C>
Common 60,000,000 24,224,352
(Reserved for issuance pursuant 6,832,002 N/A
to 1998 Equity Incentive Plan
Series A Preferred 5,139,996 5,139,996
Series B Preferred 8,955,225 8,955,225
Series C Preferred 4,375,000 4,375,000
Series D Preferred 1,443,569 1,443,569
Total Preferred 19,913,790 19,913,790
</TABLE>
<PAGE> 1
EXHIBIT 10.6
PACKETVIDEO CORPORATION
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the
24th day of November, 1999, by and between PACKETVIDEO CORPORATION, a Delaware
corporation (the "Company"), and WILLIAM CVENGROS ("Purchaser").
WHEREAS, the Company desires to issue, and Purchaser desires to acquire,
stock of the Company as herein described, on the terms and conditions
hereinafter set forth;
WHEREAS, the issuance of common stock hereby is intended to comply with
the provisions of Section 4(2) of the Securities Act of 1933, as amended (the
"Act").
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. PURCHASE AND SALE OF STOCK. Purchaser hereby agrees to purchase from
the Company, and the Company hereby agrees to sell to Purchaser, an aggregate of
six hundred thousand (600,000) shares of the Common Stock of the Company (the
"Stock") at $0.25 per share, for an aggregate purchase price of one hundred
fifty thousand dollars ($150,000), payable in cash.
The closing hereunder, including payment for and delivery of the Stock
shall occur at the offices of the Company immediately following the execution of
this Agreement, or at such other time and place as the parties may mutually
agree.
2. REPURCHASE OPTION. In the event Purchaser's relationship with the
Company (or a parent or subsidiary of the Company), whether as an employee or
consultant, terminates, then the Company (or its designee) shall have an
irrevocable option (the "Repurchase Option"), for a period of ninety (90) days
after said termination, or such longer period as may be determined by the
Company if such later repurchase is deemed necessary by the Company for
treatment of all or part of its stock as Qualified Small Business Stock under
Section 1202 of the Internal Revenue Code of 1986, as amended (the "Code"), and
regulations promulgated thereunder, to repurchase from Purchaser or Purchaser's
personal representative, as the case may be, at the original price per share
indicated above paid by Purchaser for such Stock ("Option Price"), up to but not
exceeding the number of unvested shares of the Stock set forth on Exhibit A
hereto which is incorporated herein by this reference. The Company shall have a
unilateral right to assign the Repurchase Option to any person or entity
designated by the Board of Directors of the Company.
3. EXERCISE OF REPURCHASE OPTION. The Repurchase Option shall be
exercised by written notice signed by an officer of the Company or by any
assignee or assignees of the Company and delivered or mailed as provided in
Section 16a. Such notice shall identify the number of shares of Stock to be
purchased and shall notify Purchaser of the time, place and date for settlement
of such purchase, which shall be scheduled by the Company within the term of the
<PAGE> 2
Repurchase Option set forth in Section 2 above. The Company shall be entitled to
pay for any shares of Stock purchased pursuant to its Repurchase Option at the
Company's option in cash or by offset against any indebtedness owing to the
Company by Purchaser (including without limitation any Note given in payment for
the Stock), or by a combination of both. Upon delivery of such notice and
payment of the purchase price in any of the ways described above, the Company
shall become the legal and beneficial owner of the Stock being repurchased and
all rights and interest therein or related thereto, and the Company shall have
the right to transfer to its own name the Stock being repurchased by the
Company, without further action by Purchaser.
4. ADJUSTMENTS TO STOCK. If, from time to time, during the term of the
Repurchase Option there is any change affecting the Company's outstanding Common
Stock as a class that is effected without the receipt of consideration by the
Company (through merger, consolidation, reorganization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating,
dividend, combination of shares, change in corporation structure or other
transaction not involving the receipt of consideration by the Company), then any
and all new, substituted or additional securities or other property to which
Purchaser is entitled by reason of Purchaser's ownership of Stock shall be
immediately subject to the Repurchase Option and be included in the word "Stock"
for all purposes of the Repurchase Option with the same force and effect as the
shares of the Stock presently subject to the Repurchase Option, but only to the
extent the Stock is, at the time, covered by such Repurchase Option. While the
total Option Price shall remain the same after each such event, the Option Price
per share of Stock upon exercise of the Repurchase Option shall be appropriately
adjusted.
5. TERMINATION OF REPURCHASE OPTION. Sections 2, 3 and 4 of this
Agreement shall terminate upon the exercise in full or expiration of the
Repurchase Option, whichever first occurs.
6. ESCROW OF UNVESTED STOCK. As security for Purchaser's faithful
performance of the terms of this Agreement and to insure the availability for
delivery of Purchaser's Stock upon exercise of the Repurchase Option herein
provided for, Purchaser agrees, at the closing hereunder, to deliver to and
deposit with the Secretary of the Company or the Secretary's designee ("Escrow
Agent"), as Escrow Agent in this transaction, three (3) stock assignments duly
endorsed (with date and number of shares blank) in the form attached hereto as
Exhibit C, together with a certificate or certificates evidencing all of the
Stock subject to the Repurchase Option; said documents are to be held by the
Escrow Agent and delivered by said Escrow Agent pursuant to the Joint Escrow
Instructions of the Company and Purchaser set forth in Exhibit B attached hereto
and incorporated by this reference, which instructions shall also be delivered
to the Escrow Agent at the closing hereunder.
7. RIGHTS OF PURCHASER. Subject to the provisions of Sections 6, 8, 11
and 13 herein, Purchaser shall exercise all rights and privileges of a
shareholder of the Company with respect to the Stock.
8. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
hypothecate, donate, encumber
<PAGE> 3
or otherwise dispose of any interest in the Stock while the Stock is subject to
the Repurchase Option. After any Stock has been released from the Repurchase
Option, Purchaser shall not assign, hypothecate, donate, encumber or otherwise
dispose of any interest in the Stock except in compliance with the provisions
herein and applicable securities laws. Furthermore, the Stock shall be subject
to any right of first refusal in favor of the Company or its assignees that may
be contained in the Company's Bylaws.
9. RESTRICTIVE LEGENDS. All certificates representing the Stock shall
have endorsed thereon legends in substantially the following forms (in addition
to any other legend which may be required by other agreements between the
parties hereto):
(a) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
OPTION SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER,
OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS COMPANY. ANY TRANSFER OR ATTEMPTED TRANSFER OF ANY
SHARES SUBJECT TO SUCH OPTION IS VOID WITHOUT THE PRIOR EXPRESS WRITTEN CONSENT
OF THE COMPANY."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY AND/OR ITS ASSIGNEE(S) AS
PROVIDED IN THE BYLAWS OF THE COMPANY."
(d) Any legend required by appropriate state blue sky officials.
10. INVESTMENT REPRESENTATIONS. In connection with the purchase of the
Stock, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Stock. Purchaser is
purchasing the Stock for investment for Purchaser's own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Act.
(b) Purchaser understands that the Stock has not been registered
under the Act by reason of a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of Purchaser's investment
intent as expressed herein.
<PAGE> 4
(c) Purchaser further acknowledges and understands that the Stock
must be held indefinitely unless the Stock is subsequently registered under the
Act or an exemption from such registration is available. Purchaser further
acknowledges and understands that the Company is under no obligation to register
the Stock. Purchaser understands that the certificate evidencing the Stock will
be imprinted with a legend which prohibits the transfer of the Stock unless the
Stock is registered or such registration is not required in the opinion of
counsel for the Company.
Purchaser is familiar with the provisions of Rules 144, under the Act,
as in effect from time to time, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof (or from an affiliate of such issuer), in a non-public offering
subject to the satisfaction of certain conditions. The Stock may be resold by
Purchaser in certain limited circumstances subject to the provisions of Rule
144, which requires, among other things: (i) the availability of certain public
information about the Company and (ii) the resale occurring following the
required holding period under Rule 144 after the Purchaser has purchased, and
made full payment of (within the meaning of Rule 144), the securities to be
sold.
(d) Purchaser further understands that at the time Purchaser
wishes to sell the Stock there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public current information requirements of Rule 144, and
that, in such event, Purchaser would be precluded from selling the Stock under
Rule 144 even if the minimum holding period requirement had been satisfied.
(e) Purchaser further warrants and represents that Purchaser has
either (i) preexisting personal or business relationships, with the Company or
any of its officers, directors or controlling persons, or (ii) the capacity to
protect his own interests in connection with the purchase of the Stock by virtue
of the business or financial expertise of himself or of professional advisors to
Purchaser who are unaffiliated with and who are not compensated by the Company
or any of its affiliates, directly or indirectly.
11. MARKET STAND-OFF AGREEMENT. Purchaser shall not sell, dispose of,
transfer, make any short sale of, grant any option for the purchase of, or enter
into any hedging or similar transaction with the same economic effect as a sale,
any Common Stock of the Company held by Purchaser, including the Stock (the
"Restricted Securities"), for a period of time specified by the underwriter (not
to exceed one hundred eighty (180) days) following the effective date of a
registration statement of the Company filed under the Act. Purchaser agrees to
execute and deliver such other agreements as may be reasonably requested by the
Company and/or the underwriter which are consistent with the foregoing or which
are necessary to give further effect thereto. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to
Purchaser's Restricted Securities until the end of such period.
12. SECTION 83(b) ELECTION. Purchaser understands that Section 83(a) of
the Code, taxes as ordinary income the difference between the amount paid for
the Stock and the fair market value of the Stock as of the date any restrictions
on the Stock lapse. In this context, "restriction" includes the right of the
Company to buy back the Stock pursuant to the Repurchase
<PAGE> 5
Option set forth in Section 2a above. Purchaser understands that Purchaser may
elect to be taxed at the time the Stock is purchased, rather than when and as
the Repurchase Option expires, by filing an election under Section 83(b) (an
"83(b) Election") of the Code with the Internal Revenue Service within thirty
(30) days from the date of purchase. Even if the fair market value of the Stock
at the time of the execution of this Agreement equals the amount paid for the
Stock, the 83(b) Election must be made to avoid income under Section 83(a) in
the future. Purchaser understands that failure to file such an 83(b) Election in
a timely manner may result in adverse tax consequences for Purchaser. Purchaser
further understands that an additional copy of such 83(b) Election is required
to be filed with his or her federal income tax return for the calendar year in
which the date of this Agreement falls. Purchaser acknowledges that the
foregoing is only a summary of the effect of United States federal income
taxation with respect to purchase of the Stock hereunder, and does not purport
to be complete. Purchaser further acknowledges that the Company has directed
Purchaser to seek independent advice regarding the applicable provisions of the
Code, the income tax laws of any municipality, state or foreign country in which
Purchaser may reside, and the tax consequences of Purchaser's death. Purchaser
assumes all responsibility for filing an 83(b) Election and paying all taxes
resulting from such election or the lapse of the restrictions on the Stock.
13. REFUSAL TO TRANSFER. The Company shall not be required (a) to
transfer on its books any shares of Stock of the Company which shall have been
transferred in violation of any of the provisions set forth in this Agreement or
(b) to treat as owner of such shares or to accord the right to vote as such
owner or to pay dividends to any transferee to whom such shares shall have been
so transferred.
14. NO EMPLOYMENT RIGHTS. This Agreement is not an employment contract
and nothing in this Agreement shall affect in any manner whatsoever the right or
power of the Company (or a parent or subsidiary of the Company) to terminate
Purchaser's employment for any reason at any time, with or without cause and
with or without notice.
15. MISCELLANEOUS.
(a) NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
sent by telegram or fax or upon deposit in the United States Post Office, by
registered or certified mail with postage and fees prepaid, addressed to the
other party hereto at his address hereinafter shown below its signature or at
such other address as such party may designate by ten (10) days' advance written
notice to the other party hereto.
(b) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of the successors and assigns of the Company and, subject to the
restrictions on transfer herein set forth, be binding upon Purchaser,
Purchaser's successors, and assigns. The Repurchase Option of the Company
hereunder shall be assignable by the Company at any time or from time to time,
in whole or in part.
(c) ATTORNEYS' FEES; SPECIFIC PERFORMANCE. Purchaser shall
reimburse the Company for all costs incurred by the Company in enforcing the
performance of, or protecting its
<PAGE> 6
rights under, any part of this Agreement, including reasonable costs of
investigation and attorneys' fees. It is the intention of the parties that the
Company, upon exercise of the Repurchase Option and payment of the Option Price,
pursuant to the terms of this Agreement, shall be entitled to receive the Stock,
in specie, in order to have such Stock available for future issuance without
dilution of the holdings of other shareholders. Furthermore, it is expressly
agreed between the parties that money damages are inadequate to compensate the
Company for the Stock and that the Company shall, upon proper exercise of the
Repurchase Option, be entitled to specific enforcement of its rights to purchase
and receive said Stock.
(d) GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware. The parties
agree that any action brought by either party to interpret or enforce any
provision of this Agreement shall be brought in, and each party agrees to, and
does hereby, submit to the jurisdiction and venue of, the appropriate state or
federal court for the district encompassing the Company's principal place of
business.
(e) FURTHER EXECUTION. The parties agree to take all such further
action(s) as may reasonably be necessary to carry out and consummate this
Agreement as soon as practicable, and to take whatever steps may be necessary to
obtain any governmental approval in connection with or otherwise qualify the
issuance of the securities that are the subject of this Agreement.
(f) INDEPENDENT COUNSEL. Purchaser acknowledges that this
Agreement has been prepared on by the Company. Purchaser has been provided with
an opportunity to consult with Purchaser's own counsel with respect to this
Agreement.
(g) ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes and merges all prior agreements or understandings, whether
written or oral. This Agreement may not be amended, modified or revoked, in
whole or in part, except by an agreement in writing signed by each of the
parties hereto.
(h) 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 (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(i) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PACKETVIDEO CORPORATION
By: /s/ JAMES CAROL
---------------------------------------
James Carol,
Chief Executive Officer
PURCHASER:
/s/ WILLIAM CVENGROS
------------------------------------------
WILLIAM CVENGROS
Address:
----------------------------------
----------------------------------
ATTACHMENTS:
Exhibit A -- Vesting Schedule
Exhibit B -- Joint Escrow Instructions
Exhibit C -- Stock Assignment Separate from Certificate
Exhibit D -- Section 83(b) election
<PAGE> 8
EXHIBIT A
WILLIAM CVENGROS VESTING SCHEDULE
VESTING COMMENCEMENT DATE: JANUARY 1, 2000
The following rules describe the relationship between the vesting of your shares
and the length of your service as an employee of the Company:
1. In the event your employment is terminated with "Cause" or you resign without
"Good Reason" the Company's repurchase right shall be as follows:
(A) Until December 31, 2000, all shares shall be subject to repurchase.
(B) On January 1, 2001 seventy five percent (75%) of your shares shall
be subject to repurchase.
(C) Upon the completion of each additional full month of employment
thereafter, an additional 2.0833% of your shares will cease to be subject to
repurchase.
2. In the event that your employment is terminated without "Cause" or if you
resign for "Good Reason" (other than in connection with a "Change in Control")
on or before December 31, 2000, then the Company's right of repurchase shall
lapse with respect to 50% of the Shares.
3. In the event that your employment is terminated without "Cause" or if you
resign for "Good Reason" (other than in connection with a "Change in Control")
on or after January 1, 2001, then, in addition to the Company's right of
repurchase which shall have lapsed as of such date in accordance with Section 1
above, the Company's right of repurchase shall lapse with respect to an
additional amount of the Shares equal to 50% of the number of shares subject to
the Company's right of repurchase immediately prior to the effective date of
such termination or resignation. By way of example only, if your employment with
the Company is terminated without "Cause" of if you resign for "Good Reason" on
March 1, 2001, then the Company's right of repurchase shall lapse with respect
to 64.583% of the shares. The remaining portion of your shares shall be subject
to repurchase in accordance with the terms of the Agreement.
4. Applying the above formulas, no shares will be subject to repurchase (and all
your shares will be fully vested) on the fourth anniversary of your Vesting
Commencement Date.
5. In the event of a "Change of Control" of the Company (as defined herein),
this option may be assigned by the Company to any successor of the Company (or
the successor's parent) in connection with such Change of Control and shall
continue to vest in accordance with the Company's standard schedule if you
become employed by such successor (or its parent or subsidiaries); provided,
however, that if you are terminated without "Cause" or if you resign for "Good
Reason" within sixty (60) days before or twelve (12) months after the effective
date of any such Change of Control, then the repurchase option shall lapse and
terminate fully and all shares shall be immediately vested as of the effective
date of such termination or resignation.
<PAGE> 9
SECTION 280G
In the event that the severance, acceleration of stock options and other
benefits provided for in this Agreement or otherwise payable to Purchaser (i)
constitute "parachute payments" within the meaning of Section 280G (as it may be
amended or replaced) of the Internal Revenue Code of 1986, as amended or
replaced (the "Code") and (ii) but for this paragraph, would be subject to the
excise tax imposed by Section 4999 (as it may be amended or replaced) of the
Code (the "Excise Tax"), then your benefits hereunder shall be either.
(i) delivered in full, or
(ii) delivered as to such lesser extent which would
result in no portion of such benefits being subject
to the Excise Tax,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the Excise Tax, results in the receipt by you
on an after-tax basis, of the greatest amount of benefits, notwithstanding that
all or some portion of such benefits may be taxable under the Excise Tax. Unless
the Company and you otherwise agree in writing, any determination required under
this paragraph shall be made in writing in good faith by the Company's
accountants. In the event of a reduction in benefits hereunder, you shall be
given the choice of which benefits to reduce. For purposes of making the
calculations required by this paragraph, the accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of the Code.
The Company and you shall furnish to the accountants such information and
documents as the accountants may reasonably request in order to make a
determination under this paragraph. The Company shall bear all costs the
accountants may reasonably incur in connection with any calculations
contemplated by this paragraph.
DEFINITION OF "CHANGE OF CONTROL"
"Change of Control" of the Company is defined as:
(a) Any "person" as such term is used in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (other than a group of the members
of the Board of Directors as of the Effective Date and their affiliated
investment funds and partners thereof) becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing 50% or more of the total voting power by the Company's
then outstanding voting securities after the Effective Date; or
(b) The consummation of a merger or consolidation of the Company with
any other. corporation other than a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 50% of the total voting
power represented by the voting securities of the surviving entity or its parent
outstanding immediately after such merger or consolidation; or
<PAGE> 10
(c) The approval by the Board of a plan of complete liquidation of the
Company or of an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
DEFINITIONS OF "CAUSE" AND "GOOD REASON"
"Cause" is defined as your (i) gross negligence or willful misconduct
in connection with the performance of your duties hereunder which has not been
cured within thirty (30) days following receipt by you of written notice
identifying such acts of gross negligence or willful misconduct, (ii) conviction
of a felony (other than a traffic-related offense) which has caused material
injury to the Company's business, (iii) dishonesty with respect to a significant
matter relating to the Company's business and intended to result in personal
enrichment of you or your family at the expense of the Company, or (iv) willful
material breach of the Proprietary Information Agreement by and between you and
the Company.
"Good Reason" is defined as (i) the assignment to you of duties not
commensurate with the position of Chief Executive Officer, or any material
reduction of your duties, authority or responsibilities or any material
reduction in your title or reporting responsibilities, relative to your duties,
authority, responsibilities, title or reporting responsibilities as in effect
immediately prior to such reduction; (ii) a reduction by the Company in your
base salary as in effect immediately prior to such reduction; (iii) your
relocation to a facility or a location outside of Orange County or San Diego
County; or (iv) any material breach of this Agreement by the Company. For
purposes of any determination regarding the existence of "Good Reason," any
claim by you that Good Reason exists shall be presumed to be correct, unless the
Company establishes to the Board in the Board's good faith judgment by a
preponderance of evidence that Good Reason does not exist.
<PAGE> 11
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Common Stock Purchase
Agreement between the undersigned and PACKETVIDEO CORPORATION, a Delaware
corporation (the "Company"), dated as of November 24, 1999 (the
"Agreement"),__________ hereby sells, assigns and transfers unto the Company
_________ (_____) shares of common stock of the Company, standing in the
undersigned's name on the books of the Company represented by Certificate
No.______ herewith, and does hereby irrevocably constitute and appoint
_________________ attorney to transfer the said stock on the books of the
Company with full power of substitution in the premises. This Assignment may be
used only in accordance with and subject to the terms and conditions of the
Agreement, in connection with the repurchase of shares of Common Stock issued to
the undersigned pursuant to the Agreement, and only to the extent that such
shares remain subject to the Company's Repurchase Option under the Agreement.
Dated:
---------------------------------------------
Signature
---------------------------------------------
Print Name
<PAGE> 12
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
Frederick T. Muto
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, California 92121
Dear Sir:
As Escrow Agent for both PACKETVIDEO CORPORATION, a Delaware corporation
("Corporation"), and the undersigned purchaser of stock of the Corporation
("Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Common Stock Purchase
Agreement ("Agreement"), dated November 24, 1998, to which a copy of these Joint
Escrow Instructions is attached as Exhibit C, in accordance with the following
instructions:
1. In the event the Corporation or an assignee shall elect to exercise
the Repurchase Option set forth in the Agreement, the Corporation or its
designee or assignee will give to Purchaser and you a written notice specifying
the number of shares of stock to be purchased, the purchase price, and the time
for a closing hereunder at the principal office of the Corporation. Purchaser
and the Corporation hereby irrevocably authorize and direct you to close the
transaction contemplated by such notice in accordance with the terms of said
notice.
2. At the closing you are directed (a) to date any stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Corporation against the
simultaneous delivery to you of the purchase price (which may include suitable
acknowledgment of cancellation of indebtedness) of the number of shares of stock
being purchased pursuant to the exercise of the Repurchase Option.
3. Purchaser irrevocably authorizes the Corporation to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as specified in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities and other property all documents of assignment and/or
transfer and all stock certificates necessary or appropriate to make all
securities negotiable and complete any transaction herein contemplated.
4. This escrow shall terminate upon expiration or exercise in full of
the Repurchase Option, whichever occurs first.
<PAGE> 13
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder; provided, however, that if at the time of
termination of this escrow you are advised by the Corporation that the property
subject to this escrow is the subject of a pledge or other security agreement,
you shall deliver all such property to the pledgeholder or other person
designated by the Corporation.
6. Except as otherwise provided in these Joint Escrow Instructions, your
duties hereunder may be altered, amended, modified or revoked only by a writing
signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties or
their assignees. You shall not be personally liable for any act you may do or
omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while
acting in good faith and any act done or omitted by you pursuant to the advice
of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree of any court,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Corporation or if you shall resign by
written notice to each party. In the event of any such termination, the
Corporation may appoint any officer or assistant officer of the Corporation as
successor Escrow Agent and Purchaser hereby confirms the appointment of such
successor or successors as his attorney-in-fact and agent to the full extent of
your appointment.
12. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
<PAGE> 14
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities, you are authorized and directed to retain in your possession without
liability to anyone all or any part of said securities until such dispute shall
have been settled either by mutual written agreement of the parties concerned or
by a final order, decree or judgment of a court of competent jurisdiction after
the time for appeal has expired and no appeal has been perfected, but you shall
be under no duty whatsoever to institute or defend any such proceedings.
14. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery, including delivery
by express courier or five days after deposit in the United States Post Office,
by registered or certified mail with postage and fees prepaid, addressed to each
of the other parties hereunto entitled at the following addresses, or at such
other addresses as a party may designate by ten days' advance written notice to
each of the other parties hereto:
CORPORATION: PACKETVIDEO CORPORATION
10350 Science Center Drive
Suite 140
San Diego, CA 92121
PURCHASER: WILLIAM CVENGROS
c/o PacketVideo Corporation
10350 Science Center Drive
Suite 140
San Diego, CA 92121
ESCROW AGENT: FREDERICK T. MUTO
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, California 92121
15. By signing these Joint Escrow Instructions you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
16. You shall be entitled to employ such legal counsel and other experts
(including without limitation the firm of Cooley Godward LLP) as you may deem
necessary properly to advise you in connection with your obligations hereunder.
You may rely upon the advice of such counsel, and may pay such counsel
reasonable compensation therefor. The Corporation shall be responsible for all
fees generated by such legal counsel in connection with your obligations
hereunder.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. It is
understood and agreed that references to "you" or "your" herein refer to the
original Escrow Agent and to any and all successor Escrow Agents. It is
understood and agreed that the Corporation may at any time or from time to time
assign its rights under the Agreement and these Joint Escrow Instructions in
whole or in part.
<PAGE> 15
18. This Agreement shall be governed by and interpreted and determined
in accordance with the laws of the State of Delaware, as such laws are applied
by California courts to contracts made and to be performed entirely in
California by residents of that state.
Very truly yours,
PACKETVIDEO CORPORATION:
By
------------------------------------------
James Carol, Chief Executive Officer
PURCHASER:
--------------------------------------------
William Cvengros
ESCROW AGENT:
- -------------------------------------
Frederick T. Muto
<PAGE> 16
November 24, 1998
Director of Internal Revenue
Internal Revenue Service Center
Fresno, CA 93888
RE: ELECTION UNDER SECTION 83(b)
Gentlemen:
This statement constitutes an election pursuant to Section 83(b) of the Internal
Revenue Code of 1986, as amended from time to time.
Pursuant to Treasury Regulation Section 1.83-2, the following information is
submitted:
1. NAME: William Cvengros ("Purchaser")
ADDRESS: ------------------------------------
------------------------------------
SOCIAL SECURITY NO.: ------------------------------------
2. PROPERTY DESCRIPTION:600,000 shares of Common Stock of PacketVideo
Corporation (the "Company").
3. The date on which the property was transferred is November 24, 1999.
4. The taxable year for which the election is made is the calendar year 1999.
5. RESTRICTIONS:
If, on or before November 24, 2003, the employment or consulting relationship of
the Purchaser by the Company terminates for any reason, the Company shall have
the option to repurchase some or all of the property (depending on the date of
such termination) for a price equal to the cost of the property repurchased.
6. The fair market value of the property at the time of transfer with respect to
which this election is being made, determined without regard to any restrictions
other than a restriction which by its terms will never lapse is $150,000.
7. The amount paid by the undersigned taxpayer for the property is $150,000.
<PAGE> 17
8. The undersigned taxpayer hereby elects to include in gross income for 1999
the amount of $0.00, which equals the amount by which the fair market value of
the property exceeds the amount paid for such property.
9. A copy of this statement has been furnished to the Company and the transferee
of the property if different from the purchaser.
Dated: November 24, 1998.
Very truly yours,
- -----------------------------------
William Cvengros
<PAGE> 1
EXHIBIT 10.10
FORM OF
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this __________ day of
__________, 2000 by and between PacketVideo Corporation, a Delaware corporation
(the "Corporation"), and __________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in
__________ capacity as __________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "DGCL");
WHEREAS, the Bylaws and the DGCL, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as __________ of
the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
__________ after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
__________ of the Corporation or as a director, officer or other fiduciary of an
affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the DGCL, as the same may be amended from time to
time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the DGCL permitted
prior to adoption of such amendment).
1
<PAGE> 2
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Agent becomes legally obligated to pay because of any claim
or claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent
by the Corporation under the non-exclusivity provisions of the DGCL and Section
41 of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section
3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent solely for an
accounting of profits made from the purchase or sale by Agent of securities of
the Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;
(b) on account of Agent's conduct that is established by a final
judgment as knowingly fraudulent or deliberately dishonest or that constituted
willful misconduct;
(c) on account of Agent's conduct that is established by a final
judgment as constituting a breach of Agent's duty of loyalty to the Corporation
or resulting in any personal profit or advantage to which Agent was not legally
entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both
the Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated
by Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers
2
<PAGE> 3
vested in the Corporation under the DGCL, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at
its own expense;
(b) except as otherwise provided below, the Corporation may, at
its option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded, and so notified the Corporation, that
there is an actual conflict of interest between the Corporation and Agent in the
conduct of the defense of such action or (iii) the Corporation shall not in fact
have employed counsel to assume the defense of such action, in each of which
cases the fees and expenses of Agent's separate counsel shall be at the expense
of the Corporation. The Corporation shall not be entitled to assume the defense
of any action, suit or proceeding brought by or on behalf of the Corporation or
as to which Agent shall have made the conclusion provided for in clause (ii)
above; and
3
<PAGE> 4
(c) the Corporation shall not be liable to indemnify Agent under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the DGCL or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim for
indemnification is made under Section 3 hereof (other than an action brought to
enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and shall inure
to the benefit of Agent's heirs, executors and administrators.
4
<PAGE> 5
(b) The Corporation shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the DGCL or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
(b) If to the Corporation, to:
PACKETVIDEO CORPORATION
10350 Science Center Drive, Building 14
San Diego, CA 92121
or to such other address as may have been furnished to Agent by the Corporation.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
PACKETVIDEO CORPORATION
By:
---------------------------------------
Title:
------------------------------------
AGENT
------------------------------------------
[Agent's Printed Name]
Address:
------------------------------------------
------------------------------------------
6
<PAGE> 1
EXHIBIT 10.11
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only, September
1, 1998, is made by and between General Atomics ("Lessor") and M4LABS, INC.
("Lessee") (collectively the "Parties," or individually a "Party"). Refer to
Paragraph 49
1.2(a) Premises: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 3550 General Atomics Court, located in
the City of San Diego, County of San Diego, State of CA, with zip code 92121, as
outlined on Exhibit A&B attached hereto ("Premises"). The "Building" is that
certain building containing the Premises and generally described as (describe
briefly the nature of the Building): Building 14 of the General Atomics
Industrial Center. In addition to Lessee's rights to use and occupy the Premises
as hereinafter specified, Lessee shall have non-exclusive rights to the Common
Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall
not have any rights to the roof, exterior walls or utility raceways of the
Building or to any other buildings in the Industrial Center. The Premises, the
Building, the Common Areas, the land upon which they are located, along with all
other buildings and improvements thereon, are herein collectively referred to as
the "Industrial Center." (Also see Paragraph 2.)
1.2(b) Parking: Refer to Par. 50 unreserved vehicle parking spaces ("Unreserved
Parking Spaces"); and no reserved vehicle parking spaces ("Reserved Parking
Spaces"). (Also see Paragraph 2.6.)
1.3 Term: 2 years and 0 months ("Original Term") commencing November 1, 1998
("Commencement Date") and ending October 31, 2000 ("Expiration Date"). (Also see
Paragraph 3.)
1.4 Early Possession: Ref. Exhibit C ("Early Possession Date"). (Also see
Paragraphs 3.2 and 3.3.)
1.5 Base Rent: $ Refer to Ex. C per month ("Base Rent"), payable on the 1st day
of each month commencing November (Also see Paragraph 4.)
[X] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum Ex. C, attached hereto.
1.6(a) Base Rent Paid Upon Execution: $ Ex. C as Base Rent for the period of one
month.
1.6(b) Lessee's Share of Common Area Operating Expenses: Refer to Ex. C percent
(_____%) ("Lessee's Share") as determined by [*] prorata square footage of the
Premises as compared to the total square footage of the Building or [*] other
criteria as described in Addendum Ex. C.
1.7 Security Deposit: $ Refer to Ex. C ("Security Deposit"). (Also see Paragraph
5.)
1.8 Permitted Use: office in accordance with City of San Diego Scientific
Research Zoning ("Permitted Use") (Also see Paragraph 6.)
1.9 Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph 8.)
1.10(a) Real Estate Brokers. The following real estate broker(s) (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes): Refer to Paragraph 51 and
Exhibit C
[X] THE IRVING HUGHES GROUP, INC. represents Lessee exclusively ("Lessee's
Broker");
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (Also see Paragraph 37.)
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda consisting
of Paragraphs 49 through 61, and Exhibits A through F, all of which constitute a
part of this Lease.
2. Premises, Parking and Common Areas.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free of
debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense. Ref to Par
52
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor warrants
that any improvements (other than those constructed by Lessee or at Lessee's
direction) on or in the Premises which have been constructed or installed by
Lessor or with Lessor's consent or at Lessor's direction shall comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the date improvements were installed.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4). Ref. to Par. 53
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has been
advised by the Lessor to satisfy itself with respect to the condition of the
Premises (including, but not limited to, the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "Applicable Laws") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the
MULTI-TENANT GROSS Initials: /s/ J.C.
Page 1 of 15 /s/ R.H.D.
<PAGE> 2
same relate to Lessee's occupancy of the Premises and/or the terms of this
Lease; and (c) that neither Lessor, nor any of Lessor's agents, has made any
oral or written representations or warranties with respect to said matters other
than as set forth in this Lease.
2.6 Vehicle Parking. Lessee shall be entitled to use the number of Unreserved
Parking Spaces specified in Paragraph 1.2(b) on those portions of the Common
Areas designated from time to time by Lessor for parking. Lessee shall not use
more parking spaces than said number. Said parking spaces shall be used for
parking by vehicles no larger than full-size passenger automobiles or pick-up
trucks, herein called "Permitted Size Vehicles." Vehicles other than Permitted
Size Vehicles shall be parked and loaded or unloaded as directed by Lessor in
the Rules and Regulations (as defined in Paragraph 40) issued by Lessor. (Also
see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities described in
this Paragraph 2.6, then Lessor shall have the right, without notice, in
addition to such other rights and remedies that it may have, to remove or tow
away the vehicle involved and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide the parking
facilities required by Applicable Law.
2.7 Common Areas - Definition. The term "Common Areas" is defined as all areas
and facilities outside the Premises and within the exterior boundary line of the
Industrial Center and interior utility raceways within the Premises that are
provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee, for the
benefit of Lessee and its employees, suppliers, shippers, contractors, customers
and invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.9 Common Areas - Rules and Regulations. Lessor or such other person(s) as
Lessor may appoint shall have the exclusive control and management of the Common
Areas and shall have the right, from time to time, to establish, modify, amend
and enforce reasonable Rules and Regulations with respect thereto in accordance
with Paragraph 40. Lessee agrees to abide by and conform to all such Rules and
Regulations, and to cause its employees, suppliers, shippers, customers,
contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center. Refer to Exhibit D
2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without limitation, changes
in the location, size, shape and number of driveways, entrances, parking spaces,
parking areas, loading and unloading areas, ingress, egress, direction of
traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance purposes so
long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the Industrial Center to
be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional improvements,
repairs or alterations to the Industrial Center, or any portion thereof;
(f) To do and perform such other acts and make such other changes in, to or with
respect to the Common Areas and Industrial Center as Lessor may, in the exercise
of sound business judgment, deem to be appropriate. Refer to Paragraph 54
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease
are as specified in Paragraph 1.3.
3.2 Early Possession. If an Early Possession Date is specified in Paragraph 1.4
and if Lessee totally or partially occupies the Premises after the Early
Possession Date but prior to the Commencement Date, the obligation to pay Base
Rent shall be abated for the period of such early occupancy. All other terms of
this Lease, however, (including, but not limited to, the obligations to pay
Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
MULTI-TENANT GROSS Initials: /s/ J.C.
Page 2 of 15 /s/ R.H.D.
<PAGE> 3
4. Rent.
4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges, as the same
may be adjusted from time to time, to Lessor in lawful money of the United
States, without offset or deduction, on or before the day on which it is due
under the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor as Lessor may from time to
time designate by invoice to Lessee. Refer to Exhibit C
4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share (as specified in Paragraph
1.6(b)) of all Common Area Operating Expenses, as hereinafter defined, during
each calendar year of the term of this Lease, in accordance with the following
provisions:
(a) "Common Area Operating Expenses" are defined, for purposes of this Lease, as
all costs incurred by Lessor relating to the ownership and operation of the
Industrial Center, including, but not limited to, the following:
(ii) The cost of water, gas, electricity and telephone as stipulated in Exhibit
C
(c) The inclusion of the improvements, facilities and services set forth in
Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to
either have said improvements or facilities or to provide those services unless
the Industrial Center already has the same. Lessor already provides the
services, or Lessor has agreed elsewhere in this Lease to provide the same or
some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of actual expenses is
presented to Lessee by Lessor.
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall hereof and after
Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to
the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by lessee under this Lease.
6. Use
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the Permitted Use set
forth in Paragraph 1.8, or any other legal use which is reasonably
MULTI-TENANT GROSS Initials: /s/ J.C.
Page 3 of 15 /s/ R.H.D.
<PAGE> 4
comparable thereto, and for no other purpose. Lessee shall not use or permit the
use of the Premises in a manner that is unlawful, creates waste or a nuisance or
that disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its consent to
any written request by Lessee, Lessee's assignees or subtenants, and by
prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements of the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as used in
this Lease shall mean any product, substance, chemical material or waste whose
presence, nature, quality and/or intensity of existence, use, manufacture,
disposal, transportation, spill, release or effect, either by itself or in
combination with other materials expected to be on the Premises, is either (i)
potentially injurious to the public health, safety or welfare, the environment,
or the Premises; (ii) regulated or monitored by any governmental authority; or
(iii) a basis for potential liability of Lessor to any governmental agency or
third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products or by-products thereof. Lessee shall not
engage in any activity in or about the Premises which constitute a Reportable
Use (as hereinafter defined) of Hazardous Substances without the express prior
written consent of Lessor and compliance in a timely manner (at Lessee's sole
cost and expense) with all Applicable Requirements (as defined in paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority, and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and in compliance
with all Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the Permitted
Use, so long as such use is not a Reportable Use and does not expose the
Premises, or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to any Reportable Use of
any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including, but not limited
to, the installation (and, at Lessor's option, removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof. Refer to Paragraph
55
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe,
that a Hazardous Substance has come to be located in, on, under or about the
Premises or the Building, other than as previously consented to by Lessor,
Lessee shall immediately give Lessor written notice thereof, together with a
copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received from,
any governmental authority or private party concerning the presence, spill,
release, discharge of, or exposure to, such Hazardous Substance including, but
not limited to, all such documents as may be involved in any Reportable Use
involving the Premises. Lessee shall not cause or permit any Hazardous Substance
to be spilled or released in, on, under or about the Premises (including,
without limitation, through the plumbing or sanitary sewer system).
(c) Indemnification. Lessee shall indemnify, protect, defend and hold Lessor,
its agents, employees, lenders and ground lessor, if any, and the Premises,
harmless from and against any and all damages, liabilities, judgments, costs,
claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substance, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's sole cost
and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including,
but not limited to, matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including,
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 Inspection; Compliance with Law. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds or trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including, but not limited to, Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance
with Covenants, Restrictions and Building Code), 7.2 (Lessor's Obligations), 9
(Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole
cost and expense and at all times, keep the Premises and every part thereof in
good order, condition and repair, including, without limiting the generality of
the foregoing, all Lessee installed equipment or facilities specifically serving
the Premises, such as Lessee's supplementary heating, air conditioning,
ventilating, electrical, lighting facilities, fixtures, interior walls, interior
surfaces of exterior walls, ceilings, floors, windows, doors, plate glass, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. Refer to Paragraph 56
MULTI-TENANT GROSS Initials: /s/ J.C.
Page 4 of 15 /s/ R.H.D.
<PAGE> 5
(c) If Lessee fails to perform Lessee's obligations under this Paragraph 7.1,
Lessor may enter upon the Premises after ten (10) days' prior written notice to
Lessee (except in the case of an emergency, in which case no notice shall be
required), perform such obligations on Lessee's behalf, and put the Premises in
good order, condition and repair, in accordance with Paragraph 13.2 below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) central plumbing, heating, air-conditioning, ventilating,
electrical, lighting, facilities, fire hose connections, or other automatic fire
extinguishing system including fire alarm and/or smoke detection systems and
equipment, fire hydrants, parking lots, walkways, parkways, driveways,
landscaping, fences, signs and utility systems serving the Common Areas and all
parts thereof, as well as providing the services Lessor shall not be obligated
to paint the exterior or interior surfaces of exterior walls nor shall Lessor be
obligated to maintain, repair or replace windows, doors or plate glass of the
Premises. Lessee expressly waives the benefit of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Building, Industrial Center or Common Areas in good order, condition and repair.
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term "Utility Installations" is used in
this Lease to refer to all air lines, power panels, electrical distribution,
security, fire protection systems, communications systems, lighting fixtures,
heating, ventilating and air conditioning equipment, plumbing, and fencing in,
on or about the Premises. The term "Trade Fixtures" shall mean Lessee's
machinery and equipment which can be removed without doing material damage to
the Premises. The term "Alterations" shall mean any modification of the
improvements on the Premises which are provided by Lessor under the terms of
this Lease, other than Utility Installations or Trade Fixtures. "Lessee-Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations in, on, under or about the Premises without Lessor's prior
written consent. Refer to Paragraph 57
(b) Consent. Any Alterations or Utility Installations that Lessee shall desire
to make and which require the consent of the Lessor shall be presented to Lessor
in written form with detailed plans. All consents given by Lessor, whether by
virtue of Paragraph 7.3(a) or by subsequent specific consent, shall be deemed
conditioned upon: (i) Lessee's acquiring all applicable permits required by
governmental authorities; (ii) the furnishing of copies of such permits together
with a copy of the plans and specifications for the Alteration or Utility
Installation to Lessor prior to commencement of the work thereon; and (iii) the
compliance by Lessee with all conditions of said permits in a prompt and
expeditious manner. Any Alterations or Utility Installations by Lessee during
the term of this Lease shall be done in a good and workmanlike manner, with good
and sufficient materials, and be in compliance with all Applicable Requirements.
Lessee shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor.
(c) Lien Protection. Lessee shall pay when due all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use on
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor, in an amount equal to
one and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal and to cause
Lessee to become the owner thereof as hereinafter provided in this Paragraph
7.4, all Alterations and Utility Installations made to the Premises by Lessee
shall be the property of and owned by Lessee, but considered a part of the other
Premises. Lessor may, at any time and at its option, elect in writing to Lessee
to be the owner of all or any specified part of the Lessee-Owned Alterations and
Utility Installations. Unless otherwise instructed per Subparagraph 7.4(b)
hereof, all Lessee-Owned Alterations and Utility Installations shall, at the
expiration or earlier termination of this Lease, become the property of Lessor
and remain upon the Premises and be surrendered with the Premises by Lessee.
(b) Removal. Unless otherwise agreed in writing, Lessor may require that any or
all Lessee-Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the end of the
last day of the Lease term or any earlier termination date, clean and free of
debris and in good operation order, condition and state of repair, ordinary wear
and tear excepted. Ordinary wear and tear shall not include any damage or
deterioration that would have been prevented by good maintenance practice or by
Lessee performing all of its obligations under this Lease. Except as otherwise
agreed or specified herein, the Premises, as surrendered, shall include the
Alterations and Utility Installations. The obligation of Lessee shall include
the repair of any damage occasioned by the installation, maintenance or removal
of Lessee's Trade Fixtures, furnishing, equipment, and Lessee-Owned Alterations
and Utility Installations, as well as the removal of any storage tank installed
by or for Lessee, and the removal, replacement or remediation of any soil,
material or ground water contaminated by Lessee, all as may then be required by
Applicable Requirements and/or good practice. Lessee's Trade Fixtures shall
remain the property of Lessee and shall be removed by Lessee subject to its
obligation to repair and restore the Premises per this Lease.
