<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1999
REGISTRATION NO. 333-88687
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VA LINUX SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA
(PRIOR TO REINCORPORATION)
DELAWARE
(AFTER REINCORPORATION) 3571 77-0399299
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1382 BORDEAUX DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 542-8600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
LARRY M. AUGUSTIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1382 BORDEAUX DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 542-8600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JUDITH M. O'BRIEN, ESQ. WILLIAM D. SHERMAN, ESQ.
BRUCE M. MCNAMARA, ESQ. STEPHEN J. SCHRADER, ESQ.
BRET M. DIMARCO, ESQ. JUSTIN L. BASTIAN, ESQ.
DAVID I. FRAZEE, ESQ. ROCHELLE A. KRAUSE, ESQ.
WILSON SONSINI GOODRICH & ROSATI BRIAN MCALLISTER, ESQ.
PROFESSIONAL CORPORATION MORRISON & FOERSTER LLP
650 PAGE MILL ROAD 755 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304 PALO ALTO, CALIFORNIA 94304
(650) 493-9300 (650) 813-5600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE REGISTRATION FEE(1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.001 par value.............................. $70,000,000 $19,460
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Registration fee previously paid. Estimated pursuant to Rule 457(o) of the
Securities Act of 1933 solely for the purpose of computing the amount of the
registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by VA Linux Systems, Inc. in
connection with the sale of Common Stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $19,460
NASD filing fee............................................. $ 7,500
Nasdaq National Market listing fee.......................... *
Printing and engraving costs................................ *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses.................................. *
Transfer Agent and Registrar fees........................... *
Miscellaneous expenses...................................... *
-------
Total............................................. $ *
=======
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
The Eighth Article of the Registrant's Amended and Restated Certificate of
Incorporation provides for the indemnification of directors to the fullest
extent permissible under Delaware law.
Article VI of the Registrant's Amended and Restated Bylaws provides for the
indemnification of officers, directors and third parties acting on behalf of the
Registrant if such person acted in good faith and in a manner reasonably
believed to be in and not opposed to the best interest of the Registrant, and,
with respect to any criminal action or proceeding, the indemnified party had no
reason to believe his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Amended and Restated Bylaws, and intends to enter into
indemnification agreements with any new directors and executive officers in the
future.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since August 1, 1996, we have issued unregistered securities to a limited
number of persons as described below: (all share numbers and exercise prices in
this Item 15 are adjusted for our splits.)
(a) From October 1, 1998 through September 30, 1999, we sold an
aggregate of 10,221,528 shares of our common stock at exercise prices
ranging from $0.02 to $1.00 per share to employees, consultants, directors
and other service providers pursuant to our 1998 Stock Plan, as amended.
(b) On October 30, 1998 and February 19, 1999, we sold 8,623,774 and
3,525,548 shares of Series A Preferred Stock, respectively, at a price of
$0.4567 per share to a group of private investors for an aggregate purchase
price of $5,548,190.
(c) On December 9, 1998, we granted an option to purchase 30,000
shares of our common stock to an outside service provider at a purchase
price of $0.0433.
II-1
<PAGE> 3
(d) On January 19, 1999 and March 1, 1999, we sold a total of 83,332
shares of our common stock, having a value of $22,817, to an outside
service provider in consideration for past services rendered.
(e) On February 25, 1999, we granted a right to purchase 135,000
shares of our common stock at a purchase price of $0.0433 per share in
connection with an asset purchase.
(f) On May 13, 1999, we granted a right to purchase 5,000 shares of
our common stock, having a value of $2,500, to an outside service provider
in consideration for past services rendered.
(g) On May 13, 1999, we granted a right to purchase 15,000 shares of
our common stock to an outside service provider at a purchase price of
$0.50 per share.
(h) On May 25, 1999, we sold 40,000 shares of our common stock in
connection with an asset purchase for an aggregate purchase price of
$20,000.
(i) On June 16, 1999 and September 24, 1999, we sold 6,502,592 and
1,256,454 shares of our Series B Preferred Stock, respectively, for $3.86
per share to a group of private investors for an aggregate purchase price
of $29,949,918.
(j) On August 1, 1999 we sold 12,954 shares of our Series B Preferred
Stock in connection with an asset purchase for an aggregate purchase price
of $50,002.
(k) On October 6, 1999, we sold 13,000 shares of our common stock for
$1.00 per share to a group of private investors for an aggregate purchase
price of $13,000.