8. Insurance; Indemnity
MULTI-TENANT GROSS Initials: /s/ J.C.
Page 5 of 15 /s/ R.H.D.
<PAGE> 6
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during the term of
this Lease a Commercial General Liability policy of insurance protecting Lessee,
Lessor and any Lender(s) whose names have been provided to Lessee in writing (as
additional insureds) against claims for bodily injury, personal injury and
property damage based upon, involving or arising out of the ownership, use,
occupancy or maintenance of the Premises and all areas appurtenant thereto. Such
insurance shall be on an occurrence basis providing single limit coverage in an
amount not less than $1,000,000 per occurrence with an "Additional
Insured-Managers or Lessors of Premises" endorsement and contain the "Amendment
of the Pollution Exclusion" endorsement for damage caused by heat, smoke or
fumes from a hostile fire. The policy shall not contain any intra-insured
exclusions as between insured persons or organizations, but shall include
coverage for liability assumed under this Lease as an "insured contract" for the
performance of Lessee's indemnity obligations under this Lease. The limits of
said insurance required by this Lease or as carried by Lessee shall not,
however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability insurance described
in Paragraph 8.2(a) above, in addition to and not in lieu of, the insurance
required to be maintained by Lessee. Lessee shall not be named as an additional
insured therein.
8.3 Property Insurance - Building, improvements and rental value.
(a) Building and Improvements. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies in the name of Lessor, with loss payable
to Lessor and to any Lender(s), insuring against loss or damage to the Premises.
Such insurance shall be for full replacement cost, as the same shall exist from
time to time, or the amount required by any Lender(s), but in no event more than
the commercially reasonable and available insurable value thereof if, by reason
of the unique nature or age of the improvements involved, such latter amount is
less than full replacement cost. Lessee-Owned Alterations and Utility
Installations, Trade Fixtures and Lessee's personal property shall be insured by
Lessee pursuant to Paragraph 8.4. If the coverage is available and commercially
appropriate, Lessor's policy or policies shall insure against all risks of
direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender or included in the Base Premium), including coverage
for any additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building required
to be demolished or removed by reason of the enforcement of any building,
zoning, safety or land use laws as the result of a covered loss, but not
including plate glass insurance. Said policy or policies shall also contain an
agreed valuation provision in lieu of any co-insurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) Rental Value. Lessor shall also obtain and keep in force during the term of
this Lease a policy or policies in the name of Lessor, with loss payable to
Lessor and any Lender(s), insuring the loss of the full rental and other charges
payable by all lessees of the Building to Lessor for one year (including all
Real Property Taxes, insurance costs, all Common Area Operating Expenses and any
scheduled rental increases). Said insurance may provide that in the event the
Lease is terminated by reason of an insured loss, the period of indemnity for
such coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any co-insurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income. Real
Property Taxes, insurance premium costs and other expenses, if any, otherwise
payable, for the next 12-month period. Common Area Operating Expenses shall
include any deductible amount in the event of such loss.
(c) Adjacent Premises. Lessee shall pay for any increase in the premiums for the
property insurance of the Building and for the Common Areas or other buildings
in the Industrial Center if said increase is caused by Lessee's acts, omissions,
use or occupancy of the Premises.
(d) Lessee's Improvements. Since Lessor is the insuring Party, Lessor shall not
be required to insure Lessee-Owned Alterations and Utility Installations unless
the item in question has become the property of Lessor under the terms of this
Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph 8.5,
Lessee at its cost shall maintain insurance coverage on all of Lessee's personal
property, Trade Fixtures and Lessee-Owned Alterations and Utility Installations
in, on, or about the Premises similar in coverage to that carried by Lessor as
the Insuring Party under Paragraph 8.3(a). Such insurance shall be full
replacement cost coverage with a deductible not to exceed $1,000 per occurrence.
The proceeds from any such insurance shall be used by Lessee for the replacement
of personal property and the restoration of Trade Fixtures and Lessee-Owned
Alterations and Utility Installations. Upon request from Lessor, Lessee shall
provide Lessor with written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies duly
licensed to transact business in the state where the Premises are located, and
maintaining during the policy term a "General Policyholders Rating" of at least
B+, <184>, or such other rating as may be required by a Lender, as set forth in
the most current issue of "Best's Insurance Guide." Lessee's insurance policies
shall name Lessor as additional insured. Lessee shall not do or permit to be
done anything which shall invalidate the insurance policies referred to in this
Paragraph 8. Lessee shall cause to be delivered to Lessor, within seven (7) days
after the earlier of the Early Possession Date or the Commencement Date,
certified copies of, or certificates evidencing the existence and amounts of,
the insurance required under Paragraphs 8.2(a) and 8.4. No such policy shall be
cancelable or subject to modification except after thirty (30) days' prior
written notice to Lessor. Lessee shall at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders' evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waiver their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee, upon notice from Lessor, shall defend
the same at Lessee's expense by counsel reasonably satisfactory to Lessor and
Lessor shall cooperate with Lessee in such defense. Lessor need not have first
paid any such claim in order to be so indemnified.
MULTI-TENANT GROSS Initials: /s/ J.C.
Page 6 of 15 /s/ R.H.D.
<PAGE> 7
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for injury or
damage to the person or goods, wares, merchandise or other property of Lessee,
Lessee's employees, contractors, invitees, customers, or any other person in or
about the Premises, whether such damage or injury is caused by results from
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, of from any other cause,
whether said injury or damage results from conditions arising upon the Premises
or upon other portions of the Building of which the Premises are a part, from
other sources or places, and regardless of whether the cause of such damage or
injury or the means of repairing the same is accessible or not. Lessor shall not
be liable for any damages arising from any act or neglect of any other lessee of
Lessor nor from the failure by Lessor to enforce the provisions of any other
lease in the Industrial Center. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom. Refer to Paragraph 58.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations, the repair cost
of which damage or destruction is fifty percent (50%) of the then Replacement
Cost (as defined in Paragraph 9.1(d)) of the Premises (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures) immediately prior to
such damage or destruction.
(b) "Premises Total Destruction" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more of the
then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and
Utility Installations and Trade Fixtures) immediately prior to such damage or
destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the Premises, other than
Lessee-Owned Alterations and Utilities Installations and Trade Fixtures, which
was caused by an event required to be covered by the insurance described in
Paragraph 8.3(a) irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the improvements
owned by Lessor at the time of the occurrence to their condition existing
immediately prior thereto, including demolition, debris removal and upgrading
required by the operation of applicable building codes, ordinances or laws, and
without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or discovery of a
condition involving the presence of, or a contamination by, a Hazardous
Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.
9.2 Premises Partial Damage - Insured Loss. If Premises Partial Damage that is
an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. In the event, however, that there is a shortage of
insurance proceeds and such shortage is due to the fact that, by reason of the
unique nature of the improvements in the Premises, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, Lessor shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within such ten (10) day period,
and if Lessor does not so elect to restore and repair, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage - Uninsured Loss. If Premises Partial Damage that is not an
Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in
which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect), Lessor may, at Lessor's option, either
(i) repair such damage as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate this
Lease as of the date sixty (60) days following the date of such notice. In the
event Lessor elects to give such notice of Lessor's intention to terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt of
such notice to give written notice to Lessor of Lessee's commitment to pay for
the repair of such damage totally at Lessee's expense and without reimbursement
from Lessor. Lessee shall provide Lessor with the required funds or satisfactory
assurance thereof within thirty (30) days following such commitment from Lessee.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such repairs as soon as reasonably possible after the
required funds are available. If Lessee does not give such notice and provide
the funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if Premises
Total Destruction occurs (including any destruction required by any authorized
public authority), this Lease shall terminate sixty (60) days following the date
of such Premises Total Destruction, whether or not the damage or destruction is
an Insured Loss or was caused by a negligent or willful act of Lessee. In the
event, however, that the damage or destruction was caused by Lessee, Lessor
shall have the right to recover Lessor's damages from Lessee except as released
and waived in Paragraph 9.7.
9.5 Damage Near End of Term. If any time during the last six (6) months of the
term of this Lease there is damage for which the cost to repair exceeds one
month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense, repair such damage as soon as reasonably possible
and this Lease shall continue in full force and effect. If Lessee fails to
exercise such option and provide such funds or assurance during such period,
then this Lease shall terminate as of the date set forth in the first sentence
of this Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous Substance
Condition for which Lessee is not legally responsible, the Base Rent, Common
Area Operating Expenses and other charges, if any, payable by Lessee hereunder
for the period during which such damage or condition, its repair, remediation or
restoration continues, shall be abated in proportion to the degree to which
Lessee's use of the Premises is impaired, but not in excess of proceeds from
insurance required to be carried under Paragraph 8.3(b). Except for abatement of
Base Rent, Common Area Operating Expenses and other charges, if any, as
aforesaid, all other obligations of Lessee hereunder shall be performed by
Lessee, and Lessee shall have no claim against Lessor for any damage suffered by
reason
MULTI-TENANT GROSS Initials: /s/ J.C.
Page 7 of 15 /s/ R.H.D.
<PAGE> 8
of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under the
provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue. Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration is not commenced within thirty (30) days after receipt of such
notice, this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repairs or restoration of the Premises within
thirty (30) days after the receipt of such notice, this Lease shall continue in
full force and effect. "Commence" as used in this Paragraph 9.6 shall mean
either the unconditional authorization of the preparation of the required plans,
or the beginning of the actual work on the Premises, whichever occurs first.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition occurs,
unless lessee is legally responsible therefor (in which case Lessee shall make
the investigation and remediation thereof required by Applicable Requirements
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at Lessor's option
either (i) investigate and remediate such Hazardous Substance Condition, if
required, as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) if the estimated
cost to investigate and remediate such condition exceeds twelve (12) times the
then monthly Base Rent or $100,000, whichever is greater, give written notice to
Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such Hazardous Substance Condition of Lessor's desire to terminate
this Lease as of the date sixty (60) days following the date of such notice. In
the event Lessor elects to give such notice of Lessor's intention to terminate
this Lease, Lessee shall have the right within ten (10) days after the receipt
of such notice to give written notice to Lessor of Lessee's commitment to pay
for the excess costs of (a) investigation and remediation of such Hazardous
Substance Condition to the extent required by Applicable Requirements, over (b)
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following said
commitment by Lessee. In such event this Lease shall continue in full force and
effect, and Lessor shall proceed to make such investigation and remediation as
soon as reasonably possible after the required funds are available. If Lessee
does not give such notice and prove the required funds or assurance thereof
within the time period specified above, this Lease shall terminate as of the
date specified in Lessor's notice of termination.
9.8 Termination - Advance Payments. Upon termination of this Lease pursuant to
this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is
not then required to be, used by Lessor under the terms of this Lease.
9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises and the
Building with respect to the termination of this Lease and hereby waive the
provisions of any present or future statute to the extent it is inconsistent
herewith.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as defined in
Paragraph 10.2(a), applicable to the industrial Center.
10.2 Real Property Tax Definitions.
(a) As used herein, the term "Real Property Taxes" shall include any form of
real estate tax or assessment, general, special, ordinary or extraordinary, and
any license fee, commercial rental tax, improvement bond or bonds, levy or tax
(other than inheritance, personal income or estate taxes) imposed upon the
Industrial Center by any authority having the direct or indirect power to tax,
including any city, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage, or other improvement district thereof, levied
against any legal or equitable interest of Lessor in the Industrial Center or
any portion thereof, Lessor's right to rent or other income therefrom, and/or
Lessor's business of leasing the Premises. The term "Real Property Taxes" shall
also include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in Applicable Law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Industrial Center or in the improvements thereon, the
execution of this Lease, or any modification, amendment or transfer thereof, and
whether or not contemplated by the Parties.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency all taxes
assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay for all utilities and services supplied to the
Premises, including, but not limited to, electricity, telephone, water/sewer,
gas and cleaning of the Premises, together with any taxes thereon. If any such
utilities or services are not separately metered to the Premises or separately
billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to be
determined by Lessor of all such charges jointly metered or billed with other
premises in the Building, in the manner and within the time periods set forth in
Paragraph 4.2(d). Refer to Paragraph 59 and Exhibit C.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or otherwise transfer or encumber (collectively, "assign") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent given under and subject to the terms of Paragraph
36.
(b) A change in the control of Lessee shall constitute an assignment requiring
Lessor's consent. The transfer, on a cumulative basis, of twenty-five percent
(25%) or more of the voting control of Lessee shall constitute a change in
control of this purpose.
MULTI-TENANT GROSS Initials: /s/ J.C.
Page 8 of 15 /s/ R.H.D.
<PAGE> 9
(c) The involvement of Lessee or its assets in any transaction, or series of
transactions (by way of merger, sale, acquisition, financing, refinancing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an
amount equal to or greater than twenty-five percent (25%) of such Net Worth of
Lessee as it exists immediately prior to said transaction or transactions
constituting such reduction, at whichever time said Net Worth of Lessee was or
is greater, shall be considered an assignment of this Lease by Lessee to which
Lessor may reasonably withhold its consent. "Net Worth of Lessee" for purposes
of this Lease shall be the net worth of Lessee (excluding any Guarantors)
established under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease without
Lessor's specific prior written consent shall, at Lessor's option, be a Default
curable after notice per Paragraph 13.1, or a non-curable Breach without the
necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("Lessor's Notice"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (ii) any
index-oriented rental or price adjustment formulas contained in this Lease shall
be adjusted to require that the base index be determined with reference to the
index applicable to the time of such adjustment, and (iii) any fixed rental
adjustments scheduled during the remainder of the Lease term shall be increased
in the same ratio as the new rental bears to the Base Rent in effect immediately
prior the adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall be
limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting shall not (i)
be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, nor (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations from any
person other than Lessee pending approval or disapproval of an assignment.
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of any rent for performance shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for the Default or Breach by Lessee of
any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not constitute a
consent to any subsequent assignment or subletting by Lessee or to any
subsequent or successive assignment or subletting by the assignee or sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable under this Lease or the sublease and without obtaining their
consent, and such action shall not relieve such persons from liability under
this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation under this
Lease, Lessor may proceed directly against Lessee, any Guarantors or anyone else
responsible for the performance of the Lessee's obligations under this Lease,
including any sublessee, without first exhausting Lessor's remedies against any
other person or entity responsible therefor to Lessor, or any security held by
Lessor.
(e) Each request for consent to an assignment or subletting shall be in writing,
accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including, but not limited to, the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the monthly Base Rent applicable to
the portion of the Premises which is the subject of the proposed assignment or
sublease, whichever is greater, as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.2(c) shall give
Lessor the right (but not the obligation) to require that the Security Deposit
be increased by an amount equal to six (6) times the then monthly Base Rent, and
Lessor may make the actual receipt by Lessor of the Security Deposit increase a
condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
determined by Lessor.
12.3 Additional Terms and Conditions Applicable to Subletting. The following
terms and conditions shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of the Lessee's interest
in all rentals and income arising from any sublease of all or a portion of the
Premises heretofore or hereafter made by Lessee, and Lessor may collect such
rent and income and apply same toward Lessee's obligations under this Lease;
provided, however, that until a Breach (as defined in Paragraph 13.1) shall
occur in the performance of Lessee's obligations under this Lease, Lessee may,
except as otherwise provided in this Lease, receive, collect and enjoy the rents
accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, not by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its obligations
under this Lease, Lessor, at its option and without any obligation to do so, may
require any sublessee to attorn to Lessor, in which event Lessor shall undertake
the obligations of the sublessor under such sublease from the time of the
exercise of said option to the expiration of such sublease; provided, however,
Lessor shall not be liable for any prepaid rents or security deposit paid by
such sublessee to such sublessor or for any other prior defaults or breaches of
such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a sublease
shall also require the consent of Lessor herein.
MULTI-TENANT GROSS Initials: /s/ J.C.
Page 9 of 15 /s/ R.H.D.
<PAGE> 10
(d) No sublease under a sublease applied by Lessor shall further assign or
sublet all or any part of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to
the sublessee, who shall have the right to cure the Default of Lessee within the
grace period, if any, specified in such notice. The sublessee shall have a right
of reimbursement and offset from and against Lessee for any such Defaults cured
by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that it an attorney is consulted
by Lessor in connection with a Lessee Default or Breach (as hereinafter
defined), $350.00 is a reasonable minimum sum per such occurrence for legal
services and costs in the preparation and service of a notice of Default, and
that Lessor may include the cost of such services and costs in said notice as
rent due and payable to cure said default. A "Default" by Lessee is defined as a
failure by Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
by Lessee is defined as the occurrence of any one or more of the following
Defaults, and, where a grace period for cure after notice is specified herein,
the failure by Lessee to cure such Default prior to the expiration of the
applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same, or the
abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure by Lessee
to make any payment of Base Rent, Lessee's Operating Expenses, or any other
monetary payment required to be made by Lessee hereunder as and when due, the
failure by Lessee to provide Lessor with reasonable evidence of insurance or
surety bond required under this Lease, or the failure of Lessee to fulfill any
obligation under this Lease which endangers or threatens life or property, where
such failure continues for a period of three (3) days following written notice
thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by Lessee
to provide Lessor with reasonable written evidence (in duly executed original
form, if applicable) of (i) compliance with Applicable Requirements per
Paragraph 6.3, (ii) the inspection, required under Paragraph 7.1(b), (iii) the
rescission of an unauthorized assignment or subletting per Paragraph 12.1, (iv)
a Tenancy Statement per Paragraphs 16 or 37, (v) the subordination or
non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the
performance of Lessee's obligations under this Lease if required under
Paragraphs 1.11 and 37, (vii) the execution of any document requested under
Paragraph 42 (easements), or (viii) any other documentation or information which
Lessor may reasonably require of Lessee under the terms of this Lease, where any
such failure continues for a period of ten (10) days following written notice by
or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or provisions of
this Lease, or of the rules adopted under Paragraph 40 hereof that are to be
observed, complied with or performed by Lessee, other than those described in
Subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a
period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by Lessee of
any general arrangement or assignment for the benefit of creditors; (ii)
Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days; (iii) the appointment of a
trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee, given to
Lessor by Lessee, was materially false.
13.2 Remedies. If Lessee fails to perform any affirmative duty or obligation of
Lessee under this Lease, within ten (10) days after written notice to Lessee (or
in case of emergency, without notice), Lessor may, at its option (but without
obligation to do so), perform such duty or obligation on Lessee's behalf,
including, but not limited to, the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon Invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful means,
in which case this Lease and the term hereof shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee: (i) the worth at the time of the award
of the unpaid rent which had been earned at the time of termination; (ii) the
worth at the time of award of the amount by which the unpaid rent which would
have been earned after termination until the time of award exceeds the amount of
such rental loss that the Lessee proves could have been reasonably avoided;
(iii) the worth at the time of award of the amount by which the unpaid rent for
the balance of the term after the time of award exceeds the amount of such
rental loss that the Lessee proves could be reasonably avoided; and (iv) any
other amount necessary to compensate Lessor for all the detriment proximately
caused by the Lessee's failure to perform its obligations under this Lease or
which in the ordinary course of things would be likely to result therefrom,
including, but not limited to, the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorneys' fees and that portion of any leasing
commission paid by Lessor in connection with this Lease applicable to the
unexpired term of this Lease. The worth at the time of award of the amount
referred to in provision (iii) of the immediately preceding sentence shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco or the Federal Reserve Bank District in which the Premises
are located at the time of award plus one percent (1%). Efforts by Lessor to
mitigate damages caused by Lessee's Default or Breach of this Lease shall not
waive Lessor's right to recover damages under this Paragraph 13.2. If
termination of this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recover in such proceeding the unpaid
rent and damages as are recoverable therein, or Lessor may reserve the right to
recover all or any part thereof in a separate suit for such rent and/or damages.
If a notice and grace period required under Subparagraph 13.1(b), (c) or (d) was
not previously given, a notice to pay rent or quit, or to perform or quit, as
the case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by Subparagraph 13.1(b), (c) or (d). In such
case, the applicable grace period under the unlawful detainer statute shall run
concurrently after the one such statutory notice, and the failure of Lessee to
cure the Default within the greater of the two (2) such grace periods shall
constitute both an unlawful detainer and a Breach of this Lease entitling Lessor
to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in California
under California Civil Code Section 1951.4) after Lessee's Breach and recover
the rent as it becomes due, provided Lessee has the right to sublet or assign,
subject only to reasonable limitations. Lessor and Lessee agree that the
limitations on assignment and subletting in this Lease are reasonable. Acts of
maintenance or preservation, efforts to relet the Premises, or the appointment
of a
MULTI-TENANT GROSS Initials: /s/ J.C.
Page 10 of 15 /s/ R.H.D.
<PAGE> 11
receiver to protect the Lessor's interest under this Lease shall not constitute
a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the laws
or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due form Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, them, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease unless
Lessor fails within a reasonable time to perform an obligation required to be
performed by Lessor. For purposes of this Paragraph 13.5, a reasonable time
shall in no event be less than thirty (30) days after receipt by Lessor, and by
any Lender(s) whose name and address shall have been furnished to Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days after such notice
are reasonably required for its performance, then Lessor shall not be in breach
of this Lease if performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee or Lessor's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. Brokers' Fees
15.1 Procuring Cause. The Broker(s) named in Paragraph 1.10 is/are the procuring
cause of this Lease.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall within ten (10)
days after written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in a form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or sell the
Premises or the Building, or any part thereof, Lessee shall deliver to any
potential lender or purchaser designated by Lessor such financial statements of
Lessee and may be reasonably required by such
MULTI-TENANT GROSS Initials: /s/ J.C.
Page 11 of 15 /s/ R.H.D.
<PAGE> 12
lender or purchaser, including, but not limited to Lessor's financial statements
for the past three (3) years. All financial statements shall be received by
Lessor and such lender or purchaser in confidence and shall be used only for the
purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or other Agreements. This Lease contains all agreements between the
Parties with respect to any matter mentioned herein, and no other prior or
contemporaneous agreement or understanding shall be effective. Lessor and Lessee
each represents and warrants that it has made, and is relying solely upon, its
own investigation as to the nature, quality, character and financial
responsibility of the other Party to this Lease and as to the nature, quality
and character of the Premises.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this Lease shall
be in writing and may be delivered in person (by hand or by messenger or courier
service) or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission during
normal business hours, and shall be deemed sufficiently given if served in a
manner specified in this Paragraph 23. The addresses noted adjacent to a Party's
signature on this Lease shall be that Party's address for delivery or mailing of
notice purposes. Either Party may by written notice to the other specify a
different address for notice purposes, except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
the purpose of mailing or delivering notices to Lessee. A copy of all notices
required or permitted to be given to Lessor hereunder shall be concurrently
transmitted to such party or parties at such addresses as Lessor may from time
to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail, return
receipt requested, shall be deemed given on the date of delivery shown on the
receipt card, or if no delivery date is shown, the postmark thereon. If sent by
regular mail, the notice shall be deemed given forty-eight (48) hours after the
same is addressed as required herein and mailed with postage prepaid. Notices
delivered by United States Express Mail or overnight courier that guarantees
next day delivery shall be deemed given twenty-four (24) hours after delivery of
the same to the United States Postal Service or courier. If any notice is
transmitted by facsimile transmission or similar means, the same shall be deemed
served or delivered upon telephone or facsimile confirmation of receipt of the
transmission thereof, provided a copy is also delivered via delivery or mail. If
notice is received on a Saturday or a Sunday or a legal holiday, it shall be
deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of monies or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. No Right to Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
26. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
27. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
28. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the state in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
29. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be subject
and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph 30.3,
Lessee agrees to attorn to a Lender or any other party who acquires ownership of
the Premises by reason of a foreclosure of a Security Device, and that in the
event of such foreclosure, such new owner shall not: (1) be liable for any
MULTI-TENANT GROSS Initials: /s/ J.C.
Page 12 of 15 /s/ R.H.D.
<PAGE> 13
act or omission of any prior lessor or with respect to a [illegible] occurring
prior to acquisition of ownership, (ii) be [illegible] to any offsets or
defenses which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent. Refer to Paragraph 60.
30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor
after the execution of this Lease, Lessee's subordination of this Lease shall be
subject to receiving assurance (a "non-disturbance agreement") from the Lender
that Lessee's possession and this Lease, including any options to extend the
term hereof, will not be disturbed so long as Lessee is not in Breach hereof and
attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim of defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the terms hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises of
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, and the right to install advertising signs on the Building, including
the roof, which do not unreasonably interfere with the conduct of Lessee's
business; Lessor shall be entitled to all revenues from such advertising signs.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination of cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for paragraph 33 hereof (Auctions) or as otherwise provided herein,
wherever in this Lease the consent of a Party is required to an act by or for
the other Party, such consent shall not be unreasonably withheld or delayed.
Lessor's actual reasonable costs and expenses (including, but not limited to,
architects', attorneys', engineers' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent
pertaining to this Lease or the Premises, including, but not limited to,
consents to an assignment a subletting or the presence or use of a Hazardous
Substance, shall be paid by Lessee to Lessor upon receipt of an invoice and
supporting documentation therefor. In addition to the deposit described in
Paragraph 12.2(e), Lessor may, as a condition to considering any such request by
Lessee, require that Lessee deposit with Lessor an amount of money (in addition
to the Security Deposit held under Paragraph 5) reasonably calculated by Lessor
to represent the cost Lessor will incur in considering and responding to
Lessee's request. Any unused portion of said deposit shall be refunded to Lessee
without interest. Lessor's consent to any act, assignment of this Lease or
subletting of the Premises by Lessee shall not constitute an acknowledgment that
no Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are acknowledged
by Lessee as being reasonable. The failure to specify herein any particular
condition to Lessor's consent shall not preclude the impositions by Lessor at
the time of consent of such further or other condition as are then reasonable
with reference to the particular matter for which consent is being given.
37. Guarantor.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the performance of all the covenants, conditions and provisions on Lessee's part
to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. Options
39.1 Definition. As used in this Lease, the word "Option" has the following
meaning: (a) the right to extend the term of this Lease. Refer to Paragraph 61.
MULTI-TENANT GROSS Initials: /s/ J.C.
Page 13 of 15 /s/ R.H.D.
<PAGE> 14
39.2 Options Personal to Original Lessee. Each Option granted to Lessee in this
Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or apart therefrom,
and no Option may be separated from this Lease in any manner, by reservation or
otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of separate Defaults under Paragraph 13.1 during the twelve
(12) month period immediately preceding the exercise of the Option, whether or
not the Defaults are cured.
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provision of an Option shall terminate and be
of no further force or effect, notwithstanding Lessee's due and timely exercise
of the Option, if, after such exercise and during the term of this Lease, (i)
Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of
thirty (30) days after such obligation becomes due (without any necessity of
Lessor to give notice thereof to Lessee), or (ii) Lessor gives to Lessee three
(3) or more notices of separate Defaults under Paragraph 13.1 during any twelve
(12) month period, whether or not the Defaults are cured, or (iii) if Lessee
commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees. Refer to
Exhibit D.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such rights,
dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonably non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
Exhibits which constitute a part of this Lease:
Exhibit A - Site Map
Exhibit B - Floor Plan and Space Summary
Exhibit C - Summary of Term, Rent, Security Deposit, Operating Expenses and
Utilities
Exhibit D - Rules & Regulations
Exhibit E - Notice of Policy Regulating Asbestos Containing Materials
Exhibit F - Work Letter Agreement
MULTI-TENANT GROSS Initials: /s/ J.C.
Page 14 of 15 /s/ R.H.D.
<PAGE> 15
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS SEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS, UNDERGROUND
STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THEIR
CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT,
OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES, THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE
LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS IN A
STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS
LOCATED SHOULD BE CONSULTED.
The Parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: San Diego, CA Executed at: San Diego, CA
on: October 30, 1998 on:
By Lessor: By Lessee:
General Atomics M4Labs, Inc.
By: /s/ Robert H. Dalry By: /s/ Jim Carol
Name Printed: Robert H. Dalry Name Printed: Jim Carol
Title: Director Facilities Title: President and Founder
By: By:
Name Printed: Name Printed:
Title: Title:
Address: Address:
Telephone: (619) 455-2130 Telephone: (619) 455-2511
Facsimile: (619) 455-4375 Facsimile: (619) 455-2516
BROKER: BROKER:
Executed at: Executed at:
on: on:
By: By:
Name Printed: Name Printed:
Title: Title:
Address: Address:
Telephone: Telephone:
Facsimile: Facsimile:
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 South Flower
Street, Suite 600, Los Angeles, California 90017 (213) 687-8777.
MULTI-TENANT GROSS Initials: /s/ J.C.
Page 15 of 15 /s/ R.H.D.
<PAGE> 16
ADDENDUM
49. Insert to Paragraph 1.1, Parties:
As used herein, "Lease" means "Sublease," "Lessor" means "Sublessor" and
"Lessee" means "Sublessee."
50. Insert to Paragraph 1.2(b), Parking:
The number of parking spaces designated in Paragraph 1.2(b) is based on three
spaces per one thousand square feet of subleased space. In the event an agency
of jurisdiction places restrictions on allowed on-site parking spaces provided
by the Lessor, then the Lessee shall be responsible for implementing provisions
to restrict parking to that stipulated in this paragraph of the Sublease
Agreement, or to reimburse the Lessor in full for the cost and expenses for
payment of penalties, fees or upgrades needed to accommodate Lessee's excess
parking above the number of spaces designated herein.
51. Insert to Paragraph 1.10(a), Real Estate Brokers:
Lessee represents and warrants to Lessor that it has not engaged any broker,
finder, or other person other than the firm stipulated in Paragraph 1.10(a) who
would be entitled to any commission or fees in respect to the negotiation,
execution or delivery of this Sublease and shall indemnify and hold harmless
Lessor against any loss, cost, liability, or expense incurred by Lessor as a
result of any claim asserted by any broker, finder, or other person on the basis
of any arrangements made or alleged to have been made by or on behalf of Lessee.
52. Insert to Paragraph 2.2, Condition of Premises:
The space is offered "as-is," cleaned, unfurnished and in good working
condition. Lessee shall be responsible for furnishing its Premises with the
needed fixtures, furnishings and equipment.
53. Insert to Paragraph 2.3, Compliance with Covenants, Restrictions and
Building Code:
Lessee agrees to accept the Premises subject to a Master Lease and all
applicable zoning, municipal, county, state and federal laws, ordinances, and
regulations governing and relating to the use of the Premises. Lessor warrants
that it is not in default of the Master Lease, and the provisions of the Master
Lease are in full force and effect.
54. Insert to Paragraph 2.10, Common Area - Changes:
Lessee acknowledges that Lessor has disclosed the fact that improvements are
scheduled to be completed November 1998, which will allow all automobile and
truck access from Science Center Drive, but close access from the General
Atomics Industrial Center. However, date for operation of the new access remains
indefinite pending placement of a Building 14 anchor Tenant that will operate
the entrance access control and reception Lobby. Once the private access is put
into operation, Building 14 security access control will be changed from General
Atomic's Building 1 Lobby to Building 14 Lobby, and all visitors will process
through the Building 14 Lobby during normal business hours. During non-business
hours, visitor access will be available from the Science Center Drive entrance
but non-badged access will be controlled from Lessor's Building 1. Restricted
personnel access will continue to be available between Building 14 and the
remainder portion of the Torrey Pines Industrial Center. Further, Lessee is
advised that during Lessee's tenancy, parties to a sublease of other Building 14
space plan to install improvements for tenant expansion on the first and second
floors.
55. Insert to Paragraph 6.2, Hazardous Substances:
55.1 Lessee shall not use the Premises for processing, storage or production of
"Hazardous Substances" (as defined below). "Hazardous Substance" means (a) any
substance that is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous, and is, or becomes,
regulated by any government authority, department, commission, board, agency or
instrumentality of the United States, the State of California or any political
subdivision thereof; (b) any other substance, the presence of which requires
investigation or remediation under any federal, state or local statute,
regulation, ordinance, order, action of common law; and (c) any additional
substances or materials that at such time are classified or considered hazardous
or toxic under the Laws of California or any other applicable Laws relating to
the Premises.
Initials: /s/ J.C.
16 /s/ R.H.D.
<PAGE> 17
55.2 Lessor and its representative agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting the same for
"Hazardous Substances" as defined below, showing the same to prospective
purchasers, lenders, or lessees, and making such alterations, repairs,
improvements or additions to the Premises or to the Industrial Center as Lessor
may deem necessary or desirable.
55.3 Hazardous Substances used by Lessee shall be the responsibility of Lessee,
and Lessee shall dispose of such Hazardous Substances in accordance with all
applicable laws and regulations, in accordance with Lessors Accepted Practices,
and in a safe and reasonable manner, both during the term of the Sublease, when
required or appropriate, but in no event later than the date that the Sublease
is terminated.
56. Insert to Paragraph 7.1, Lessee's Obligations:
56.1 Lessee agrees to conduct day-to-day operations of the Premises in a manner
to preserve the integrity of building structures and its systems including, fire
barriers, heating, air-conditioning and ventilation systems and other installed
utilities. Specifically, Lessee agrees to keep exterior doors closed at all
times except for passage.
56.2 Lessees' obligations to maintain plumbing, heating, ventilating and
air-conditioning systems, electrical, lighting and equipment within the Premises
is interpreted to include Lessee's equipment, fixtures or furnishings that the
Lessee has or will install during its tenancy. Equipment or fixtures installed
by the Lessee, are considered by the Lessor as serving the function of
supplementing Lessee's specific use of the Premises, and is deemed by the Lessor
as the Lessee's obligation under this section of the Lease.
56.3 Lessees' Premises are served by Lessees central heating, ventilation and
air-conditioning (HVAC) systems. Lessor shall operate equipment and systems
needed to supply conditioned air to the interior spaces weekdays between the
hours of 6:OOAM to 6:00PM, except on National Holidays or during scheduled
outages or breakdowns.
57. Insert to Paragraph 7.3, Utility Installations, Trade Fixtures, Alterations:
57.1. Alterations, improvements, additions or Utility Installations by the
Lessee shall be performed by licensed and insured construction or service
companies having qualified craft workers possessing the proper qualifications
and training for performing the work. Alterations, improvements, additions or
Utility Installations shall be performed by contractors for which Lessor has
given Lessee its consent. Firms engaged in performing services for the Lessor,
under Blanket Order Service Agreements, are pre-qualified to perform services
for the Lessee.
57.2. On occasion, certain building systems and Utility Installations have been
modified or altered by individuals or companies that do not possess the
knowledge, qualifications, license and insurance to engage in these services.
Modifications or alterations to building structures, systems or Utility
Installations including fire walls, doors, electrical, plumbing, heating,
ventilation and air conditioning, or other common area utilities by service
companies or personnel, (particularly those not holding a license, having the
proper insurance coverage or possessing adequate training and qualifications),
could cause damage to Lessee's business and to that of others.
57.3. Unplanned utility interruptions such as those caused by abnormal weather
conditions, earthquakes, fires, construction mishaps, or Industrial Center plant
equipment failures, may result in extended utility outages that could affect the
Lessee's business operations. Restoration of services through connection to
standby equipment such as portable electric generators, portable
air-conditioning chillers, or other Industrial Center Systems, could require
outages extending beyond a 24-hour period.
58. Insert to Paragraph 8.8, Exemption of Lessor From Liability:
Except for planned outages conducted by the Lessor for altering or maintaining
its Buildings, or private service systems of the Industrial Center, the Lessee
agrees that the Lessee shall be responsible for making any necessary provisions
that may be required for standby utility services that the Lessee considers
critical to Lessee's operations, or use of the Premises, in the event that
electrical power, air, water, sewer, gas, telephone, or other Lessor supplied
services are interrupted.
Initials: /s/ J.C.
17 /s/ R.H.D.
<PAGE> 18
59. Insert to Paragraph 11, Utilities:
59.1. Lessee agrees to pay its prorata share of electricity, gas and water/sewer
based on size of the Premises. The prorata share shall be determined as
stipulated in Exhibit C.
59.2. Lessee shall use Lessor's telephone service and shall pay for
installation, moves, changes and monthly services attributable to Lessee,
including all toll charges. Charges for service and equipment are subject to
reasonable annual increases but shall not exceed the standard amounts charged to
other tenants in the Industrial Center, for such services and equipment. Parties
agree that the 1998 calendar year equipment and service costs shall be in
accordance with the following schedule:
EQUIPMENT RENTAL
Each Telephone and Modem Extension: $29 per extension/month
Each Telephone Set in Excess of Total Telephone and Modem Extensions:
$2.50/month
Adds, Moves and Chances
- -----------------------
Installation
- ------------
SL-1 Set: $80/set
2500/FAX/Modem Jack: $60/line or set
10B/20B /Speaker/Head Sets: $20/add-on (plus cost)
Data Lines/Lans: $40/jack
Moves
- -----
SL-1/2500/FAX/Modem: $40/set or line
Data Lines/Lans: $40/jack
Changes
- -------
Program/Designation Change: $20/set
Long Handset/Line Cords: $20/set
Parties agree that reasonable annual adjustments, the same as applied to other
Industrial Center Tenants, can be made without prior notice effective January of
each calendar year.
Charges for telephone rental, services, and toll calls, prorata share, and
Extraordinary Utilities, shall be invoiced monthly by Lessor and shall be due
and payable by Lessee in accordance with Paragraph 21.
60. Insert to Paragraph 30.2, Attornment:
Upon request of Master Lessor, or on behalf of the Industrial Center Owner,
Lessee shall subordinate its interest in the Lease and the Premises to the
encumbrance instruments of any Real Property loans made to Lessor or Owner.
Lessee shall attorn to any purchaser at any foreclosure sale, or to any grantee
or transferee designated in any deed given in lieu of foreclosure. Lessee shall
execute a subordination agreement and any other documents required by any lender
of Master Lessor to accomplish the purposes of this Section.
61. Insert to Paragraph 39, Options:
61.1 Lessor grants to the Lessee the Option to extend the Term of the Agreement
for two one-year periods on the following terms and conditions: (1) The
provisions of Paragraph 39, including the provision relating to default of the
Lessee, set forth in Paragraph 39.4 applies; (2) Lessee gives Lessor written
notice of the exercise of this Option to Extend the Term a minimum of three
months prior to end of the Original Term; (3) The Lessor shall have the option
to relocate the Lessee's Premises to a comparable Space Block in Buildings 14 or
15 the first month of each option year; (4) All Terms and Conditions of this
Lease except where specifically modified by this Option apply; (5) Rent starting
the first month of the Extended Term is increased by four percent (4%) over the
Rent paid the month just prior to the Term extension.
Initials: /s/ J.C.
18 /s/ R.H.D.
<PAGE> 19
GENERAL ATOMICS TORREY PINES MESA
site map
Exhibit A
Initials: /s/ J.C.
/s/ R.H.D.
<PAGE> 20
EXHIBIT B
[Floor Map]
EXHIBIT B Initials: /s/ J.C.
Page 1 of 2 /s/ R.H.D.
<PAGE> 21
M4LABS
Space Summary
<TABLE>
<CAPTION>
First-in (Effective August 11, 1998) Cumulative Total SF
- ------------------------------------ -------------------
Bldg. No. Room No. Use Code SF
- --------- -------- -------- --
<S> <C> <C> <C> <C>
14 144 Office 129
14 145 Office 168
14 179 Office 91
14 180 Office 187
14 H140 (prorata) Corridor 132
---
Subtotal 707
20% Common 141
---
Total 848 Total 848
</TABLE>
<TABLE>
<CAPTION>
Expansion (Effective November 1, 1998)
- --------------------------------------
Bldg. No. Room No. Use Code SF
- --------- -------- -------- --
<S> <C> <C> <C> <C>
14 140 Office 128
14 141 Office 127
14 142 Office 132
14 143 Office 173
14 144 Office 129
14 145 Office 168
14 176A Office 129
14 176B Office 90
14 177 Office 185
14 178 Office 233
14 179 Office 91
14 180 Office 187
14 H140 Corridor 407
-----
Subtotal 2,179
10% Common 218
-----
Total 2,397 Total 2,397
</TABLE>
<TABLE>
<CAPTION>
Added (Effective January 1, 1999)
- ---------------------------------
Bldg. No. Room No. Use Code SF
- --------- -------- -------- --
<S> <C> <C> <C> <C>
14 146 Office 131
14 147 Office 133
14 149 Office 97
14 150 Office 187
14 151 Office 175
14 152 Office 177
14 153 Office 243
14 154 office 169
14 155 Office 169
14 181 Office 423
14 H150 Corridor 444
Subtotal 2,348
10% Common 235
-----
Total 2,583 Total 4,980
</TABLE>
Exhibit B Initials: /s/ J.C.
Page 2 of 2 /s/ R.H.D.
<PAGE> 22
Summary of Term, Rent, Security Deposit Operating Expenses and Utilities
Insert to Paragraphs 1.3 Term:1.5 and 4.1 Base Rent
- ---------------------------------------------------
Original Term: The Agreement shall start month-to-month, August 11, 1998, and
convert to a two-year Agreement with a Commencement Date of November 1, 1998,
and Expiration Date of October 31, 2000.
Base Rent: The Base Rental Rate shall start at $1.52 per square foot and at the
Commencement Date, the time at which the Lessee Premises reach the Expansion
Size, the Base Rental Rate shall be adjusted to $1.32 per square foot. Starting
the first anniversary of the Agreement, the NNN rate and Operating Expenses
shall increase a nominal four percent (4%) over the previous lease year.
<TABLE>
<CAPTION>
Element Monthly Lease Rate & Rent
- ------- -------------------------
Yr #1 Yr #2
----- -----
<S> <C> <C> <C> <C>
Space Block Description First-in Expansion Cumulative
---------- --------- ----------
Effective Date (08/11/98) (11/1/98) (01/01/99) (11/1/99)
---------- --------- ---------- ---------
NNN Rate $1.10/sf $1.10/sf $1.10/sf $1.14/sf
CAM Charges (Std. Op. Exp.) $0.22 $0.22 $0.22 $0.23
Premium-small area $0.20 $0.00 $0.00 $0.00
Janitorial Lessee Hires Same Same Same
Utilities Prorated Prorated Prorated Prorated
-------- -------- -------- --------
Total Rate $1.52/sf $1.32/sf $1.32/sf $1.37/sf
Space Block Size 848sf 2,397sf 4,980sf 4,980sf
Monthly Rent $1,289 $3,164 $6,574 $6,823
</TABLE>
Insert to Paragraphs 1.7 and 5. Security Deposit
- ------------------------------------------------
A Security Deposit in the amount equivalent to one month's Rent and two month's
utility expenses shall be paid to secure payment to the Lessor. Security Deposit
is collected for the Cumulative Space Block, to secure the Lessee's Possession
for sublease of the Cumulative Space Block effective January 1, 1999.