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Certain
Transactions" in the form of prospectus included herein. The sales of the above
securities were deemed to be exempt from registration in reliance on Rule 701
promulgated under Section 3(b) under the Securities Act as transactions pursuant
to a compensatory benefit plan or a written contract relating to compensation,
or in reliance on Section 4(2) of the Securities Act or Regulation D promulgated
thereunder as transactions by an issuer not involving any public offering. The
recipients of securities in each such transaction represented their intention to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the share certificates and other instruments issued in such transactions. All
recipients either received adequate information about VA Linux or had access,
through employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
3.2 Bylaws of the Registrant
4.1* Specimen Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers
10.2 1998 Stock Plan and forms of agreement thereunder
10.3 1999 Employee Stock Purchase Plan
10.4 1999 Director Option Plan
10.5* Sublease between Registrant and Boca Global, Inc.
10.6 First Amended and Restated Registration Rights Agreement
between Registrant and certain holders of preferred stock
</TABLE>
II-2
<PAGE> 4
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>
10.7 Founder's Stock Repurchase Agreement
10.8* Manufacturing Agreement between the Registrant and Synnex
Information Technologies, Inc.
10.9 Loan and Security Agreement between Registrant and Comerica
Bank-California
10.10* Master Subcontracted Maintenance Service Provider Agreement
between Registrant and DecisionOne Corporation
10.11* VA Research Linux IA-64 Porting License Agreement between
Registrant and Intel Corporation
10.12 GNU General Public License, version 2
10.13 Employment Letter between the Registrant and Daniel R. Shore
10.14 Employment Letter between the Registrant and Gregg E. Zehr
10.15 Employment Letter between the Registrant and Todd B. Schull
10.16* Master Lease Agreement between Boca Global, Inc. and
Bordeaux Partners LLC
23.1** Consent of Arthur Andersen, LLP, Independent Public
Accountants
23.2* Consent of Counsel (see Exhibit 5.1)
24.1** Power of Attorney (see page II-4)
27.1** Financial Data Schedules
</TABLE>
- ---------------
+ Confidential treatment has been requested by the Registrant as to certain
portions of this exhibit. The omitted portions have been separately filed
with the Commission.
* To be filed by amendment
** Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE PAGE
-------- ----
<S> <C>
II -- Valuation and Qualifying Accounts S-2
</TABLE>
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 5
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 6
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 Sunnyvale,
State of California, on the 22nd day of October, 1999.
VA Linux Systems, Inc.
By: /s/ LARRY M. AUGUSTIN
------------------------------------
Larry M. Augustin, President and
Chief Executive Officer
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
- --------- ----- ----
<C> <S> <C>
/s/ LARRY M. AUGUSTIN President and Chief Executive October 22, 1999
- --------------------------------------------------- Officer and Director
Larry M. Augustin (Principal Executive
Officer)
/s/ TODD B. SCHULL* Vice President, Finance and October 22, 1999
- --------------------------------------------------- Chief Financial Officer
Todd B. Schull (Principal Financial and
Accounting Officer)
/s/ JEFFRY R. ALLEN* Director October 22, 1999
- ---------------------------------------------------
Jeffry R. Allen
/s/ CAROL BARTZ* Director October 22, 1999
- ---------------------------------------------------
Carol Bartz
/s/ DOUGLAS LEONE* Director October 22, 1999
- ---------------------------------------------------
Douglas Leone
/s/ THOMAS F. MENDOZA* Director October 22, 1999
- ---------------------------------------------------
Thomas F. Mendoza
/s/ ERIC S. RAYMOND* Director October 22, 1999
- ---------------------------------------------------
Eric S. Raymond
/s/ CARL REDFIELD* Director October 22, 1999
- ---------------------------------------------------
Carl Redfield
*By: /s/ TODD B. SCHULL
---------------------------------------------
Todd B. Schull
Attorney-in-fact
</TABLE>
II-5
<PAGE> 7
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
3.2 Bylaws of the Registrant
4.1* Specimen Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers
10.2 1998 Stock Plan and forms of agreement thereunder
10.3 1999 Employee Stock Purchase Plan
10.4 1999 Director Option Plan
10.5* Sublease between Registrant and Boca Global, Inc.
10.6 First Amended and Restated Registration Rights Agreement
between Registrant and certain holders of preferred stock
10.7 Founder's Stock Repurchase Agreement
10.8* Manufacturing Agreement between the Registrant and Synnex
Information Technologies, Inc.
10.9 Loan and Security Agreement between Registrant and Comerica
Bank-California
10.10* Master Subcontracted Maintenance Service Provider Agreement
between Registrant and DecisionOne Corporation
10.11* VA Research Linux IA-64 Porting License Agreement between
Registrant and Intel Corporation
10.12 GNU General Public License, version 2
10.13 Employment Letter between the Registrant and Daniel R. Shore
10.14 Employment Letter between the Registrant and Gregg E. Zehr
10.15 Employment Letter between the Registrant and Todd B. Schull
10.16* Master Lease Agreement between Boca Global, Inc. and
Bordeaux Partners LLC
23.1** Consent of Arthur Andersen, LLP, Independent Public
Accountants
23.2* Consent of Counsel (see Exhibit 5.1)
24.1** Power of Attorney (see page II-4)
27.1** Financial Data Schedules
</TABLE>
- ---------------
+ Confidential treatment has been requested by the Registrant as to certain
portions of this exhibit. The omitted portions have been separately filed
with the Commission.
* To be filed by amendment
** Previously filed.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
VA LINUX SYSTEMS, INC.
VA Linux Systems, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies that:
A. The name of this Corporation is VA Linux Systems, Inc.
B. The date of filing of this Corporation's original Certificate of
Incorporation with the Secretary of State of Delaware was September 21, 1999.
C. Pursuant to Sections 242 and 245 of the Delaware General Corporation
law, this Restated Certificate of Incorporation restates, integrates and amends
the provisions of the Corporation's Amended and Restated Certificate of
Incorporation as follows:
FIRST: The name of this Corporation is VA Linux Systems, Inc.
SECOND: The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, Wilmington, County of New Castle, Delaware
19801. The name of its registered agent at such address is The Corporation Trust
Company.
THIRD: The purpose of this Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: This Corporation is authorized to issue two classes of shares
to be designated, respectively, Common Stock and Preferred Stock. The total
number of shares of Common Stock which this Corporation is authorized to issue
is 250,000,000, with a par value of $0.001, and the total number of shares of
Preferred Stock which this corporation is authorized to issue is 10,000,000,
with a par value of $0.001.
The Preferred Stock may be issued from time to time in one or more
series pursuant to a resolution or resolutions providing for such issue duly
adopted by the Board of Directors (authority to do so being hereby expressly
vested in the Board). The Board of Directors is further authorized to determine
or alter the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and, to fix the
number of shares of any such series of Preferred Stock and the designation of
any such series of Preferred Stock. The Board of Directors is authorized, within
the limits and restrictions stated in any resolution or resolutions of the Board
of Directors originally fixing the number of shares constituting any series, to
increase or decrease (but not below the number of shares thereof then
outstanding) the number of shares of any such series subsequent to the issue of
shares of that series, to determine the designation of any series, and to fix
the number of shares of any series.
FIFTH: The Corporation is to have perpetual existence.
<PAGE> 2
SIXTH: Elections of directors need not be by written ballot unless a
stockholder demands election by written ballot at the meeting and before voting
begins or unless the Bylaws of the Corporation shall so provide.
SEVENTH: A. 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
designated in the Bylaws of the Corporation.
B. Except with respect to directors who may be elected by the
holders of any class or series of stock having preferences over the Common Stock
as to dividends or upon liquidation, the directors shall be classified as set
forth herein. The Board of 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 date hereof, 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 date hereof, 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 date hereof, 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.
C. Notwithstanding the foregoing provisions of this Article,
each director shall serve until his or her successor is duly elected and
qualified or until his or her death, resignation, or removal. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
D. Any vacancies on the Board of Directors resulting from
death, resignation, disqualification, removal, or other causes shall be filled
by either (i) the affirmative vote of the holders of a majority of the voting
power of the then-outstanding shares of voting stock of the Corporation entitled
to vote generally in the election of directors (the "Voting Stock") voting
together as a single class; or (ii) by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors. Newly created directorships resulting from any increase in the
number of directors shall, unless the Board of Directors determines by
resolution that any such newly created directorship shall be filled by the
stockholders, be filled only by the affirmative vote 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 class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
E. The affirmative vote of sixty-six and two-thirds percent
(66-2/3%) of the voting power of the then outstanding shares of Voting Stock,
voting together as a single class, shall be required for the adoption, amendment
or repeal of the following sections of the Corporation's Bylaws by the
stockholders of the Corporation: 2.2 (Annual Meeting) and 2.3 (Special Meeting).
F. No action shall be taken by the stockholders of the
Corporation except at an annual or special meeting of the stockholders called in
accordance with the Bylaws.
G. Any director, or the entire Board of Directors, may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of at least a majority of the voting power of all of the then-
-2-
<PAGE> 3
outstanding shares of the Voting Stock, voting together as a single class; 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 of the
then-outstanding shares of the Voting Stock.