<TABLE>
<CAPTION>
Secured Payment Amount
- --------------- ------
<S> <C>
One Month's Rent $6,574
Two Months' Utilities: 4,980sf @$0.20/sf $1,992
------
Total $8,566
</TABLE>
Concurrent with the annual increase in Monthly Rent, and without prior notice,
the Lessor shall adjust the Security Deposit in direct relation to the Monthly
Rent, and Utility Expenses (as calculated above), and the increase shall be paid
by the Lessee upon receipt of an invoice from the Lessor.
Insert to Paragraph 1.10(a). Real Estate Brokers
- ------------------------------------------------
The Lessor shall pay commissions to the Real Estate Broker representing the
Lessee, named in Paragraph 1.10(a), an amount of four percent (4%) of the Net
Rent, exclusive the Operating Expenses. Commissions shall be paid to the Broker
by the Lessor the month of December 1998 determined as shown below. The Lessee's
Broker shall provide the Lessor an invoice for the Brokerage fees, net 30-day
payment.
<TABLE>
<CAPTION>
Commission
Space Block Size(sf) Net Rent Period Rent Rate Amount
- ----------- -------- -------- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
First-in 848 $1.30 82 days $ 2,951.59 4% $ 118.06
Expanded 2,397 $1.10 2 months $ 5,273.40 4% $ 210.94
Cumulative 4,980 $1.10 10 months $ 54,780.00 4% $2,191.20
Cumulative 4,980 $1.14 12 months $ 68,126.40 4% $2,725.06
----------- ---------
$131,131.39 4% $5,245.26
</TABLE>
No commissions shall be due and payable for Lease Term Extensions, renewals or
expansion, other than those shown in the table above.
Exhibit C Initials: /s/ J.C.
Page 1 of 3 /s/ R.H.D.
<PAGE> 23
Insert to Paragraph 4.2. Common Area Operating Expenses
- -------------------------------------------------------
Lessee shall pay for cost of maintenance and repair of its fixtures, furnishings
and equipment; janitorial services, maintenance and repair of electrical or
other services from Building point of connection to Tenant fixtures, and for
supplemental equipment installed specifically for Lessee application and use.
Lessee shall also pay for locksmith service, telephone installation, adds,
moves, and changes, and for all Lessee toll calls. Lessee shall initiate the
needed job orders to engage services and pay for said services pursuant to
Paragraph 7.0 of this Sublease Agreement. Following are the provisions for
payment of Services and Operating Expenses under terms of the Sublease
Agreement:
<TABLE>
<CAPTION>
Included Included As
In Monthly Operating
<S> <C> <C> <C>
Service or Utility Rent Expense Note
- ------------------ ---------- ----------- ----
Taxes x 1
Insurance x 2
Parking Lots, Roadways & Walkways x
Landscape Maintenance x
Building and Utility Maintenance x 3
Trash Collection x
Property Management x
Telecommunications Services x
Utilities:
Electricity, Ordinary x
Natural Gas x
Water/Sewer x
Electricity, Extraordinary x 4
Security Services-Standard x 5
Security Access Control & Keys x 7
Mail Pickup and Delivery x 5
Use of Central Conference Rooms x 5&9
Use of Outdoor Recreational Facility x 5
Use of Central Cafeteria x 5&7
Janitorial: 6
Common Area x
Lessee Space x
</TABLE>
Lessee may obtain the following services through separate agreement with the
Lessor. Payment shall be made under the same terms and conditions as for
operating expenses:
<TABLE>
<S> <C> <C> <C>
Signage-Interior x 7
Use of Corporate Fitness Center x 5&7
Contractor Services x 5&8
</TABLE>
Notes:
1. Covers Real Property Taxes. Does not cover personal property taxes.
2. Covers Lessor's insurance only. Does not cover Lessee's coverage for its
fixtures and liability, or for loss of business.
3. Covers maintenance and repairs of normal building equipment and utilities.
Does not cover maintenance and repairs of special telecommunications or
equipment installed on behalf of the Lessee to maintain special conditions such
as air conditioning or Lessee's fixtures.
4. Cost for extraordinary utilities shall be passed through at cost charged to
Lessor. Example: Cost to operate Building HVAC outside the hours of 6:00 A.M. to
6:00 P.M. Monday through Friday (excluding national holidays) as requested by
the Lessee.
5. Access or use or services are provided as an amenity but are subject to
change or termination by Lessor with thirty days advanced notice to the Lessee.
6. Lessee shall make provisions for cleaning services for its Premises.
7. Same cost as charged to other Tenant Employees.
8. Available at Lessor's cost plus 15%.
9. Parties agree that location, site and features of conference rooms can be
changed upon Lessor providing Lessee 30 days advanced notice of said change.
Exhibit C Initials: /s/ J.C.
Page 2 of 3 /s/ R.H.D.
<PAGE> 24
Insert to Paragraph 11, Utilities
- ---------------------------------
Effective the date that the Lessee takes Possession, the Lessor shall commence
charging the Lessee its Prorata share of Utilities as described below:
Electricity: Electric power is supplied by San Diego Gas & Electric and metered
at one location of the Industrial Center. Building's 13 and 14 are separately
submetered. Prorata electric power costs shall be calculated using data taken
from submeters as follows:
<TABLE>
<S> <C>
Building 14 leased gsf x Building 13 Billing Period Cost
Building 13gsf (Note 1)
2,397gsf (Note 2) x Building 13 Billing Period Cost
64,071 gsf
</TABLE>
Note(l) Building 13 gsf is used because it is fully occupied and it is under
similar use. Building 14 is partly vacant for lease to others and usage will
vary with Building occupancy.
Note(2) Gross Square feet will be adjusted in direct relation to size of the
Lessee's Premises.
Water/Sewer: Water is supplied to the Industrial Center from two separate city
water meter stations. Sewer charges are based on water consumption. The
Industrial Center is comprised of Buildings on three separate parcels, one
Genesee Properties and two Hopkins Properties. The gross square footage in the
Industrial Center is 519,788. Prorated water/sewer costs shall be calculated as
follows:
<TABLE>
<S> <C>
Building 14 leased gsf x Billing Period Charges
Total Industrial Center gsf
2,397gsf x Billing Period Charges
519,788gsf
</TABLE>
Natural Gas: Natural gas is purchased from a natural gas supplier and
transported to the Industrial Center by San Diego Gas & Electric. Pro rata
natural gas costs shall be calculated using the total Industrial Center floor
area, the same as used for water/sewer, and shall be determined as follows:
<TABLE>
<S> <C>
Building 14 Leased gsf x Billing Period (Na. Gas Cost + Transport Cost)
Total Industrial Center gsf
2,397gsf x Billing Period Charges
519,788gsf
</TABLE>
Exhibit C Initials: /s/ J.C.
Page 3 of 3 /s/ R.H.D.
<PAGE> 25
GENERAL ATOMICS RULES & REGULATIONS
ATTACHED AND MADE A PART OF THIS LEASE
1 Lessor agrees that Lessee is entitled to, and shall have the quiet enjoyment
of the Premises described in the Sublease.
2. During the term of the Sublease, Lessee shall provide Lessor the names and
home telephone numbers of two Lessee employees that can be contacted by the
Lessor for emergencies during Lessee's non-business hours.
3. Lessor shall provide Lessee a minimum 24-hour advanced notice of any
inspection by the Lessor, Owner, Lender, insurance carriers and respective
agents.
4. During the warranty period, Lessee shall give Lessor prompt notice of any
accidents to or defects in the water pipes, gas pipes, electric system, lights
and fixtures, heating and cooling apparatus or any other service equipment.
5. Any service piping, ducts, electric conduits, telephone wiring and antennas
exterior to the Building, or boring, cutting of exterior walls, floor or roof
shall not be permitted, except with the written consent of Lessor.
6. Lessee's identification sign(s) shall be subject to prior approval by Lessor.
Guidelines for Building exterior signage is available from the Lessor upon
request.
7. Lessee shall not install blinds, shades, awnings or other form of inside or
outside window covering, or window ventilators or similar devices without the
prior written consent of Lessor.
8. Lessee shall maintain Premises in a clean and safe condition. Trash shall be
placed in appropriate disposal containers at locations designated by Lessor for
pick-up and disposal by a service contractor of the Lessor.
9. Lessee and Lessee's employees shall not obstruct the sidewalks, driveways, or
other common areas and shall use the same only as a means of passage, access and
parking; all materials, fixtures, furnishings and equipment shall be stored
inside the Building. Outside storage at the Premises is prohibited.
10. The water closets, urinals and other plumbing shall be used for the purpose
for which they were constructed and no rubbish, newspapers or other substances
of any kind shall be thrown into them. Lessee shall not mark, install screws or
drill into, or in any way deface the exterior walls, stone, metal work, doors
and windows of the Building.
11. Lessee and Lessee's agent and employees shall not play any musical
instrument, including radio and television, in a loud or objectionable manner,
or make or permit any improper noises in the Building, or interfere in any way
with other Industrial Center Lessees or those having business with them.
12. Lessee shall not conduct any auction, or sell goods, wares or merchandise on
the Premises.
13. Lessor will not be responsible for loss of or damage to any fixtures,
furnishings or personal property from any cause.
14. Although Lessor may have given Lessee approval to use the name of the
Industrial Center in connection with any business on the property, Lessor shall
have the right to prohibit any advertising by any agent which in Lessor's
opinion, tends to impair the reputation of the Building or its desirability as a
Building for offices and laboratories, and upon written notice from Lessor,
Lessee shall refrain from or discontinue such advertising.
15. No cooking shall be done or permitted by Lessee on the Premises, except in
areas specifically designed for the purpose, without the consent of Lessor, nor
shall the Premises be used for the storage of merchandise, for washing clothes,
for keeping of pets, for lodging or for any improper, objectionable or immoral
purposes.
16. Lessee shall not disturb, solicit or canvass any occupant of the Industrial
Center and shall cooperate to prevent same.
17. From time to time it may become advantageous to make amendments to this list
which are in the best interests of both Lessor and Lessee and which are not
inconsistent with the Sublease. Lessor reserves the right to make such
amendments by giving notice to Lessee.
Exhibit D Initials: /s/ J.C.
Page 1 of 1 /s/ R.H.D.
<PAGE> 26
ASBESTOS NOTIFICATION
October 1997
From: Licensing, Safety and Nuclear Compliance (LSNC)
TO: Employees and Occupants, Via Intercompany Memo
General Atomics, in compliance with California Health and Safety Code 25915 et
seq, is required to give written notice of the presence of asbestos containing
materials to all employees. This notification applies to General Atomics
facilities at 3550 General Atomics Court, 3483 Dunhill Street, and 11222
Flintkote Avenue.
Prior to 1979, asbestos was used extensively in the building industry throughout
the United States as thermal insulation, fireproofing, and in structural support
materials. At General Atomics asbestos has been used to insulate hot water and
steam pipes and ventilation ducts. It may be found in some attics and mechanical
rooms, in floor and ceiling tiles and window wall panels, some roofing material,
and core material in certain fire doors.
The mere presence of asbestos in a building does not necessarily mean that a
health hazard exists. Asbestos containing materials are not a health threat
unless asbestos fibers become airborne and are inhaled. In areas where the
asbestos is bonded or encapsulated and properly maintained, such as in the
materials listed above, there is very little or no risk to health.
Accordingly, it is important not to disturb asbestos containing materials.
General Atomics policy restricts work on asbestos containing materials to
certified asbestos contractors who are properly trained and equipped. Moving,
drilling, cutting, or otherwise disturbing such materials can pose a health risk
and should not be attempted by untrained personnel. Employees should immediately
notify (Licensing, Safety and Nuclear Compliance) if they observe materials that
they suspect contain asbestos and which are not properly maintained.
LSNC maintains records of asbestos sampling and air monitoring results performed
during the course of asbestos abatement work. Employees may contact LSNC, Letty
Alfonso at extension 2016, Paul Englert at extension 2466, or Keith Asmussen at
extension 2823, if they have questions or concerns regarding asbestos.
Exhibit E Initials: /s/ J.C.
Page 1 of 1 /s/ R.H.D.
<PAGE> 27
WORK LETTER AGREEMENT
This Work Letter Agreement is written to complement the Form Sublease and its
Addenda; it expands and elaborates on the Form Sublease with no conflict
intended.
I. Premises
- -----------
The Lessor will deliver the Building 14 Premises in three Space Blocks,
FIRST-IN, EXPANSION and ADDED, as shown on the Floor Plan, Exhibit B, Page 1 of
2.
II. Alterations
- ---------------
The Promises will be delivered to M4Labs in "as-is" conditions and will provide
two captive Space Blocks with access control doors to each of the two distinct
spaces. Alterations will be made as follows:
A. Prior to M4Labs Possession of EXPANSION Space, GA will install a new exit
corridor connecting the fitness center to the building northeast exit.
B. GA will demise the Space previously occupied by SnowBrand Pharmaceuticals by
installing corridor control access doors to secure access to the ADDED portion
of the Premises.
III. Utility Installations
- --------------------------
The existing Utility Installations will be used to the practical extent. M4Labs
will notify GA of any deficiencies in the Premises as stipulated in the Form
Lease Agreement.
A. GA will make the minor repairs, touch-up paint, clean, and inspect all
building systems serving the Premises, including HVAC, lighting, power and
communications to ascertain systems are in good order condition and repair.
B. M4Labs Inc. will identify the desired Utility Service Installations,
including telecommunications and security access controls, and submit approved
job orders to GA with appropriate signatures authorizing the expenditures for
installation and rental.
C. GA will engage subcontractor services to complete Utility Service
Installation and invoice M4Labs Inc. for the actual cost of these services or at
the agreed rental fee schedule.
IV. Tenant Fixtures and Equipment
- ---------------------------------
M4Labs will furnish the Premises as needed with equipment. fixtures' furnishings
(i.e., computers, FAX, copiers, desks, tables, chairs, files, audio visual) not
included in GA's standard offering, or as part of the Telecommunications line
and equipment rental.
A. M4Labs Inc. will make provisions for all equipment, tenant fixtures,
appurtenances, and engage the needed contract services for installation and
setup. M4Labs Inc. will pay for all costs and expense in acquiring equipment and
for its installation.
B. GA will fill M4Labs' request for used office furniture on a sale or rental
fee schedule basis to be paid by M4Labs as a monthly Operating Expense, starting
January 1, 1999.
V. Schedule
- -----------
GA agrees to allow M4Labs to use the full EXPANSION Premises, at the FIRST-IN
Monthly Rent, until start of Term (November 1, 1998) at which time M4Labs will
lease the FIRST-IN plus EXPANSION portion of the Premises. GA will proceed with
the preparation of ADDED portion of the Premises for M4Labs Possession prior to
January 1, 1999.
The following reflects the schedule for Possession of the Premises:
<TABLE>
<S> <C>
Possession of FIRST-IN Space Aug. 11, 1998
Deliver Possession-EXPANSION Space Oct. 31, 1998
Demise/prepare-ADDED Space Dec. 01, 1998
Tenant Possession-ADDED Space Dec. 23, 1998
</TABLE>
Exhibit F Initials: /s/ J.C.
Page 1 of 2 /s/ R.H.D.
<PAGE> 28
VI. Tenant Obligations
- ----------------------
Routine and Periodic Cleaning:
- ------------------------------
Pursuant to the Lessee's obligations stipulated in Paragraph 7.0, the Lessee
will perform routine and periodic cleaning of the offices and dedicated
corridors serving the Lessee's offices on the following minimum frequencies.
These standards are established to maintain a clean, safe Premises, avoid
infestation of rodents and pests, and to control fire hazards.
<TABLE>
<CAPTION>
Activity Frequency
- -------- ---------
<S> <C>
Empty Trash Daily
Empty Recycle Weekly
Vacuum Weekly
Spot Clean Carpet Weekly
Wipe and Clean Door Hardware/Sw Plates Monthly
Carpet Extraction Cleaning Quarterly
Windows Interior Surface Cleaning Quarterly
</TABLE>
Checklist for Surrender of Premises:
- ------------------------------------
Pursuant to Paragraph 7.4 of this Agreement the following expands on the
obligations of Lessee related to the Surrender of the Premises at the end of
Tenancy. Prior to the Lessor's acceptance of part or all of the Premises, the
Parties will make inspections to ascertain the said Premises are in a condition
acceptable to the Lessor, a condition existing at the time the Lessee took
Possession, normal wear and tear excepted.
Building Location:
<TABLE>
<CAPTION>
Offices Lessor Lessee Date
- ------- ------ ------ ----
<S> <C> <C> <C>
Furnishings removed
Fixtures removed
Trash removed
Telephones disconnected
Services stripped/safe off
Fixture inventory completed
Fixtures and equip. cleaned
Special telecom cable removed
Walls/minor repairs completed
Carpet extraction cleaned
Ventilation balanced
Landlord signage left in place
Tenant signage removed/repaired
Key locks changed
Successor Tenant Consent (If Applicable)
- ----------------------------------------
First Inspection
Ownership transfer completed
Final inspection
Turnover and Acceptance
- -----------------------
</TABLE>
Exhibit F Initials: /s/ J.C.
Page 2 of 2 /s/ R.H.D.
<PAGE> 1
EXHIBIT 10.12
AMENDMENT #1 TO THE SUBLEASE BY AND BETWEEN
GENERAL ATOMICS AND PACKETVIDEO CORPORATION
PARTIES
This Sublease Amendment ("Amendment #1"), dated for reference purposes only as
September 1, 1999, is made by and between GENERAL ATOMICS, a California
Corporation (herein called "Lessor") and PACKETVIDEO CORPORATION (formerly
M4LABS, Inc.), a California Corporation (herein called "Lessee").
RECITALS
A. Lessor and Lessee (the "Parties") executed a written Sublease Agreement (the
"Original Agreement") dated September 1, 1998, for approximately 4,980sf at the
Lessor's Building 14, located at 3550 General Atomics Court.
B. The Lessee was notified by the Original Agreement of the Lessor's plans to
change Industrial Center Common Area in a manner to provide vehicular access to
Building 14 from Science Center Drive, and to close off vehicular access from
the Remainder Industrial Site. This change has been effected and is memorialized
by this Amendment.
C. The Lessor informed the Lessee that an adjacent first floor space block of
approximately 1,033sf, designated herein as Added #2, would be offered for Lease
by the Lessor about mid-1999. By letter dated June 3, 1999, the Lessee notified
the Lessor that the Lessee desires expanding into the Added #2 Space Block
effective September 1, 1999.
D. The Lessor informed the Lessee that a second adjacent first floor space block
of approximately 2,237sf, designated herein as Added #3, would be offered for
Lease by the Lessor about October 1, 1999, after certain leasehold improvements
are installed to demise the space block in a manner to provide a safe means of
egress, and to make certain needed Utility Installations. The Lessee expressed
the desire to expand into the Added #3 Space Block when leasehold improvements
are completed by the Lessor.
E. The Lessor informed the Lessee that certain second floor space in the same
building may become available for the Lessee's relocation and expansion, if a
second floor tenant vacates its premises and in turn subleases to a third party,
or terminates its agreement with the Lessor. The Lessee expressed the preference
to expand its current Premises on the first floor as described in this
Amendment.
F. The Lessee requested that the Lessor grant to the Lessee additional options
to extend the Term of the Agreement such that the Original Term, with Option
Terms, provides a combined term of five years.
G. As consideration for the disturbance to the Lessee's quiet enjoyment of the
Premises caused by the Lessor's installation of building second floor
improvements, the Lessor agreed to forgive furniture rental charges for a six
month period, and to allow the Lessee to take early Possession of Added #2 Space
Block, rent free for the period July 19, 1999 through September 30, 1999.
H. The Parties desire to incorporate other minor changes, and interim
agreements, including those related to fulfillment of obligations for preparing
the current Premises for the Lessee's use.
NOW THEREFORE, in consideration of the foregoing, and in consideration of mutual
covenants and agreements of the Parties hereto, upon execution of this
Amendment, the Parties mutually covenant and agree as follows:
DELETE EXHIBIT A IN ITS ENTIRETY AND REPLACE WITH EXHIBIT A, AMENDMENT #1, DATED
SEPT. 1, 1999.
DELETE EXHIBIT B IN ITS ENTIRETY AND REPLACE WITH EXHIBIT B, AMENDMENT #1, DATED
SEPT. 1, 1999.
DELETE EXHIBIT C IN ITS ENTIRETY AND REPLACE WITH EXHIBIT C, AMENDMENT #1, DATED
SEPT. 1, 1999.
DELETE EXHIBIT E IN ITS ENTIRETY AND REPLACE WITH EXHIBIT E, AMENDMENT #1, DATED
SEPT. 1, 1999.
DELETE EXHIBIT F IN ITS ENTIRETY AND REPLACE WITH EXHIBIT F, AMENDMENT #1, DATED
SEPT. 1, 1999.
DELETE PARAGRAPH 50 AND REPLACE WITH NEW PARAGRAPH 50.
DELETE PARAGRAPH 59 AND REPLACE WITH NEW PARAGRAPH 59.
DELETE PARAGRAPH 61 AND REPLACE WITH NEW PARAGRAPH 61.
PacketVideoLse.Amend #1 Exhibit C Initials: /s/ MM.
September 1, 1999 Page 1 of 3 /s/ R.H.D.
<PAGE> 2
12.1 LESSOR'S CONSENT REQUIRED: CHANGE FROM TWENTY-FIVE PERCENT (25%) TO FORTY
PERCENT (40%).
50. INSERT TO PARAGRAPH 1.2(B), PARKING:
The number of parking spaces designated in Paragraph 1.2(b) is based on four
spaces per one-thousand square feet of subleased space, three at the Building 14
Complex, and one on the Remainder Industrial Center. In the event an agency of
jurisdiction places restrictions on allowed on-site parking spaces provided by
the Lessor, then the Lessee shall be responsible for implementing provisions to
restrict parking to that stipulated in this paragraph of the Sublease Agreement,
or to reimburse the Lessor in full for the cost and expenses for payment of
penalties, fees or upgrades needed to accommodate Lessee's excess parking above
the number of spaces designated herein.
59. INSERT TO PARAGRAPH 11; UTILITIES:
59.1 Lessee agrees to pay its prorata share of electricity, gas and water/sewer
service in direct relation to the size of the Premises. The prorata share shall
be determined as described in Exhibit C. Utility consumption for supplying the
Lessee's supplementary equipment shall be audited and charged to the Lessee as
an Extraordinary Utility Expense. If the Lessee chooses, metering may be
installed at the Lessee's expense to measure Extraordinary power consumption for
use as the means for calculating this Extraordinary Expense.
59.2 The Lessee shall pay for telecommunications installation, moves, changes
and monthly services attributable to the Lessee, including all toll charges.
Charges for service and equipment are subject to reasonable annual increases,
but shall not exceed the standard amounts charged to other tenants in the
Industrial Center for similar services and equipment. Parties agree that the
1999 Calendar Year equipment and service costs shall be in accordance with the
following schedule:
<TABLE>
<CAPTION>
CATEGORY OF SERVICE INSTALLATION COST MONTHLY COST
- ------------------- ----------------- ------------
<S> <C> <C>
Fax or Modem Extension $70 $18
PBX Line (Multi-Line capability) $70 $18
Basic Service Fee (includes adds, moves and changes) $20 N/A
TELEPHONE SETS AND FEATURES
Installation
SL-1 Set 2500, 2554, etc $20 $ 5
10 Key Add-on Module * $ 2
20 Key Add-on Module * $ 4
Speaker phone * $ 6
Digit Display * $ 6
2008 Digital 8-Button Telephone Set $20 $ 8
2616 Digital 16-Button Telephone Set with Display $20 $17
Speaker phone (HFA) * $ 1
22 Key Add-on Module * $ 7
PROGRAMMABLE FEATURES AT NO COST AT TIME OF INSTALLATION
Appearance of an Additional Extension * $ 2
Headset (all units are modular) Cost N/C
VOICEMAIL
With 7 minutes storage-10 day retention $20 $ 8
Additional 5 minutes of storage * $ 3
Pager out call * $ 2
</TABLE>
*APPLY BASIC SERVICE FEE (WAIVED IF WORK PERFORMED AT INSTALLATION)
Parties agree that reasonable annual adjustments, the same as applied to other
Industrial Center Tenants, can be made without prior notice effective January of
each calendar year. In the event that the Lessee deems the adjustments or rates
are unreasonable, then the Lessee shall have the option to give the Lessor a
sixty day notice, install its own PBX, and have the Lessor's system removed. The
cost and expense of the conversion shall be borne by the Lessee.
The charges for telephone rental, services, and toll calls, and the prorata
share or Extraordinary Utilities, shall be invoiced monthly by Lessor, and shall
be due and payable by Lessee in accordance with Paragraph 21 of the Agreement.
PacketVideoLse.Amend #1 Exhibit C Initials: /s/ MM.
September 1, 1999 Page 2 of 3 /s/ R.H.D.
<PAGE> 3
6.1 INSERT TO PARAGRAPH 39; OPTIONS:
61.1 Option to Extend Terms: Lessor grants to the Lessee the Option to extend
the Term of the Agreement for three one-year periods on the following terms and
conditions: (1) The provisions of Paragraph 39, including the provision relating
to default of the Lessee, set forth in Paragraph 39. 4, applies; (2) Lessee
gives Lessor written notice of the exercise of this Option to Extend the Term a
minimum of three months prior to end of the Original Term, or the Option Year
Term, whichever is applicable; (3) All Terms and Conditions of the Agreement,
except where specifically modified by this Option, apply; (4) Rent starting the
first month of the Option Term shall be as summarized in the Rent Schedule,
Exhibit C.
61.2 Option to Expand: Lessor grants to the Lessee the Right-of-First-Offer
("ROFO") Option to lease 2,237sf the area designated, "Added #3", on Exhibit B,
Page 1, of this Agreement under the same Terms and Conditions as the current
space except as follows: (1) The provisions of Paragraph 39, including the
provision relating to default of the Lessee, set forth in Paragraph 39. 4,
applies; (2) Lessee shall accept the ROFO space altered as generally shown on
Exhibit B, Page 1; (3) Lessor, at the Lessor's cost and expense shall install
the demising partitions, doors and means of egress to the ROFO Space, connecting
the Lessee's current Premises to the expanded space as generally described in
Exhibit F of this Amendment; (4) The respective party shall pay for Alterations
and Utility Installations as described in Exhibit F of this Amendment; (5)
Lessee shall exercise or waive this option no later than September 10, 1999; (6)
Lessor shall interpret the Lessee's lack of response of the Lessor's offer as a
waiver of the Option and Lessor shall be allowed to lease the ROFO Space Block
to a third parties; said Option shall be terminated for the remaining period of
the Original and Option Terms of the Agreement; (7) All Terms and Conditions of
this Agreement, except where specifically modified by this Option, shall apply.
EXCEPT AS HEREBY AMENDED, ALL OTHER TERMS AND CONDITIONS OF SAID AGREEMENT SHALL
REMAIN UNCHANGED AND IN FULL FORCE AND EFFECT.
LESSOR: LESSEE:
GENERAL ATOMICS PACKETVIDEO CORPORATION
By: /s/ ROBERT H. DAIRY By:/S/ MICHAEL MANSON
Robert H. Dairy Michael Manson
Director Facilities Chief Financial Officer
Date: Sept. 10, 1999 Date: 9/16/99
PacketVideoLse.Amend #1 Exhibit C Initials: /s/ MM.
September 1, 1999 Page 3 of 3 /s/ R.H.D.
<PAGE> 4
EXHIBIT A
GENERAL ATOMICS TORREY PINES MESA MAP
Site Map
PacketVideoLse.Amend #1 Exhibit A Initials: /s/ MM.
September 1, 1999 /s/ R.H.D.
<PAGE> 5
EXHIBIT B
BUILDING 14 FIRST FLOOR - FLOOR PLAN
PacketVideoLse.Amend #1 Exhibit B Initials: /s/ MM.
September 1, 1999 Page 1 of 3 /s/ R.H.D.
<PAGE> 6
PACKETVIDEO CORPORATION
SPACE SUMMARY
<TABLE>
<CAPTION>
First-in (Effective September 1, 1998) CUMULATIVE TOTAL SF
Bldg. No. Room No. Use Code SF -------------------
- --------- -------- -------- --
<S> <C> <C> <C> <C>
14 144 Office 129
14 145 Office 168
14 179 Office 91
14 180 Office 187
14 H140(prorata) Corridor 132
Subtotal 707
20% Common 141
TOTAL 848 TOTAL 848
Surrendered (Effective November 1, 1998)
- ----------------------------------------
Bldg. No. Room No. Use Code SF
- -------- ------- -------- --
<S> <C> <C> <C> <C>
14 144 Office 129
14 145 Office 168
14 179 Office 91
14 180 Office 187
14 H140 (prorata) Corridor 132
Subtotal 707
20% Common 141
TOTAL 848 TOTAL 0
Revised Expansion (Effective November 1, 1998)
- ----------------------------------------------
Bldg. No. Room No. Use Code SF
- -------- ------- -------- --
<S> <C> <C> <C> <C>
14 140 Office 128
14 141 Office 127
14 142 Office 132
14 143 Office 173
14 144 Office 129
14 145 Office 168
14 176A Office 129
14 176B Office 90
14 177 Office 185
14 178 Office 233
14 179 Office 91
14 180 Office 187
14 H140 Corridor 407
Subtotal 2,179
10% Common 218
TOTAL 2,397 TOTAL 2,397
Added #1 (Effective January 1, 1999)
- ------------------------------------
Bldg. No. Room No. Use Code SF
- -------- ------- -------- --
<S> <C> <C> <C> <C>
14 146 Office 131
14 147 Office 133
14 149 Office 97
14 150 Office 187
14 151 Office 175
14 152 Office 177
14 153 Office 243
14 154 Office 169
14 155 Office 169
14 181 Office 423
14 H150 Corridor 444
Subtotal 2,348
10% Common 235
TOTAL 2,583 TOTAL 4,980
</TABLE>
PacketVideoLse.Amend #1 Exhibit B Initials: /s/ MM.
September 1, 1999 Page 2 of 3 /s/ R.H.D.
<PAGE> 7
<TABLE>
<CAPTION>
ADDED #2 (EFFECTIVE OCTOBER 1, 1999) Cumulative Total SF
- ------------------------------------ -------------------
Bldg. No. Room No. Use Code SF
- -------- ------- -------- --
<S> <C> <C> <C> <C>
14 156 Office 475
14 156A Office 120
14 156B Office 131
14 156C Office 123
14 156D Office 90
Subtotal 939
10% Common 94
TOTAL 1,033 TOTAL 6,013
<CAPTION>
Added #3 (Effective October 1, 1999)
- ------------------------------------
Bldg. No. Room No. Use Code SF
- -------- ------- -------- --
<S> <C> <C> <C> <C>
14 180A Office 143
14 181A Office 78
14 198A Office 1,616
14 L110 Lobby 197
Subtotal 2,034
10% Common 203
TOTAL 2,237 TOTAL 8,250
</TABLE>
PacketVideoLse.Amend #1 Exhibit B Initials: /s/ MM.
September 1, 1999 Page 3 of 3 /s/ R.H.D.
<PAGE> 8
SUMMARY OF TERM, RENT, FURNITURE RENTAL, SECURITY DEPOSIT, OPERATING EXPENSES
AND UTILITIES
INSERT TO PARAGRAPHS 1.3 TERM; 1.5 AND 4.1 BASE RENT
TERM: The Commencement Date of this Agreement is established as November 1, 1998
with an Expiration Date of October 31, 2000. The Expiration Date for all Space
Blocks shall be coterminous.
<TABLE>
<CAPTION>
SPACE BLOCK SIZE (sf) ACCUM. (sf) RENT START DATE
- ----------- --------- ----------- -----------------
<S> <C> <C> <C>
FIRST-IN 848 848 September 01 1998
SURRENDERED 848 000 November 01 1998
REVISED EXPANSION 2,397 2,397 November 01 1998
ADDED#1 2,583 4,980 January 01 1999
ADDED#2 1,033 6,013 October 01 1999
ADDED#3 2,237 8,250 November 01 1999
</TABLE>
With payment of Added Security Deposit as calculated below, and execution of
this Amendment by the Lessee (or with payment of Added Security Deposit as
calculated below, and a separate written notice of the exercise of the ROFO
Option), the Lessee elects to exercise its Option to expand into the Added #3
Space Block pursuant to Paragraph 61.2 of this Amendment.
Rent: Monthly Rent comprises the components of NNN and CAM (designated at
Standard Operating Expenses) according to the schedule below. Rent start date
for the various Space Blocks comprising the Premises is as listed above. On each
anniversary of the Agreement, the NNN rate and Standard Operating Expenses shall
increase $0.04/sf and $0.01/sf respectively, over the lease rate for the
previous year as summarized in the schedule below. This Agreement does not
include provisions for financing on any Lessee Specified Leasehold Improvements.
<TABLE>
<CAPTION>
ELEMENT MONTHLY LEASE RATE & RENT
Term ORIGINAL
Year YR #1 YR#1 YR #1 YR #1
------------- ------------- ------------- -------------
Space Block Description FIRST-IN REVISED EXP. #1 EXP. #2
Effective Date (08/11/98) (11-1-98) (01-01-99) (10-1-99)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NNN Rate $ 1.10/sf $ 1.10/sf $ 1.10/sf $ 1.10/sf
CAM Charges (Std. Op. Exp.) $ 0.22 $ 0.22 $ 0.22 $ 0.22
Premium-small area $ 0.20 $ 0.00 $ 0.00 $ 0.00
Leasehold Improvements $ 0.00 $ 0.00 $ 0.00 $ 0.00
Janitorial Lessee Hires Same Same Same
Utilities Prorated Prorated Prorated Prorated
Total Rate $ 1.52/sf $ 1.32/sf $ 1.32/sf $ 1.32/sf
Size of Premises 848sf 2,397sf 4,980sf 6,013sf
Monthly Rent $ 1,289 $ 3,164 $ 6,574 $ 7,937
</TABLE>
<TABLE>
<CAPTION>
ELEMENT MONTHLY LEASE RATE & RENT
Term ORIGINAL OPTION
Year YR #2 YR #1 YR#2 YR#3
------------- ------------- ------------- -------------
Space Block Description EXP. #3 EXPANDED EXPANDED EXPANDED
Effective Date (11-1-99) (11-1-00) (11-1-01) (11-1-02)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NNN Rate $ 1.14/sf $ 1.18/sf $ 1.22/sf $ 1.26/sf
CAM Charges (Std. Op. Exp.) $ 0.23 $ 0.24 $ 0.25 $ 0.26
Premium-small area $ 0.00 $ 0.00 $ 0.00 $ 0.00
Leasehold Improvements $ 0.00 $ 0.00 $ 0.00 $ 0.00
Janitorial Lessee Same Same Same
Utilities Prorated Prorated Prorated Prorated
Total Rate $ 1.37/sf $ 1.42/sf $ 1.471/sf $ 1.52/sf
Size of Premises 8,250sf 8,250sf 8,250sf 8,250sf
Monthly Rent $ 11,303 $ 11,715 $ 12,128 $ 12,540
</TABLE>
As part of a monetary consideration for disruption of the Lessee's quiet
possession during the construction of improvements on the building first and
second floor, the Lessor granted the Lessee permission to take possession and
use the Added #2 Space Block starting July 19, 1999, through the end of
September 1999, Rent free, and without charge for Utility Expenses. This value
is determined as ($1.32 + $0.20) x 1,029sf x 12 mo./365 days x 74 days = $3,805.
PacketVideoLse.Amend #1 Exhibit C Initials: /s/ MM.
September 1, 1999 Page 1 of 4 /s/ R.H.D.
<PAGE> 9
FURNITURE RENTAL: The Lessee requested that the Lessor rent to the Lessee
certain office furnishings on a month-to-month basis, furnishings delivered to
the Lessee's Premises on three different dates. It was agreed that the Lessee
would pay a monthly fee of $396/month, starting January 1, 1999 (Refer to the
cost breakdown below). As remainder monetary consideration for disruption of the
Lessee's quiet possession of the Premises during the construction of
improvements on the building first and second floor, the Lessor agrees to
forgive rental charges for the first six months, January 1, 1999 through June
30,1999. This value is determined as (6mo x $396/mo) = $2,376.
<TABLE>
<CAPTION>
FURNITURE 08/11/98 08/26/98 01/15/99 TOTAL TOTAL
ITEM: RENT/ MO/UNIT DELIVERY DELIVERY DELIVERY DELIVERY RENT
- ----- ------------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Desk w/ top $ 10.00 3 10 9 22 $ 220.00
File Cab-5 drawer lgl $ 5.00 3 5 0 8 $ 40.00
File Cab-2 drawer lgl $ 3.00 0 0 0 0 $ 0.00
Bookcase 3 shelf $ 3.00 0 6 0 6 $ 18.00
Bookcase 4' high $ 4.00 0 9 18 27 $ 108.00
Conference Table $ 5.00 2 0 0 2 $ 10.00
----------
Total Monthly charge $ 396.00
</TABLE>
Either Party may terminate the Furniture Rental Agreement by serving the other
Party a minimum ninety-day advanced notice, with the termination date to occur
the last day of the month subsequent to the ninety-day notice period.
INSERT TO PARAGRAPHS 1.7 AND 5, SECURITY DEPOSIT
A Security Deposit in the amount equivalent to one month's Rent, one month's
Furniture Rental, and two month's Utility Expenses, shall be paid to secure
payment to the Lessor. Added Security Deposit calculated below shall be payable
with execution of this Amendment.
<TABLE>
<CAPTION>
SECURED PAYMENT AMOUNT
--------------- -------
<S> <C>
One Month's Rent $11,297
Two Months' Utilities: 8,250sf @$0.20/sf $ 3,300
One Months' Furniture Rental $ 396
Total Security Deposit Required $14,993
Less Security Deposit on Record $ 8,962
-------
Added Security Deposit Due $ 6,031
</TABLE>
Concurrent with the annual increase in Monthly Rent, and without prior notice,
the Lessor shall adjust the Security Deposit in direct relation to the Monthly
Rent, Furniture Rental, and Utility Expenses (as calculated above), and the
increase shall be paid by the Lessee upon receipt of an invoice from the Lessor.
INSERT TO PARAGRAPH 1.10(a), REAL ESTATE BROKERS
Pursuant to the Original Agreement, the Lessor paid commissions to the Real
Estate Broker representing the Lessee, named in Paragraph 1.10(a), an amount of
four percent (4%) of the Net Rent, exclusive of the Operating Expenses, for the
First-in Premises.
<TABLE>
<CAPTION>
COMMISSION
--------------------------------------
SPACE BLOCK SIZE(sf) NET RENT PERIOD RENT RATE AMOUNT
- ----------- -------- -------- --------- ----------- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
First-in 848 $1.30 82 days $ 2,951.59 4% $ 118.06
Expanded 2,397 $1.10 2 months $ 5,273.40 4% $ 210.94
Cumulative 4,980 $1.10 10 months $ 54,780.00 4% $2,191.20
Cumulative 4,980 $1.14 12 months $ 68,126.40 4% $2,725.06
----------- ---------
$131,131.39 4% $5,245.26
</TABLE>
As agreed in the Original Agreement, no commissions shall be due and payable by
either Party for Lessee expansions, extensions, or renewals.
INSERT TO PARAGRAPH 4.2., COMMON AREA OPERATING EXPENSES
Lessee shall pay for cost of maintenance and repair of its fixtures,
furnishings, and equipment; janitorial services, maintenance and repair of
electrical, or other services from building point of connection to Tenant
fixtures, and for supplemental equipment installed specifically for Lessee
application and use. Lessee shall also pay for locksmith services, telephone
installation, adds, moves, and changes, and for all Lessee toll calls. Lessee
shall initiate the needed job orders to engage services, and pay for said
services, pursuant to Paragraph 7.0 of this Sublease Agreement.
PacketVideoLse.Amend #1 Exhibit C Initials: /s/ MM.
September 1, 1999 Page 2 of 4 /s/ R.H.D.
<PAGE> 10
Following are the provisions for payment of Services and Operating Expenses
under terms of the Sublease Agreement:
SUMMARY OF SERVICES AND UTILITY PROVISIONS
------------------------------------------
<TABLE>
<CAPTION>
INCLUDED IN INCLUDED AS
MONTHLY RENT OTHER OPERATING
& STANDARD EXPENSE CHARGED
SERVICE OR UTILITY OPERATING EXPENSE TO LESSEE NOTE
- ------------------ ----------------- --------------- ----
<S> <C> <C> <C>
Taxes x 1
Insurance x 2
Parking Lots, Roadways & Walkways x
Landscape Maintenance x
Building and Utility Maintenance x 3
Trash Collection x
Property Management x
Telecommunications Services x
Utilities:
Electricity, Extraordinary x
Natural Gas x
Water/Sewer x
Electricity, Extraordinary x 4
Security Services-Standard x 5
Security Access Control & Keys x 7
Mail Pickup and Delivery x 10
Use of Central Conference Rooms x 5&9
Use of Outdoor Recreational Facility x 5
Use of Central Cafeteria x 5&7
Janitorial:
Common Area x
Lessee Space x 11
</TABLE>
Lessee may obtain the following services through separate agreement with the
Lessor. Payment shall be made under the same terms and conditions as for
operating expenses:
<TABLE>
<S> <C> <C> <C>
Signage-Interior x 7
Use of Corporate Fitness Center x 5&7
Contractor Services x 5&8
</TABLE>
Notes:
1. Covers Real Property Taxes. Does not cover personal property taxes.
2. Covers Lessor's insurance only. Does not cover Lessee's coverage for its
fixtures and liability, or for loss of business.
3. Covers maintenance and repairs of normal building equipment and
utilities. Does not cover maintenance and repairs of special
telecommunications, or equipment installed on behalf of the Lessee, to
maintain special conditions such as air conditioning or Lessee's
fixture.
4. Cost for extraordinary utilities shall be passed through at cost charged
to Lessor. Example: Cost to operate Building HVAC outside the hours of
7:00 A.M. to 7:00 P.M. Monday through Friday (excluding national
holidays) as requested by the Lessee. If the Lessee is the sole Tenant
occupying a specific zone, then the operating hours (12-hour period) can
be adjusted at the request of the Lessee.