EIGHTH: A. To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, no director
of the Corporation or any subsidiary of the Corporation shall be personally
liable to the Corporation or its stockholders and shall otherwise be indemnified
by the Corporation for monetary damages for breach of fiduciary duty as a
director of the Corporation, any predecessor of the Corporation or any
subsidiary of the Corporation.
B. The Corporation shall indemnify to the fullest extent
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that he, his testator or intestate is or was a director or
officer of the Corporation, any predecessor of the Corporation or any subsidiary
of the Corporation or serves or served at any other enterprise as a director or
officer at the request of the Corporation, any predecessor to the Corporation or
any subsidiary of the Corporation.
C. Neither any amendment nor repeal of this Article EIGHTH, nor
the adoption of any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article EIGHTH, shall eliminate or reduce the effect of
this Article EIGHTH, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article EIGHTH, would
accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent
provision.
NINTH: 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 rights of designation of Preferred Stock conferred on
the Board of Directors pursuant to Article FOURTH, 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 Article SEVENTH
or this Article NINTH.
TENTH: 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 Article
NINTH of this Certificate, and all rights conferred upon the stockholders herein
are granted subject to this right.
ELEVENTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, alter, amend
or repeal the Bylaws of the Corporation.
TWELFTH: Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside of the
State of Delaware at such place or places as may be designated from time to time
by the Board of Directors or in the Bylaws of the Corporation.
THIRTEENTH: Advance written notice of new business and stockholder
nominations for the election of directors shall be given in the manner and to
the extent provided in the Bylaws of the Corporation.
-3-
<PAGE> 4
FOURTEENTH: Stockholders shall not be entitled to cumulative voting
rights for the election of directors.
This Amended and Restated Certificate of Incorporation has been duly
adopted by the stockholders of the Corporation in accordance with the provisions
of Sections 242 and 245 of the General Corporation Law of the State of Delaware,
as amended.
IN WITNESS WHEREOF, VA Linux Systems, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by Larry M. Augustin, its
President, and attested by Judith M. O'Brien, its Secretary, this ____ day of
________, 1999.
VA LINUX SYSTEMS, INC.
--------------------------------------
Larry M. Augustin, President
Attested:
- --------------------------------------
Judith M. O'Brien, Secretary
-4-
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
VA LINUX SYSTEMS, INC.
A DELAWARE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I CORPORATE OFFICES......................................................................1
1.1 REGISTERED OFFICE.................................................................1
1.2 OTHER OFFICES.....................................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS..............................................................1
2.1 PLACE OF MEETINGS.................................................................1
2.2 ANNUAL MEETING....................................................................1
2.3 SPECIAL MEETING...................................................................1
2.4 NOTICE OF STOCKHOLDERS' MEETINGS..................................................2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS...................2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE......................................3
2.7 QUORUM............................................................................4
2.8 ADJOURNED MEETING; NOTICE.........................................................4
2.9 VOTING............................................................................4
2.10 WAIVER OF NOTICE..................................................................4
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING...........................5
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.......................5
2.13 PROXIES...........................................................................6
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE.............................................6
2.15 CONDUCT OF BUSINESS...............................................................6
ARTICLE III DIRECTORS............................................................................7
3.1 POWERS............................................................................7
3.2 NUMBER............................................................................7
3.3 CLASSES OF DIRECTORS..............................................................7
3.4 RESIGNATION AND VACANCIES.........................................................8
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE..........................................9
3.6 REGULAR MEETINGS..................................................................9
3.7 SPECIAL MEETINGS; NOTICE..........................................................9
3.8 QUORUM............................................................................9
3.9 WAIVER OF NOTICE.................................................................10
3.10 ADJOURNED MEETING; NOTICE........................................................10
3.11 CONDUCT OF BUSINESS..............................................................10
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING................................10
3.13 FEES AND COMPENSATION OF DIRECTORS...............................................10
3.14 REMOVAL OF DIRECTORS.............................................................11
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ARTICLE IV COMMITTEES...........................................................................11
4.1 COMMITTEES OF DIRECTORS..........................................................11
4.2 COMMITTEE MINUTES................................................................12
4.3 MEETINGS AND ACTION OF COMMITTEES................................................12
ARTICLE V OFFICERS..............................................................................12
5.1 OFFICERS.........................................................................12
5.2 APPOINTMENT OF OFFICERS..........................................................12
5.3 REMOVAL AND RESIGNATION OF OFFICERS..............................................13
5.4 CHAIRMAN OF THE BOARD............................................................13
5.5 CHIEF EXECUTIVE OFFICER..........................................................13
5.6 PRESIDENT........................................................................13
5.7 VICE PRESIDENT...................................................................14
5.8 SECRETARY........................................................................14
5.9 CHIEF FINANCIAL OFFICER..........................................................14
5.10 ASSISTANT SECRETARY..............................................................15
5.11 AUTHORITY AND DUTIES OF OFFICERS.................................................15
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS...................15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS........................................15
6.2 INDEMNIFICATION OF OTHERS........................................................16
6.3 INSURANCE........................................................................16
6.4 EXPENSES.........................................................................16
6.5 NON-EXCLUSIVITY OF RIGHTS........................................................17
6.6 SURVIVAL OF RIGHTS...............................................................17
6.7 AMENDMENTS.......................................................................17
6.8 THE CORPORATION..................................................................17
6.9 EMPLOYEE BENEFIT PLANS...........................................................18
ARTICLE VII RECORDS AND REPORTS.................................................................18
7.1 MAINTENANCE AND INSPECTION OF RECORDS............................................18
7.2 INSPECTION BY DIRECTORS..........................................................18
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS...................................19
ARTICLE VIII GENERAL MATTERS....................................................................19
8.1 CHECKS...........................................................................19
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.................................19
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES...........................................19
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8.4 SPECIAL DESIGNATION ON CERTIFICATES..............................................20
8.5 LOST CERTIFICATES................................................................20
8.6 CONSTRUCTION; DEFINITIONS........................................................21
8.7 DIVIDENDS........................................................................21
8.8 FISCAL YEAR......................................................................21
8.9 SEAL.............................................................................21
8.10 TRANSFER OF STOCK................................................................21
8.11 STOCK TRANSFER AGREEMENTS........................................................21
8.12 REGISTERED STOCKHOLDERS..........................................................22
ARTICLE IX AMENDMENTS...........................................................................22
ARTICLE X DISSOLUTION...........................................................................22
ARTICLE XI CUSTODIAN............................................................................23
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES......................................23
11.2 DUTIES OF CUSTODIAN..............................................................23
ARTICLE XII LOANS TO OFFICERS...................................................................23
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<PAGE> 5
BYLAWS
OF
VA LINUX SYSTEMS, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the Corporation shall be 1209 Orange Street,
City of Wilmington, County of New Castle, State of Delaware, 19801. The name of
the registered agent of the Corporation at such location is The Corporation
Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the Corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. At the meeting, directors
shall be elected and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
(i) board of directors, (ii) the chairman of the board or (iii) the chief
executive officer. In addition, prior to the Effective Date (as defined in
Section 2.11 hereof), stockholders owning 10% or more of the outstanding shares
<PAGE> 6
entitled to vote in elections for the board of directors may call a
special meeting of the stockholders. Only such business shall be considered at a
special meeting as shall have been stated in the notice for such meeting.
If a special meeting is called by any person other than the board of
directors, the request shall be in writing, specifying the time of such meeting
and the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the chief executive
officer, the president, any vice president, or the secretary of the corporation.
No business may be transacted at such special meeting otherwise than specified
in such notice. The officer receiving the request shall cause notice to be
promptly given to the stockholders entitled to vote, in accordance with the
provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be
held at the time requested by the person or persons who called the meeting, not
less than thirty-five (35) nor more than sixty (60) days after the receipt of
the request. If the notice is not given within twenty (20) days after the
receipt of the request, the person or persons requesting the meeting may give
the notice. Nothing contained in this paragraph of this Section 2.3 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.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.6 of these Bylaws not
less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting. The notice shall specify the
place, date and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
To be properly brought before an annual meeting or special meeting,
nominations for the election of director or other business must be (i) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the board of directors, (ii) otherwise properly brought before the
meeting by or at the direction of the board of directors, or (iii) otherwise
properly brought before the meeting by a stockholder. For such nominations or
other business to be considered properly brought before the meeting by a
stockholder, such stockholder must have given timely notice and in proper form
of his intent to bring such business before such meeting. To be timely, such
stockholder's notice must be delivered to or mailed and received by the
secretary of the Corporation at the Corporation's principal executive offices on
the date one year later which is not less than 120 calendar days nor more than
150 calendar days before the date of the Corporation's proxy statement released
to stockholders in connection with the prior year's annual meeting. However, if
no annual meeting was held in the previous year, or if the date of the
applicable annual meeting has been changed by more than 30 days from the date
contemplated at the time of the previous year's proxy statement, a stockholder's
notice must be received by the secretary of the
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<PAGE> 7
Corporation at the Corporation's principal executive offices not later than 60
days before the date the Corporation commences mailing of its proxy materials in
connection with the applicable annual meeting. Notwithstanding the foregoing
provisions of this Section 2.5, a stockholder who seeks to have any proposal
included in the Corporation's proxy materials shall comply with the requirements
of Rule 14a-8 under Regulation 14A of the Securities Exchange Act of 1934, as