5. Access or use or services are provided as an amenity but are subject to
change or termination by Lessor with thirty days advanced notice to the
Lessee, or in the event of breach of terms, with a three-day notice.
6. Lessee shall make provisions for cleaning services of its Premises.
7. Same cost as charged to other Tenants or Tenant Employees.
8. Available at Lessor's cost plus 15%.
9. Parties agree that location, site and features of conference rooms can
be changed upon Lessor providing Lessee notice at time of conference
room reservation.
10. Does not include incoming or outgoing U.S. Mail, UPS, FED EX or
overnight delivery.
11. Lessee to make provisions for its own janitorial service.
PacketVideoLse.Amend #1 Exhibit C Initials: /s/ MM.
September 1, 1999 Page 3 of 4 /s/ R.H.D.
<PAGE> 11
INSERT TO PARAGRAPH 11, UTILITIES
Effective the date that the Lessee takes Possession, the Lessor shall commence
charging the Lessee its Prorata share of Utilities as described below. The base
square footage of the Industrial Center is subject to change as the Lessor
demolishes or constructs building improvements.
ELECTRICITY: Electric power is supplied by San Diego Gas & Electric and metered
at one location of the Industrial Center. Building 14 is separately submetered
and prorata electric power costs shall be calculated using data taken from
submeters as follows:
<TABLE>
<S> <C> <C>
Building 14 leased gsf x Building 14 Billing Period Cost
----------------------
Building 14gsf
8,250gsf (Note 1) x Building 14 Billing Period Cost
-----------------
59,520gsf
</TABLE>
Note(l): Gross Square feet will be adjusted in direct relation to size of the
Lessee's Premises.
WATER/SEWER: Water is supplied to the Industrial Center from three (and soon
four) separate city water meter stations. Sewer charges are based on water
consumption. The Industrial Center is comprised of Buildings on three separate
parcels, one Genesee Properties and two Hopkins Properties. The gross square
footage in the Industrial Center is 509,164. Prorated water/sewer costs shall be
calculated as follows:
<TABLE>
<S> <C> <C>
Building 14 leased gsf x Billing Period Charges
----------------------
Total Industrial Center gsf
8,250gsf x Billing Period Charges
--------
509,164gsf
</TABLE>
NATURAL GAS: Natural gas is purchased from a natural gas supplier and
transported to the Industrial Center by San Diego Gas & Electric. Building 14 is
separately submetered and prorata natural gas usage costs shall be calculated
using data taken from submeters as follows:
<TABLE>
<S> <C> <C>
Building 14 Leased gsf x Billing Period (Na. Gas Cost + Transport Cost)
-----------------------
Building 14gsf
8,250gsf x Billing Period Charges
--------
59,520gsf
</TABLE>
PacketVideoLse.Amend #1 Exhibit C Initials: /s/ MM.
September 1, 1999 Page 4 of 4 /s/ R.H.D.
<PAGE> 12
[GENERAL ATOMICS]
ASBESTOS NOTIFICATION
JANUARY 1999
- --------------------------------------------------------------------------------
FROM: LICENSING, SAFETY AND NUCLEAR COMPLIANCE (LSNC)
TO: EMPLOYEES AND OCCUPANTS, VIA INTERCOMPANY MEMO
- --------------------------------------------------------------------------------
General Atomics, in compliance with California Health and Safety Code 25915 et
seq, is required to give written notice of the presence of asbestos containing
materials to all employees. This notification applies to the entire General
Atomics site at 3550 General Atomics Court, which includes facilities at 3483
Dunhill Street, and 11222 Flintkote Avenue.
Prior to 1979, asbestos was used extensively in the building industry throughout
the United States as thermal insulation, fireproofing, and in structural support
materials. At General Atomics asbestos has been used to insulate hot water and
steam pipes and ventilation ducts. It may be found in some attics and mechanical
rooms, in floor and ceiling tiles and window wall panels, some roofing material,
and core material in certain fire doors.
The mere presence of asbestos in a building does not necessarily mean that a
health hazard exists. Asbestos containing materials are not a health threat
unless asbestos fibers become airborne and are inhaled. In areas where the
asbestos is bonded or encapsulated and properly maintained, such as in the
materials listed above, there is very little or no risk to health.
Accordingly, it is important not to disturb asbestos containing materials.
General Atomics policy restricts work on asbestos containing materials to
certified asbestos contractors who are properly trained and equipped. Moving,
drilling, cutting, or otherwise disturbing such materials can pose a health risk
and should not be attempted by untrained personnel. Employees should immediately
notify LSNC if they observe materials that they suspect contain asbestos and
which are not properly maintained.
LSNC maintains records of asbestos sampling and air monitoring results performed
during the course of asbestos abatement work. Employees may contact LSNC, Letty
Alfonso at extension 2016, Paul Englert at extension 2466, or Keith Asmussen at
extension 2823, if they have questions or concerns regarding asbestos.
PacketVideoLse.Amend #1 Exhibit E Initials: /s/ MM.
September 1, 1999 Page 1 of 1 /s/ R.H.D.
<PAGE> 13
WORK LETTER AGREEMENT
This Work Letter Agreement is written to complement the Form Sublease and its
Addenda; it expands and elaborates on the Form Sublease with no conflict
intended. In the event of a conflict, the Form Sublease and Addenda take
precedence.
I. PREMISES
-----------
The Lessor delivered the Lessee's in four separate Space Blocks, First-in,
Revised Expansion, Added #1, and Added #2, (the "Current Premises") as shown on
the Floor Plan, Page 1 of Exhibit B. The Space Block identified as, Added #3,
will be delivered to the Lessee altered generally as described in this
Amendment.
II. ALTERATIONS
---------------
SPACE BLOCKS-FIRST-IN. REVISED EXPANSION, ADDED #1 & ADDED #2: The obligations
of the Parties as described in the Original Agreement were fulfilled, and except
as described herein, no Alterations will be made that affect these Space Blocks.
SPACE BLOCK-ADDED #3: The existing full height walls and Utility Installations
will be used to the extent practical. The current Space Block arrangement is as
shown on Page 5 of this Exhibit. The Alterations will be as listed in Section V
of this Exhibit, and the physical arrangement will be as shown on Page 1,
Exhibit B.
A. The Lessor will cause to be installed demising partitions, doors and access
control features to annex the Space Block to the Lessee's Current Premises.
B. The Lessor will install new floor covering, make minor repairs, paint, clean,
and perform inspections to ascertain the building systems are in good working
condition.
C. The Lessee will install the desired Alterations to the Lessee's Reception
Area (Room 146), prior to installation of the Lessor's Alterations.
D. The Lessee will install other fixtures and equipment as required for specific
use of Added Space Block.
III. UTILITY INSTALLATIONS
--------------------------
The existing Utility Installations will be used to the extent practical. The
Lessee will notify the Lessor of any deficiencies in the Premises as stipulated
in the Form Lease Agreement.
A. Lessor will install a HVAC system, lighting, power and communications to
serve the Space Block.
B. Lessee will identify the desired Utility Service Installations, including
telecommunications and security access controls, and submit approved job orders
with appropriate signatures, to the Lessor or to other approved service
providers, authorizing the expenditures for installation and rental.
C. Lessor will inspect all Building Systems serving the Space Block including
HVAC, lighting, electrical and communications, to ascertain systems are in good
working order, condition and repair.
IV. TENANT FIXTURES AND EQUIPMENT
---------------------------------
Lessee will furnish the Premises as needed with equipment, fixtures and
furnishings (i.e., computers, FAX, copiers, desks, tables, chairs, files, and
audio visual) not included in the Lessor's standard offering.
A. The Lessee will procure and have installed, connected, and powered, modular
furnishings in Room 198A, in a general arrangement in to be determined by the
Lessee.
B. Lessee will make provisions for acquiring tenant fixtures, equipment,
appurtenances, and engage the needed contract services for installation and
setup.
PacketVideoLse.Amend #1 Exhibit F Initials: /s/ MM.
September 1, 1999 Page 1 of 5 /s/ R.H.D.
<PAGE> 14
V. FINANCING & PAYMENT
----------------------
SPACE BLOCK-ADDED #3: The Parties agree to the following scope of work and
financial responsibility require to prepare the Space Block for the Lessee's
use. Any work tasks outside the scope of this Work Letter Agreement will be
approved and paid for by the Lessee. Lessee Specified Improvements, such as
those identified as TBD, shall be contracted and paid for by the Lessee. Lessor
paid sum shall not be classified as a Tenant Allowance, and any variance of the
invoiced services from the estimate shall be to the account of the Lessor.
<TABLE>
<CAPTION>
COST ELEMENT ADDED SPACE BLOCK #3 ESTIMATE
- ------------ -----------------------------
PAID BY: LESSOR LESSEE
- ------- ------ ------
<S> <C> <C>
Design and Permits $ 4,000 $00
Demising Partitions, Doors, Ceilings $23,700 $00
HVAC/Sprinkler $12,300 $00
Electrical/Lighting/Communications $14,500 $00
Painting $ 1,000 $00
Carpet (including Lobby) $ 8,800 $00
Exterior Door $ 4,500 $00
Fire Detection and Alarm $ 1,000 $00
Receptionist Alterations $ 00 $ TBD
Badge Access Controls/Locks $ 00 $ TBD
Install and Wire Semi Partitions $ 00 $ TBD
Contingency $ 7,000 $ TBD
------- -----
Subtotal $76,800 $ TBD
</TABLE>
No monetary consideration will be provided for inconvenience, or disruption,
that may be caused by the installation of Leasehold Improvements under this Work
letter Agreement, or for Leasehold Improvements to be made concurrent in the
Lessor's Common Area, or for the adjoining tenant, Sitematic Corporation. The
Lessor will execute the installation of these improvements between the hours of
7:00AM and 4:00PM during weekdays and will, to the extent possible, restrict
activities that cause excessive construction noise such as jack hammering, core
drilling and ram shooting to the hours before 8:00AM and after 5:00PM. This does
not include operations such as in use of screw guns, rivet tools and the
standard tools of the involved trades.
VI. SCHEDULE
------------
Lessor agrees to allow Lessee to take Possession of Added #2 Space Block prior
to installing the Alterations and Utility Installations for Added #3 Space
Block. Following is the best effort schedule completing expansion Improvements
for Space Block Added #3.
<TABLE>
<CAPTION>
TASK PARTY DATE
- ---- ----- ----
<S> <C> <C>
Possession of Added #2 Space Block Lessee Jul 19, 1999
Execute Sublease Amendment #1 Both Sept 10, 1999
Pay Added Security Deposit Lessee Sept 10, 1999
Apply For Building Permits Lessor Sept 13, 1999
Bid General Contracting Lessor Sept 13, 1999
Award Construction Contracts Lessor Sept 24, 1999
Start Leasehold Improvements Lessor Sept 27, 1999
Complete Leasehold Improvements Lessor Oct 28, 1999
Walk through Inspection Both Oct 29, 1999
Possession Lessee Nov 01, 1999
</TABLE>
VII. TENANT OBLIGATIONS
-----------------------
ROUTINE AND PERIODIC CLEANING: Pursuant to the Lessee's obligations described in
Paragraph 7.0, the Lessee will perform routine and periodic cleaning of the
offices, lobby, and dedicated corridors serving the Lessee's offices, on the
following minimum frequencies. These standards are established to maintain a
clean, safe Premises, void of rodent and pest infestation, and to control fire
and personnel hazards.
<TABLE>
<CAPTION>
ACTIVITY FREQUENCY
- -------- ---------
<S> <C>
Empty Trash Daily
Empty Recycle Weekly
Vacuum Weekly
Spot Clean Carpet Weekly
Wipe and Clean Door Hardware/Sw Plates Monthly
Carpet Extraction Cleaning Quarterly
Windows Interior Surface Cleaning Quarterly
</TABLE>
PacketVideoLse.Amend #1 Exhibit F Initials: /s/ MM.
September 1, 1999 Page 2 of 5 /s/ R.H.D.
<PAGE> 15
CHECKLIST FOR SURRENDER OF PREMISES: Pursuant to Paragraph 7.4 of this Agreement
the following expands on the obligations of Lessee related to the Surrender of
the Premises at the end of Tenancy. Prior to the Lessor's acceptance of part or
all of the Premises, the Parties will make inspections to ascertain the said
Premises are in a condition acceptable to the Lessor, a condition existing at
the time the Lessee took Possession, normal wear and tear excepted.
BUILDING LOCATION:___________________
<TABLE>
<CAPTION>
OFFICES LESSOR LESSEE DATE
- ------- ------ ------ ----
<S> <C> <C> <C>
Furnishings removed
Fixtures removed
Trash removed
Telephones disconnected
Services stripped/safe off
Fixture inventory completed
Fixtures and equip. cleaned
Special telecom cable removed
Walls/minor repairs completed
Carpet extraction cleaned
Ventilation balanced
Landlord signage left in place
Tenant signage removed/repaired
Key locks changed
SUCCESSOR TENANT CONSENT (IF APPLICABLE)
- ----------------------------------------
First inspection
Ownership transfer completed
Final inspection
TURNOVER AND ACCEPTANCE
- -----------------------
</TABLE>
VIII. BUILDING 14 COMMON AREA CHANGES
-------------------------------------
Following are the guidelines for operation and use of the Building 14 Complex
Common Area. Parties acknowledge that changes may be required from time to time,
as covered in Paragraph 2.7 of this Agreement.
A. PROVISIONS BY LESSOR:
1. Vehicular access to Building 14 is provided from Science Center Drive and
closed off from the ("Remainder Industrial Center").
2. Alternate emergency vehicle access, and non-routine service access, is
provided to the Building 14 Complex via use of locked gates separating Building
14 and 15 east access road.
3. Pedestrian access between the Building 14 Complex and the Remainder
Industrial Center remains unchanged as prior to site separation.
4. Internet Products Incorporated (IPI), a Building 14 Tenant, provides the
Lobby Reception service for all Building 14 Tenant Companies similar to the
function GA performs through its Building 1 Reception Lobby, except that IPI
operates the Central Security Access and Control System (CSACS) only during
IPI's normal business hours, including the lunch period, ("Operating Hours").
5. The Lessor operates the CSACS during IPI's Non-Operating Hours remotely from
Building 1 Security Station.
6. IPI retains non-exclusive use of the Lobby and does not provide clerical or
mail service to other Building 14 Tenants.
7. Visitor parking is provided near the north and south building entrances;
handicap parking is provided at the southeast corner of Building 14.
8. A turnaround and loading zone is provided for light freight truck delivery at
the south entrance to the Building 14, near access to the building elevator.
PacketVideoLse.Amend #1 Exhibit F Initials: /s/ MM.
September 1, 1999 Page 3 of 5 /s/ R.H.D.
<PAGE> 16
9. As a means to control parking at the Industrial Center, all Building 14
Tenant employees will be assigned a colored picture badge distinct from those
used for the Remainder Industrial Center. All Building 14 Tenant employees may
be required to register vehicles with GA Security, be assigned numbered decals,
and be required to affix the decals on the vehicles at a designated position on
the vehicle.
10. The Lessor will allocate and restrict parking at Building 14 Complex
according to the following breakdown:
BUILDING 14 PARKING SUMMARY-EFFECTIVE OCTOBER 1, 1999
-------------------------------------------------------
<TABLE>
<CAPTION>
PARKING @ 3 SPACES/1000sf
-------------------------
OCCUPANT BUILDING LEASED SPACE (sf) AUTHORIZED AVAILABLE BALANCE
- -------- -------- ----------------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Internet Products Inc. 14 10,802 32 -- --
MP3.com 14 20,941 63 -- --
PacketVideo 14 8,246 25 -- --
Sitematic Corp. 14 7,688 23 -- --
UCSD 14 3,748 11 -- --
Visitors 14 00 07 -- --
Handicap 14 00 05 -- --
Total Leased 51,763 166 -- --
REQUIRED BY ZONING 14 59,920 180 188 22
</TABLE>
B. LESSEE PROVISIONS:
1. The Lessee will cooperate with the Lessor, and other Building 14 Tenants, to
restrict access to the Building 14 Complex, and Remainder Industrial Center, to
those employees, suppliers, shippers, customers, contractors and invitees having
a business need for said access to the Industrial Center and more specifically
the Lessee's Premises. The Lessee covenants to the following:
A. Routinely provide IPI and GA names of Lessee's contacts, and respective
employee phone numbers, to assist with receiving visitors, badging visitors, and
providing visitor directions to the Packet Video Premises.
B. Assist General Atomics to regulate parking at the Building 14 Complex
within the permitted parking and access/egress restrictions.
C. Notify and advise organizations serving the Lessee (FedEx, UPS, etc.)
of the street address, 10350 Science Center Drive, Suite 140.
D. Arrange for direct US Mail pickup and deliveries by the Postal Service,
or by courier, at 10350 Science Center Drive, Suite 140, mail drop and pickup.
E. Pay for repair of damages to the SACS System caused by Lessee Tenant
employees, suppliers, shippers, customers, contractors and invitees.
F. Register Lessee employees with Lessor's Security Department for
issuance of security badges and, if requested, vehicle decals.
G. Wear and display the GA Security Badge when present at the Building 14
Complex, or Remainder Industrial Center.
H. In the event allocated parking is exceeded, designate certain
employees to use spillover parking at the Remainder Industrial Center and
execute badge exchange for site access and parking to designated areas of the
Remainder Industrial Center, in lieu of the Building 14 Complex. The Lessor will
restrict spillover parking at the Building 9 lot to one space for each 1000sf of
leased space.
PacketVideoLse.Amend #1 Exhibit F Initials: /s/ MM.
September 1, 1999 Page 4 of 5 /s/ R.H.D.
<PAGE> 17
BUILDING 14 FIRST FLOOR - BEFORE ALTERATIONS FLOOR PLAN
PacketVideoLse.Amend #1 Exhibit F Initials: /s/ MM.
September 1, 1999 Page 5 of 5 /s/ R.H.D.
<PAGE> 1
EXHIBIT 10.13
AMENDMENT #2 TO THE SUBLEASE BY AND BETWEEN
GENERAL ATOMICS AND PACKETVIDEO CORPORATION
This Sublease Amendment ("Amendment #2") dated for reference purposes only as
December 1, 1999, is made by and between GENERAL ATOMICS, a California
Corporation (herein called "Lessor") and PACKETVIDEO CORPORATION, a California
Corporation (herein called "Lessee").
RECITALS
A. Lessor and Lessee (the "Parties") executed a written Sublease Agreement (the
"Agreement") dated September 1, 1998, and Amendment #1 to the Sublease, dated
September 1, 1999.
B. During the Lessee's tenancy, the size of its Building 14 First Floor Premises
was expanded on four occasions by lease amendment, or Tenant Notice, to the
current size of 8,588sf.
C. The Lessee has a need to expand its Premises to facilitate staff growth and
to upgrade its corporate image. The Lessor has no available expansion space on
Building 14 First Floor to meet Lessee's planned growth.
D. Another tenant (MP3.com), under lease with the Lessor for part of Building 14
Second Floor, outgrew its 20,955sf Premises, and moved to another location away
from the Industrial Center.
E. After review of its options to put its vacant Building 14 Premises into use,
MP3.com determined that it prefers terminating its Sublease Agreement with the
Lessor, on condition that MP3.com does not assume obligations for a Replacement
Tenant's Premises, and MP3.com is relieved of the obligations for its Building
14 Second Floor Premises prior to the Lessee gaining possession for its
beneficial use.
F. The Lessor expressed a willingness to cooperate in terminating the MP3.com
Sublease Agreement, and signing the Lessee as Replacement Tenant in the MP3.com
Building 14 Premises, on condition that the Lessor does not incur revenue loss
for Building 14, or is required to commit additional capital expenditures at
Building 14 to effect an assignment, or termination of the MP3.com Sublease
Agreement.
G. As a means of meeting the Lessee's expansion needs at the Industrial Center,
the Lessor offered the Lessee the option to relocate to the Second Floor to
replace MP3.com as the ("Replacement Tenant").
H. As a condition for surrendering its Building 14 Premises, MP3.com has the
lease obligation to restore certain Non-Building Standard finishes installed by
MP3.com; the Lessor holds a Security Deposit as a guarantee of MP3.com's
performance in meeting this obligation.
I. MP3.com left in place certain furnishings and fixtures, including modular
furniture, a telephone system, and a security system; MP3.com desires to sell
said equipment and furnishings to the Replacement Tenant, or to third parties.
J. The Lessor has no interest in acquiring the MP3.com furnishings and equipment
as part of any Agreement between the Lessor and MP3.com in assigning, or
terminating, the MP3.com Sublease Agreement.
K. The Lessor expressed a willingness to take back the Lessee's Building 14
First Floor Premises concurrent with Lessee's Possession of the Second Floor
Premises, contingent upon the Parties entering into an agreement that provides
for the Lessee to be the Replacement Tenant for MP3.com.
L. The Parties executed a Letter Agreement, dated November 16, 1999, that
include the abbreviated terms and conditions to sublease the Building 14 Second
Floor to the Lessee subject to a termination of the agreement for the Building
14 Second Floor between the Lessor and MP3.com, and the termination of
negotiations for sublease of the same Premises with another Tenant, @Backup Inc.
NOW THEREFORE, IN CONSIDERATION OF THE FOREGOING, AND IN CONSIDERATION OF MUTUAL
COVENANTS AND AGREEMENTS OF THE PARTIES HERETO, UPON EXECUTION OF THIS AMENDMENT
THE PARTIES MUTUALLY COVENANT AND AGREE AS FOLLOWS:
Initials: /s/ P.A.P.
/s/ R.H.D.
Page 1 of 2
<PAGE> 2
1.3 TERM:
With execution of Amendment #2, the Expiration Date for this Agreement is
changed to October 31, 2003. The Commencement and Expiration Dates for the
Building 14 First, and Second Floor Premises are as follows:
<TABLE>
<CAPTION>
DATE
-----------------------------------
PREMISES DESIGNATION COMMENCEMENT EXPIRATION
-------- ----------- ------------ ----------
<S> <C> <C> <C>
14 First Floor Surrender various 12/31/99
14 Second Floor Replacement 01/01/00 10/31/03
</TABLE>
DELETE ADDENDUM PARAGRAPHS 49 THROUGH 60 AND REPLACE WITH NEW ADDENDUM, SAME
PARAGRAPHS:
ADD New Paragraph 62 OPTION TO EXTEND, dated December 1, 1999.
ADD New Paragraph 63 OWNERSHIP, REMOVAL, SURRENDER AND RESTORATION, dated Dec.
1, 1999.
EXHIBIT A: Delete in its entirety and replace with new EXHIBIT A, dated December
1, 1999.
EXHIBIT B: Delete in its entirety and replace with new EXHIBIT B, dated December
1, 1999.
EXHIBIT C: Delete in its entirety and replace with new EXHIBIT C, dated December
1, 1999.
EXHIBIT D: Delete in its entirety and replace with new EXHIBIT D, dated December
1, 1999.
EXHIBIT E: Delete in its entirety and replace with new EXHIBIT E, dated December
1, 1999.
EXHIBIT F: Delete in its entirety and replace with new EXHIBIT F, dated December
1, 1999.
EXHIBIT G: Add new EXHIBIT G LANDLORD CONSENT AND ESTOPPEL CERTIFICATE, dated
Dec. 1, 1999.
EXCEPT AS HEREBY AMENDED, ALL OTHER TERMS AND CONDITIONS OF SAID AGREEMENT SHALL
REMAIN UNCHANGED AND IN FULL FORCE AND EFFECT.
LESSOR: LESSEE:
GENERAL ATOMICS PACKETVIDEO CORPORATION
By: /s/ Robert H. Dalry By: /s/ Peter A. Price
---------------------------------- ---------------------------------
Robert H. Dalry Peter A. Price
Director Facilities Chief Financial Officer
Date: 12/15/99 Date: 12/15/99
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit B
Page 2 of 2
<PAGE> 3
ADDENDUM
49. INSERT TO PARAGRAPH 1.1, PARTIES:
As used herein "Lease" means "Sublease" and "Lessor" means "Sublessor" and
"Lessee" means "Sublessee."
50. INSERT TO PARAGRAPH 1.2(b), PARKING:
The number of parking spaces designated in Paragraph 1.2(b) is based on three
spaces per one-thousand square feet of subleased space. In the event an agency
of jurisdiction places restrictions on allowed on-site parking spaces provided
by the Lessor, the Lessee shall be responsible for implementing provisions to
restrict parking to that stipulated in this paragraph of the Sublease Agreement,
or to reimburse the Lessor in full for the cost and expenses for payment of
penalties, fees or upgrades needed to accommodate Lessee's excess parking above
and beyond the number of spaces designated herein. Refer to Exhibit F.
51. INSERT TO PARAGRAPH 1.10(a), REAL ESTATE BROKERS:
Lessee represents and warrants to Lessor that it has not engaged a broker,
finder, or other person who would be entitled to any commission or fees in
respect to the negotiation, execution or delivery of Amendment #2, and shall
indemnify and hold harmless Lessor against any loss, cost, liability, or expense
incurred by Lessor as a result of any claim asserted by any other broker,
finder, or other person on the basis of any arrangements made or alleged to have
been made by or on behalf of Lessee.
52. INSERT TO PARAGRAPH 2.2, CONDITION OF PREMISES:
Lessee agrees to accept Building 14 Premises identified in Exhibit B as
"Replacement Space" in as-is condition, with certain restoration and minor
repairs executed by the Lessor, those more specifically described in Exhibit F
attached hereto. Those entries classified as "Restoration Not Required" shall be
accepted by the Parties, and reclassified as Building Standard Improvements.
53. INSERT TO PARAGRAPH 2.3, COMPLIANCE WITH COVENANTS, RESTRICTIONS AND
BUILDING CODE: Lessee agrees to accept the Premises subject to a Master Lease
and all applicable zoning, municipal, county, state and federal laws,
ordinances, and regulations governing and relating to the use of the Premises.
Lessor warrants that it is not in default of the Master Lease, and the
provisions of the Master Lease are in full force and effect.
54. INSERT TO PARAGRAPH 2.10., COMMON AREA - CHANGES:
Lessee acknowledges that Lessor has disclosed the fact that vehicular access to
the Building 14 Complex is from Science Center Drive, and that Lessee visitors
are received and processed at the Building 14 Lobby, that vehicle parking is
restricted to the Building 14 parking lots, and pedestrian access between the
Building 14 Complex and Remainder Industrial Center will remain unchanged.
Further, the Lessee acknowledges that the address of the Premises is 10350
Science Center Drive, Suite 210. The general terms and conditions applicable to
vehicular access, parking personnel badging, and visitor reception, shall be as
described in Exhibit F attached hereto.
55. INSERT TO PARAGRAPH 6.2, HAZARDOUS SUBSTANCES:
55.1 Lessee shall not use the Premises for processing, storage or production of
"Hazardous Substances" (as defined below). "Hazardous Substance" means: (a) any
substance that is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous, and is, or becomes,
regulated by any government authority, department, commission, board, agency or
instrument of the United States, the State of California, or any political
subdivision thereof; (b) any other substance, the presence of which requires
investigation or remediation under any federal, state or local statute,
regulation, ordinance, order, action of common law; and (c) any additional
substances or materials which at such time are classified or considered to be
hazardous or toxic under the Laws of California, or any other applicable Laws
relating to the Premises.
55.2 Lessor and its representative agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting the same for
"Hazardous Substances" as defined below, showing the same to prospective
purchasers, lenders, or lessees, and making such alterations, repairs,
improvements or additions to the Premises, or to the Industrial Center, as the
Lessor may deem necessary or desirable.
55.3 Hazardous Substances used by Lessee shall be the responsibility of Lessee,
and Lessee shall dispose of such Hazardous Substances in accordance with all
applicable laws and regulations, in accordance with Lessor's Accepted Practices,
and in a safe and reasonable manner, both during the term of the Sublease, when
required or appropriate, but in no event later than the date that the Sublease
is terminated.
Initials: /s/ P.A.P.
/s/ R.H.D.
-12-
<PAGE> 4
56. INSERT TO PARAGRAPH 7.1, LESSEE'S OBLIGATIONS:
56.1 Lessee agrees to conduct day-to-day operations of the Premises in a manner
to preserve the integrity of building structures and its systems including fire
barriers, heating, air-conditioning and ventilation systems, and other installed
utilities. Specifically, Lessee agrees to keep exterior doors closed at all
times except for passage, and to keep windows closed at all times.
56.2 Lessee's obligations to maintain plumbing, heating, ventilating and air
conditioning systems, electrical and lighting facilities and equipment within
the Premises is interpreted to include Lessee's machinery, equipment, or
fixtures which the Lessee has or will install during its tenancy. Plumbing sewer
stoppages or plumbing failures within the Lessees Premises shall be the
responsibility of the Lessee. Equipment or tenant fixtures installed by the
Lessee, all considered by the Lessor as serving the function of supplementing
Lessee's specific use of the Premises, is determined by the Lessor as being the
Lessee's obligation under this section of the Lease.
56.3 Lessee's Premises are served by Lessor's central heating, ventilation and
air-conditioning (HVAC) systems, Lessor shall operate as needed to supply
conditioned air to the interior spaces weekdays between the hours of 7:00 AM to
7:00 PM, except on National Holidays, and during scheduled outages or
breakdowns. Provisions are included for the Lessors override of the Building
central HVAC outside the hours of 7:00 AM to 7:00 PM with the operating costs
allocated to the Lessee as Extraordinary Utility usage.
57. INSERT TO PARAGRAPH 7.3, UTILITY INSTALLATIONS, TRADE FIXTURES,
ALTERATIONS:
57.1. Alterations, improvements, additions, or Utility Installations by the
Lessee, shall be performed by licensed and insured construction or service
companies having qualified craftworkers possessing the proper qualifications and
training for performing the work. Modifications or alterations to building
structures, systems or Utility Installations including fire walls, doors,
electrical, plumbing, heating, ventilation and air conditioning, or other common
area utilities by service companies or personnel, (particularly those not
holding a license, having the proper insurance coverage or possessing adequate
training and qualifications), could cause damage to Lessee's business as well as
to that of others. Alterations, improvements, additions or Utility Installations
shall be performed by contractors for which Lessor has given Lessee its consent.
Firms engaged in performing services for the Lessor, under Blanket Order Service
Agreements, are pre-qualified to perform services for the Lessee.
57.2. Unplanned utility interruptions such as those caused by abnormal weather
conditions, earthquakes, fires, construction mishaps, or Industrial Center plant
equipment failures, may result in extended utility outages that could affect the
Lessee's business operations. Restoration of services through connection to
standby equipment such as portable electric generators, portable air
conditioning chillers, or other Industrial Center Systems, could require outages
extending beyond a 24-hour period.
58. INSERT TO PARAGRAPH 8.8, EXEMPTION OF LESSOR FROM LIABILITY:
Except for planned outages that are conducted by the Lessor for the purpose of
altering or maintaining its Buildings or private Industrial Center service
systems, Lessee hereby agrees that the Lessee shall be responsible for making
any necessary provisions that may be required for standby utility services,
considered critical to Lessee's operations or use of the Premises, in the event
electrical power, air, water, sewer, gas, telephone or other Lessor supplied
Industrial Center services are interrupted.
59. INSERT TO PARAGRAPH 11, UTILITIES:
Charges for prorata share of electric power, natural gas, water/sewer, for
Extraordinary Utility usage, and for telephone rental, services, and toll calls,
shall be invoiced monthly by Lessor, and shall be due and payable by Lessee in
accordance with Paragraph 21.
59.1. Lessee agrees to pay for Extraordinary Utility usage and for its prorata
share of electricity, gas and water/sewer based on leased square foot size of
the Premises. The prorata share shall be determined as described in Exhibit C.
59.2 Any data and telecommunications services provided to the Lessee by the
Lessor under separate service agreement, shall be charged in accordance with the
fee schedule for services and equipment as described in Exhibit C.
60. INSERT TO PARAGRAPH 30.2, ATTORNMENT:
Upon request of Master Lessor, or on behalf of the Industrial Center Owner,
Lessee shall subordinate its interest in the Lease and the Premises to the
encumbrance instruments of any loans made to Lessor or owner. Lessee shall
attorn to any purchaser at any foreclosure sale, or to any grantee or transferee
designated in any deed given in lieu of foreclosure. Lessee shall execute a
subordination agreement and any other documents required by any lender of Master
Lessor to accomplish the purposes of this Section.
Initials: /s/ P.A.P.
/s/ R.H.D.
-13-
<PAGE> 5
Lessee acknowledges that the Lender of Record, Bank of America National, under
provisions of Paragraph 30.2, requires a separately executed Estoppel
Certificate and Attornment containing certain abbreviated terms of the Agreement
executed by the Lessee, Master Lessor, and Property Owner. The Estoppel
Certificate and Attornment shall be separately executed and attached as Exhibit
G of this Amendment.
DELETE PARAGRAPH IN ITS ENTIRETY AND REPLACE WITH NEW PARAGRAPH 62:
62. OPTION TO EXTEND:
Lessor hereby grants to Lessee the option to extend the Term of this Sublease
Agreement for two successive, one-year periods, starting November 1, 2003 and
the second option period ending October 31, 2005, upon each and all of the
following terms: 1) the Lessee gives the Lessor advanced notice of the exercise
of the Option no earlier than six months and no later than three months prior to
the time that the option period would commence if the Option were exercised; if
said notification of the exercise of said option is not given and received, this
Option shall automatically expire; 2) parties agree that the Monthly Rent shall
be adjusted to the amount shown in Exhibit C; 3) execution of the extension
option shall not obligate the Lessor to the payment of Brokerage fees; 4) all
the terms and conditions of the Agreement, except where specifically modified by
this Option, shall apply; and 5) the provisions of Paragraph 39, including the
provision relating to default of the Lessee as set forth in Paragraph 39.4 of
this Agreement, are conditions of this Option.
ADD NEW PARAGRAPH 63 AS INSERT (d) TO PARAGRAPH 7.4:
63. OWNERSHIP, REMOVAL, SURRENDER AND RESTORATION:
(d) Parties agree that upon termination of the Sublease Agreement between the
Lessor and previous tenant, MP3.com, the Leasehold Improvements installed by
MP3.com, shall become the property of the Lessor; that the Lessee assumes no
obligation to restore Non-Building Standard Alterations and Utility
Installations made by MP3.com, designated in Exhibit F as, Non-Building Standard
Restoration Not-Required.
Initials: /s/ P.A.P.
/s/ R.H.D.
-14
<PAGE> 6
BUILDING 14 SECOND FLOOR
[Floor Plan]
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit B
Page 1 of 6
<PAGE> 7
BUILDING 14 FIRST FLOOR
[Floor Plan]
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit B
Page 2 of 6
<PAGE> 8
PACKETVIDEO CORPORATION
Space Summary
<TABLE>
<CAPTION>
First-in (Effective September 1, 1998) Cumulative Total SF
- -------------------------------------- -------------------
Bldg. No. Room No. Use Code SF
- --------- -------- -------- --
<S> <C> <C> <C>
14 144 Office 129
14 145 Office 168
14 179 Office 91
14 180 Office 187
14 H140(prorata) Corridor 132
---
Subtotal 707
20% Common 141
---
Total 848 Total 848
</TABLE>
<TABLE>
<CAPTION>
Surrendered (Effective November 1, 1998)
- ----------------------------------------
Bldg. No. Room No. Use Code SF
- --------- -------- -------- --
<S> <C> <C> <C>
14 144 Office 129
14 145 Office 168
14 179 Office 91
14 180 Office 187
14 H140(prorata) Corridor 132
---
Subtotal 707
20% Common 141
---
Total 848 Total 0
</TABLE>
<TABLE>
<CAPTION>
Revised Expansion (Effective November 1, 1998)
- ----------------------------------------------
Bldg. No. Room No. Use Code SF
- --------- -------- -------- --
<S> <C> <C> <C>
14 140 Office 128
14 141 Office 127
14 142 Office 132
14 143 Office 173
14 144 Office 129
14 145 Office 168
14 176A Office 129
14 176B Office 90
14 177 Office 185
14 178 Office 233
14 179 Office 91
14 180 Office 187
14 H140 Corridor 407
---
Subtotal 2,179
10% Common 218
---
Total 2,397 Total 2,397
</TABLE>
<TABLE>
<CAPTION>
Added #1 (Effective January 1, 1999)
- ------------------------------------
Bldg. No. Room No. Use Code SF
- --------- -------- -------- --
<S> <C> <C> <C>
14 146 Office 131
14 147 Office 133
14 149 Office 97
14 150 Office 187
14 151 Office 175
14 152 Office 177
14 153 Office 243
14 154 Office 169
14 155 Office 169
14 181 Office 423
14 H150 Corridor 444
---
Subtotal 2,348
10% Common 235
---
Total 2,583 Total 4,980
</TABLE>
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit B
Page 3 of 6
<PAGE> 9
<TABLE>
<CAPTION>
Added #2 (Effective October 1, 1999) Cumulative Total SF
- ------------------------------------
Bldg. No. Room No. Use Code SF
- --------- -------- -------- --
<S> <C> <C> <C>
14 156 Office 475
14 156A Office 120
14 156B Office 131
14 156C Office 123
14 156D Office 90
--
Subtotal 939
10% Common 94
--
Total 1,033 Total 6,013
</TABLE>
<TABLE>
<CAPTION>
Added #3 (Effective December 1, 1999)
- -------------------------------------
Bldg. No. Room No. Use Code SF
- --------- -------- -------- --
<S> <C> <C> <C>
14 180A Office 143
14 181A Office 78
14 198A Office 1,616
14 L110 Lobby 197
Subtotal 2,034
10% Common 203
Total 2,237 Total 8,250
</TABLE>
<TABLE>
<CAPTION>
Added #4 (Effective December 1, 1999)
- --------------------------------------
Bldg. No. Room No. Use Code SF
- --------- -------- -------- --
<S> <C> <C> <C>
14 139 Office 118
14 175 Office 189
---
Subtotal 307
10% Common 31
Total 338 Total 8,588
</TABLE>
<TABLE>
<CAPTION>
Surrendered (Effective December 31, 1999)
- ------------------------------------------
Bldg. No. Room No. Use Code SF
- --------- -------- -------- --
<S> <C> <C> <C>
14 139 Office 118
14 140 Office 128
14 141 Office 127
14 142 Office 132
14 143 Office 173
14 144 Office 129
14 145 Office 168
14 146 Office 131
14 147 Office 133
14 149 Office 97
14 150 Office 187
14 151 Office 175
14 152 Office 177
14 153 Office 243
14 154 Office 169
14 155 Office 169
14 156 Office 475
14 156A Office 120
14 156B Office 131
14 156C Office 123
14 156D Office 90
14 175 Office 189
14 176A Office 129
14 176B Office 90
14 177 Office 185
14 178 Office 233
14 179 Office 91
</TABLE>
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit B
Page 4 of 6
<PAGE> 10
<TABLE>
<S> <C> <C> <C> <C>
14 180 Office 187 Cumulative Total SF
14 180A Office 143 -------------------
14 181 Office 423
14 181A Office 78
14 198A Office 1,616
14 H140 Corridor 407
14 H150 Corridor 444
14 L110 Lobby 197
---
Subtotal 7,807
10% Common 781
---
Total 8,588 Total 0
</TABLE>
<TABLE>
<CAPTION>
Replacement Space (Effective January 1, 2000)
- ----------------------------------------------
Bldg. No. Room No. Use Code SF
- --------- -------- -------- --
<S> <C> <C> <C> <C>
14 200 Office 182
14 201 Office 133
14 202A Office 127
14 202B Office 98
14 202C Office 98
14 202D Office 98
14 202E Office 98
14 203 Office 132
14 204 Office 88
14 205 Office 89
14 206 Office 89
14 207 Office 88
14 208 Office 90
14 209 Office 89
14 210 Lab 1,513
14 211 Office 90
14 212 Office 124
14 213 Office 192
14 214 Office 469
14 214A Office 102
14 214B Office 103
14 214C Office 104
14 214D Office 104
14 214E Office 202
14 214G Office 95
14 214H Office 102
14 214I Office 105
14 215 Office 230
14 216 Office 158
14 217 Office 277
14 218 Office 138
14 219 Office 132
14 220 Office 190
14 221 Office 150
14 222 Office 75
14 245 Office 3,651
14 245A Office 143
14 245B Office 71
14 245C Office 50
14 245D Office 143
14 248A Office 95
14 248B Office 82
14 249 Office 581
14 250 Office 66
14 251 Office 92
14 252 Office 289
14 252A Office 62 Cumulative Total SF
-------------------
</TABLE>
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit B
Page 5 of 6
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
14 252B Office 246
14 253 Office 125
14 254 Office 174
14 255 Office 95
14 256 Office 173
14 258 Office 95
14 259 Office 90
14 260 Office 87
14 261 Office 87
14 262 Office 93
14 263 Office 124
14 263A Office 128
14 263B Office 173
14 263C Office 143
14 264 Office 59
14 264A Office 95
14 264B Office 127
14 264C Office 91
14 266 Office 236
14 267 Office 288
14 267A Office 22
14 268 Office 122
14 280A Office 88
14 280B Office 90
14 280C Office 128
14 281A Office 141
14 281B Office 90
14 281C Office 182
14 290 Lab 1,555
14 H210 Corridor 1,051
14 H250 Corridor 662
14 H280 Corridor 170
14 H290 Corridor 237
14 L200 Lobby 304
---
Subtotal 19,050
10% Common 1,905
-----
Total 20,955 Total 20,955
</TABLE>
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit B
Page 6 of 6
<PAGE> 12
SUMMARY OF TERM, RENT, SECURITY DEPOSIT, OPERATING EXPENSES AND UTILITIES
INSERT TO PARAGRAPHS 1.3 TERM 1.5 AND 4.1 RENT
----------------------------------------------
TERM:
- -----
For the purpose of the Agreement, the current term of the Lease shall be
extended with an Expiration Date of October 31, 2003. Two sequential one-year
option terms shall be included as described in Paragraph 62 of this Agreement.