amended. To be in proper form, a stockholder's notice to the secretary shall set
forth:
(i) the name and address of the stockholder who intends
to make the nominations, propose the business, and,
as the case may be, the name and address of the
person or persons to be nominated or the nature of
the business to be proposed;
(ii) a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote
at such meeting and, if applicable, intends to appear
in person or by proxy at the meeting to nominate the
person or persons specified in the notice or
introduce the business specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each
nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination
or nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each
matter of business to be proposed by such stockholder
as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee
been nominated, or intended to be nominated, or the
matter been proposed, or intended to be proposed by
the board of directors; and
(v) if applicable, the consent of each nominee to serve
as director of the Corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the Corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
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2.7 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (i) the chairman of the meeting, or
(ii) the stockholders entitled to vote thereat, present in person or represented
by proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
When a quorum is present or represented at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provisions of the General
Corporation Law of Delaware or of the certificate of incorporation, a different
vote is required, in which case such express provision shall govern and control
the decision of the question.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, 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
that might have been transacted at the original meeting. If the adjournment is
for more than 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.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Sections 2.12 and 2.14 of
these Bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of
incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such
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<PAGE> 9
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these Bylaws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Except as otherwise provided in this Section 2.11, any action required
to be taken at any annual or special meeting of stockholders of a Corporation,
or any action that may be taken at any annual or special meeting of such
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, is 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.
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 Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under 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.
Notwithstanding the foregoing, effective upon the listing of the Common
Stock of the Corporation on the Nasdaq Stock Market on the New York Stock
Exchange and the registration of any class of securities of the Corporation
pursuant to the requirements of the Securities Exchange Act of 1934, as amended
(the "Effective Date"), the stockholders of the Corporation may not take action
by written consent without a meeting but must take any such actions at a duly
called annual or special meeting.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action.
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<PAGE> 10
If the board of directors does not so fix a record date, the fixing of
such record date shall be governed by the provisions of Section 213 of the
General Corporation Law of Delaware.
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.
2.13 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the Corporation, but no such
proxy shall be voted or acted upon after 3 years from its date, unless the proxy
provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a Corporation shall
prepare and make, at least 10 days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and 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 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The stock ledger shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list of stockholders or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders and
of the number of shares held by each such stockholder.
2.15 CONDUCT OF BUSINESS
Meetings of stockholders shall be presided over by the chairman of the
board, if any, or in his absence by the chief executive officer, or in his
absence by the president, or in his absence by a vice president, or in the
absence of the foregoing persons by a chairman designated by the board of
directors, or in the absence of such designation by a chairman chosen at the
meeting. The secretary shall act as secretary of the meeting, but in his absence
the chairman of the meeting may appoint any person to act as secretary of the
meeting.
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The chairman of any meeting of stockholders shall determine the order
of business and the procedures at the meeting, including such matters as the
regulation of the manner of voting and conduct of business.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these Bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the Corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the board of
directors.
3.2 NUMBER
The authorized number of directors of the Corporation shall be seven
(7) and, thereafter, shall be fixed from time to time exclusively by the Board
of Directors pursuant to a resolution adopted by a majority of the total number
of authorized directorships at the time any such resolution is presented to the
Board for adoption. No reduction of the authorized number of directors shall
have the effect of removing any director before that director's term of office
expires.
3.3 CLASSES OF DIRECTORS
Upon the Effective Date (as defined in Section 2.11 hereof), the
Directors shall be divided as nearly equal in number as reasonably possible,
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 and may be reassigned among such
classes as determined by the Board of Directors. At the first annual meeting of
stockholders following the Effective Time, 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
Effective Time, 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 Effective Time, 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.
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<PAGE> 12
Notwithstanding the foregoing provisions of this Article, each Director
shall serve until his successor is duly elected and qualified or until his
earlier death, resignation or removal. No decrease in the number of Directors
constituting the Board of Directors shall shorten the term of any incumbent
Director.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
Corporation. Stockholders may remove directors with or without cause. Any
vacancy occurring in the board of directors with or without cause may be filled
by a majority of the remaining members of the board of directors, although such
majority is less than a quorum, or by a plurality of the votes cast at a meeting
of stockholders, and each director so elected shall hold office until the
expiration of the term of office of the director whom he has replaced.
Unless otherwise provided in the certificate of incorporation or these
Bylaws:
(i) Vacancies and newly created directorships resulting
from any increase in the authorized number of
directors elected by all of the stockholders having
the right to vote as a single class may be filled by
a majority of the directors then in office, although
less than a quorum, or by a sole remaining director.
(ii) Whenever the holders of any class or classes of stock
or series thereof are entitled to elect one or more
directors by the provisions of the certificate of
incorporation, vacancies and newly created
directorships of such class or classes or series may
be filled by a majority of the directors elected by
such class or classes or series thereof then in
office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may apply to the Court of Chancery for a decree summarily
ordering an election as provided in Section 211 of the General Corporation Law
of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least 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 office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
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<PAGE> 13
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the Corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or
these Bylaws, members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of the board of directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the Corporation. If the notice is mailed, it
shall be deposited in the United States mail at least 4 days before the time of
the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least 48 hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
Corporation.
3.8 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation.
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<PAGE> 14
3.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these Bylaws.
3.10 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors,
then the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
3.11 CONDUCT OF BUSINESS
Meetings of the board of directors shall be presided over by the
chairman of the board, if any, or in his absence by the chief executive officer,
or in their absence by a chairman chosen at the meeting. The secretary shall act
as secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting. The chairman of any
meeting shall determine the order of business and the procedures at the meeting.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A 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 or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or
these Bylaws, the board of directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed sum
for attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
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3.14 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these Bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors. If at any time a class
or series of shares is entitled to elect one or more directors, the provisions
of this Section 3.14 shall apply to the vote of that class or series and not to
the vote of the outstanding shares as a whole.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the Corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of 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. Any such committee, to the extent provided in the resolution of the
board of directors or in the Bylaws of the Corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend 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 as provided in Section 151(a) of the General
Corporation Law of Delaware, fix 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), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the Corporation or a revocation
of a dissolution, or (v) amend the Bylaws of the Corporation; and, unless the
board resolution establishing the committee, the Bylaws or the certificate of
incorporation expressly so provides, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
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4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these Bylaws, Section
3.5 (place of meetings and meetings by telephone), Section 3.6 (regular
meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum),
Section 3.9 (waiver of notice), Section 3.10 (adjournment and notice of
adjournment), Section 3.11 (conduct of business) and 3.12 (action without a
meeting), with such changes in the context of those Bylaws as are necessary to
substitute the committee and its members for the board of directors and its
members; provided, however, that the time of regular meetings of committees may
also be called by resolution of the board of directors and that notice of
special meetings of committees shall also be given to all alternate members, who
shall have the right to attend all meetings of the committee. The board of
directors may adopt rules for the government of any committee not inconsistent
with the provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the Corporation shall be a chief executive officer, one
or more vice presidents, a secretary and a chief financial officer. The
Corporation may also have, at the discretion of the board of directors, a
chairman of the board, a president, a chief operating officer, one or more
executive, senior or assistant vice presidents, assistant secretaries and any
such other officers as may be appointed in accordance with the provisions of
Section 5.2 of these Bylaws. Any number of offices may be held by the same
person.
5.2 APPOINTMENT OF OFFICERS
Except as otherwise provided in this Section 5.2, the officers of the
Corporation shall be appointed by the board of directors, subject to the rights,
if any, of an officer under any contract of employment. The board of directors
may appoint, or empower an officer to appoint, such officers and agents of the
business as the Corporation may require (whether or not such officer or agent is
described in this Article V), each of whom shall hold office for such period,
have such authority, and perform such duties as are provided in these Bylaws or
as the board of directors may from time to time determine. Any vacancy occurring
in any office of the Corporation shall be filled by the board of directors or
may be filled by the officer, if any, who appointed such officer.
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5.3 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors or, in the case of an officer appointed by
another officer, by such other officer.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the officer is a
party.
5.4 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these Bylaws. If there is no chief
executive officer, then the chairman of the board shall also be the chief
executive officer of the Corporation and shall have the powers and duties
prescribed in Section 5.5 of these Bylaws.
5.5 CHIEF EXECUTIVE OFFICER
The Chief Executive Officer of the Corporation shall, subject to the
control of the Board of Directors, have general supervision, direction and
control of the business and the officers of the Corporation. He or she shall
preside at all meetings of the stockholders and, in the absence or nonexistence
of a Chairman of the Board at all meetings of the Board of Directors. He or she
shall have the general powers and duties of management usually vested in the
chief executive officer of a Corporation, including general supervision,
direction and control of the business and supervision of other officers of the
Corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws.