<TABLE>
<CAPTION>
PREMISES TERM PERIOD
-------- ---- ------
START END
----- ---
<S> <C> <C> <C> <C>
Building 14, 1st floor Year 1 Original Nov. 1, 1998 Oct. 31, 1999
Building 14, 1st floor Year 2 Original Nov. 1, 1999 Dec. 31, 1999
Building 14, 2nd floor Year 2 Original Jan. 1, 2000 Oct. 31, 2000
Building 14, 2nd floor Year 3 Original Nov. 1, 2000 Oct. 31, 2001
Building 14, 2nd floor Year 4 Original Nov. 1, 2001 Oct. 31, 2002
Building 14, 2nd floor Year 5 Original Nov. 1, 2002 Oct. 31, 2003
Building 14, 2nd floor Year 6 Option Nov. 1, 2003 Oct. 31, 2004
Building 14, 2nd floor Year 7 Option Nov. 1, 2004 Oct. 31, 2005
</TABLE>
RENT:
- -----
Base Rent, comprising the components of NNN and CAM (CAM designated as Standard
Operating Expenses), shall be increased annually (on the Anniversary of the
MP3.com Agreement, beginning February 1, 2000) by four cents ($0.04) per square
foot, and one cent ($0.01) per square foot, respectively. The table below
summarizes the Rent, and Standard Operating Expense Payments that shall be paid
to the Lessor by the Lessee during the Original and Option Terms. Subject to an
agreement with the Tenant (MP3.com) holding the current Lease for the Building
second floor Replacement Premises, the Lessee's Rent and Operating Expenses for
Building 14 shall commence with Possession of the Second Floor Replacement Space
Block, and for the First Floor Surrendered Space Block, shall terminate the day
prior to Possession of the Building 14 Second Floor Premises. Monthly Rent shall
be due and payable upon receipt of invoice from the Lessor. Refer to the table
below for a summary of the Monthly Lease Rate and Rent for the Building 14
Premises.
LEASEHOLD IMPROVEMENTS:
- -----------------------
The Lessor holds a Security Deposit for restoration of Non Building Standard
Improvements installed by the previous Tenant. Except for "Non-Building Standard
Restoration Required", described in Exhibit F, the Lessor shall not be obligated
to install Leasehold Improvements, and such provisions are therefore not
included in the Rental Schedule below. Any work in excess of the Non-Building
Standard Restoration Required shall be considered extra, shall be approved by
the Parties prior to installation, and shall be to the account of the Lessee to
be paid as a lump sum to the Lessor prior to installation, or otherwise
contracted with, and paid for by the Lessee, directly with contractors approved
by the Lessor.
<TABLE>
<CAPTION>
ELEMENT BUILDING 14 - MONTHLY LEASE RATE & RENT
- ------- ---------------------------------------
(Refer to the table above for the Term and Period)
YR #2 YR #2 YR#3 YR #4 YR #5
Period Starting NOV 1999 JAN. 2000 FEB. 2000 FEB. 2001 FEB. 2002
- --------------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NNN Rate/sf. $1.14/sf $1.20/sf $1.24 $1.28 $1.32
CAM Charges (Std. Op.
Exp.)/sf $0.23 $0.22 $0.23 $0.24 $0.25
Leasehold Improvements $0.00 $0.00 $0.00 $0.00 $0.00
Janitorial Lessee Lessee Lessee Lessee Lessee
Utilities (power, gas,
water/sewer) Prorate same same same same
Total Rate per Square Foot 1.37 $1.42 $1.47 $1.52 $1.57
Monthly Rent Total
~ 8,250sf $11,303 ----- ----- ----- -----
Monthly Rent Total
~ 20,955sf ----- $29,756 $30,804 $31,852 $32,899
</TABLE>
INSERT TO PARAGRAPHS 1.7 AND 5. SECURITY DEPOSIT
------------------------------------------------
A Security Deposit in the amount equivalent to one month's Rent, and two month's
Utility Expenses, shall be paid by the Lessee to secure payments to the Lessor.
<TABLE>
<CAPTION>
SECURED PAYMENT AMOUNT
--------------- ------
<S> <C>
One Month's Rent $29,756
Two Months Utility Expenses (20,955sf x $0.20/sf x 2 mos) $ 8,382
--------
Total Security Deposit Required $38,138
Less Security Deposit on Record $14,991
Less Security Deposit Paid to Secure Replacement Premises $23,147
-------
ADDED SECURITY DEPOSIT DUE 00
</TABLE>
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit C
Page 1 of 4
<PAGE> 13
Concurrent with the annual Monthly Rent increase, and without prior notice, the
Security Deposit shall be adjusted in direct relation to the Monthly Rent, and
Utility Expenses (as calculated above), and the increase shall be paid by the
Lessee upon receipt of an invoice from the Lessor. Additionally, if the Lessor
deems justified, the amount of Security Deposit shall be increased to secure
payment of any Non-Building Standard Restoration, in the event the Lessee
installs such Non-Building Standard Improvements and the Lessor deems
Restoration is required upon expiration of the Agreement.
INSERT TO PARAGRAPH 4.2. COMMON AREA OPERATING EXPENSES
-------------------------------------------------------
Lessee shall pay for cost of maintenance and repair of its fixtures, furnishings
and equipment; maintenance and repair of electrical or other services from the
Building Point of connection to Lessee's fixtures, and for that supplemental
equipment installed specifically for Lessee's application and use of the
Premises. Lessee shall also pay for locksmith service, telephone installation,
adds, moves, and changes, and for cost of toll calls contracted under separate
agreement with the Lessor. Lessee shall initiate the needed job orders to engage
services, and pay for said services, pursuant to Paragraph 7.0 of this
Agreement.
Standard Operating Expenses are included in the CAM components of Rent; other
Operating Expenses for which the Lessor assumes responsibility, and which are
not included in the NNN or CAM components of Rent, shall be invoiced separately
for payment by the Lessee at the time these expenses are determined. Following
are the general provisions for payment of Services and Operating Expenses under
terms of this Agreement.
SUMMARY OF SERVICES AND UTILITY PROVISIONS
------------------------------------------
<TABLE>
<CAPTION>
INCLUDED IN INCLUDED AS
MONTHLY RENT OTHER OPERATING
& STANDARD EXPENSE CHARGED
SERVICE OR UTILITY OPERATING EXPENSE TO LESSEE NOTE
- ------------------ ----------------- --------------- ----
<S> <C> <C> <C>
Taxes x 1
Insurance x 2
Parking Lots, Roadways & Walkways x
Landscape Maintenance x
Building and Utility Maintenance x 3
Trash Collection x
Property Management x
Telecommunications Services x
Utilities:
Electricity, Ordinary x
Natural Gas x
Water/Sewer x
Electricity, Extraordinary x 4
Security Services-Standard x 5
Security Access Control & Keys x 7
Mail Pickup and Delivery x
Use of Central Conference Rooms x 5&9
Use of Outdoor Recreational Facility x 5
Use of Central Cafeteria x 5&7
Janitorial:
Common Area x 6
Lessee Space x 10
</TABLE>
Lessee may obtain the following services through separate agreement with the
Lessor. Payment shall be made under the same terms and conditions as for
operating expenses:
<TABLE>
<S> <C> <C>
Signage-Interior x 7
Use of Corporate Fitness Center x 5&7
Contractor Services x 5&8
</TABLE>
Notes:
1. Covers Real Property Taxes. Does not cover personal property taxes.
2. Covers Lessor's insurance only. Does not cover Lessee's coverage for its
fixtures and liability, or for the loss of business.
3. Covers maintenance and repairs of normal building equipment and
utilities. Does not cover maintenance and repairs of special
telecommunications, or equipment installed on behalf of the Lessee to
maintain special conditions such as air conditioning.
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit C
Page 2 of 4
<PAGE> 14
4. Cost for extraordinary utilities shall be passed through at cost charged
to Lessor. Example: Cost to operate Building HVAC outside the hours of
7:00 AM to 7:00 PM, Monday through Friday (excluding national holidays).
If the Lessee is the sole Tenant occupying a specific zone, then the
operating hours (12-hour period) can be adjusted at the request of the
Lessee.
5. Access or use of services are provided as an amenity, but are subject to
change or termination by Lessor with thirty days advanced notice to the
Lessee, or in the event of breach of terms, with a three-day notice.
6. Lessee provides Common Area cleaning services between the hours of
5:30AM and 1:00PM on normal business days.
7. Same cost as charged to other Tenant Employees.
8. Available at Lessor's cost plus 15%.
9. Parties agree that location, site, and features of conference rooms can
be changed upon the Lessor providing Lessee 30 days advanced notice of
said change.
10. Lessee shall make provisions for janitorial service to clean its
Premises.
INSERT TO PARAGRAPH 11. UTILITIES
---------------------------------
Effective the date that the Lessee takes Possession, the Lessor shall commence
charging the Lessee its prorata share of Utilities as described below. The base
square footage of the Industrial Center is subject to change as the Lessor
demolishes or constructs building improvements at the Industrial Center.
Electricity:
- ------------
Electric power is supplied by San Diego Gas & Electric and metered at one
location of the Industrial Center. Building 14 is separately submetered and
Lessee's prorata electric power costs shall be calculated using data taken from
submeters as follows:
Building 14 leased gsf x Building 14 Billing Period Cost
----------------------
Building 14gsf
20,955gsf (Note 1) x Building 14 Billing Period Cost
------------------
59,520gsf
Note(1): Gross Square feet will be adjusted in direct relation to size
of the Lessee's Premises.
Water/Sewer:
- ------------
Water is supplied to the Industrial Center from three (and soon four) separate
city water meter stations. Sewer charges are based on water consumption. The
Industrial Center comprises Buildings of a total 509,164gst on three separate
parcels, one Genesee Properties, and two Hopkins Properties. Prorated
water/sewer costs shall be calculated as follows:
Building 14 leased gsf x Billing Period Charges
----------------------
Total Industrial Center gsf
20,955gsf (Note 1) x Billing Period Charges
------------------
509,164gsf
Natural Gas:
- ------------
Natural gas is purchased from a natural gas supplier and transported to the
Industrial Center by San Diego Gas & Electric. Building 14 is separately
submetered and Lessee's prorate natural gas costs shall be calculated using data
taken from submeters as follows:
Building 14 Leased gsf x Billing Period (Na. Gas Cost +
---------------------- Transport Cost)
Building 14 gsf
20,955gsf x Billing Period Charges
---------
59,520gsf
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit C
Page 3 of 4
<PAGE> 15
TELECOMMUNICATIONS:
If the Lessee contracts with the Lessor for telecommunications services, then
the Lessee shall pay for telecommunications installation, moves, changes, and
monthly or daily services attributable to the Lessee, including all toll
charges. Charges for service and equipment are subject to reasonable annual
increases but shall not exceed the standard amounts charged to other tenants in
the Industrial Center, for similar services and equipment. Parties agree that
the Calendar Year 2000 equipment and service costs shall be in accordance with
the following schedule:
<TABLE>
<CAPTION>
CATEGORY OF SERVICE INSTALLATION COST MONTHLY COST
------------------- ----------------- ------------
<S> <C> <C>
Fax or Modem Extension $70 $18
PBX Line (Multi-Line capability) $70 $18
Basic Service Fee (includes adds, moves and changes) $20 N/A
TELEPHONE SETS AND FEATURES
---------------------------
Installation
SL-1 Single Line Set 2500, 2554, etc $20 $ 5
SL-1 Analog Multi-Line Set $ * $ *
10 Key Add-on Module $ * $ 2
20 Key Add-on Module $ * $ 4
Speaker phone $ * $ 6
Digit Display $ * $ 6
2008 Digital 8-Button Telephone Set $20 $ 8
2616 Digital 16-Button Telephone Set with Display $20 $17
Speaker phone (HFA) $ * $ 1
22 Key Add-on Module * $ 7
PROGRAMMABLE FEATURES AT NO COST AT TIME OF INSTALLATION
--------------------------------------------------------
Appearance of an Additional Extension * $ 2
Headset (all units are modular) Cost N/C
VOICEMAIL
---------
With 7 minutes storage-10 day retention $20 $ 8
Additional 5 minutes of storage $ * $ 3
Pager out call $ * $ 2
MISCELLANEOUS CIRCUIT COSTS
---------------------------
Relocation of Service (telephone lines,
data/lan lines) $40 N/A
Dry Circuits (For Alarms, Monitors, etc...,
1 or 2 pair) $ * $ 3
Private Line extended from outside provider
(1 or 2 pair) $* $ *
DDS Circuit extended from outside provider
(1 or 2 pair) $ * $ *
ISDN(&DSL) Circuit extended from outside
provider (l or 2 pair) $ * $ *
DS1/T1 Circuit extended from outside provider
(incl. eng.) $300 $75
BUILDING WIRING
---------------
Point to Point 4-wire circuit (through existing
cable plant) $40 $ 3
Point to Point 4-wire circuit with upgraded wiring $ *
LAN Cabling
Fiber-Optic Cabling
AUDIO VIDEO EQUIPMENT & SERVICES DAILY COST
-------------------------------- ----------
Slide Projector $10
VCR & TV/Monitor or Combo Unit $ *
Easel/flipcharts $5/$10
VHS Camcorder $15
OVERHEAD Projector $10
LCD, DLP, ILA PROJECTORS $15-$50
</TABLE>
*APPLY BASIC SERVICE FEE (WAIVED IF WORK PERFORMED AT INSTALLATION)
Parties agree that reasonable annual adjustments, the same as applied to other
Industrial Center Tenants, can be made without prior notice effective January of
each calendar year.
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit C
Page 4 of 4
<PAGE> 16
GENERAL ATOMICS RULES & REGULATIONS
ATTACHED AND MADE A PART OF THIS LEASE
1. Lessor agrees that Lessee is entitled to, and shall have the quiet
enjoyment of the Premises described in the Sublease.
2. During the term of the Agreement, Lessee shall provide Lessor the names
and home telephone numbers of two Lessee employees that can be contacted
by the Lessor for emergencies during Lessee's non-business hours.
3. Lessor shall provide Lessee a minimum 24-hour advanced notice of any
inspection by the Lessor, Owner, Lender, insurance carriers and
respective agents.
4. During the warranty period, Lessee shall give Lessor prompt notice of
any accidents to or defects in the water pipes, gas pipes, electric
system, lights and fixtures, heating and cooling apparatus or any other
service equipment.
5. Any service piping, ducts, electric conduits, telephone wiring and
antennas exterior to the Building, or boring, cutting of exterior walls,
floor or roof shall not be permitted, except with the written consent of
Lessor.
6. Lessee's identification sign(s) shall be subject to prior approval by
Lessor. Guidelines for Building exterior signage is available from the
Lessor upon request.
7. Lessee shall not install blinds, shades, awnings or other form of inside
of outside window covering, or window ventilators or similar devices
without the prior written consent of Lessor.
8. Lessee shall maintain Premises in a clean and safe condition. Trash
shall be placed in appropriate disposal containers at locations
designated by Lessor for pick-up and disposal by a service contractor of
the Lessor.
9. Lessee and Lessee's employees shall not obstruct the sidewalks,
driveways, or other common areas and shall use the same only as a means
of passage, access and parking; all materials, fixtures, furnishings and
equipment shall be stored inside the Building. Outside storage at the
Premises is prohibited.
10. The water closets, urinals and other plumbing shall be used for the
purpose for which they were constructed and no rubbish, newspapers or
other substances of any kind shall be thrown into the fixtures. Lessee
shall not mark, install screws or drill into, or in any way deface the
exterior walls, stone, metal work, doors and windows of the Building.
11. Lessee and Lessee's agent and employees shall not play any musical
instrument, including radio and television, in a loud or objectionable
manner, or make or permit any improper noises in the Building, or
interfere in any way with other Industrial Center Lessees, or those
having business with them.
12. Lessee shall not conduct any auction, or sell goods, wares or
merchandise on the Premises.
13. Lessor shall not be responsible for loss of or damage to any fixtures,
furnishings or personal property from any cause.
14. Although Lessor may have given Lessee approval to use the name of the
Industrial Center in connection with any business on the property,
Lessor shall have the right to prohibit any advertising by any agent
which in Lessor's opinion, tends to impair the reputation of the
Building or its desirability as a Building for offices and laboratories,
and upon written notice from Lessor, Lessee shall refrain from or
discontinue such advertising.
15. No cooking shall be done or permitted by Lessee on the Premises, except
in areas specifically designed for the purpose, without the consent of
Lessor, nor shall the Premises be used for the storage of merchandise,
for washing clothes, for keeping of pets, for lodging or for any
improper, objectionable or immoral purposes.
16. Lessee shall not disturb, solicit or canvass any occupant of the
Industrial Center and shall cooperate to prevent same.
17. From time to time it may become advantageous to make amendments to this
list which are in the best interests of both Lessor and Lessee and which
are not inconsistent with the Sublease. Lessor reserves the right to
make such amendments by giving notice to Lessee.
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit D
Page 1 of 1
<PAGE> 17
ASBESTOS NOTIFICATION
January 1999
From: Licensing, Safety and Nuclear Compliance (LSNC)
TO: Employees and Occupants, Via Intercompany Memo
General Atomics, in compliance with California Health and Safety Code 25915 et
seq, is required to give written notice of the presence of asbestos containing
materials to all employees. This notification applies to General Atomics
facilities at 3550 General Atomics Court, 3483 Dunhill Street, and 11222
Flintkote Avenue.
Prior to 1979, asbestos was used extensively in the building industry throughout
the United States as thermal insulation, fireproofing, and in structural support
materials. At General Atomics asbestos has been used to insulate hot water and
steam pipes and ventilation ducts. It may be found in some attics and mechanical
rooms, in floor and ceiling tiles and window wall panels, some roofing material,
and core material in certain fire doors.
The mere presence of asbestos in a building does not necessarily mean that a
health hazard exists. Asbestos containing materials are not a health threat
unless asbestos fibers become airborne and are inhaled. In areas where the
asbestos is bonded or encapsulated and properly maintained, such as in the
materials listed above, there is very little or no risk to health.
Accordingly, it is important not to disturb asbestos containing materials.
General Atomics policy restricts work on asbestos containing materials to
certified asbestos contractors who are properly trained and equipped. Moving,
drilling, cutting, or otherwise disturbing such materials can pose a health risk
and should not be attempted by untrained personnel. Employees should immediately
notify (Licensing, Safety and Nuclear Compliance) if they observe materials that
they suspect contain asbestos and which are not properly maintained.
LSNC maintains records of asbestos sampling and air monitoring results performed
during the course of asbestos abatement work. Employees may contact LSNC, Letty
Alfonso at extension 2016, Paul Englert at extension 2466, or Keith Asmussen at
extension 2823, if they have questions or concerns regarding asbestos.
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit E
Page 1 of 1
<PAGE> 18
WORK LETTER AGREEMENT
This Work Letter Agreement is written to compliment the Sublease Agreement, as
amended, and all Exhibits (the "Agreement"). It expands and elaborates on the
Agreement with no conflict intended. In the event of a conflict, the Agreement
takes precedence.
I. PREMISES
The Lessor will deliver to the Lessee the Replacement Space Block located on
Building 14 Second Floor, highlighted by the crosshatched Area on the Floor
Plan, page 1, of Exhibit B. Within a reasonable period, but no later than
January 14, 2000, the Lessee shall surrender its current Building 14 First Floor
Premises shown on page 2 of Exhibit B.
The Parties agree to cooperate in the installation of Leasehold Improvements in
the Replacement Premises, which includes the Restoration of Non-Building
Standard Improvements installed by the previous tenant, and the minor fit-up of
those improvements specified by the Lessee. Except for the improvements as
described below under the heading, Alterations and Utility Installations, the
Lessee agrees to accept those Non-Building Standard Improvements installed by
the previous Tenant, MP3.com, classified on Pages 7, 8 & 9 of this Exhibit, as
"Restoration Not Required" reclassified as, Building Standard Improvements.
II. ALTERATIONS AND UTILITY INSTALLATIONS
LESSOR LEASEHOLD IMPROVEMENTS:
The Lessor defines Non-Building Standard Improvements as any change in the
standard physical layout, appearance, colors, or general decor, that does not
match the Building Improvements installed by the Lessor prior to the Lessee's
Possession.
A. The Lessor will restore, at MP3.com cost, the Non-Building Standard
Improvements changing certain features installed by MP3.com, those generally
described in this Work Letter Agreement and classified as "Restoration
Required".
B. The Lessor will make minor repairs and inspect all building systems serving
the Premises, including HVAC, lighting, power, and Common Area appurtenances, to
ascertain the building systems are in good working condition.
C. This Work Letter Agreement makes no provisions for Alterations or Utility
Installations ("Leasehold Improvements") to be installed and paid for by the
Lessor, above and beyond those listed and classified as Restoration Required on
pages 7, 8 & 9 of this Work Letter Agreement.
D. The Parties and MP3.com agree that the structural deficiency of the computer
room raised floor, Room 252B, will be corrected by removal of the raised floor
so that the open permit with the City Inspection Department is closed. The
Lessee agrees to accept the room in a condition with the raised floor removed,
and service cables stripped back to a safe condition.
E. Except for Restoration of the raised computer floor, and the closure of the
permit for the computer floor improvements, the Non-Building Standard
Restoration Required does not require issuance of building permits. The Lessor
and MP3.com will resolve the permit closure for the computer raised floor.
LESSEE SPECIFIED LEASEHOLD IMPROVEMENTS:
The Lessee will specify any Leasehold Improvements required prior to Possession,
and will either authorize the Lessor to install these improvements, or the
Lessee will engage the services of Lessor approved service contractors to
install said improvements, and in either case, pay for said improvements.
F. Any Lessee specified Leasehold Improvements, classified as a Non-Building
Standard Improvements, shall be subject to restoration at the expiration of the
Agreement, and may be subject to Added Security Deposit as agreed in Exhibit C
of this Amendment.
G. Improvements that change the use, or are determined to impact the structural
or life safety features of the building, shall be changed by formal design, and
installed under permits issued by the City of San Diego.
H. Any Leasehold Improvement installed by the Lessee is subject to review and
consent of the Lessor as covered in Paragraph 7.4 of the Agreement. For those
Leasehold Improvements installed by the Lessee, the Parties agree to the
following responsibilities:
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit F
Page 1 of 9
<PAGE> 19
The LESSEE, at the Lessee's sole cost and expense will:
1. Select and pay for a design consultant to prepare a space plan
acceptable to the Parties.
2. Select design consultants to prepare construction documents for permits
and installation.
3. Make application for and obtain building permits for installation from
the City of San Diego.
4. Issue contracts and make payment for design consultants, contractors,
agencies and others that provide labor, materials and services toward
installation.
5. Provide construction management for the Leasehold Improvements.
6. Obtain final inspection and approval to occupy from the City Building
Inspection Department.
7. Provide the Lessor copies of as-built, construction documents.
The LESSOR at its sole cost and expense will:
8. At its discretion, file a "Notice of Non-Responsibility" giving notice
to all material suppliers and contractors that the Lessor is not
responsible for payment of contracted services related to the Lessee's
Improvements.
9. Perform a design review of the construction documents to verify the
design is consistent with this Agreement.
10. Perform routine inspections of the construction area to confirm that the
installations are in general accordance with the plans and
specifications, and acceptable construction quality standards are being
maintained during construction.
11. Perform routine inspections to verify construction progress is being
made in a manner considerate of other Building Tenants.
12. Make a final determination if the installed improvements are in variance
with Building Standard design and construction, and assess for Added
Security Deposit if deemed necessary.
13. Prepare a Sublease Amendment to memorialize fulfillment of the Parties'
obligations under this Work Letter Agreement, and to include other minor
changes deemed appropriate and necessary.
III. FINANCING
The Parties agree to pay for Leasehold Improvements according to the following
general guidelines:
<TABLE>
<CAPTION>
WORK TASK ESTIMATE ESTIMATE
--------- -------- --------
PAID BY LESSOR LESSEE
------- ------ ------
<S> <C> <C>
RESTORATION OF NON-BUILDING STANDARDS IMPROVEMENTS
ADDED #1 SPACE BLOCK $20,853 $00
ADDED #2 SPACE BLOCK $25,076 $00
ADDED #3 SPACE BLOCK $ 00 $00
ADDED #4 SPACE BLOCK $ 00 $00
Remove Computer Room Raised Floor $ 00 $00
LESSEE SPECIFIED LEASEHOLD IMPROVEMENTS
Repair and Touch-up Painting $ 00 TBD
Server Room Alterations $ 00 TBD
Other Alterations $ 00 TBD
Other Utility Installations $ 00 TBD
Security Locks/Access System $ 00 TBD
TOTAL $45,929 TBD
</TABLE>
The cost and expense of installing Lessee Specified Leasehold Improvements, such
as items with the estimate designated TBD, shall be to the account of the
Lessee. It is the Lessor's policy to collect a deposit to secure the performance
of the Lessee to restore those Non-Building Standard Improvements deemed by the
Lessor as Non-Building Standard Installations at the time the improvements are
planned. These improvements shall be removed at the Lessee's expense upon the
Lessee's surrender of the Premises.
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit F
Page 2 of 9
<PAGE> 20
IV. TENANT FIXTURES AND EQUIPMENT
Except for the Lessor's built-ins in Rooms 215, 222, 250 & 268, the Premises are
offered by the Lessor and accepted by the Lessee in an unfurnished condition.
The Lessee is responsible as follows:
A. Furnish the Premises as needed with desks, tables, chairs, computers, FAX,
copiers, files and audio visual.
B. Furnish the Premises with tenant fixtures and equipment needed for the
conduct of Lessee's business.
C. Make a selection of the telephone/data service provider and issue orders to
have installed a telephone/data system, whichever system the Lessee selects.
D. Engage the services of outside providers as required to purchase, relocate,
move, install and setup equipment listed in A, B and C above.
E. Issue orders to the Lessor's Security Department to install door locks
installed as needed within the Lessee's Premises.
F. By separate agreement with the previous Tenant, MP3.com, dated ____________,
1999 the Lessee has assumed ownership and all rights for furniture, telephone
system and security systems remaining installed in the Building 14 Premises.
The following generic list of items are included in this separate asset purchase
agreement between the Lessee and MP3.com:
Number Description Location
[See Asset Purchase Agreement Attached]
V. SCHEDULE
Following is the Lessor's best effort schedule for executing a Termination
Agreement with MP3.com and completing work for preparation of the Lessee's
Replacement Premises.
<TABLE>
<CAPTION>
ACTION ITEM PARTY(s) DATE
----------- -------- ----
<S> <C> <C>
Execute Letter Agreement Both Nov 17 1999
Pay Security Deposit Lessee Nov 17 1999
Execute Sublease Amendment #2 Both Dec 15 1999
Execute MP3.com Termination Lessor Dec 15 1999
Complete Non-Bldg Std Restoration Req'd Lessor Dec 20 1999
Walk through Inspection Both Dec 21 1999
Possession Lessee Dec 27 1999
</TABLE>
VI. BUILDING 14 COMMON AREA CHANGES.
Parties acknowledge that changes to the Common Area may be required from time to
time, as described in Paragraph 2.7 of this Agreement. Following are the current
guidelines for Lessee vehicle access and parking.
A Provisions by LESSOR:
1. Vehicular access to Building 14 Complex is provided from Science Center Drive
and the Building 14 Complex is closed off to the remainder of the Industrial
Center (the "Remainder Industrial Center").
2. Alternate emergency vehicle access, and non-routine service access, is
provided to the Building 14 Complex via use of locked gates separating Building
14 and 15 east access road.
3. Pedestrian access between the Building 14 Complex and the Remainder
Industrial Center remains unchanged.
Initials: /s/ P.A.P.
/s/ R.H.D
Exhibit F
Page 3 of 9
<PAGE> 21
4. Internet Products Incorporated (IPI), a Building 14 Tenant, provides the
Lobby Reception Service for all Building 14 Tenant Companies similar to the
function the Lessor performs through its Building 1 Reception Lobby, except that
IPI operates the Security Access and Control System (SACS) only during IPI's
normal business hours, including the lunch period, ("Operating Hours").
5. Lessor operates the SACS remotely from Building 1 Security Station during
IPI's Non-Operating Hours.
6. IPI retains nonexclusive use of the Lobby, and does not provide clerical or
mail service to other Building 14 Tenants.
7. Visitor parking is provided near the north and south building entrances;
handicap parking is provided at the northwest comer of Building 14.
8. A turnaround and loading zone are provided for light freight truck delivery
at the south entrance to the Building 14 near access to the Building elevator.
9. As a means to control parking at the Remainder Industrial Center, all
Building 14 Tenant employees are assigned a colored picture badge distinct from
those used for the Remainder Industrial Center. All Building 14 Tenant employees
will register vehicles with GA Security, and may be assigned numbered decals to
be displayed in the Lessee employee owned vehicles.
10. The Lessor will restrict parking at Building 14 Complex according to the
following breakdown:
BUILDING 14 PARKING ALLOCATION SUMMARY-EFFECTIVE OCTOBER 1, 1999
<TABLE>
<CAPTION>
PARKING @ 3 SPACES/1000SF
-------------------------
OCCUPANT BUILDING LEASED SPACE (sf) AUTHORIZED AVAILABLE BALANCE
- -------- -------- ----------------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Internet Products Inc. 14 10,802 32 --- ---
PacketVideo 14 20,955 63 --- ---
PacketVideo Replace-
ment Tenant 14 8,250 25 --- ---
Sitematic Corp. 14 7,688 23 --- ---
UCSD 14 3,748 11 --- ---
Visitors 00 07 --- ---
Handicap 00 05 --- ---
------ --
Total Leased 51,443 166 --- ---
Required by Zoning 14 59,920 180 188 22
</TABLE>
B. Provisions by LESSEE: The Lessee will cooperate with the Lessor, and other
Building 14 Tenants, to restrict access to the Building 14 Complex and Remainder
Industrial Center to those employees, suppliers, shippers, customers,
contractors and invitees having a business need for said access to the Lessee's
Premises. The Lessee agrees to the following:
1. Routinely provide IPI and Lessor Security Department the names of Lessee's
contacts, or employee phone numbers, to assist with receiving visitors, badging
visitors, and providing visitor directions to the Lessee's Premises.
2. Notify and advise organizations serving the Lessee (FedEx, UPS, etc.) of the
change of street address from 10350 Science Center Drive, Suite 140, to 10350
Science Center Drive, Suite 210.
3. Notify the Postal Service, or courier service for direct US Mail pickup and
deliveries of the change of street address from 10350 Science Center Drive,
Suite 140 mail box, to 10350 Science Center Drive, Suite 210 mail box.
4. Wear and display the GA Security Badge when present at the Building 14
Complex, or the Remainder Industrial Center.
5. Affix vehicle decals to employee vehicles accessing and parking at the
Building 14 Complex, if the request is made by the Lessor's Security Department.
6. Pay for repair of damages to the SACS System caused by the Lessee's
employees, suppliers, shippers, customers, contractors and invitees.
7. In the event allocated parking is exceeded, designate certain employees to
use spillover parking at the Remainder Industrial Center, and execute badge
exchange for site access and parking to designated areas of the Remainder
Industrial Center, in lieu of the Building 14 Complex. The Lessor will restrict
spillover parking to the Building 9 lot equivalent to one space for each 1000sf
of leased space.
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit F
Page 4 of 9
<PAGE> 22
VII. LESSEE OBLIGATIONS DURING TENANCY
ROUTINE AND PERIODIC CLEANING:
Pursuant to the Lessee's obligations stipulated in Paragraph 7.1 of this
Sublease Agreement, the Lessee will perform routine and periodic cleaning at the
following minimum frequencies for all offices, the West Lobby, Toilet Rooms,
Lunch/Coffee Mess Rooms and dedicated corridors serving the Lessee's Premises,
spaces identified by Room Number in the Space Summary, Exhibit B. Routine and
period cleaning shall apply to that portion of the second floor crosshatched on
the Floor Plan, Exhibit B. The following standards are established to maintain a
neat, clean facility void of rodent and pest infestation, and for control of
fire and personnel hazards.
<TABLE>
<CAPTION>
ACTIVITY
OFFICES/PRODUCTION FREQUENCY
- ------------------ ---------
<S> <C>
Empty Trash Daily
Empty Recycle Bi-Weekly
Vacuum Weekly
Spot Clean Carpet Weekly
Wipe and Clean Door Hardware/Sw Plates Monthly
Dust Baseboards Monthly
Dust window shades Monthly
Carpet Extraction Cleaning Quarterly
Clean Window Interior Surfaces Quarterly
</TABLE>
<TABLE>
<CAPTION>
ACTIVITY
TOILET ROOMS FREQUENCY
- ------------ ---------
<S> <C>
Wet Mop Floors Daily
Clean and Disinfect Fixtures Daily
Clean Mirrors Daily
Stock Supplies Daily
Empty Trash Daily
Spot Clean Doors, Frames and Pulls Daily
Clean Privacy Partitions/Doors Weekly
Spot Clean Walls Weekly
Clean Dispensers Weekly
Strip and Wax Floors Quarterly
</TABLE>
<TABLE>
<CAPTION>
ACTIVITY
CORRIDORS/LUNCH ROOMS/COFFEE MESS FREQUENCY
- --------------------------------- ---------
<S> <C>
Wet Mop or vacuum Daily
Empty Trash Daily
Empty Recycle Daily
Arrange and Clean Reading Tables Daily
Clean Desks, Tables and Counters Daily
Vacuum/Clean Chairs Weekly
Dust Baseboards Monthly
Dust Picture Frames Monthly
</TABLE>
VIII. LESSEE OBLIGATIONS TO SURRENDER PREMISES
CHECKLIST:
Notwithstanding the obligation for Non-Building Standard Restoration, the
following summarizes the obligations of the Lessee related to the surrender of
the Premises at the end of tenancy, pursuant to Paragraph 7.4 of the Agreement.
Prior to the Lessee's surrender of part or all of the Premises, the Parties will
make inspections to ascertain the said Premises are in a condition acceptable to
the Lessor, a condition existing at the time the Lessor tendered the respective
Space Block to the Lessee, or with Alterations as installed and acceptable to
the Lessor, normal wear and tear accepted.
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit F
Page 5 of 9
<PAGE> 23
BUILDING LOCATION:______________________________________________________________
<TABLE>
<CAPTION>
OFFICES LESSOR LESSEE DATE
- ------- ------ ------ ----
<S> <C> <C> <C>
Furnishings removed _____ _____ _____
Fixtures removed _____ _____ _____
Trash removed _____ _____ _____
Telephones disconnected _____ _____ _____
Services stripped/safe off _____ _____ _____
Fixture inventory completed _____ _____ _____
Fixtures and equip. cleaned _____ _____ _____
NBS telecom cable removed _____ _____ _____
Walls/minor repairs completed _____ _____ _____
Carpet extraction cleaned _____ _____ _____
Ventilation balanced if NBS _____ _____ _____
Lessor signage left in place _____ _____ _____
Restoration completed or deferred _____ _____ _____
Lessee signage removed/repaired _____ _____ _____
Key locks changed _____ _____ _____
NBS = Non Building Standard _____ _____ _____
SUCCESSOR TENANT CONSENT (IF APPLICABLE)
First inspection _____ _____ _____
Ownership transfer completed _____ _____ _____
Final inspection _____ _____ _____
Date: Turnover and Acceptance _____ _____ _____
- -----------------------------
</TABLE>
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit F
Page 6 of 9
<PAGE> 24
MP3.COM - RESTORATION COST SUMMARY
PERIOD ENDING FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PROJ: GENERAL ATOMICS BUILDING 14 REPLACEMENT TENANT -PACKETVIDEO ESTIMATORS: L.W. SMITH/M.K. SCANLAN
ADDED SPACE BLOCK #1
PREV REVISED RESTORATION
EST EST NOT
ITEM ROOM NO. CONTRACTOR COST COST REQUIRED REQUIRED NOTES
- ---- -------- ---------- ---- ---- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1 Replace walls, doors, 256-257 Good & Roberts 1,611 1,611 1,000 611 Doors/frames & clgs
and ceiling only
2 Replace hallway carpet H250 Astra Flooring 5,000 7,000 7,000 0 Replace all blk
and topset base vinyl flooring
3 Replace tile 223 Astra Flooring 2,100 2,100 0 2,100
4 Replace carpet 252 Astra Flooring 1,450 1,450 0 1,450
5 Replace corridor H250 Good & Roberts 1,354 1,354 1,354 0
ceiling tile and grid
6 Remove and replace H250 Good & Roberts 683 683 683 0
corridor accent
7 Remove raised floor 252 Good & Roberts 1,390 1,390 0 1,390 Remove raised flr-
and glass door no cost
8 Repair wall - Fill in 263 Good & Roberts 646 646 0 646
Trangle opening
9 Paint corridor walls H250 McMurray Painting 720 720 720 0
10 Paint corridor doors H250 McMurray Painting 600 600 600 0
and frames
11 Paint new walls 256-257 McMurray Painting 150 150 0 150
12 Remove fire suppression 252 Parsons 1,000 1,000 0 1,000 MP3 to handle
system
13 Remove a/c system 252 Jackson & Blanc 1,200 1,200 0 1,200
14 Remove electric panel 252 Chula Vista Electric 1,250 1,250 700 550
and underfloor circuits
15 Remove track lighting H250 Chula Vista Electric 300 300 300 0
in corridor
16 Replace corridor fire H250 Jackson & Blanc 800 800 800 0
sprinkler heads
17 Replace corridor lights H250 Chula Vista Electric 2,100 2,100 2,100 0
18 Replace lobby carpet L200 Astra Flooring 3,000 3,000 3,000 0 Item missed in
and topset base Amend #1
19 Replace black supply H250 Jackson & Blanc 0 700 700 0 Item missed in
& return grilles Amend #1
SUBTOTAL $ 25,354 $28,054 $18,957 $9,097
CONTINGENCY - 10% $2,535 $2,805 $1,896 $910
</TABLE>
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit F
Page 7 of 9
<PAGE> 25
MP3.COM - RESTORATION COST SUMMARY
PERIOD ENDING MAY 14, 1999
<TABLE>
<CAPTION>
PROJ: GENERAL ATOMICS BUILDING 14 REPLACEMENT TENANT - PACKETVIDEO ESTIMATORS: L.W.SMITH/M.K. SCANLAN
ADDED SPACE BLOCK #2
PREV REVISED RESTORATION
EST EST NOT
ITEM ROOM NO. CONTRACTOR COST COST REQUIRED REQUIRED NOTES
- ---- -------- ---------- ---- ---- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1 Remove carpet; reinstall 290 Astra Flooring 9,725 9,725 0 9,725
ESD tile, 4" base
2 Remove carpet; reinstall 275 Astra Flooring 1,791 1,791 0 1,791
SDT tile, 4" base
3 Reinstall dividing wall 214C/D&E/F Good & Roberts 3,144 3,144 1,572 1,572 Restore one of
two offices.
4 Wall Sconces-patch H210 Good & Roberts 612 612 612 0
walls
5 Remove ceiling tile; H210 Good & Roberts 612 612 612 0
patch walls
6 Remove 75 KVA 252 Chula Vista 0 0 0 0
transformer Electric
7 Remove 200 AMP 252 Chula Vista 0 0 0 0
panelboard Electric
8 Remove computer 252 Chula Vista 200 200 0 200
room outlets Electric
9 Disconnect fire 252 Chula Vista 50 50 0 50
suppression panel Electric
10 Remove new air 252 Chula Vista 200 200 0 200
conditioning wiring Electric
11 Remove new 480V 252 Chula Vista 0 0 0 0
200 AMP meter Electric
12 Remove five new H250 Chula Vista 300 300 300 0
track lights Electric
13 Provide and install hall L200 Chula Vista 2,100 2,100 0 2,100 Duplicate-See
lights Electric Space blk #1
14 Remove wall sconce H210 Chula Vista Electric 800 800 800 0
lighting Electric
15 Remove red globe H210 Chula Vista 400 400 400 0
lighting Electric
16 Restore four offices H210 Chula Vista 1,600 1,600 800 800 Restore one of
to original Electric two offices.
17 Demo power pole in 210 Chula Vista 100 100 0 100
conference room Electric
18 Paint new and existing 214C/D&E/F McMurray Painting 600 600 300 300 Restore R. Richards
walls office.
19 Paint corridor walls, H210 McMurray Painting 11,000 11,000 11,000 0
doors and frames
20 Paint walls 290 McMurray Painting 400 400 400 0
21 Sand and prep blue walls H210, L200-201 Good & Roberts 0 6,000 6,000 0 Item missed
in Amend #1
SUBTOTAL $33,634 $39,634 $22,796 $16,838
CONTINGENCY - 10% $3,363 $3,963 $2,280 $1,684
TOTAL $36,997 $43,597 $25,076 $18,522
</TABLE>
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit F
Page 8 of 9
<PAGE> 26
MP3.COM - RESTORATION COST SUMMARY -ADDED SPACE BLOCKS #3, #4 AND OTHER
PERIOD ENDING JULY 31, 1999
<TABLE>
<CAPTION>
PROJ: GENERAL ATOMICS BUILDING 14 REPLACEMENT TENANT - PACKETVIDEO ESTIMATORS: L.W.SMITH/M.K. SCANLAN
ADDED SPACE BLOCK #3
PREV REVISED RESTORATION
EST EST NOT
ITEM ROOM NO. CONTRACTOR COST COST REQUIRED REQUIRED NOTES
- ---- -------- ---------- ---- ---- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1 NONE NONE NONE 0 0 0 0 NONE
</TABLE>
<TABLE>
<CAPTION>
PROJ: GENERAL ATOMICS BUILDING 14 REPLACEMENT TENANT - PACKETVIDEO
ADDED SPACE BLOCK #4
PREV REVISED RESTORATION
EST EST NOT
ITEM ROOM NO. CONTRACTOR COST COST REQUIRED REQUIRED NOTES
- ---- -------- ---------- ---- ---- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1 Carpet replacement; All Astra Flooring 24,458 24,458 0 24,458 Packetvideo will
4-inch base take as is.
SUBTOTAL 24,458 24,458 0 24,458
CONTINGENCY - 10% 2,446 2,446 0 2,446
TOTAL $26,904 $26,904 $0 $26,904
</TABLE>
<TABLE>
<CAPTION>
PROJ: GENERAL ATOMICS BUILDING 14 REPLACEMENT TENANT - PACKETVIDEO
ESTIMATORS: L.W. SMITH/M.K. SCANLAN
ADDED SPACE BLOCK - OTHER
PREV REVISED RESTORATION
EST EST NOT
ITEM ROOM NO. CONTRACTOR COST COST REQUIRED REQUIRED NOTES
- ---- -------- ---------- ---- ---- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1 Correct raised floor 252 Good & Roberts 13,800 13,800 0 13,800 Removed by
deficiencies vendor at no cost.
SUBTOTAL 13,800 13,800 0 13,800
CONTINGENCY - 10% 1,380 1,380 0 1,380
TOTAL $15,180 $15,180 $0 $15,180
</TABLE>
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit F
Page 9 of 9
<PAGE> 27
ESTOPPEL CERTIFICATE AND ATTORNMENT
(SUBLEASE)
PacketVideo, a California Corporation ("Lessee"), hereby certifies, and agrees
as follows, for the benefit of Bank of America National Trust and Savings
Association (the "Bank").
1. Pursuant to a sublease dated September 1, 1998, as amended by Amendment #1 to
Sublease dated September 1, 1998 (collectively, the "Lease"), the Lessee has
leased a portion (the "Leased Premises") of certain real property (the
"Property") commonly known as the General Atomics Industrial Center in San
Diego, California, from General Atomics, a California Corporation (the
"Lessor"). A true and complete list and description of the Lease and all
supplements, modifications and amendments thereto, is attached as Attachment
"A".
2. The Lease covers approximately 20,955 square feet in Building 14. The term of
the Lease (including all extensions) will expire on October 31, 2005. Effective
with possession of the Replacement Space Block, Monthly Rent under the Lease is
$29,756.
3. Other than ordinary servicing agreements (such as agreements for maintenance
and security of the Leased Premises), the Lease constitutes the only agreement
between the Lessor and the Lessee with respect to the Leased premises.
4. The Lessee acknowledges that the fee interest in the Property is owned by
Genesee Properties, Inc., a Wyoming corporation (the "Borrower"), and that
Lessor holds leasehold interests in the Property pursuant to master leases (the
"Master Leases") dated September 26, 1986, as amended. The Lessee acknowledges
that the Bank has made a loan to the Borrower secured by a deed of trust on the
Property and an assignment of all leases and subleases affecting the Property,
including the Master Leases and the Lease. The Lessee acknowledges that the
Lease is subject to the Master Leases. The Lessee acknowledges that the Bank is
relying on this Certificate in connection with the loan.
5. Except as otherwise described in any attachment hereto, the Lease is in full
force and effect, the Lessee has accepted the Leased Premises and presently
occupies them, the Lessee is paying rent on a current basis, and the Lessee has
no set-offs, claims or defenses to the enforcement of the Lease.
6. Except as otherwise described in any attachment hereto, as of the date of
this Certificate, the Lessor is not in default under the Lease, and has not
committed any breach of the Lease, and no notice of default has been given to
the Lessee.
7. Except as otherwise described in any attachment hereto, as of the date of
this Certificate, the Lessor is not in default under the Lease, and has not
committed any breach of the Lease.
8. Except as otherwise described in the Lease or any attachment hereto, the
Lessee has not paid any rent in advance under the Lease except for rent for the
current month and a Security Deposit of $38,138. The Lessee has no claim against
the Lessor for any security deposit or prepaid rent except as provided in this
Section.
9. The Lessee acknowledges that, except as set forth in the Lease or as
otherwise described in any attachment hereto, it has no right or option to
extend the term of the Lease, to cancel or terminate the Lease, or to purchase
or otherwise acquire any interest in the Property.
10. The Lessee agrees that, except as described herein (interpreted to mean the
Agreement), or unless the Bank otherwise consents in writing, the Lessee will
not pay any rent more than thirty (30) days in advance of the date when due and
will not assign the Lease or sublease the Leased Premises.
11. The Lessee agrees that upon receipt by the Lessee of written request by the
Bank, the Lessee shall pay all rents and other amounts as they become due under
the Lease directly to the Bank or as the Bank may otherwise direct.
12. In the event that the Lessor interest in the Property is acquired by any
purchaser or transferee (including the Bank) at any foreclosure sale under the
Banks deed: of trust, or by conveyance in lieu of such foreclosure, the Lessee
shall remain obligated to such transferee under the Lease, and shall be deemed
to have attorned to such transferee under the terms of the Lease, so long as
Lessee is not in default under the Lease, Bank will recognize Lessee as a Tenant
and will not disturb Lessee's possession of the Premises. Such attornment shall
be effective without notice and without the execution of any further documents,
provided that the Lessee shall, upon written request of such transferee,
promptly confirm such attornment in writing and, if requested, shall enter into
a new lease on the same terms and conditions as those set forth in the Lease.
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit G
Page 1 of 5
<PAGE> 28
13. Upon any breach by the Lessor under the Lease, the Bank shall have the right
(but not the obligation) to cure such breach prior to the termination of the
Lease by the Lessee. The Lessee shall not declare a termination of the Lease as
the result of any such breach unless, within thirty (30) days after the Banks
receipt of notice of such breach from the Lessee, the Bank shall have failed to
cure such breach or to commence action to cure such breach.
14. Except to the extent actually received by the Bank, the Bank shall not be
liable for any obligation of the Lessor under the Lease, any claim, offset or
defense which the Lessee may have against the Lessor, or the return of any sums
which the Lessee may have paid to the Lessor as a security deposit, advanced
rent or otherwise. The Bank shall have no obligation to cure any breach or
default of the Lessor under the Lease. The Bank shall not be bound by any rent
or other amount paid under the Lease by the Lessee to the Lessor more than
thirty (30) days in advance of the date when due.
15. Except as otherwise described in any attachment hereto, during the term of
the Lease the Leased Premises have not been, are not being, and shall not be
used for the use, storage, release, generation, disposal, handling or
transportation of Hazardous Substances other than ordinary office and
maintenance supplies. "Hazardous Substance" means: a) any substance that is
toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise hazardous, and is or becomes regulated by any government
authority, department, commission, board, agency or instrumentality of the
United States, the State of California, or any political subdivision thereof; b)
any other substance, the presence of which requires investigation or remediation
under any federal, state or local statute, regulation, ordinance, order, action
or common law; and c) any additional substances or materials which at such time
are classified or considered to be hazardous or toxic under the Laws of
California or any other applicable Laws relating to the Property.
16. All notices required or permitted to be given pursuant to this Agreement
shall be in writing and shall be mailed or delivered to the appropriate address
set forth below:
IF TO THE BANK:
Bank of America National
Trust and Savings Association
450 Street
Mezzanine Level
San Diego, CA 92101
Attn: Ms. Karin S. Barnes
IT TO THE LESSEE:
PacketVideo Corporation
10350 Science Center Drive, Suite 210
San Diego, CA 92121
Attn: Jim Carol
The Lessee has executed this Certificate as December __, 1999, as San Diego,
California.
IF TO THE MASTER LESSOR:
Genesee Properties, Inc.
3550 General Atomics Court
P.O. Box 85608
San Diego, California 92186
Attn: Gary L. Jackson
IN WITNESS WHEREOF, the parties have executed this Agreement as of this ___ day
of ______________ 1999.
<TABLE>
<CAPTION>
MASTER LESSOR: SUBLESSOR: SUBLESSEE:
GENESEE PROPERTIES, GENERAL ATOMICS PACKETVIDEO
INC. CORPORATION
<S> <C> <C>
Signature:_____________ Signature:_____________ Signature:_____________
Gary L. Jackson John E. Jones Peter A. Price
President Sr. VP, Administration Chief Financial Officer
</TABLE>
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit G
Page 2 of 5
<PAGE> 29
ESTOPPEL CERTIFICATE AND ATTORNMENT
THIS EXHIBIT INCLUDES
PAGES I THROUGH 5
AND
ATTACHMENTS "A" & "B"
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit G
Page 3 of 5
<PAGE> 30
ATTACHMENT "A"
DESCRIPTION OF LEASE AND ALL SUPPLEMENTS,
MODIFICATIONS, AMENDMENTS AND EXTENSIONS
<TABLE>
<CAPTION>
NO. DOCUMENT ISSUE DATE
- --- -------- ----------
<S> <C> <C>
1. Sublease Agreement September 1, 1998
2. Amendment #1 to Sublease Agreement September 1, 1999
3. Amendment #2 to Sublease Agreement December 1, 1999
</TABLE>
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit G
Page 4 of 5
<PAGE> 31
ATTACHMENT "B"
EXCEPTIONS TO LESSEE ESTOPPEL CERTIFICATE
Initials: /s/ P.A.P.
/s/ R.H.D.
Exhibit G
Page 5 of 5
<PAGE> 1
EXHIBIT 10.14
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 230.406
Technology Development and License Agreement
By and Between
Intel Corporation
And
M4 Labs (dba as PacketVideo) Inc
Dated
21 May 1999
Page 1
<PAGE> 2
This agreement (hereinafter referred to as the or this "Agreement) is entered
this 21st day of May, 1999 (hereinafter referred to as the "Effective Date"), by
and between INTEL Corporation, a Delaware corporation having a place of business
at 5000 W. Chandler Blvd, Chandler, Arizona 85226 ("hereinafter referred to as
"INTEL"), and M4 Labs (dba as PacketVideo) Inc. (hereinafter referred to as
"PACKETVIDEO"). INTEL and PACKETVIDEO may be referred to herein in the singular
or plural as a Party or the Parties.
1. DEFINITIONS
1.1 "3G Wireless" means wireless the wireless network technology adopted by
the International Telecommunications Union (ITU) as its International
Mobile Telecommunications 2000 (IMT2000) standard and commonly known as
"3G."
1.2 "3G Wireless Terminal" means a portable device based on a real time
operating system kernel with embedded functionality that transmits
and/or receives data via a 3G Wireless network.
1.3 "Documentation" means manuals and other materials supplied to INTEL by
PACKETVIDEO, in any medium, relating to design, maintenance,
installation, operation, or training of the PACKETVIDEO 3G Products.
1.4 "Intel's Products" means all microprocessors manufactured by or for
Intel and sold by Intel through its distribution channels.
1.5 "Object Code" means computer-programming code in machine-readable and
machine-executable form.
1.6 "PACKETVIDEO 3G Development Tools" means the portion of the PACKETVIDEO
3G Products, including tools, libraries, sample code and other similar
development-related items which are necessary to incorporate and embed
the PACKETVIDEO 3G Run-Time Software in INTEL Products.
1.7 "PACKETVIDEO 3G Products" shall mean all of the PACKETVIDEO 3G Products
which are defined in Exhibit A, including without limitation the
PACKETVIDEO 3G Development Tools and PACKETVIDEO 3G Run-Time Software,"
and future products from PACKETVIDEO for use in 3G Wireless Terminals
[...***...] together with copies of any and all design or development
notes associated therewith.
1.8 "PACKETVIDEO 3G Run-Time Software" means the portion of the PACKETVIDEO
3G PRODUCTS which are necessary to deliver 3G Wireless functionality to
the user.
1.8 "Software" means computer-programming code [...***...].
1.10 [...***...].
1.11 "Updates and Enhancements" means all modifications, improvements, or
additions to PACKETVIDEO 3G Products that correct such product or
enhance such product's functionality, and new releases of such product
made available by PACKETVIDEO to at least two other third parties
[...***...] together with copies of any and all design or development
notes.
***Confidential Treatment Requested Page 2
<PAGE> 3
2. RESPONSIBILITIES OF THE PARTIES
2.1 PACKETVIDEO will optimize PACKETVIDEO 3G PRODUCTS for INTEL Products in
accordance with the Statement of Work set forth in Exhibit D
2.2 PACKETVIDEO will deliver to INTEL the PACKETVIDEO 3G Development Tools
and PACKETVIDEO 3G Run-Time Software, and all Updates and Enhancements
thereof in a condition readily useable by an individual reasonably
skilled in the technology, together with a Certificate of Originality in
the format set forth in Exhibit E for each PACKETVIDEO 3G Products,
including each Update and Enhancement thereof, delivered to INTEL.
Failure by PACKETVIDEO to deliver Certificates of Originality shall be
deemed for purposes of warranties set forth in Section 7.4 that such
PACKETVIDEO 3G Product is delivered free of any third-party software or
content. Intel may accept or reject the PACKETVIDEO 3G Products, but
will notify PACKETVIDEO of rejection of the PACKETVIDEO 3G Products,
Updates and Enhancements, or any portion thereof, and the reasons
therefore, within a reasonable time following receipt from PACKETVIDEO.
The PACKETVIDEO 3G Product may be deemed accepted by INTEL if
distributed by INTEL before written notice of rejection.
2.3 [...***...].
2.4 If PACKETVIDEO releases alpha or beta version of the PACKETVIDEO 3G
Products, or any Update and Enhancement thereof, it will deliver the
alpha or beta versions to INTEL within a reasonable time following
internal release, but in no event later than delivered by PACKETVIDEO to
its most favored customer.
2.5 PACKETVIDEO will use commercially reasonable efforts to improve
PACKETVIDEO 3G Products to match advances in computing technology in
accordance with INTEL's reasonable product plans. [...***...].
2.6 Without limiting the foregoing, PACKETVIDEO will support reasonable
customization and engineering support requests by INTEL and INTEL's
customers at least as well as it supports such requests from its other
customers. INTEL acknowledges that such support, which may include,
without limitation porting to additional real time operating systems,
supporting a particular I/O interface and/or modifications to the user
interface, will be provided on a fee-for-service ("NRE") basis. Prior to
undertaking such customization or engineering activity, PACKETVIDEO and
INTEL will agree in writing upon the terms under which such activity
will be conducted as an amendment to this Agreement. As a minimum,
PACKETVIDEO agrees that all Intellectual
***Confidential Treatment Requested Page 3
<PAGE> 4
property developed by PACKETVIDEO under contract and the medium of
expression thereof will, at INTEL's option and sole discretion, be owned
by INTEL or licensed to INTEL under terms no less restrictive than the
terms of this Agreement.
2.7 INTEL and PACKETVIDEO shall engage in the collaborative marketing
activities set forth in Exhibit B.
3. LICENSE GRANTS AND TERMS
3.1 PACKETVIDEO grants to INTEL a [...***...] license, [...***...] under
copyrights, trade secrets, patents or other intellectual property rights
in PACKETVIDEO 3G Products which PACKETVIDEO owns or has authority to
grant licenses of the scope set forth herein to use, copy, have copied,
create derivatives of, perform, display, translate the PACKETVIDEO 3G
Development Tools and all Updates and Enhancements thereof, for Intel
product development, internal and external training, and customer
demonstration purposes.
3.2 PACKETVIDEO grants to INTEL a [...***...] license, [...***...] under
copyrights, trade secrets, patents, or other intellectual property
rights in PACKETVIDEO 3G Products which PACKETVIDEO owns or has
authority to grant licenses of the scope set forth herein to use, make,
have made, sell, offer to sell, import, distribute or otherwise transfer
PACKETVIDEO 3G Run-Time Software, and all Updates and Enhancements
thereof, together with any derivative or modification thereof created by
INTEL pursuant to the license grant in Section 3.1 of this Agreement, in
Object Code format, directly or indirectly to customers, for with or as
part of Intel Products.
3.3 PACKETVIDEO grants to INTEL a [...***...] license, [...***...] in
accordance with Section 3.3 below, under copyrights for any works of
authorship embodied in the Documentation which PACKETVIDEO owns or has
authority to grant licenses of the scope set forth herein to copy, have
copied, create derivatives of, modify, distribute the Documentation and
copies and derivatives thereof, in whole or in part, by any means now
known or developed in the future, for with or as part of Intel Products.
3.4 [...***...].
3.5 PACKETVIDEO waives on its behalf and on behalf of its subcontractors,
vendors, and consultants any and all moral rights in the PACKETVIDEO 3G
Products and Documentation.
3.6 INTEL may sublicense its rights under Section 3.1, 3.2, , 3.3,
[...***...] above to contractors performing services on behalf INTEL or
to customers or other entities, subject to the following restrictions:
(a) Object Code sublicenses shall be granted in conjunction with the
sale or licensing of INTEL Products or licensed designs thereof.
[...***...].
***Confidential Treatment Requested Page 4
<PAGE> 5
[...***...].
3.7 [...***...].
3.8 PACKETVIDEO may place legitimate copyright notices in and on the
PACKETVIDEO 3G Products and on any Documentation (or such other place as
INTEL and PACKETVIDEO may agree in writing) delivered to INTEL pursuant
to this Agreement. INTEL may cause such copyright notice not to be
displayed on screen where, in its reasonable discretion, such removal is
necessary to facilitate sale of INTEL Products to a third party.
3.9 Notwithstanding any other provision hereof and without limiting the
obligations of contractors with respect to confidentiality under Section
3.6, either Parties access to trade secrets of the under this Agreement
shall not create any obligation on the part of INTEL to limit or
restrict the assignment of its employees or contractors. Nothing in this
Agreement shall be construed as preventing employees or contractors of
either Party or contractors who have had access to such trade secrets
from drawing upon or using any skills, knowledge, talent or experience
of a general nature acquired by them in the course of working with such
trade secrets. This Agreement does not preclude either Party from
evaluating, acquiring from third parties not a party to this Agreement,
or independently developing, marketing similar technologies or products,
or making and entering into similar arrangements with other companies.
3.10 PACKETVIDEO agrees to license to Intel any other PACKETVIDEO product
under commercially reasonable terms and conditions, provided such terms
and conditions, including price, are as favorable as those offered by
PACKETVIDEO to any third party at similar volumes, either individually
or as part of product quantity bundle.
3.11 Except as may be expressly set forth in this Agreement, neither Party
acquires any right, title and interest in intellectual property of the
other, express, implied, or by estoppel.
4. OWNERSHIP
4.1 Subject to the licenses granted to INTEL pursuant to this Agreement, and
except as set forth in Section 2.4 above, PACKETVIDEO or PACKETVIDEO's
suppliers shall have exclusive right, title, and interest in all
intellectual property, including, without limitation, patents,
copyrights, trade secrets and other types or forms of intellectual
property, in and to Software developed, authored, or created by
PACKETVIDEO or PACKETVIDEO's Suppliers.
4.2 INTEL or its suppliers shall have exclusive right, title, and interest
in all intellectual property, including, without limitation, patents,
copyrights, trade secrets and other types or forms of intellectual
property, in and to Software developed, authored, or created by INTEL or
its Suppliers.
4.3 Unless otherwise agreed in writing, the Parties shall jointly own,
without rights of accounting, any intellectual property developed with
the significant participation of both Parties, their contractors, and
employees. The Parties may, in their discretion, share equally in the
costs of prosecuting any patent on jointly owned intellectual property.
However, if either Party elects not to share in such costs, the other
Party may proceed with prosecution at its sole expense, provided that it
gives both Parties attribution as joint inventors and patent owners in
its patent application. Each Party agrees to give the other reasonable
assistance with patent prosecution and keep the other reasonably
informed as to the status of the prosecution efforts.
***Confidential Treatment Requested Page 5
<PAGE> 6
5. COMPENSATION
5.1 Intel will pay to PACKETVIDEO [...***...]. The Parties shall meet
periodically, not less than once each calendar year, during the term of
this Agreement to discuss the foregoing royalty in good faith and in
light of market conditions, product advancements, inflation or deflation
in the overall economy, etc. Upon mutual agreement, the Parties shall
amend this Agreement in writing to set forth the new royalty. In the
absence of an Agreement to so amend, the then-current royalty shall
continue in effect until the next such meeting of the Parties.
5.2 [...***...].
5.3 Notwithstanding anything in this Section 5 to the contrary, the first
[...***...] copies of PACKETVIDEO 3G Products actually sold, distributed
or otherwise transferred by INTEL pursuant to the license grant set
forth in Section 3.2 of this Agreement for revenue and all updates and
enhancements, alpha copies, beta copies, prototype units, customer
evaluation copies, and demonstration copies distributed, sold or
otherwise transferred by Intel are exempt from any royalty fees.
5.4 INTEL will make payments for royalties owed PACKETVIDEO under this
Agreement quarterly, within [...***...] calendar days following the
close of each calendar quarter.
5.5 [...***...].
6. MAINTENANCE AND SUPPORT OBLIGATION
6.1 At INTEL's written request, PACKETVIDEO will provide support to INTEL
for the PACKETVIDEO 3G Products and all Updates and Enhancements thereof
according to terms set forth in Exhibit C.
6.2 PACKETVIDEO will provide not less than one training session at
PACKETVIDEO's expense to INTEL personnel regarding use, installation,
maintenance, and support of the PACKETVIDEO 3G Products and all Updates
and Enhancements as requested by INTEL during the term of this
Agreement. Additional training will be subject to INTEL's payment to
PACKETVIDEO of PACKETVIDEO's standard training fees plus PACKETVIDEO's
reasonable incidental expenses.
7. WARRANTIES:
7.1 Each Party warrants and represents to the other that it has all
authority to enter into this Agreement and to perform the obligations
hereunder.
7.2 PACKETVIDEO warrants and represents that it has all right, title, and
interest and/or license rights in the PACKETVIDEO 3G Products necessary
to grant the licenses set forth herein and has not
***Confidential Treatment Requested Page 6
<PAGE> 7
taken any action or suffered any action to be taken with respect to the
PACKETVIDEO 3G Products which would restrict or affect the rights of
INTEL and its sublicensees hereunder.
7.3 [...***...]
7.4 PACKETVIDEO warrants and represents that the information contained in
any Certificate of Originality delivered by PACKETVIDEO in the form set
forth in Attachment D hereto is current, accurate, and complete as of
the Effective Date to the best of its information and belief.
Furthermore, PACKETVIDEO warrants and represents that it has used best
efforts to verify that the information set forth in Attachment D is
current, accurate, and complete as of the Effective Date.
7.5 PACKETVIDEO warrants and represents that any Software as delivered by
PACKETVIDEO to INTEL is free of any harmful code, defined for purposes
of this Agreement as any computer code, programming instruction, or set
of instructions which have been designed with the ability to damage,
interfere with, or otherwise adversely affect computer programs, data
files, or hardware, without the consent or intent of the computer user,
including without limitation, self-replicating and self-propagating
programming instructions commonly referred to as viruses and worms.
INTEL's remedy with respect to this Section 7.5 will be limited to the
warranty remedies set forth in Section 7.6.
7.6 PACKETVIDEO warrants that the PACKETVIDEO 3G Products as delivered by
PACKETVIDEO to INTEL and all Updates and Enhancements thereto will
substantially perform in accordance with applicable specifications for a
period of [...***...] after delivery by Intel of PACKETVIDEO 3G
Products, and Updates and Enhancements, to its customers . PACKETVIDEO
will, at its own expense, promptly and on a best efforts basis, correct
any conditions discovered in the PACKETVIDEO 3G Products that cause such
products not to perform in accordance with its Specifications ("Errors")
provided that INTEL reports the Errors to PACKETVIDEO in writing. If
PACKETVIDEO is unable to correct any Error after best efforts, INTEL may
at INTEL's option either (a) correct the Error and collect from
PACKETVIDEO its reasonable actual direct costs of doing so or (b) INTEL
may receive a refund from PACKETVIDEO; in each case the amount to be
paid to INTEL shall not exceed the amount paid or owing to PACKETVIDEO
hereunder for the actual number of units of such PACKETVIDEO Software
containing such Error.
7.7 PACKETVIDEO warrants that the PACKETVIDEO 3G Products will function
without error or interruption related to Date Data from more than one
century; all Date Data (whether received from users, systems,
applications or other sources) include an indication of century in each
instance; and all date output and results, in any form, shall include an
indication of century in each instance. As used herein, "Date Data"
means any data or input, whether generated within the Item or
communicated to it, which includes an indication of or reference to
date;
7.8 There will be no disruption in PACKETVIDEO's performance of this
Agreement as a result of or due to the date change from and between
December, 1999, and January, 2000, nor due to the year 2000 being a leap
year.
7.9 EXCEPT AS EXPRESSLY SET FORTH HEREIN, NEITHER PARTY MAKES ANY
WARRANTIES, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE PACKETVIDEO
PRODUCTS, OR TO UPDATES AND ENHANCEMENTS, OR TO ANY OTHER SOFTWARE OR
INFORMATION, OTHER THAN THOSE EXPRESSLY SET FORTH IN THIS SECTION 7, AND
EACH PARTY EXPRESSLY DISCLAIMS ANY SUCH WARRANTIES, INCLUDING BUT NOT
LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
***Confidential Treatment Requested Page 7
<PAGE> 8
7.8 Nothing contained in this Section 7 shall diminish PACKETVIDEO's
obligations of support set forth elsewhere herein.
8. INDEMNIFICATION
8.1 PACKETVIDEO shall defend, indemnify INTEL and hold INTEL harmless from
and against any and all loss, cost, liability and expense (including
attorney's fees) arising in any way from any claim made or threatened
against INTEL relating to the PACKETVIDEO 3G Products. Licensee's duties
under this Section extend to any matters arising out of the alleged
infringement by the PACKETVIDEO 3G Products, [...***...].
8.2 INTEL agrees to promptly notify PACKETVIDEO of any such claim and will
provide information, assistance, and cooperation in defending the suit
or proceeding (at PACKETVIDEO's expense). INTEL agrees to allow
PACKETVIDEO the opportunity to control the defense of any suit or
proceeding provided PACKETVIDEO permits INTEL to participate in the
defense or settlement of the suit or proceeding arising in any way from
any claim made or threatened against INTEL relating to the PACKETVIDEO
3G Products. PACKETVIDEO will have no responsibility to indemnify INTEL
pursuant to Section 8.1 above for any settlements or judgements entered
into or agreed to by INTEL without PACKETVIDEO's participation and prior
written consent.
8.3 If the PACKETVIDEO 3G Products, or any portion of the PACKETVIDEO 3G
Products, is found to infringe the rights of any third party and its use
is enjoined, PACKETVIDEO will, [...***...] either (a) procure for INTEL
a license or right to continue to use the PACKETVIDEO 3G Products or the
applicable portion of the PACKETVIDEO 3G Products, (b) replace the
PACKETVIDEO 3G Products or applicable portion with a non-infringing
PACKETVIDEO 3G Products or portion, or (c) modify the PACKETVIDEO 3G
Products or infringing portion to become non-infringing.
9. TERM AND TERMINATION
9.1 Term
This Agreement will be effective for an initial term of [...***...]
unless either Party provides written notice of non-renewal not less than
one hundred and eighty (180) calendar days before expiration of the
initial term or any subsequent renewal term.
9.2 Termination:
(a) INTEL may terminate this contract for its convenience at any
time upon [...***...] calendar days written notice.
(b) Either Party shall have the right to terminate this Agreement
should the other Party materially default in the performance of
any of its obligations [...***...].
9.3 Effect of Termination
(a) Except as expressly set forth below, Sections 3.8, 3.11, 4, 5,
7, 8, 9, 10, 11 of this Agreement will survive expiration or
earlier termination of this Agreement, including termination for
material breach by PACKETVIDEO in accordance with Section 9.2(b)
above.
***Confidential Treatment Requested Page 8
<PAGE> 9
(b) In the event of termination of this Agreement by PACKETVIDEO for
material breach by INTEL in accordance with Section 9.2(b)
above, and except as set forth herein, PACKETVIDEO may revoke
the license grants set forth in Section 3 above. Notwithstanding
anything in this Section 9.3(c) to the contrary, INTEL may
continue to distribute the PACKETVIDEO 3G Products in object
code format until its inventory of PACKETVIDEO 3G Products
reproduced on diskette or preloaded on INTEL Products is
depleted. INTEL may continue to use, copy and create derivatives
of the PACKETVIDEO 3G Development Tools [...***...] and may
compile and distribute derivatives of the PACKETVIDEO 3G
Products in object code format as necessary to correct bugs in
PACKETVIDEO 3G Products distributed to customers. Revocation
shall not affect the rights of INTEL customers under valid
sublicenses executed prior to termination of this Agreement.
10. CONFIDENTIALITY AND NON-DISCLOSURE
10.1 The Parties hereto shall keep the terms of this Agreement confidential
and shall not now or hereafter divulge these terms to any third party
except:
(a) with the prior written consent of the other Party; or
(b) to any governmental body having jurisdiction to call therefor;
or
(c) subject to (d) below, as otherwise may be required by law or
legal process, including to legal and financial advisors in
their capacity of advising a party in such matters; or
(d) during the course of litigation so long as the disclosure of
such terms and conditions are restricted in the same manner as
is the confidential information of other litigating parties and
so long as (a) the restrictions are embodied in a court-entered
Protective Order and (b) the disclosing Party informs the other
Party in writing in advance of the disclosure; or
(e) in confidence to legal counsel, accountants, banks and financing
sources and their advisors solely in connection with complying
with financial transactions.
10.2 It may become necessary during the course of this Agreement for one
Party to disclose to the other information which the disclosing Party
considers confidential ("Confidential Information"). Disclosure of such
Confidential Information shall be governed by the terms of a separate
Corporate Non-Disclosure Agreement or Restricted Use Non-Disclosure
Agreement(s) to be executed by the Parties. PACKETVIDEO acknowledges
that INTEL may from time to time request execution of a more restrictive
non-disclosure agreement with respect to selected INTEL confidential
information.
11 LIMITATION OF LIABILITY
EACH PARTY'S SOLE LIABILITY HEREUNDER SHALL BE LIMITED TO DIRECT,
OBJECTIVELY MEASURABLE DAMAGES. IN NO EVENT WILL EITHER PARTY ASSUME ANY
LIABILITY FOR ANY INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES
INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS, BUSINESS INTERRUPTIONS,
OR LOSS OF USE, IRRESPECTIVE OF WHETHER SUCH PARTY HAS ADVANCE NOTICE OF
THE POSSIBILITY OF ANY SUCH DAMAGES. [...***...]. THE PARTIES
ACKNOWLEDGE THAT THE LIMITATIONS ON POTENTIAL LIABILITIES SET FORTH
ABOVE WERE ESSENTIAL ELEMENTS IN SETTING CONSIDERATION UNDER THIS
AGREEMENT.
***Confidential Treatment Requested Page 9
<PAGE> 10
12. GENERAL PROVISIONS
12.1 INTEL and PACKETVIDEO are independent contractors. Nothing in this
Agreement will be construed to make INTEL and PACKETVIDEO partners or
joint venturers, or to make INTEL and PACKETVIDEO liable for the
obligations, acts, or activities of the other.
12.2 This Agreement does not preclude either Party from evaluating or
marketing similar products, nor will it be construed as an obligation on
either Party's part to market or distribute the PACKETVIDEO 3G Products.
12.3 Any change, modification or waiver to this Agreement must be in writing
and signed by an authorized representative of each Party.
12.4 All notices and requests required or made under this Agreement must be
in writing and will be deemed given if personally delivered or if mailed
postage prepaid, certified or registered mail to the addresses listed on
the cover page to this Agreement or to such other address as may be
noticed as follows:
INTEL: PACKETVIDEO:
Intel Corporation PacketVideo Corporation
5000 West Chandler Blvd. 10350 Science Center Drive, Suite 140
Chandler, AZ 85226 San Diego, CA 92121
Attn.: Contract
Management Attn: Chief Executive Officer
M/S: CH6-404
With copies to:
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95052-8119
Attn. General Counsel
12.5 Neither Party may assign this Agreement or any portion of this Agreement
to any other Party without the other's prior written consent.
12.6 In the event of a conflict between the terms of this Agreement and the
following Exhibits, which are incorporated herein by reference, the
terms and conditions of this Agreement will prevail:
Exhibit "A" - PACKETVIDEO 3G Products Descriptions and
Specifications
Exhibit "B" - Marketing Collaboration
Exhibit "C" - Maintenance and Support Obligations
Exhibit "D" - Statement of Work
Exhibit "E" - Certificate of Originality
[...***...]
Exhibit "G" - Excluded Technology
12.7 Regardless of which Party may have drafted this Agreement, no rule of
strict construction shall be applied against either Party. If any
provision of this Agreement is determined by a court to be
unenforceable, we will deem the provision to be modified to the extent
necessary to allow it to be enforced to the extent permitted by law, or
if it cannot be modified, the provision will be severed and deleted from
this Agreement, and the remainder of the Agreement will continue in
effect.
***Confidential Treatment Requested Page 10
<PAGE> 11
11.8 The laws of the State of Delaware, excluding its choice of law
provisions shall govern any claim by either Party arising under this
Agreement.
11.9 This Agreement is intended to be the entire agreement between us with
respect to matters contained herein, and prior or contemporaneous
agreements and negotiations with respect to those matters are superseded
by this Agreement. Without limiting the foregoing, this Agreement will
prevail over the terms and conditions of any shrinkwrap license which
may be delivered by PACKETVIDEO with the PACKETVIDEO 3G Products, unless
Intel, in its sole discretion, elect to take advantage of more favorable
terms in such shrinkwrap license. No waiver of any breach or default
shall constitute a waiver of any subsequent breach or default.
AGREED:
INTEL CORPORATION M4 LABS (DBA PACKETVIDEO) INC.
/s/ Hans Geyer /s/ James Carol
- --------------------------------- ---------------------------------
Signature Signature
Hans Geyer James Carol
- --------------------------------- ---------------------------------
Printed Name Printed Name
V.P. Intel CEO
- --------------------------------- ---------------------------------
Title Title
6/30/99 5/21/99
- --------------------------------- ---------------------------------
Date Date
Page 11
<PAGE> 12
EXHIBIT "A"
PACKETVIDEO 3G PRODUCTS DESCRIPTION AND SPECIFICATIONS
SUMMARY OF PACKETVIDEO 3G PRODUCTS: DESCRIPTION AND SPECIFICATIONS
1. [...***...].
NOTE: In addition to the foregoing descriptions and specifications,
PACKETVIDEO specification sheets in effect at the time of this
Agreement or thereafter modified for the PACKETVIDEO 3G Products
are hereby incorporated into this Exhibit A by reference.
For more detail on product specifics pursuant to this agreement, please refer to
Exhibit D.
***Confidential Treatment Requested Page 12
<PAGE> 13
EXHIBIT "B"
MARKETING COLLABORATION
MARKETING COLLABORATION SUMMARY
[...***...].
***Confidential Treatment Requested. Page 13
<PAGE> 14
[...***...].
***Confidential Treatment Requested Page 14
<PAGE> 15
[...***...].
***Confidential Treatment Requested Page 15
<PAGE> 16
[...***...].
***Confidential Treatment Requested Page 16
<PAGE> 17
EXHIBIT "C"
MAINTENANCE AND SUPPORT OBLIGATIONS
1. Upon receiving a problem report from INTEL and unless the Parties otherwise
agree in writing, PACKETVIDEO shall respond and correct the problem in
accordance with the following table:
<TABLE>
<CAPTION>
WRITTEN PATCH, WORK AROUND, FORMAL FIX,
ACKNOWLEDGMENT OF TEMPORARY FIX, BUG UPDATE FIX,
PROBLEM REPORT FIX, OR UPDATE UPGRADE, OR
PRIORITY DESCRIPTION DELIVERED TO INTEL RELEASE ENHANCEMENT
- -------- ----------- ------------------ ------- -----------
<S> <C> <C> <C> <C>
Fatal Condition which is [...***...] Constant effort by Within
not an isolated highly qualified [...***...] days
incident affecting PACKETVIDEO
a single personnel until
workstation, and relief is provided,
precludes all but not more than
useful work from [...***...] hours.
being done
Severe Impact Condition which is [...***...] Constant effort by Within
not an isolated highly qualified [...***...] days
incident affecting PACKETVIDEO
a single personnel until
workstation, and relief is provided,
precludes one or but not more than
more major [...***...] hours.
functions from
being performed
Degradation 1) Condition which [...***...] [...***...] days Within
disables one or [...***...] days
more non-essential
functions
2) Condition which
precludes all
useful work from
being done on a
single or limited
number of
workstations
Minimal Impact Any other condition [...***...] [...***...] days Within
which requires [...***...] days
correction
</TABLE>
2. INTEL Assistance: To assist PACKETVIDEO in providing the most effective
responsiveness to trouble reporting and solution, INTEL will provide access
(which at INTEL's option, may be on-site at INTEL) to at least two (2)
systems in which the problems can be reproduced (if PACKETVIDEO does not have
such systems available), and access to INTEL's hardware and software
debugging resources, if PACKETVIDEO so requests.
3. Bug Fixes. If PACKETVIDEO discovers any bugs in the technology delivered to
INTEL hereunder, PACKETVIDEO shall report them to INTEL. If PACKETVIDEO
creates a bug fix or maintenance release of the related technology,
PACKETVIDEO shall make the bug fix available to INTEL no later than it is
made available to any third party.
***Confidential Treatment Requested Page 17
<PAGE> 18
EXHIBIT D
STATEMENT OF WORK
PACKETVIDEO will optimize certain products to INTEL Products and Silicon as
described below. Company will deliver the various optimized products ("Company
Deliverables") to INTEL for acceptance testing. INTEL will acceptance test the
Company Deliverables as further detailed below and provide Company with
notification when the delivered products have passed the acceptance testing.
1. PACKETVIDEO 3G PRODUCTS TO BE OPTIMIZED TO THE INTEL STRONGARM AND DSP 3G
ARCHITECTURE PLATFORMS.
PACKETVIDEO will produce embedded multimedia software for the INTEL StrongARM
and DSP 3G architectures. The functions and standards supported by this
embedded software may change depending upon mass marketing input. In
order to ensure interoperability between 3G multimedia terminals, the
IMT2000 committee has specified a mandatory protocol stack that must be
supported. This protocol stack is a variant of the ITU-T standard H.324,
Annex C (generally referred to as H.324/Mobile). The components of this
mandatory configuration are outlined below in Table 1.
PROTOCOL COMPONENT STANDARD SPECIFIED
------------------ ------------------
Overall System Signaling H.324 Annex C
Speech Codec GSM-AVR
Video Codec H.263 Baseline, (MPEG-4 Preferred)
Multiplex H.223 Annex B
Control H.245 Version 6
TABLE 1 IMT2000 MINIMUM MANDATORY MULTIMEDIA PROTOCOL STACK
Again, the configuration outlined in Table 1 allows interoperability between
different networks and terminals. The preferred configuration, as
specified by the 3G Partners Project (3GPP) consortium, calls for MPEG-4
as the video codec. Furthermore, NTT DoCoMo and the Association of Radio
Industries and Businesses, ARIB, have specified MPEG-4 as Japans
preferred 3G video standard. The embedded software provided by
PACKETVIDEO to INTEL will be compliant with the H.324 Annex C multimedia
standard, specified in Table 1. It will also support MPEG-4 as the video
codec. The actually video codec used in a particular multimedia 3G call
will be negotiated during the call set up. The H.324 Annex C system
diagram is shown below in Figure 1.
Page 18
<PAGE> 19
[FLOW CHART]
FIGURE 1 H.324 ANNEX C SYSTEM DIAGRAM
In this figure, the MPEG-4 video codec implementation will include the ability
to support H.263 Baseline. Support for H.263 Baseline is a feature of
MPEG-4. The embedded software developed by PACKETVIDEO will include
error resilience technology necessary for a "best in class" wireless
multimedia solution. This codec will also include video compression
technology necessary for efficient bandwidth usage of a communications
channel employing Code Division Multiple Access (CDMA) access
technology.
Specifically, the following tasks will be performed in the course of
implementing the MPEG-4 video codec:
-[...***...].
PACKETVIDEO will provide an implementation of the ITU-T standard H.223/M that is
optimized for a 3G cellular system. [...***...] The specific tasks to
be completed in developing this implementation of H.223/M include:
-[...***...].
***Confidential Treatment Requested Page 19
<PAGE> 20
[...***...]
The embedded software developed by PACKETVIDEO will include the necessary
software interfaces to support both additional user and network
interface development.
PACKETVIDEO will also develop and optimize for the INTEL StrongARM and DSP
architectures a 3G handheld videophone / multimedia PDA reference design.
A block diagram of this reference device is provided in Figure 2.
***Confidential Treatment Requested Page 20
<PAGE> 21
[...***...].
***Confidential Treatment Requested Page 21
<PAGE> 22
[...***...].
***Confidential Treatment Requested Page 22
<PAGE> 23
[...***...].
***Confidential Treatment Requested Page 23
<PAGE> 24
[...***...].
Progress Review Meetings
Progress towards these milestones will be measured and monitored through a
series of meetings attended by representatives of both INTEL and PACKETVIDEO.
These meetings will take place on the second Monday of every month. The assigned
INTEL Technical Representative and the CTO of PACKETVIDEO will agree upon an
agenda four days prior to the next scheduled meeting. The INTEL Technical
Representative and the CTO of PACKETVIDEO will distribute this agenda to
appropriate persons. The majority of these meetings will be facilitated by phone
conferences, while some regular number (TBD) will take place in person at an
agreed upon location.
These regularly scheduled meetings may be pre-empted by additional meetings that
may be required to accommodate design reviews, technology reviews, etc.
4. TECHNICAL SUPPORT BY INTEL TO PACKETVIDEO
The following items will be provided to PACKETVIDEO as technical support
during the development of StrongARM and DSP 3G Platforms:
[...***...].
***Confidential Treatment Requested Page 24
<PAGE> 25
EXHIBIT "E"
CERTIFICATE OF ORIGINALITY
[TO BE COMPLETED BY PACKETVIDEO FOR EACH PACKETVIDEO
3G PRODUCTS BEFORE EXECUTION]
This questionnaire must be completed for the PACKETVIDEO 3G Products and
Documentation for INTEL.
One questionnaire can cover one complete product, even if that product includes
multiple modules. However, a separate questionnaire must be completed for the
code and another for its related documentation (if any).
Please do not leave any questions blank. Write "not applicable" or "N/A" if a
question is not relevant to the furnished software material.
1. Name of the software material (provide complete identification,
including version, release and modification numbers for programs and
documentation):
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
2. Was the software material or any portion thereof written by any party
other than PACKETVIDEO, or PACKETVIDEO's employees working within their
job assignment?
Yes _______ No _______
If yes, provide the following information:
(a) Indicate if the whole software material or only a portion thereof
was written by such party, and identify such portion:
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
(b) Specify for each involved party:
(i) Name:
-------------------------------------------------
(ii) Company:
-------------------------------------------------
(iii) Address:
-------------------------------------------------
(iv) If the party is a company, how did it acquire title to the
software material (e.g., software material was written by
company's employees as part of their job assignment)?
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
(v) If the party is an individual, did s/he create the
software material while employed by or under contractual
relationship with another party?
Page 25
<PAGE> 26
Yes ______ No ______
If Yes, provide name and address of the other party and
explain the nature of the obligations:
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
(c) How did PACKETVIDEO acquire title to the software material
written by the other party?
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
3. Was the software material or any portion thereof derived from any third
party's pre-existing materials?
Yes _______ No _______
If yes, provide the following information for each of the pre-existing
materials:
(a) Name of the materials:
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
(b) Owner:
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
(c) How did PACKETVIDEO get the right to use the pre-existing
material(s)?
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
4. Identify below, or in an attachment, any other circumstances which might
affect INTEL's ability to reproduce and market this software product,
including:
(a) Confidentiality or trade secrecy of pre-existing materials:
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
(b) Known or possible royalty obligations to others:
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
(c) Pre-existing materials developed for another party or customer
(including government) where PACKETVIDEO may not have retained
full rights to the material:
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
Page 26
<PAGE> 27
(d) Materials acquired from a person or company possibly not having
title to them:
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
(e) Other circumstances:
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
5. Copies of any approved copyright registration forms or filings have been
attached hereto.
COMPANY
- ------------------------------------
Signature
- ------------------------------------
Printed Name
- ------------------------------------
Title
- ------------------------------------
Date
Page 27
<PAGE> 28
EXHIBIT F
[...***...].
***Confidential Treatment Requested Page 28
<PAGE> 29
[...***...].
***Confidential Treatment Requested Page 29
<PAGE> 30
[...***...].
***Confidential Treatment Requested Page 30
<PAGE> 31
[...***...].
***Confidential Treatment Requested Page 31
<PAGE> 32
[...***...].
***Confidential Treatment Requested Page 32
<PAGE> 33
[...***...].
***Confidential Treatment Requested Page 33
<PAGE> 34
[...***...].
***Confidential Treatment Requested Page 34
<PAGE> 35
[...***...].
***Confidential Treatment Requested Page 35
<PAGE> 36
[...***...].
***Confidential Treatment Requested Page 36
<PAGE> 37
EXHIBIT "G"
EXCEPTIONS TO SECTION 8 INDEMNITY
All communication standards have a normative (required) part and a non-normative
(optional) part. The PacketVideo 3G Products include many value-added
non-normative proprietary elements for which PacketVideo provides the standard
intellectual property indemnification set forth in the Agreement to which this
Exhibit F is attached, including:
[...***...]
In performing these value-added non-normative functions, the PacketVideo 3G
Products need to represent the final output data in a standard form (i.e.
syntax). Although the core functionality contained in the PacketVideo 3G
Products is not itself standards-specific, the PacketVideo 3G Products must
comply with the normative portions of the standards for interoperability
purposes. [...***...] As a result, PacketVideo cannot provide indemnification
for the normative portions of the following standards included in the umbrella
"3G" standard, as follows:
1. [...***...].
2. [...***...].
3. [...***...].
***Confidential Treatment Requested. Page 37
<PAGE> 38
[...***...]
4. [...***...]
5. [...***...]
***Confidential Treatment Request Page 38
<PAGE> 1
EXHIBIT 10.15
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 230.406
PACKETVIDEO-SANYO AGREEMENT
THIS PACKETVIDEO-SANYO AGREEMENT ("Agreement") is made and
entered into as of February 24, 2000 ("Effective Date") by and between
PACKETVIDEO CORPORATION, a Delaware Corporation with its principal offices at
10350 Science Center Drive, Suite 140, San Diego, CA 92121 ("PacketVideo"), and
SANYO NORTH AMERICA CORPORATION, a corporation with a division known as SANYO
MULTIMEDIA CENTER USA having offices at 2010 N. First Street, Suite 500, San
Jose, CA 95131 ("Sanyo").
WHEREAS, PacketVideo has developed certain software ("Software")
and know-how related to the optimum hardware and software design for wireless
multimedia communication terminals;
WHEREAS, Sanyo wishes to engage PacketVideo to develop
standards-based wireless video-display devices ("Devices"), as set forth in this
Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and
the covenants contained herein, the parties hereby agree as follows:
1. ENGINEERING SERVICES.
1.1 GENERAL. In order to accelerate Sanyo's development and commercial
shipment of the Device, PacketVideo will use commercially reasonable efforts to
deliver to Sanyo the specific engineering deliverable(s) ("Deliverable(s)") set
forth on Exhibit A according to the schedule set forth therein. Exhibit A may be
amended or modified by supplementary addendums agreed to by both parties hereto
and attached hereto. PacketVideo will provide such resources and utilize such
employees and/or consultants as it deems necessary to carry out such work. Sanyo
agrees to provide PacketVideo with such information, materials, and technology
owned or controlled by Sanyo as PacketVideo reasonably requires and as Sanyo
concurs, is required, in order to create and deliver the Deliverable(s). The
manner and means used by PacketVideo to perform is obligations under this
Agreement are in the sole discretion and control of PacketVideo. All work will
be performed at PacketVideo's facilities except as may be reasonably required by
the nature of the work.
1.2 ACCEPTANCE OF DELIVERABLES BY SANYO. Sanyo will test each
Deliverable [...***...] within [...***...] days of receipt ("Testing Period") to
verify that each Deliverable conforms to the mutually agreed upon requirements.
("Requirements") in all material respects. If Sanyo notifies PacketVideo in
writing within [...***...] days after completion of the Testing Period (the
"Notice Period") that the Deliverables conform to the Requirements in all
material respects, or if Sanyo fails to respond in writing within the Notice
Period, Sanyo will be deemed to have accepted the Deliverables. If, however,
Sanyo reasonably determines that the Deliverables do not conform to the
Requirements in all material respects, Sanyo will notify PacketVideo in writing,
and PacketVideo will have [...***...] days (the "Correction Period") in which to
correct the Deliverables and to resubmit the Deliverables to Sanyo for
additional testing. If, upon conclusion of such additional testing, Sanyo again
reasonably determines that the Deliverables do not conform to the Requirements
in all material respects, then the parties will meet and negotiate in good faith
to extend the Correction Period in order to allow PacketVideo to correct and
resubmit the Deliverables. If the parties are unable to reach an agreement
within [...***...] days regarding such an extension of the Correction Period,
then Sanyo will have the right to terminate this Agreement in accordance with
the terms of Section 6. Sanyo agrees not to use any Deliverable other than in a
testing environment prior to acceptance of such Deliverable. The day on which
Sanyo accepts (or is deemed to have accepted) the Deliverables shall be referred
to as the "Deliverable Acceptance Date." Notwithstanding any other provision of
this Agreement, and so long as PacketVideo makes a good faith effort to timely
provide the Deliverables in accordance with the Requirements, Sanyo agrees that
this Section 1.2 represents Sanyo's sole and exclusive remedy with respect to
failure of the Deliverables to conform to the Requirements.
2. PACKETVIDEO LICENSES.
2.1 DEVELOPMENT. Subject to the terms and conditions of this Agreement,
PacketVideo hereby grants Sanyo a nonexclusive, royalty-free, worldwide license
(with the right to grant sublicenses approved in advance by PacketVideo) under
all PacketVideo IP Rights to (1) use the Software at Sanyo's facilities in the
Territory for development, testing, demonstration and training of its personnel
in furtherance of the Agreement and (2) use and modify the Deliverables
(including any software in the Deliverables other than the Software) at Sanyo's
facilities in the Territory for development, testing, demonstration and training
of its personnel in furtherance of the Agreement. With respect to any Sanyo IP
Rights embodied in the Deliverables, and subject to the terms and conditions of
this Agreement, Sanyo hereby grants to PacketVideo a nonexclusive royalty-free
license to use and publicly display by all means now known or later developed,
such rights in the Territory in connection with the
*** Confidential Treatment Requested
SANYO AGREEMENT
<PAGE> 2
Deliverables. For purposes of this Agreement, "Territory" shall mean those
countries that are signatories to the Berne Convention on the Protection of
Literary and Artistic Works and/or the Universal Copyright Convention, along
with additional countries specifically authorized in writing by PacketVideo
2.2 DISTRIBUTION. Subject to Sanyo's acceptance of the Deliverables and
payment of the fees set forth herein, effective as of the [...***...]
Deliverable Acceptance Date, during the term of this Agreement PacketVideo
hereby grants Sanyo a nonexclusive [...***...] license, with the right to grant
sublicenses approved in advance by PacketVideo, to make, have made, use, market,
sell, offer for sale, import, export, reproduce and distribute through
distribution channels selected by Sanyo the Deliverables (including any software
in the Deliverables other than the Software and any modifications thereof) and
the Software in object code format in the Territory solely as an embedded
component of Devices.
2.3 DOCUMENTATION AND CONTRACT MANUFACTURE. Upon completion of the final
documentation ("Documentation") for the Device, and subject to the foregoing
conditions, PacketVideo grants to Sanyo a nonexclusive, license to reproduce the
Documentation in the Territory solely: (i) to distribute the End User portions
of the Documentation with the Device, (ii) for use by Sanyo and its resellers in
the in connection with the support of the Device and (iii) to make, use, test,
develop or have the Device(s) made. Except as expressly authorized in writing by
PacketVideo, Sanyo may sublicense its right to distribute the Software and
Documentation only to third party contract manufacturers of the Device who agree
in writing to be bound by the terms of this Agreement, including, but not
limited to, confidentiality restrictions substantially similar to those
contained herein.
2.4 TRADEMARK. PacketVideo hereby grants to Sanyo a non-exclusive,
non-transferable royalty-free license to use the applicable PacketVideo
trademarks and logos ("Trademarks") in the Territory in connection with the
marketing and promotion of the Devices. Sanyo agrees to cooperate with
PacketVideo in facilitating PacketVideo's monitoring and control of the nature
and quality of the Device(s), and to supply PacketVideo with specimens of use of
the Trademarks upon request. Sanyo understands and agrees that the use of any
Trademark in connection with this Agreement shall not create any right, title or
interest in or to the use of the Trademark and that all such use and goodwill
associated with the Trademark will inure to the benefit of PacketVideo. Sanyo
agrees not to register or attempt to register any Trademarks.
2.5 RESTRICTIONS. Except as necessary in order to carry out the
development activities hereunder, Sanyo shall not transmit or distribute (nor
shall it sublicense others to transmit or distribute) the Software (or any
portion thereof) via the Internet or any other dial-up, remote access, or
on-line service unless specifically authorized in writing by PacketVideo. Sanyo
agrees not to remove or obliterate any copyright, trademark or proprietary
rights notices of PacketVideo or its suppliers from the Software or
Documentation and shall reproduce all such notices on all authorized copies of
the Software or Documentation. Sanyo shall not modify (except for sample files
and other software in source code format included as part of the standard
PacketVideo developer's toolkit), translate, disassemble, decompile, reverse
engineer or cause or allow discovery of the source code of the Software in any
way. In addition, and along with any Sanyo copyright notice provided on the
Device, Sanyo shall include a copyright notice in a start-up or "About" screen
of the Device (or equivalent) indicating that the Software is a product of
PacketVideo Corporation.
3. ADDITIONAL COMMERCIAL TERMS.
3.1 PAYMENT. [...***...]
3.2 TAXES. The amounts payable to PacketVideo set forth on Exhibit A are
exclusive of any sales, or use or other taxes or governmental charges. Sanyo
shall be responsible for payment of all such taxes or charges except for any
taxes based solely on PacketVideo's net income. If Sanyo is required to pay any
taxes based on this Section 3.2, Sanyo shall pay such taxes with no reduction or
offset in the amounts payable to PacketVideo hereunder except for taxes based
solely on PacketVideo's net income.
*** Confidential Treatment Requested
SANYO AGREEMENT
2.
<PAGE> 3
3.3 MOST FAVORED LICENSEE PRICING. In the event that PacketVideo offers
software substantially similar to the Software to any other customer at prices
lower than those charged to Sanyo, PacketVideo shall notify Sanyo in writing of
such prices, and extend to Sanyo such prices retroactively effective from the
date of offer thereof to such other customer. Notwithstanding the foregoing, in
the event that such other customer's more favorable prices result from different
terms (including, without limitation, product features, shipment volumes,
duration of contract, support and maintenance terms and co-marketing
obligations), Sanyo agrees that Sanyo shall, upon notice and the provision of
reasonable detail by PacketVideo, agree to amend this Agreement to reflect terms
substantially similar to such different terms prior to, and as a condition of,
receiving such prices. [...***...]
3.4 SOFTWARE ORDERS, RECORDS AND REPORTS. Sanyo shall keep complete and
accurate records relating to its commercial use and distribution of the Software
in accordance with generally accepted accounting principles and standard
business practices in existence at Sanyo. Within thirty (30) days after each
calendar quarter, Sanyo shall provide PacketVideo with a written sales report in
a form agreed to by the parties. To assure compliance with the payment and
reporting requirements of this Agreement, PacketVideo's independent auditors
and/or accountants may inspect Sanyo's applicable records from time to time, but
no more frequently than once per year. In the event any inspection of Sanyo's
records indicates an underpayment of an amount equal to or greater than five
percent (5%) of any amounts due hereunder, Sanyo shall promptly reimburse
PacketVideo for all reasonable expenses of such auditors and/or accountants
associated with such inspection along with the deficient amounts; otherwise, all
expenses of PacketVideo and such auditors and/or accountants associated with any
such inspection shall be borne exclusively by PacketVideo. PacketVideo agrees to
maintain all information obtained from any such inspection in strict confidence
and not to use it for any purpose other than to verify the amounts due
hereunder.
4. INTELLECTUAL PROPERTY OWNERSHIP, RIGHTS AND RESTRICTIONS.
4.1 DEFINITION. As used herein, the term "IP Rights" means recognized
protectable intellectual property including: patents and applications,
copyrights, trademarks, trade secrets, mask works, industrial design rights,
know how, methodologies, and any and all other legal rights protecting
intangible proprietary information. Examples of inventions, innovations, and
developments that may contain protectable IP Rights include: formulas,
algorithms, methods, processes, databases, computer networks and their parts,
computer languages, scripts, computer programs and their documentation, encoding
techniques, articles, writings, works of authorship, and improvements.
4.2 OWNERSHIP AND TITLE.
(a) IP RIGHTS. All IP Rights that are owned or controlled by a
party at the commencement of this Agreement shall remain under the ownership or
control of such party throughout the term of this Agreement and thereafter.
PacketVideo shall retain ownership of the Software and all PacketVideo IP Rights
embodied or contained in the Deliverables. Sanyo shall retain ownership of all
Sanyo IP Rights, if any, embodied in the Deliverables. Any new specifically,
identifiable inventions (including any IP Rights therein) within the scope of
the Deliverables that are invented as a result of the contribution of both
parties during the term of this Agreement shall be jointly owned by the parties
and each party shall have the unrestricted right to use and otherwise exploit
such technology without a duty to account to the other party. All rights not
expressly granted hereunder are reserved by the parties.
(b) DELIVERABLES. PacketVideo shall transfer title and ownership
to Sanyo of the physical embodiment of the Deliverables (except for any Software
and IP Rights contained therein) as of the applicable Deliverable Acceptance
Date.
4.3 INDEMNIFICATION. Each party represents and warrants that it has the
ability to enter into this Agreement. Each party (the "Indemnifying Party")
agrees to indemnify, defend and hold the other party, its affiliates, successors
and assigns (the "Indemnified Party") harmless from all settlements, costs
(including reasonable attorneys fees) and direct damages awarded to a third
party arising out of a claim that any software or materials provided by the
Indemnifying Party hereunder infringes or misappropriates any intellectual
property right of any third party under the law of any country in the Territory;
provided, however, that neither party shall be responsible for the normative
portions of the 3G standard that are required for interoperability purposes
(e.g. ISO MPEG-4, GSM-AMR, H.223 Annex B, H.245 Version 6. etc). Such obligation
is subject to the following conditions (i) the Indemnified Party shall notify
the Indemnifying Party in writing within thirty (30) days of the date it first
becomes aware of a claim; (ii) the Indemnifying Party has sole control of the
settlement, compromise, negotiation and defense of any such action; and (iii)
the Indemnified Party gives the Indemnifying Party all reasonably available
information, assistance and authority, at the Indemnifying Party's expense, to
enable the Indemnifying
*** Confidential Treatment Requested
SANYO AGREEMENT
3.
<PAGE> 4
Party to do so. THE FOREGOING STATES THE ENTIRE AND EXCLUSIVE OBLIGATION OF
EITHER PARTY RELATING TO ANY ALLEGED INFRINGEMENT OF PATENTS, COPYRIGHTS,
TRADEMARKS OR OTHER INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES TO THIS
AGREEMENT.
4.4 NO DUTY TO COMMERCIALIZE; RIGHT TO CONTINUE DEVELOPMENT. Sanyo shall
determine in its sole and exclusive discretion whether or not Sanyo wishes to
commercialize, to continue commercializing or to stop commercializing Devices
arising out of this Agreement. The foregoing notwithstanding, each party
acknowledges that other party has extensive expertise, experience, and
proprietary technology in the field of multimedia communication software and
hardware ("Field"). Subject to each party's compliance with the confidentiality
provisions of this Agreement, nothing in this Agreement will restrict or limit
either party at any time from developing, using, marketing, licensing, offering
for sale, or selling products and services that are similar or related to the
Device or the Deliverables. Each party acknowledges that the employees of the
other party may be under contractual obligations to disclose any inventions,
innovations or developments made during the term of their employment, including
any inventions or innovations that arise and are conceived by such employees in
connection with performance of its obligations under this Agreement.
5. WARRANTIES AND SOFTWARE MAINTENANCE.
5.1 DELIVERABLE WARRANTY. PacketVideo warrants to Sanyo that for a
period of [...***...] days from the Deliverable Acceptance Date that the
Deliverables shall perform substantially in accordance with the Requirements.
Sanyo's sole and exclusive remedy shall be for PacketVideo to use its best
efforts to correct the Deliverables. This warranty shall not apply to
Deliverables that have been modified by Sanyo or by any party other than
PacketVideo. EXCEPT AS SET FORTH IN THIS SECTION, PACKETVIDEO AND ITS SUPPLIERS
MAKE NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. PacketVideo does not
warrant that use of the Deliverables will be error-free, secure or
uninterrupted. The Deliverables are warranted only to Sanyo, and Sanyo shall not
extend any warranties for or on behalf of PacketVideo or PacketVideo Licensors
to End Users, Resellers or any other third parties.
5.2 SOFTWARE WARRANTY. Effective upon the first commercial shipment, if
any, of Devices, PacketVideo warrants to Sanyo that for a period of [...***...]
from delivery of commercial Software to Sanyo for shipment that the Software
shall substantially perform in accordance with PacketVideo's then-current
Documentation. Sanyo's sole and exclusive remedy shall be for PacketVideo to
correct the Software or, if PacketVideo is unable to provide a reasonable
work-around for the error, PacketVideo shall accept the return of the defective
Software in Sanyo's possession and PacketVideo shall refund the license fee paid
by Sanyo for such defective Software. This warranty shall not apply to any
Software which has been modified by Sanyo or by any party other than
PacketVideo, or which has been improperly installed or used in any manner other
than as authorized under this Agreement. EXCEPT AS SET FORTH IN THIS SECTION,
PACKETVIDEO AND ITS SUPPLIERS MAKE NO OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. PacketVideo does not warrant that use of the SOFTWARE will be
error-free, secure or uninterrupted. The Software is warranted only to Sanyo,
and Sanyo shall not extend any warranties for or on behalf of PacketVideo or
PacketVideo Licensors to End Users, Resellers or any other third parties.
5.3 SOFTWARE SUPPORT. Following first commercial shipment, if any, of
Devices, Sanyo shall receive technical assistance, support and maintenance on
PacketVideo's then-current standard terms and conditions approved in advance in
writing by Sanyo. Sanyo acknowledges its responsibility to provide first line
support to end users and resellers. Any such requests directed to PacketVideo
may be referred to Sanyo. All items delivered by PacketVideo to Sanyo in
providing such support, including any error corrections and updates shall be
subject to all terms and conditions of this Agreement.
6. TERM AND TERMINATION
6.1 TERM. This Agreement will commence on the Effective Date and, unless
terminated earlier pursuant to the terms of this Agreement or extended by the
mutual written agreement of the parties, shall continue in force until
[...***...].
6.2 TERMINATION. This Agreement may be terminated (a) by either party
upon thirty (30) days' prior written notice if the other party materially
breaches any term hereof and the breaching party fails to cure such breach
within the 30-day period; (b) [...***...]
*** Confidential Treatment Requested
SANYO AGREEMENT
4.
<PAGE> 5
[...***...] (d) by either party in the event of bankruptcy proceedings involving
the other party to the Agreement; and (e) by either party in the event of an
Acquisition (as defined in Section 9.10 below) of the other party. [...***...].
6.3 EFFECT OF TERMINATION. Each party's obligations, as appropriate,
under Sections 2.4, 3, 4, 5 (disclaimer only), 6, 7, 8 (except for 8.4) and 9 of
the Agreement will survive termination or expiration of the Agreement. Within
thirty (30) days after termination of this Agreement for any reason, PacketVideo
will submit to Sanyo an itemized invoice for any fees or expenses properly due
and owing under this Agreement prior to the date of such termination and Sanyo
shall pay the amount invoiced in accordance with Section 3 for those
Deliverables which have been accepted by Sanyo and for which PacketVideo has
received full payment as set forth on Exhibit A. Sanyo will retain the right to
use for internal development purposes such accepted Deliverables and all other
licenses granted by the parties hereunder will immediately terminate. In such
event, Sanyo shall immediately cease using, marketing, reproducing and
distributing the Software and shall return all copies thereof to PacketVideo,
along with a certification signed by an officer of Sanyo under penalty of
perjury stating that no copies have been retained by Sanyo other than as
provided herein; provided, however, that (subject to payment of the applicable
royalties hereunder in accordance with Section 3.3 herein) Sanyo shall have the
right to distribute all copies of the Software which are then installed on
Devices in its inventory on the effective date of termination; and Sanyo shall
have the right to continue to use the Software internally at no additional
charge upon execution of PacketVideo's then-current applicable end user
agreement to support end users of Devices.
7. LIMITATIONS ON LIABILITY
7.1 DISCLAIMER. PACKETVIDEO'S TOTAL, CUMULATIVE LIABILITY TO SANYO WITH
RESPECT TO THIS AGREEMENT AND THE DELIVERABLES AND THE SOFTWARE, AND FOR ANY AND
ALL CAUSES OF ACTION UNDER ANY THEORY OF LIABILITY, WHETHER IN CONTRACT OR TORT
OR OTHERWISE, WILL NOT EXCEED THE TOTAL AMOUNT ACTUALLY PAID BY SANYO TO
PACKETVIDEO HEREUNDER. IN NO EVENT WILL PACKETVIDEO BE LIABLE TO CUSTOMER FOR
LOSS OF PROFITS, INTERRUPTION OF BUSINESS OR ANY OTHER SPECIAL, CONSEQUENTIAL,
INCIDENTAL, INDIRECT, PUNITIVE OR EXEMPLARY DAMAGES, HOWEVER CAUSED, WHETHER FOR
BREACH OF WARRANTY, BREACH OF CONTRACT, NEGLIGENCE, STRICT LIABILITY OR
OTHERWISE, EVEN IF PACKETVIDEO HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
7.2 LIMITATION ON CLAIMS. No action, regardless of form, arising from
this Agreement may be brought by either party more than one year after the cause
of action has accrued.
8. CONFIDENTIALITY AND PUBLICITY
8.1 DEFINITION. By virtue of this Agreement, each party hereto may have
disclosed or will disclose to the other party information concerning the subject
matter of this Agreement that is confidential and otherwise proprietary. Subject
to the exceptions listed below, a party's "Confidential Information" shall be
defined as information disclosed by the party to the other party pursuant to
this Agreement and clearly marked or otherwise clearly designated as
"confidential" or the equivalent. Without limiting the foregoing, and without
regard to marking or labeling, Confidential Information shall include the
specifications and requirements for the Deliverables. However, a party's
Confidential Information will not include any information that: (a) is or
becomes a part of the public domain through no wrongful act or omission of the
other party; or (b) was in the other party's lawful possession prior to the
disclosure and had not been obtained by the other party either directly or
indirectly from the disclosing party; or (c) is lawfully disclosed to the other
party by a third party without restriction on disclosure; or (d) is
independently developed by the other party by employees or agents without access
to the disclosing party's Confidential Information.
8.2 NONDISCLOSURE AND NONUSE. Beginning on the Effective Date and ending
[...***...] years after receipt thereof, each party agrees to hold the other
party's Confidential Information in strict confidence, not to disclose such
Confidential Information to third parties not authorized by the disclosing party
to receive such Confidential Information, and not to use such Confidential
Information for any purpose except as expressly permitted hereunder. "Third
parties" in this context shall not include Sanyo's parent and affiliates who
agree to maintain the confidentiality of such Confidential Information on the
same basic terms and conditions as set forth herein. Each party agrees to take
reasonable steps to protect
*** Confidential Treatment Requested
SANYO AGREEMENT
5.
<PAGE> 6
the other party's Confidential Information to ensure that such Confidential
Information is not disclosed, distributed or used in violation of the provisions
of this Agreement. The foregoing prohibition on disclosure of Confidential
Information will not apply to the extent certain Confidential Information is
required to be disclosed by the receiving party (a) as a matter of law or by
order of a court, provided that the receiving party uses reasonable efforts to
provide the disclosing party with prior notice of such obligation to disclose
and reasonably assists in obtaining a protective order therefore and (b) in
connection with performing tasks pursuant to the terms and conditions of this
Agreement.
8.3 RESIDUALS. As used herein, the term "Residuals" means information in
non-tangible form that is or may be inadvertently retained in the unaided
memories of persons who have had rightful access to the Confidential Information
of a party, including ideas, concepts, know-how or techniques contained therein
but not including information relating to personnel or financial information.
Each party acknowledges and agrees that the other party may utilize for any
purpose any Residuals resulting from rightfully performing its obligations
hereunder.
8.4 PUBLICITY. Notwithstanding anything contained in this Section 8, the
parties will cooperate on the public relations and co-marketing activities
described on Exhibit A and each party shall have the right to engage in the
activities set forth therein.
9. GENERAL
9.1 INDEPENDENT CONTRACTOR. Each party is an independent contractor, and
nothing contained in this Agreement will be construed to create or imply a joint
venture, partnership, principal-agent or employment relationship between the
parties. Neither party may take any action or permit any action to be taken on
its behalf which purports to be done in the name of or on behalf of the other
party and neither party will have any power or authority to bind the other party
to assume or create any obligation or responsibility express or implied on the
other party's behalf or in its name.
9.2 NOTICES. All notices, consents, waivers, and other communications
intended to have legal effect under this Agreement must be in writing, must be
delivered to the other party at the address set forth at the top of this
Agreement by personal delivery, certified mail (postage pre-paid), or a
nationally recognized overnight courier, and will be effective upon receipt (or
when delivery is refused). Any such notices sent to PacketVideo must be
addressed to the attention of its General Counsel. Each party may change its
address for receipt of notices by giving notice of the new address to the other
party.
9.3 INJUNCTIVE RELIEF. It is understood and agreed that, notwithstanding
any other provision of this Agreement, any material breach of this Agreement
will cause irreparable damage for which recovery of money damages would be
inadequate, and that the non-breaching party will therefore be entitled to seek
timely injunctive relief to protect such party's rights under this Agreement in
addition to any and all remedies available at law.
9.4 FORCE MAJEURE. The parties hereto shall not be liable for any loss,
damage, or penalty arising from delay due to acts of God, riot, fires, strikes,
legal restrictions, governmental actions, or any other casualty or cause beyond
the control of the parties hereto.
9.5 EXPORT LAWS AND REGULATIONS. The parties agree to adhere to
applicable U.S. Export Laws and Regulations and that absent any required
authorization for the U.S. Department of Commerce's Bureau of Export
Administration ("BXA"), they will not knowingly export or re-export (as defined
in Part 772 of the BXA Regulations), directly or indirectly, through their
affiliates, licensees, employees or subsidiaries, any of the Deliverables or
Confidential Information (or any product, process, or service resulting directly
therefrom) to any country restricted by U.S. law or government order.
9.6 GOVERNING LAW AND VENUE. This Agreement will be governed by and
interpreted in accordance with the federal and state laws of the State of
California as such laws apply to contracts made between California residents to
be performed entirely within California. Any suit, action or proceeding arising
from or relating to this Agreement must be brought in a federal court in the
Southern District of California or in state court in San Diego County,
California, and each party irrevocably consents to the jurisdiction and venue of
any such court in any such suit, action or proceeding.
9.7 LEGAL FEES. If any dispute arises between the parties with respect
to the matters covered by this Agreement which leads to a proceeding to resolve
such dispute, each party in such proceeding shall pay its own attorneys' fees,
expert witness fees and out-of-pocket costs incurred in connection with such
proceeding.
*** Confidential Treatment Requested
SANYO AGREEMENT
6.
<PAGE> 7
9.8 WAIVER. The failure of either party to require performance by the
other party of any provision of this Agreement will not affect the full right to
require such performance at any time thereafter; nor will the waiver by either
party of a breach of any provision of this Agreement be taken or held to be a
waiver of the provision itself.
9.9 SEVERABILITY. If any provision of this Agreement is unenforceable or
invalid under any applicable law or is so held by applicable court decision,
such unenforceability or invalidity will not render this Agreement unenforceable
or invalid as a whole, and such provision will be changed and interpreted so as
to best accomplish the objectives of such unenforceable or invalid provision
within the limits of applicable law or applicable court decisions.
9.10 ASSIGNMENT. This Agreement is not assignable by either party
without the prior written consent of the other party, except that without
securing such prior consent, each party may assign this Agreement and its rights
and obligations hereunder in whole or in part upon written notice (including the
written agreement of the assignee to be bound by the terms and conditions
hereof) to any (i) direct or indirect parent, subsidiary, or affiliate of such
party or (ii) successor of such party by way of merger or consolidation or the
acquisition of all or substantially all of the business and assets of the
assigning party (or business division or unit of such party) relating to this
Agreement (an "Acquisition"). Any other attempt to assign any of the rights,
duties, or obligations of this Agreement will be void and of no effect. For
purposes of this paragraph, an "affiliate" of a party means any entity directly
or indirectly controlling, controlled by, or under common control with such
party, where "control" means ownership of at least fifty percent (50%) of the
equity or beneficial interests of such entity or party. This Agreement will be
binding upon and inure to the benefit of the respective successors and permitted
assigns of the parties.
9.11 FULL POWER. Each party warrants that it has full power to enter
into and perform this Agreement, and the person signing this Agreement on such
party's behalf has been duly authorized and empowered to enter into this
Agreement.
9.12 CONSTRUCTION. The section headings appearing in this Agreement are
inserted only as a matter of convenience and in no way define, limit, construe,
or describe the scope or extent of such section or in any way affect this
Agreement. Unless otherwise expressly stated, when used in this Agreement the
word "including" means "including but not limited to."
9.13 ENTIRE AGREEMENT AND AMENDMENT. Except for any written agreement(s)
entered into by the parties hereto dated on the same date as, or on a subsequent
date to, the Effective Date of this Agreement, this Agreement together with the
Exhibits completely and exclusively states the agreement of the parties
regarding its subject matter. It supersedes, and its terms govern, all prior
understandings, agreements (including, but not limited to, the [...***...]
Non-disclosure Agreement), or other prior communications between the parties,
oral or written, regarding such subject matter. This Agreement may be executed
in counterparts and may be amended only in a document signed by both parties.
Facsimile signatures are deemed equivalent to original signatures for purposes
of this Agreement.
*** Confidential Treatment Requested
SANYO AGREEMENT
7.
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
EXECUTED BY SANYO NORTH AMERICA CORPORATION:
Signature: /s/ Dr. Masahisa Shimizu
---------------------------------
Name: Dr. Masahisa Shimizu
---------------------------------
Title: General Manager for SANYO Multimedia Center USA, a division of SANYO
North America Corporation
----------------------------------------------------------------------
Date: 02/24/2000
---------------------------------
EXECUTED BY PACKETVIDEO CORPORATION:
Signature: /s/ Jim Brailean
---------------------------------
Name: Dr. Jim Brailean
---------------------------------
Title: President
---------------------------------
Date: 03/03/2000
---------------------------------
SANYO AGREEMENT
8.
<PAGE> 9
EXHIBIT A
PACKETVIDEO-SANYO AGREEMENT
DESCRIPTION OF ENGINEERING DELIVERABLE(S)
[...***...]
*** Confidential Treatment Requested
SANYO AGREEMENT
9.
<PAGE> 10
[...***...]
PUBLICITY AND CO-MARKETING OBLIGATIONS
1. CO-BRANDING
Sanyo will place a PacketVideo logo on the outside of the packaging of each
commercial version of the Device. Size, color and placement shall be reviewed
and approved (such approval not to be unreasonably withheld or delayed) by the
parties prior to first commercial shipment. The parties will also cooperate to
develop additional collateral marketing material. PacketVideo "splash screen" to
appear upon launch of the Software.
2. WEBSITE LINKS
The parties will provide mutual hot links between Sanyo's home page(s) for the
commercial version of the Device and the appropriate sections of the PacketVideo
home page.
3. TRADE SHOWS
Each party will provide reasonable support of trade shows and other events, if
any, requested by the other party to highlight the introduction of the Device.
4. SAMPLE UNITS
Sanyo agrees to deliver to PacketVideo ten (10) complementary units of the
commercial version of the Device upon release to shipment. PacketVideo shall
have the right to use such Devices internally and to demonstrate such Devices to
existing and potential customers for marketing purposes.
5. PRESS RELEASE
*** Confidential Treatment Requested
SANYO AGREEMENT
10.
<PAGE> 11
PacketVideo may issue a press release relating to the Agreement in a form
reasonably acceptable to Sanyo on or before February 25, 2000. Such release
shall state that the parties are working together to develop prototype wireless
videophones based on PacketVideo software with the goal of moving such units
into production as next generation wireless networks come online. PacketVideo
may reuse this press release (without change) without further approval from
Sanyo.
6. MULTIMEDIA FORUM
At PacketVideo's request, Sanyo will participate as a member of the wireless
multimedia industry group in formation currently known as the Wireless
Multimedia Forum.
SANYO AGREEMENT
11.
<PAGE> 1
EXHIBIT 10.16
M4, INC.
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the
5th day of August, 1998, by and between M4, INC., a Delaware corporation (the
"Company"), and JAMES C. BRAILEAN ("Purchaser").
WHEREAS, the Company desires to issue, and Purchaser desires to acquire,
stock of the Company as herein described, on the terms and conditions
hereinafter set forth;
WHEREAS, the issuance of common stock hereby is in connection with a
compensatory benefit plan for the employees, directors, officers, advisers or
consultants of the Company and is intended to comply with the provisions of Rule
701 promulgated by the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Act").
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. PURCHASE AND SALE OF STOCK. Purchaser hereby agrees to purchase from
the Company, and the Company hereby agrees to sell to Purchaser, an aggregate of
three million (3,000,000) shares of the Common Stock of the Company (the
"Stock") at $0.001 per share, for an aggregate purchase price of three thousand
dollars ($3,000), payable in cash.
The closing hereunder, including payment for and delivery of the Stock
shall occur at the offices of the Company immediately following the execution of
this Agreement, or at such other time and place as the parties may mutually
agree.
2. REPURCHASE OPTION. In the event Purchaser's relationship with the
Company (or a parent or subsidiary of the Company), whether as an employee or
consultant, terminates for any reason (including death or disability), or for no
reason, with or without cause, then the Company (or its designee) shall have an
irrevocable option (the "Repurchase Option"), for a period of ninety (90) days
after said termination, or such longer period as may be determined by the
Company if such later repurchase is deemed necessary by the Company for
treatment of all or part of its stock as Qualified Small Business Stock under
Section 1202 of the Internal Revenue Code of 1986, as amended (the "Code"), and
regulations promulgated thereunder, to repurchase from Purchaser or Purchaser's
personal representative, as the case may be, at the original price per share
indicated above paid by Purchaser for such Stock ("Option Price"), up to but not
exceeding the number of unvested shares of the Stock set forth on Exhibit A
hereto which is incorporated herein by this reference. The Company shall have a
unilateral right to assign the Repurchase Option to any person or entity
designated by the Board of Directors of the Company.
3. EXERCISE OF REPURCHASE OPTION. The Repurchase Option shall be
exercised by written notice signed by an officer of the Company or by any
assignee or assignees of the Company and delivered or mailed as provided in
Section 16a. Such notice shall identify the number of shares of Stock to be
purchased and shall notify Purchaser of the time, place and date
<PAGE> 2
for settlement of such purchase, which shall be scheduled by the Company within
the term of the Repurchase Option set forth in Section 2 above. The Company
shall be entitled to pay for any shares of Stock purchased pursuant to its
Repurchase Option at the Company's option in cash or by offset against any
indebtedness owing to the Company by Purchaser (including without limitation any
Note given in payment for the Stock), or by a combination of both. Upon delivery
of such notice and payment of the purchase price in any of the ways described
above, the Company shall become the legal and beneficial owner of the Stock
being repurchased and all rights and interest therein or related thereto, and
the Company shall have the right to transfer to its own name the Stock being
repurchased by the Company, without further action by Purchaser.
4. ADJUSTMENTS TO STOCK. If, from time to time, during the term of the
Repurchase Option there is any change affecting the Company's outstanding Common
Stock as a class that is effected without the receipt of consideration by the
Company (through merger, consolidation, reorganization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating,
dividend, combination of shares, change in corporation structure or other
transaction not involving the receipt of consideration by the Company), then any
and all new, substituted or additional securities or other property to which
Purchaser is entitled by reason of Purchaser's ownership of Stock shall be
immediately subject to the Repurchase Option and be included in the word "Stock"
for all purposes of the Repurchase Option with the same force and effect as the
shares of the Stock presently subject to the Repurchase Option, but only to the
extent the Stock is, at the time, covered by such Repurchase Option. While the
total Option Price shall remain the same after each such event, the Option Price
per share of Stock upon exercise of the Repurchase Option shall be appropriately
adjusted.
5. CHANGE OF CONTROL.
(a) Notwithstanding any other provision of this Agreement, in
the event that Purchaser's relationship with the Company, its successor (or any
parent or subsidiary of either), whether as an employee or consultant, is
terminated without "Cause" or if Purchaser resigns for "Good Reason" within
thirteen (13) months after the effective date of the Change of Control, then the
Repurchase Option shall lapse and terminate and the Stock shall be fully vested.
(b) In the event that lapse and termination of the Repurchase
Option constitutes a "parachute payment" within the meaning of Section 280G (as
it may be amended or replaced) of the Internal Revenue Code of 1986, as amended
or replaced (the "Code") and (ii) but for this paragraph (b), would be subject
to the excise tax imposed by Section 4999 (as it may be amended or replaced) of
the Code (the "Excise Tax"), then Purchaser's benefits hereunder shall be either
(i) delivered in full, or (ii) delivered as to such lesser extent which would
result in no portion of such benefits being subject to the Excise Tax, whichever
of the foregoing amounts, taking into account the applicable federal, state and
local income taxes and the Excise Tax, results in the receipt by Purchaser on an
after-tax basis, of the greatest amount of benefits, notwithstanding that all or
some portion of such benefits may be taxable under the Excise Tax. Unless the
Company and Purchaser otherwise agree in writing, any determination required
under this paragraph (b) shall be made in writing in good faith by the Company's
independent public accountants (The "Accountants"). In the event of a reduction
in benefits hereunder, Purchaser
<PAGE> 3
shall be given the choice of which benefits to reduce. For purposes of making
the calculations required by this paragraph (b), the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of the
Code. The Company and Purchaser shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this paragraph (b). The Purchaser shall bear all
costs the Accountants may reasonably incur in connection with any calculations
contemplated by this paragraph (b).
(c) DEFINITIONS.
(i) For purposes of this Section 5, "Change of Control"
of the Company is defined as:
(1) Any "person," as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(other than a group consisting of the Purchaser and the members of the Board as
of the Effective Date) becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing 50% or more of the total voting power represented by the Company's
then outstanding voting securities; or
(2) The consummation of a merger or
consolidation of the Company with any other. corporation other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the total voting power represented by the
voting securities of the surviving entity or its parent outstanding immediately
after such merger or consolidation; or
(3) The approval by the Board of a plan of
complete liquidation of the Company or of an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
(ii) For purposes of this Section 5, "Cause" is defined
as Purchaser's (i) gross negligence or willful misconduct in connection with the
performance of his duties hereunder which in the written determination of a
majority of the Board of Directors has not been cured within thirty (30) days
following receipt by Purchaser of written notice from the Board identifying such
acts of gross negligence or willful misconduct, (ii) commission of a felony
(other than a traffic-related offense) which in the written determination of a
majority of the Board of Directors has caused material injury to the Company's
business, (iii) dishonesty with respect to a significant matter relating to the
Company's business and intended to result in personal enrichment of the
Purchaser or his family at the expense of the Company, or (iv) willful material
breach of any Independent Contractor Services Agreement or Proprietary
Information Agreement in effect between Purchaser and the Company which in the
written determination of a majority of the Board of Directors has not been cured
within thirty (30) days following receipt by Purchaser of written notice from
the Board identifying such willful material breach.
<PAGE> 4
(iii) For purposes of this Section 5, "Good Reason" is
defined as (i) the assignment to Purchaser of duties not commensurate with his
status as Chief Executive Officer, or any material reduction of the Purchaser's
duties, authority or responsibilities; (ii) the relocation of the Purchaser to a
facility or a location more than fifty (50) miles from the Purchaser's then
present location, without the Purchaser's written consent; (iii) any material
breach of this Agreement by the Company; or (iv) the occurrence of a "Change of
Control." The determination as to whether or not "Good Reason" shall exist shall
be made in good faith by Purchaser, whose determination shall be binding on the
Company, its stockholders, and the members of the Company's Board of Directors.
6. TERMINATION OF REPURCHASE OPTION. Sections 2, 3, 4 and 5 of this
Agreement shall terminate upon the exercise in full or expiration of the
Repurchase Option, whichever first occurs.
7. ESCROW OF UNVESTED STOCK. As security for Purchaser's faithful
performance of the terms of this Agreement and to insure the availability for
delivery of Purchaser's Stock upon exercise of the Repurchase Option herein
provided for, Purchaser agrees, at the closing hereunder, to deliver to and
deposit with the Secretary of the Company or the Secretary's designee ("Escrow
Agent"), as Escrow Agent in this transaction, three (3) stock assignments duly
endorsed (with date and number of shares blank) in the form attached hereto as
Exhibit C, together with a certificate or certificates evidencing all of the
Stock subject to the Repurchase Option; said documents are to be held by the
Escrow Agent and delivered by said Escrow Agent pursuant to the Joint Escrow
Instructions of the Company and Purchaser set forth in Exhibit B attached hereto
and incorporated by this reference, which instructions shall also be delivered
to the Escrow Agent at the closing hereunder.
8. RIGHTS OF PURCHASER. Subject to the provisions of Sections 7, 9, 12
and 14 herein, Purchaser shall exercise all rights and privileges of a
shareholder of the Company with respect to the Stock.
9. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
hypothecate, donate, encumber or otherwise dispose of any interest in the Stock
while the Stock is subject to the Repurchase Option. After any Stock has been
released from the Repurchase Option, Purchaser shall not assign, hypothecate,
donate, encumber or otherwise dispose of any interest in the Stock except in
compliance with the provisions herein and applicable securities laws.
Furthermore, the Stock shall be subject to any right of first refusal in favor
of the Company or its assignees that may be contained in the Company's Bylaws.
10. RESTRICTIVE LEGENDS. All certificates representing the Stock shall
have endorsed thereon legends in substantially the following forms (in addition
to any other legend which may be required by other agreements between the
parties hereto):
(a) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
OPTION SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER,
OR SUCH HOLDER'S PREDECESSOR IN INTEREST,
<PAGE> 5
A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS COMPANY. ANY TRANSFER
OR ATTEMPTED TRANSFER OF ANY SHARES SUBJECT TO SUCH OPTION IS VOID WITHOUT THE
PRIOR EXPRESS WRITTEN CONSENT OF THE COMPANY."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY AND/OR ITS ASSIGNEE(S) AS
PROVIDED IN THE BYLAWS OF THE COMPANY."
(d) Any legend required by appropriate state blue sky officials.
11. INVESTMENT REPRESENTATIONS. In connection with the purchase of the
Stock, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Stock. Purchaser is
purchasing the Stock for investment for Purchaser's own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Act.
(b) Purchaser understands that the Stock has not been registered
under the Act by reason of a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of Purchaser's investment
intent as expressed herein.
(c) Purchaser further acknowledges and understands that the
Stock must be held indefinitely unless the Stock is subsequently registered
under the Act or an exemption from such registration is available. Purchaser
further acknowledges and understands that the Company is under no obligation to
register the Stock. Purchaser understands that the certificate evidencing the
Stock will be imprinted with a legend which prohibits the transfer of the Stock
unless the Stock is registered or such registration is not required in the
opinion of counsel for the Company.
(d) Purchaser is familiar with the provisions of Rules 144 and
701, under the Act, as in effect from time to time, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly, from the issuer thereof (or from an affiliate of such issuer), in a
non-public offering subject to the satisfaction of certain conditions. Rule 701
provides that if the issuer qualifies under Rule 701 at the time of issuance of
the securities, such issuance will be exempt from registration under the Act. In
the event the Company becomes subject to the reporting requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the securities exempt under
Rule 701 may be sold by Purchaser ninety (90) days thereafter,
<PAGE> 6
subject to the satisfaction of certain of the conditions specified by Rule 144
and the market stand-off provision described in Section 12 below.
In the event that the sale of the Stock does not qualify under Rule 701
at the time of purchase, then the Stock may be resold by Purchaser in certain
limited circumstances subject to the provisions of Rule 144, which requires,
among other things: (i) the availability of certain public information about the
Company and (ii) the resale occurring following the required holding period
under Rule 144 after the Purchaser has purchased, and made full payment of
(within the meaning of Rule 144), the securities to be sold.
(e) Purchaser further understands that at the time Purchaser
wishes to sell the Stock there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public current information requirements of Rule 144 or
701, and that, in such event, Purchaser would be precluded from selling the
Stock under Rule 144 or 701 even if the minimum holding period requirement had
been satisfied.
(f) Purchaser further warrants and represents that Purchaser has
either (i) preexisting personal or business relationships, with the Company or
any of its officers, directors or controlling persons, or (ii) the capacity to
protect his own interests in connection with the purchase of the Stock by virtue
of the business or financial expertise of himself or of professional advisors to
Purchaser who are unaffiliated with and who are not compensated by the Company
or any of its affiliates, directly or indirectly.
12. MARKET STAND-OFF AGREEMENT. Purchaser shall not sell, dispose of,
transfer, make any short sale of, grant any option for the purchase of, or enter
into any hedging or similar transaction with the same economic effect as a sale,
any Common Stock of the Company held by Purchaser, including the Stock (the
"Restricted Securities"), for a period of time specified by the underwriter (not
to exceed one hundred eighty (180) days) following the effective date of a
registration statement of the Company filed under the Act. Purchaser agrees to
execute and deliver such other agreements as may be reasonably requested by the
Company and/or the underwriter which are consistent with the foregoing or which
are necessary to give further effect thereto. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to
Purchaser's Restricted Securities until the end of such period.
13. SECTION 83(b) ELECTION. Purchaser understands that Section 83(a) of
the Code, taxes as ordinary income the difference between the amount paid for
the Stock and the fair market value of the Stock as of the date any restrictions
on the Stock lapse. In this context, "restriction" includes the right of the
Company to buy back the Stock pursuant to the Repurchase Option set forth in
Section 2a above. Purchaser understands that Purchaser may elect to be taxed at
the time the Stock is purchased, rather than when and as the Repurchase Option
expires, by filing an election under Section 83(b) (an "83(b) Election") of the
Code with the Internal Revenue Service within thirty (30) days from the date of
purchase. Even if the fair market value of the Stock at the time of the
execution of this Agreement equals the amount paid for the Stock, the 83(b)
Election must be made to avoid income under Section 83(a) in the future.
Purchaser
<PAGE> 7
understands that failure to file such an 83(b) Election in a timely manner may
result in adverse tax consequences for Purchaser. Purchaser further understands
that an additional copy of such 83(b) Election is required to be filed with his
or her federal income tax return for the calendar year in which the date of this
Agreement falls. Purchaser acknowledges that the foregoing is only a summary of
the effect of United States federal income taxation with respect to purchase of
the Stock hereunder, and does not purport to be complete. Purchaser further
acknowledges that the Company has directed Purchaser to seek independent advice
regarding the applicable provisions of the Code, the income tax laws of any
municipality, state or foreign country in which Purchaser may reside, and the
tax consequences of Purchaser's death. Purchaser assumes all responsibility for
filing an 83(b) Election and paying all taxes resulting from such election or
the lapse of the restrictions on the Stock.
14. REFUSAL TO TRANSFER. The Company shall not be required (a) to
transfer on its books any shares of Stock of the Company which shall have been
transferred in violation of any of the provisions set forth in this Agreement or
(b) to treat as owner of such shares or to accord the right to vote as such
owner or to pay dividends to any transferee to whom such shares shall have been
so transferred.
15. NO EMPLOYMENT RIGHTS. This Agreement is not an employment contract
and nothing in this Agreement shall affect in any manner whatsoever the right or
power of the Company (or a parent or subsidiary of the Company) to terminate
Purchaser's employment for any reason at any time, with or without cause and
with or without notice.
16. MISCELLANEOUS.
(a) NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
sent by telegram or fax or upon deposit in the United States Post Office, by
registered or certified mail with postage and fees prepaid, addressed to the
other party hereto at his address hereinafter shown below its signature or at
such other address as such party may designate by ten (10) days' advance written
notice to the other party hereto.
(b) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of the successors and assigns of the Company and, subject to the
restrictions on transfer herein set forth, be binding upon Purchaser,
Purchaser's successors, and assigns. The Repurchase Option of the Company
hereunder shall be assignable by the Company at any time or from time to time,
in whole or in part.
(c) ATTORNEYS' FEES; SPECIFIC PERFORMANCE. Purchaser shall
reimburse the Company for all costs incurred by the Company in enforcing the
performance of, or protecting its rights under, any part of this Agreement,
including reasonable costs of investigation and attorneys' fees. It is the
intention of the parties that the Company, upon exercise of the Repurchase
Option and payment of the Option Price, pursuant to the terms of this Agreement,
shall be entitled to receive the Stock, in specie, in order to have such Stock
available for future issuance without dilution of the holdings of other
shareholders. Furthermore, it is expressly agreed between the parties that money
damages are inadequate to compensate the Company for
<PAGE> 8
the Stock and that the Company shall, upon proper exercise of the Repurchase
Option, be entitled to specific enforcement of its rights to purchase and
receive said Stock.
(d) GOVERNING LAW; VENUE. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware. The parties
agree that any action brought by either party to interpret or enforce any
provision of this Agreement shall be brought in, and each party agrees to, and
does hereby, submit to the jurisdiction and venue of, the appropriate state or
federal court for the district encompassing the Company's principal place of
business.
(e) FURTHER EXECUTION. The parties agree to take all such
further action(s) as may reasonably be necessary to carry out and consummate
this Agreement as soon as practicable, and to take whatever steps may be
necessary to obtain any governmental approval in connection with or otherwise
qualify the issuance of the securities that are the subject of this Agreement.
(f) INDEPENDENT COUNSEL. Purchaser acknowledges that this
Agreement has been prepared on behalf of the Company by Cooley Godward LLP,
counsel to the Company and that Cooley Godward LLP does not represent, and is
not acting on behalf of, Purchaser. Purchaser has been provided with an
opportunity to consult with Purchaser's own counsel with respect to this
Agreement.
(g) ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes and merges all prior agreements or understandings, whether
written or oral. This Agreement may not be amended, modified or revoked, in
whole or in part, except by an agreement in writing signed by each of the
parties hereto.
(h) 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
(i) such provision shall be excluded from this Agreement, (ii) the balance of
the Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with its
terms.
(i) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
M4, INC.
By: /s/ JAMES CAROL
---------------------------------
James Carol,
Chief Executive Officer
PURCHASER:
/s/ JAMES C. BRAILEAN
------------------------------------
JAMES C. BRAILEAN
Address: 3550 General Atomics Court
San Diego, CA 92127-1122
VESTING COMMENCEMENT DATE:
August 10, 1998
ATTACHMENTS:
Exhibit A -- Vesting Schedule
Exhibit B -- Joint Escrow Instructions
Exhibit C -- Stock Assignment Separate from Certificate
Exhibit D -- Section 83(b) election
<PAGE> 10
EXHIBIT A
JAMES C. BRAILEAN VESTING SCHEDULE
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO
IF CESSATION OF SERVICE OCCURS: REPURCHASE OPTION:
- ------------------------------- ------------------
<S> <C>
Before August 10, 1999 2,000,000 minus 83,334 shares for
each full month of service as a
consultant, commencing on August
10, 1998
After August 10, 2001 -0- shares
</TABLE>
<PAGE> 11
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Common Stock Purchase
Agreement between the undersigned and M4, INC., a Delaware corporation (the
"Company"), dated as of August 5, 1998 (the "Agreement"), _____________ hereby
sells, assigns and transfers unto the Company _____________ (_____________)
shares of common stock of the Company, standing in the undersigned's name on the
books of the Company represented by Certificate No. ________ herewith, and does
hereby irrevocably constitute and appoint _____________ attorney to transfer the
said stock on the books of the Company with full power of substitution in the
premises. This Assignment may be used only in accordance with and subject to the
terms and conditions of the Agreement, in connection with the repurchase of
shares of Common Stock issued to the undersigned pursuant to the Agreement, and
only to the extent that such shares remain subject to the Company's Repurchase
Option under the Agreement.
Dated:
------------------------------------
Signature
------------------------------------
Print Name
<PAGE> 12
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
Frederick T. Muto
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, California 92121
Dear Sir:
As Escrow Agent for both M4, INC., a Delaware corporation
("Corporation"), and the undersigned purchaser of stock of the Corporation
("Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Common Stock Purchase
Agreement ("Agreement"), dated August 5, 1998, to which a copy of these Joint
Escrow Instructions is attached as Exhibit C, in accordance with the following
instructions:
1. In the event the Corporation or an assignee shall elect to exercise
the Repurchase Option set forth in the Agreement, the Corporation or its
designee or assignee will give to Purchaser and you a written notice specifying
the number of shares of stock to be purchased, the purchase price, and the time
for a closing hereunder at the principal office of the Corporation. Purchaser
and the Corporation hereby irrevocably authorize and direct you to close the
transaction contemplated by such notice in accordance with the terms of said
notice.
2. At the closing you are directed (a) to date any stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Corporation against the
simultaneous delivery to you of the purchase price (which may include suitable
acknowledgment of cancellation of indebtedness) of the number of shares of stock
being purchased pursuant to the exercise of the Repurchase Option.
3. Purchaser irrevocably authorizes the Corporation to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as specified in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities and other property all documents of assignment and/or
transfer and all stock certificates necessary or appropriate to make all
securities negotiable and complete any transaction herein contemplated.
4. This escrow shall terminate upon expiration or exercise in full of
the Repurchase Option, whichever occurs first.
<PAGE> 13
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder; provided, however, that if at the time of
termination of this escrow you are advised by the Corporation that the property
subject to this escrow is the subject of a pledge or other security agreement,
you shall deliver all such property to the pledgeholder or other person
designated by the Corporation.
6. Except as otherwise provided in these Joint Escrow Instructions, your
duties hereunder may be altered, amended, modified or revoked only by a writing
signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties or
their assignees. You shall not be personally liable for any act you may do or
omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while
acting in good faith and any act done or omitted by you pursuant to the advice
of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree of any court,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Corporation or if you shall resign by
written notice to each party. In the event of any such termination, the
Corporation may appoint any officer or assistant officer of the Corporation as
successor Escrow Agent and Purchaser hereby confirms the appointment of such
successor or successors as his attorney-in-fact and agent to the full extent of
your appointment.
12. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
<PAGE> 14
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities, you are authorized and directed to retain in your possession without
liability to anyone all or any part of said securities until such dispute shall
have been settled either by mutual written agreement of the parties concerned or
by a final order, decree or judgment of a court of competent jurisdiction after
the time for appeal has expired and no appeal has been perfected, but you shall
be under no duty whatsoever to institute or defend any such proceedings.
14. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery, including delivery
by express courier or five days after deposit in the United States Post Office,
by registered or certified mail with postage and fees prepaid, addressed to each
of the other parties hereunto entitled at the following addresses, or at such
other addresses as a party may designate by ten days' advance written notice to
each of the other parties hereto:
CORPORATION: M4, INC.
3550 General Atomics Court
Building 14, Suite 140
San Diego, CA 92121
PURCHASER: JAMES C. BRAILEAN
c/o M4, Inc.
3550 General Atomics Court
Building 14, Suite 140
San Diego, CA 92121
ESCROW AGENT: FREDERICK T. MUTO
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, California 92121
15. By signing these Joint Escrow Instructions you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
16. You shall be entitled to employ such legal counsel and other experts
(including without limitation the firm of Cooley Godward LLP) as you may deem
necessary properly to advise you in connection with your obligations hereunder.
You may rely upon the advice of such counsel, and may pay such counsel
reasonable compensation therefor. The Corporation shall be responsible for all
fees generated by such legal counsel in connection with your obligations
hereunder.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. It is
understood and agreed that references to "you" or "your" herein refer to the
original Escrow Agent and to any and all successor Escrow Agents. It is
understood and agreed that the Corporation may at any time or from time to time
assign its rights under the Agreement and these Joint Escrow Instructions in
whole or in part.
<PAGE> 15
18. This Agreement shall be governed by and interpreted and determined
in accordance with the laws of the State of Delaware, as such laws are applied
by California courts to contracts made and to be performed entirely in
California by residents of that state.
Very truly yours,
M4, INC.
By
----------------------------------
James Carol, Chief Executive Officer
PURCHASER:
------------------------------------
James C. Brailean
ESCROW AGENT:
- -----------------------------------
Frederick T. Muto
<PAGE> 16
EXHIBIT D
August 5, 1998
Director of Internal Revenue
Internal Revenue Service Center
Fresno, CA 93888
RE: ELECTION UNDER SECTION 83(b)
Gentlemen:
This statement constitutes an election pursuant to Section 83(b) of the Internal
Revenue Code of 1986, as amended from time to time.
Pursuant to Treasury Regulation Section 1.83-2, the following information is
submitted:
1. NAME: James C. Brailean ("Purchaser")
ADDRESS:
---------------------------------------------------
---------------------------------------------------
SOCIAL SECURITY NO.: - -
-------- ------ ------
2. PROPERTY DESCRIPTION:3,000,000 shares of Common Stock of M4, Inc. (the
"Company").
3. The date on which the property was transferred is August 5, 1998.
4. The taxable year for which the election is made is the calendar year 1998.
5. RESTRICTIONS:
If, on or before August 5, 2001, the employment or consulting relationship of
the Purchaser by the Company terminates for any reason, the Company shall have
the option to repurchase some of all of the property (depending on the date of
such termination) for a price equal to the cost of the property repurchased.
6. The fair market value of the property at the time of transfer with respect to
which this election is being made, determined without regard to any restrictions
other than a restriction which by its terms will never lapse is $3,000.
7. The amount paid by the undersigned taxpayer for the property is $3,000.
<PAGE> 17
8. The undersigned taxpayer hereby elects to include in gross income for 1998
the amount of 0 $, which equals the amount by which the fair market value of the
property exceeds the amount paid for such property.
9. A copy of this statement has been furnished to the Company and the transferee
of the property if different from the purchaser.
Dated: August 5, 1998.
Very truly yours,
- -----------------------------------
James C. Brailean
<PAGE> 1
EXHIBIT 10.17
M4, INC.
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the
5th day of August, 1998, by and between M4, INC., a Delaware corporation (the
"Company"), and JAMES CAROL ("Purchaser").
WHEREAS, the Company desires to issue, and Purchaser desires to acquire,
stock of the Company as herein described, on the terms and conditions
hereinafter set forth;
WHEREAS, the issuance of common stock hereby is in connection with a
compensatory benefit plan for the employees, directors, officers, advisers or
consultants of the Company and is intended to comply with the provisions of Rule
701 promulgated by the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Act").
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. PURCHASE AND SALE OF STOCK. Purchaser hereby agrees to purchase from
the Company, and the Company hereby agrees to sell to Purchaser, an aggregate of
three million (3,000,000) shares of the Common Stock of the Company (the
"Stock") at $0.001 per share, for an aggregate purchase price of three thousand
dollars ($3,000), payable in cash.
The closing hereunder, including payment for and delivery of the Stock
shall occur at the offices of the Company immediately following the execution of
this Agreement, or at such other time and place as the parties may mutually
agree.
2. REPURCHASE OPTION. In the event Purchaser's relationship with the
Company (or a parent or subsidiary of the Company), whether as an employee or
consultant, terminates for any reason (including death or disability), or for no
reason, with or without cause, then the Company (or its designee) shall have an
irrevocable option (the "Repurchase Option"), for a period of ninety (90) days
after said termination, or such longer period as may be determined by the
Company if such later repurchase is deemed necessary by the Company for
treatment of all or part of its stock as Qualified Small Business Stock under
Section 1202 of the Internal Revenue Code of 1986, as amended (the "Code"), and
regulations promulgated thereunder, to repurchase from Purchaser or Purchaser's
personal representative, as the case may be, at the original price per share
indicated above paid by Purchaser for such Stock ("Option Price"), up to but not
exceeding the number of unvested shares of the Stock set forth on Exhibit A
hereto which is incorporated herein by this reference. The Company shall have a
unilateral right to assign the Repurchase Option to any person or entity
designated by the Board of Directors of the Company.
3. EXERCISE OF REPURCHASE OPTION. The Repurchase Option shall be
exercised by written notice signed by an officer of the Company or by any
assignee or assignees of the Company and delivered or mailed as provided in
Section 16a. Such notice shall identify the number of shares of Stock to be
purchased and shall notify Purchaser of the time, place and date
<PAGE> 2
for settlement of such purchase, which shall be scheduled by the Company within
the term of the Repurchase Option set forth in Section 2 above. The Company
shall be entitled to pay for any shares of Stock purchased pursuant to its
Repurchase Option at the Company's option in cash or by offset against any
indebtedness owing to the Company by Purchaser (including without limitation any
Note given in payment for the Stock), or by a combination of both. Upon delivery
of such notice and payment of the purchase price in any of the ways described
above, the Company shall become the legal and beneficial owner of the Stock
being repurchased and all rights and interest therein or related thereto, and
the Company shall have the right to transfer to its own name the Stock being
repurchased by the Company, without further action by Purchaser.
4. ADJUSTMENTS TO STOCK. If, from time to time, during the term of the
Repurchase Option there is any change affecting the Company's outstanding Common
Stock as a class that is effected without the receipt of consideration by the
Company (through merger, consolidation, reorganization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating,
dividend, combination of shares, change in corporation structure or other
transaction not involving the receipt of consideration by the Company), then any
and all new, substituted or additional securities or other property to which
Purchaser is entitled by reason of Purchaser's ownership of Stock shall be
immediately subject to the Repurchase Option and be included in the word "Stock"
for all purposes of the Repurchase Option with the same force and effect as the
shares of the Stock presently subject to the Repurchase Option, but only to the
extent the Stock is, at the time, covered by such Repurchase Option. While the
total Option Price shall remain the same after each such event, the Option Price
per share of Stock upon exercise of the Repurchase Option shall be appropriately
adjusted.
5. CHANGE OF CONTROL.
(a) Notwithstanding any other provision of this Agreement, in
the event that Purchaser's relationship with the Company, its successor (or any
parent or subsidiary of either), whether as an employee or consultant, is
terminated without "Cause" or if Purchaser resigns for "Good Reason" within
thirteen (13) months after the effective date of the Change of Control, then the
Repurchase Option shall lapse and terminate and the Stock shall be fully vested.
(b) In the event that lapse and termination of the Repurchase
Option constitutes a "parachute payment" within the meaning of Section 280G (as
it may be amended or replaced) of the Internal Revenue Code of 1986, as amended
or replaced (the "Code") and (ii) but for this paragraph (b), would be subject
to the excise tax imposed by Section 4999 (as it may be amended or replaced) of
the Code (the "Excise Tax"), then Purchaser's benefits hereunder shall be either
(i) delivered in full, or (ii) delivered as to such lesser extent which would
result in no portion of such benefits being subject to the Excise Tax, whichever
of the foregoing amounts, taking into account the applicable federal, state and
local income taxes and the Excise Tax, results in the receipt by Purchaser on an
after-tax basis, of the greatest amount of benefits, notwithstanding that all or
some portion of such benefits may be taxable under the Excise Tax. Unless the
Company and Purchaser otherwise agree in writing, any determination required
under this paragraph (b) shall be made in writing in good faith by the Company's
independent public accountants (The "Accountants"). In the event of a reduction
in benefits hereunder, Purchaser
<PAGE> 3
shall be given the choice of which benefits to reduce. For purposes of making
the calculations required by this paragraph (b), the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of the
Code. The Company and Purchaser shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this paragraph (b). The Purchaser shall bear all
costs the Accountants may reasonably incur in connection with any calculations
contemplated by this paragraph (b).
(c) DEFINITIONS.
(i) For purposes of this Section 5, "Change of Control"
of the Company is defined as:
(1) Any "person," as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(other than a group consisting of the Purchaser and the members of the Board as
of the Effective Date) becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing 50% or more of the total voting power represented by the Company's
then outstanding voting securities; or
(2) The consummation of a merger or
consolidation of the Company with any other. corporation other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the total voting power represented by the
voting securities of the surviving entity or its parent outstanding immediately
after such merger or consolidation; or
(3) The approval by the Board of a plan of
complete liquidation of the Company or of an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
(ii) For purposes of this Section 5, "Cause" is defined
as Purchaser's (i) gross negligence or willful misconduct in connection with the
performance of his duties hereunder which in the written determination of a
majority of the Board of Directors has not been cured within thirty (30) days
following receipt by Purchaser of written notice from the Board identifying such
acts of gross negligence or willful misconduct, (ii) commission of a felony
(other than a traffic-related offense) which in the written determination of a
majority of the Board of Directors has caused material injury to the Company's
business, (iii) dishonesty with respect to a significant matter relating to the
Company's business and intended to result in personal enrichment of the
Purchaser or his family at the expense of the Company, or (iv) willful material
breach of any Independent Contractor Services Agreement or Proprietary
Information Agreement in effect between Purchaser and the Company which in the
written determination of a majority of the Board of Directors has not been cured
within thirty (30) days following receipt by Purchaser of written notice from
the Board identifying such willful material breach.
<PAGE> 4
(iii) For purposes of this Section 5, "Good Reason" is
defined as (i) the assignment to Purchaser of duties not commensurate with his
status as Chief Executive Officer, or any material reduction of the Purchaser's
duties, authority or responsibilities; (ii) the relocation of the Purchaser to a
facility or a location more than fifty (50) miles from the Purchaser's then
present location, without the Purchaser's written consent; (iii) any material
breach of this Agreement by the Company; or (iv) the occurrence of a "Change of
Control." The determination as to whether or not "Good Reason" shall exist shall
be made in good faith by Purchaser, whose determination shall be binding on the
Company, its stockholders, and the members of the Company's Board of Directors.
6. TERMINATION OF REPURCHASE OPTION. Sections 2, 3, 4 and 5 of this
Agreement shall terminate upon the exercise in full or expiration of the
Repurchase Option, whichever first occurs.
7. ESCROW OF UNVESTED STOCK. As security for Purchaser's faithful
performance of the terms of this Agreement and to insure the availability for
delivery of Purchaser's Stock upon exercise of the Repurchase Option herein
provided for, Purchaser agrees, at the closing hereunder, to deliver to and
deposit with the Secretary of the Company or the Secretary's designee ("Escrow
Agent"), as Escrow Agent in this transaction, three (3) stock assignments duly
endorsed (with date and number of shares blank) in the form attached hereto as
Exhibit C, together with a certificate or certificates evidencing all of the
Stock subject to the Repurchase Option; said documents are to be held by the
Escrow Agent and delivered by said Escrow Agent pursuant to the Joint Escrow
Instructions of the Company and Purchaser set forth in Exhibit B attached hereto
and incorporated by this reference, which instructions shall also be delivered
to the Escrow Agent at the closing hereunder.
8. RIGHTS OF PURCHASER. Subject to the provisions of Sections 7, 9, 12
and 14 herein, Purchaser shall exercise all rights and privileges of a
shareholder of the Company with respect to the Stock.
9. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
hypothecate, donate, encumber or otherwise dispose of any interest in the Stock
while the Stock is subject to the Repurchase Option. After any Stock has been
released from the Repurchase Option, Purchaser shall not assign, hypothecate,
donate, encumber or otherwise dispose of any interest in the Stock except in
compliance with the provisions herein and applicable securities laws.
Furthermore, the Stock shall be subject to any right of first refusal in favor
of the Company or its assignees that may be contained in the Company's Bylaws.
10. RESTRICTIVE LEGENDS. All certificates representing the Stock shall
have endorsed thereon legends in substantially the following forms (in addition
to any other legend which may be required by other agreements between the
parties hereto):
(a) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
OPTION SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER,
OR SUCH HOLDER'S PREDECESSOR IN INTEREST,
<PAGE> 5
A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS COMPANY. ANY TRANSFER
OR ATTEMPTED TRANSFER OF ANY SHARES SUBJECT TO SUCH OPTION IS VOID WITHOUT THE
PRIOR EXPRESS WRITTEN CONSENT OF THE COMPANY."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY AND/OR ITS ASSIGNEE(S) AS
PROVIDED IN THE BYLAWS OF THE COMPANY."
(d) Any legend required by appropriate state blue sky officials.
11. INVESTMENT REPRESENTATIONS. In connection with the purchase of the
Stock, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Stock. Purchaser is
purchasing the Stock for investment for Purchaser's own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Act.
(b) Purchaser understands that the Stock has not been registered
under the Act by reason of a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of Purchaser's investment
intent as expressed herein.
(c) Purchaser further acknowledges and understands that the
Stock must be held indefinitely unless the Stock is subsequently registered
under the Act or an exemption from such registration is available. Purchaser
further acknowledges and understands that the Company is under no obligation to
register the Stock. Purchaser understands that the certificate evidencing the
Stock will be imprinted with a legend which prohibits the transfer of the Stock
unless the Stock is registered or such registration is not required in the
opinion of counsel for the Company.
(d) Purchaser is familiar with the provisions of Rules 144 and
701, under the Act, as in effect from time to time, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly, from the issuer thereof (or from an affiliate of such issuer), in a
non-public offering subject to the satisfaction of certain conditions. Rule 701
provides that if the issuer qualifies under Rule 701 at the time of issuance of
the securities, such issuance will be exempt from registration under the Act. In
the event the Company becomes subject to the reporting requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the securities exempt under
Rule 701 may be sold by Purchaser ninety (90) days thereafter,
<PAGE> 6
subject to the satisfaction of certain of the conditions specified by Rule 144
and the market stand-off provision described in Section 12 below.
In the event that the sale of the Stock does not qualify under Rule 701
at the time of purchase, then the Stock may be resold by Purchaser in certain
limited circumstances subject to the provisions of Rule 144, which requires,
among other things: (i) the availability of certain public information about the
Company and (ii) the resale occurring following the required holding period
under Rule 144 after the Purchaser has purchased, and made full payment of
(within the meaning of Rule 144), the securities to be sold.
(e) Purchaser further understands that at the time Purchaser
wishes to sell the Stock there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public current information requirements of Rule 144 or
701, and that, in such event, Purchaser would be precluded from selling the
Stock under Rule 144 or 701 even if the minimum holding period requirement had
been satisfied.
(f) Purchaser further warrants and represents that Purchaser has
either (i) preexisting personal or business relationships, with the Company or
any of its officers, directors or controlling persons, or (ii) the capacity to
protect his own interests in connection with the purchase of the Stock by virtue
of the business or financial expertise of himself or of professional advisors to
Purchaser who are unaffiliated with and who are not compensated by the Company
or any of its affiliates, directly or indirectly.
12. MARKET STAND-OFF AGREEMENT. Purchaser shall not sell, dispose of,
transfer, make any short sale of, grant any option for the purchase of, or enter
into any hedging or similar transaction with the same economic effect as a sale,
any Common Stock of the Company held by Purchaser, including the Stock (the
"Restricted Securities"), for a period of time specified by the underwriter (not
to exceed one hundred eighty (180) days) following the effective date of a
registration statement of the Company filed under the Act. Purchaser agrees to
execute and deliver such other agreements as may be reasonably requested by the
Company and/or the underwriter which are consistent with the foregoing or which
are necessary to give further effect thereto. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to
Purchaser's Restricted Securities until the end of such period.
13. SECTION 83(b) ELECTION. Purchaser understands that Section 83(a) of
the Code, taxes as ordinary income the difference between the amount paid for
the Stock and the fair market value of the Stock as of the date any restrictions
on the Stock lapse. In this context, "restriction" includes the right of the
Company to buy back the Stock pursuant to the Repurchase Option set forth in
Section 2a above. Purchaser understands that Purchaser may elect to be taxed at
the time the Stock is purchased, rather than when and as the Repurchase Option
expires, by filing an election under Section 83(b) (an "83(b) Election") of the
Code with the Internal Revenue Service within thirty (30) days from the date of
purchase. Even if the fair market value of the Stock at the time of the
execution of this Agreement equals the amount paid for the Stock, the 83(b)
Election must be made to avoid income under Section 83(a) in the future.
Purchaser
<PAGE> 7
understands that failure to file such an 83(b) Election in a timely manner may
result in adverse tax consequences for Purchaser. Purchaser further understands
that an additional copy of such 83(b) Election is required to be filed with his
or her federal income tax return for the calendar year in which the date of this
Agreement falls. Purchaser acknowledges that the foregoing is only a summary of
the effect of United States federal income taxation with respect to purchase of
the Stock hereunder, and does not purport to be complete. Purchaser further
acknowledges that the Company has directed Purchaser to seek independent advice
regarding the applicable provisions of the Code, the income tax laws of any
municipality, state or foreign country in which Purchaser may reside, and the
tax consequences of Purchaser's death. Purchaser assumes all responsibility for
filing an 83(b) Election and paying all taxes resulting from such election or
the lapse of the restrictions on the Stock.
14. REFUSAL TO TRANSFER. The Company shall not be required (a) to
transfer on its books any shares of Stock of the Company which shall have been
transferred in violation of any of the provisions set forth in this Agreement or
(b) to treat as owner of such shares or to accord the right to vote as such
owner or to pay dividends to any transferee to whom such shares shall have been
so transferred.
15. NO EMPLOYMENT RIGHTS. This Agreement is not an employment contract
and nothing in this Agreement shall affect in any manner whatsoever the right or
power of the Company (or a parent or subsidiary of the Company) to terminate
Purchaser's employment for any reason at any time, with or without cause and
with or without notice.
16. MISCELLANEOUS.
(a) NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
sent by telegram or fax or upon deposit in the United States Post Office, by
registered or certified mail with postage and fees prepaid, addressed to the
other party hereto at his address hereinafter shown below its signature or at
such other address as such party may designate by ten (10) days' advance written
notice to the other party hereto.
(b) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of the successors and assigns of the Company and, subject to the
restrictions on transfer herein set forth, be binding upon Purchaser,
Purchaser's successors, and assigns. The Repurchase Option of the Company
hereunder shall be assignable by the Company at any time or from time to time,
in whole or in part.
(c) ATTORNEYS' FEES; SPECIFIC PERFORMANCE. Purchaser shall
reimburse the Company for all costs incurred by the Company in enforcing the
performance of, or protecting its rights under, any part of this Agreement,
including reasonable costs of investigation and attorneys' fees. It is the
intention of the parties that the Company, upon exercise of the Repurchase
Option and payment of the Option Price, pursuant to the terms of this Agreement,
shall be entitled to receive the Stock, in specie, in order to have such Stock
available for future issuance without dilution of the holdings of other
shareholders. Furthermore, it is expressly agreed between the parties that money
damages are inadequate to compensate the Company for
<PAGE> 8
the Stock and that the Company shall, upon proper exercise of the Repurchase
Option, be entitled to specific enforcement of its rights to purchase and
receive said Stock.
(d) GOVERNING LAW; VENUE. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware. The parties
agree that any action brought by either party to interpret or enforce any
provision of this Agreement shall be brought in, and each party agrees to, and
does hereby, submit to the jurisdiction and venue of, the appropriate state or
federal court for the district encompassing the Company's principal place of
business.
(e) FURTHER EXECUTION. The parties agree to take all such
further action(s) as may reasonably be necessary to carry out and consummate
this Agreement as soon as practicable, and to take whatever steps may be
necessary to obtain any governmental approval in connection with or otherwise
qualify the issuance of the securities that are the subject of this Agreement.
(f) INDEPENDENT COUNSEL. Purchaser acknowledges that this
Agreement has been prepared on behalf of the Company by Cooley Godward LLP,
counsel to the Company and that Cooley Godward LLP does not represent, and is
not acting on behalf of, Purchaser. Purchaser has been provided with an
opportunity to consult with Purchaser's own counsel with respect to this
Agreement.
(g) ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes and merges all prior agreements or understandings, whether
written or oral. This Agreement may not be amended, modified or revoked, in
whole or in part, except by an agreement in writing signed by each of the
parties hereto.
(h) 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
(i) such provision shall be excluded from this Agreement, (ii) the balance of
the Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with its
terms.
(i) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
M4, INC.
By: /s/ JAMES CAROL
---------------------------------
James Carol,
Chief Executive Officer
PURCHASER:
/s/ JAMES CAROL
------------------------------------
JAMES CAROL
Address:
----------------------------
----------------------------
VESTING COMMENCEMENT DATE:
August 10, 1998
ATTACHMENTS:
Exhibit A -- Vesting Schedule
Exhibit B -- Joint Escrow Instructions
Exhibit C -- Stock Assignment Separate from Certificate
Exhibit D -- Section 83(b) election
<PAGE> 10
EXHIBIT A
JAMES CAROL VESTING SCHEDULE
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO
IF CESSATION OF SERVICE OCCURS: REPURCHASE OPTION:
- ------------------------------- ------------------
<S> <C>
Before August 10, 1999 2,000,000 minus 83,334 shares for
each full month of service as a
consultant, commencing on August
10, 1998
After August 10, 2001 -0- shares
</TABLE>
<PAGE> 11
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Common Stock Purchase
Agreement between the undersigned and M4, INC., a Delaware corporation (the
"Company"), dated as of August 5, 1998 (the "Agreement"), ___________________
_________________ hereby sells, assigns and transfers unto the Company
_______________________________ (____________) shares of common stock of the
Company, standing in the undersigned's name on the books of the Company
represented by Certificate No. ____________ herewith, and does hereby
irrevocably constitute and appoint ____________________________________ attorney
to transfer the said stock on the books of the Company with full power of
substitution in the premises. This Assignment may be used only in accordance
with and subject to the terms and conditions of the Agreement, in connection
with the repurchase of shares of Common Stock issued to the undersigned pursuant
to the Agreement, and only to the extent that such shares remain subject to the
Company's Repurchase Option under the Agreement.
Dated:
------------------------------------
Signature
------------------------------------
Print Name
<PAGE> 12
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
Frederick T. Muto
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, California 92121
Dear Sir:
As Escrow Agent for both M4, INC., a Delaware corporation
("Corporation"), and the undersigned purchaser of stock of the Corporation
("Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Common Stock Purchase
Agreement ("Agreement"), dated August 5, 1998, to which a copy of these Joint
Escrow Instructions is attached as Exhibit C, in accordance with the following
instructions:
1. In the event the Corporation or an assignee shall elect to exercise
the Repurchase Option set forth in the Agreement, the Corporation or its
designee or assignee will give to Purchaser and you a written notice specifying
the number of shares of stock to be purchased, the purchase price, and the time
for a closing hereunder at the principal office of the Corporation. Purchaser
and the Corporation hereby irrevocably authorize and direct you to close the
transaction contemplated by such notice in accordance with the terms of said
notice.
2. At the closing you are directed (a) to date any stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Corporation against the
simultaneous delivery to you of the purchase price (which may include suitable
acknowledgment of cancellation of indebtedness) of the number of shares of stock
being purchased pursuant to the exercise of the Repurchase Option.
3. Purchaser irrevocably authorizes the Corporation to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as specified in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities and other property all documents of assignment and/or
transfer and all stock certificates necessary or appropriate to make all
securities negotiable and complete any transaction herein contemplated.
4. This escrow shall terminate upon expiration or exercise in full of
the Repurchase Option, whichever occurs first.
<PAGE> 13
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder; provided, however, that if at the time of
termination of this escrow you are advised by the Corporation that the property
subject to this escrow is the subject of a pledge or other security agreement,
you shall deliver all such property to the pledgeholder or other person
designated by the Corporation.
6. Except as otherwise provided in these Joint Escrow Instructions, your
duties hereunder may be altered, amended, modified or revoked only by a writing
signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties or
their assignees. You shall not be personally liable for any act you may do or
omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while
acting in good faith and any act done or omitted by you pursuant to the advice
of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree of any court,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Corporation or if you shall resign by
written notice to each party. In the event of any such termination, the
Corporation may appoint any officer or assistant officer of the Corporation as
successor Escrow Agent and Purchaser hereby confirms the appointment of such
successor or successors as his attorney-in-fact and agent to the full extent of
your appointment.
12. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
<PAGE> 14
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities, you are authorized and directed to retain in your possession without
liability to anyone all or any part of said securities until such dispute shall
have been settled either by mutual written agreement of the parties concerned or
by a final order, decree or judgment of a court of competent jurisdiction after
the time for appeal has expired and no appeal has been perfected, but you shall
be under no duty whatsoever to institute or defend any such proceedings.
14. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery, including delivery
by express courier or five days after deposit in the United States Post Office,
by registered or certified mail with postage and fees prepaid, addressed to each
of the other parties hereunto entitled at the following addresses, or at such
other addresses as a party may designate by ten days' advance written notice to
each of the other parties hereto:
CORPORATION: M4, INC.
3550 General Atomics Court
Building 14, Suite 140
San Diego, CA 92121
PURCHASER: JAMES CAROL
c/o M4, Inc.
3550 General Atomics Court
Building 14, Suite 140
San Diego, CA 92121
ESCROW AGENT: FREDERICK T. MUTO
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, California 92121
15. By signing these Joint Escrow Instructions you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
16. You shall be entitled to employ such legal counsel and other experts
(including without limitation the firm of Cooley Godward LLP) as you may deem
necessary properly to advise you in connection with your obligations hereunder.
You may rely upon the advice of such counsel, and may pay such counsel
reasonable compensation therefor. The Corporation shall be responsible for all
fees generated by such legal counsel in connection with your obligations
hereunder.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. It is
understood and agreed that references to "you" or "your" herein refer to the
original Escrow Agent and to any and all successor Escrow Agents. It is
understood and agreed that the Corporation may at any time or from time to time
assign its rights under the Agreement and these Joint Escrow Instructions in
whole or in part.
<PAGE> 15
18. This Agreement shall be governed by and interpreted and determined
in accordance with the laws of the State of Delaware, as such laws are applied
by California courts to contracts made and to be performed entirely in
California by residents of that state.
Very truly yours,
M4, INC.
By /s/ JAMES CAROL
----------------------------------
James Carol, Chief Executive Officer
PURCHASER:
/s/ JAMES CAROL
------------------------------------
James Carol
<PAGE> 16
August 5, 1998
Director of Internal Revenue
Internal Revenue Service Center
Fresno, CA 93888
RE: ELECTION UNDER SECTION 83(b)
Gentlemen:
This statement constitutes an election pursuant to Section 83(b) of the Internal
Revenue Code of 1986, as amended from time to time.
Pursuant to Treasury Regulation Section 1.83-2, the following information is
submitted:
1. NAME: James Carol ("Purchaser")
ADDRESS: -------------------------
-------------------------
SOCIAL SECURITY NO.: - -
-------- ------ ------
2. PROPERTY DESCRIPTION: 3,000,000 shares of Common Stock of M4, Inc. (the
"Company").
3. The date on which the property was transferred is August 5, 1998.
4. The taxable year for which the election is made is the calendar year 1998.
5. RESTRICTIONS:
If, on or before August 5, 2001, the employment or consulting relationship of
the Purchaser by the Company terminates for any reason, the Company shall have
the option to repurchase some of all of the property (depending on the date of
such termination) for a price equal to the cost of the property repurchased.
6. The fair market value of the property at the time of transfer with respect to
which this election is being made, determined without regard to any restrictions
other than a restriction which by its terms will never lapse is $3,000.
7. The amount paid by the undersigned taxpayer for the property is $3,000
<PAGE> 17
8. The undersigned taxpayer hereby elects to include in gross income for 1998
the amount of 0 $, which equals the amount by which the fair market value of the
property exceeds the amount paid for such property.
9. A copy of this statement has been furnished to the Company and the transferee
of the property if different from the purchaser.
Dated: August 5, 1998.
Very truly yours,
- -----------------------------------
James Carol
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 14, 2000, except for Note 7, as to which the
date is March 13, 2000, in the Registration Statement (Form S-1) and related
Prospectus of PacketVideo Corporation for the registration of shares of its
common stock to be filed on March 14, 2000.
/s/ Ernst & Young LLP
San Diego, California
March 13, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,732,972
<SECURITIES> 21,354,132
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,281,541
<PP&E> 473,997
<DEPRECIATION> (34,154)
<TOTAL-ASSETS> 23,796,190
<CURRENT-LIABILITIES> 906,267
<BONDS> 0
0
18,470
<COMMON> 22,863
<OTHER-SE> 22,848,590
<TOTAL-LIABILITY-AND-EQUITY> 23,796,190
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 8,182,813
<OTHER-EXPENSES> (164,185)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,018,628)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,018,628)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,018,628)
<EPS-BASIC> (.63)
<EPS-DILUTED> (.63)
</TABLE>