The Chief Executive Officer shall, without limitation, have the
authority to execute bonds, mortgages and other contracts requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation.
5.6 PRESIDENT
Subject to such supervisory powers as may be given by these Bylaws or
the Board of Directors to the Chairman of the Board or the Chief Executive
Officer, if there be such officers, the president shall have general
supervision, direction and control of the business and supervision of
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other officers of the Corporation, and shall have such other powers and duties
as may be prescribed by the Board of Directors or these Bylaws. In the event a
Chief Executive Officer shall not be appointed, the President shall have the
duties of such office.
5.7 VICE PRESIDENT
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the chief executive officer and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the chief executive
officer. The vice presidents shall have such other powers and perform such other
duties as from time to time may be prescribed for them respectively by the board
of directors, these Bylaws, the chief executive officer or the chairman of the
board.
5.8 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the Corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the Corporation or at the office of the Corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these Bylaws. He shall keep the seal of the Corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these Bylaws.
5.9 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable times
be open to inspection by any director.
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The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the Corporation with such depositaries as may
be designated by the board of directors. He shall disburse the funds of the
Corporation as may be ordered by the board of directors, shall render to the
chief executive officer and directors, whenever they request it, an account of
all of his transactions as treasurer and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these Bylaws.
5.10 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.11 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
Corporation shall respectively have such authority and perform such duties in
the management of the business of the Corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the Corporation; provided, however, that the Corporation
may modify the extent of such indemnification by individual contracts with its
directors and executive 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 in advance 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 General Corporation Law of
Delaware or (iv) such indemnification is required to be made pursuant to an
individual contract. For purposes of this Section 6.1, a "director" or "officer"
of the corporation includes any person (i) who
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is or was a director or officer of the Corporation, (ii) who is or was serving
at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, or (iii) who
was a director or officer of a corporation which was a predecessor corporation
of the Corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS
The Corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the Corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the Corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the Corporation, (ii) who is or was serving at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the Corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
6.4 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 or she 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 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;
provided, however, that the Corporation shall not be required to advance
expenses to any director or officer in connection with any proceeding (or part
thereof) initiated by such person unless the proceeding was authorized in
advance by the Board of Directors of the Corporation.
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Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 6.5, 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.
6.5 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
General Corporation law of Delaware.
6.6 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.
6.7 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.
6.8 THE CORPORATION
For purposes of this Article VI, references to "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 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
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under and subject to the provisions of this Article VI with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, 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 deemed to have acted in a manner "not opposed to the best interests
of the Corporation" as referred to in this Article VI.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The Corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the Corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his position as a director. The Court of Chancery is
hereby vested with the exclusive jurisdiction to determine whether a director is
entitled to the inspection sought. The Court may summarily order the Corporation
to permit the director to inspect any and all books and records, the stock
ledger, and the
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stock list and to make copies or extracts therefrom. The Court may, in its
discretion, prescribe any limitations or conditions with reference to the
inspection, or award such other and further relief as the Court may deem just
and proper.
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the chief executive officer, any vice
president, the chief financial officer, the secretary or assistant secretary of
this Corporation, or any other person authorized by the board of directors or
the chief executive officer or a vice president, is authorized to vote,
represent, and exercise on behalf of this Corporation all rights incident to any
and all shares of any other corporation or corporations standing in the name of
this Corporation. The authority granted herein may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the Corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the board of directors of the Corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
Corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the Corporation by the chairman or vice-chairman of
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the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
Corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
The Corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the Corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the Corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the Corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the 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 shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the Corporation shall issue to represent
such class or series of stock a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the 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.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the Corporation and cancelled at the same time. The Corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
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8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a Corporation and a natural
person.
8.7 DIVIDENDS
The directors of the Corporation, subject to any restrictions contained
in the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the Corporation's
capital stock.
The directors of the Corporation may set apart out of any of the funds
of the Corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
Corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The Corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
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 General Corporation Law of Delaware.
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8.12 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, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
The original or other Bylaws of the Corporation may be adopted, amended
or repealed by the stockholders entitled to vote; provided, however, that the
Corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal Bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal Bylaws.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of
directors of the Corporation that the Corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the Corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the Corporation shall be dissolved.
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ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the Corporation is insolvent, to be
receivers, of and for the Corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to
elect successors to directors whose terms have
expired or would have expired upon qualification of
their successors; or
(ii) the business of the Corporation is suffering or is
threatened with irreparable injury because the
directors are so divided respecting the management of
the affairs of the Corporation that the required vote
for action by the board of directors cannot be
obtained and the stockholders are unable to terminate
this division; or
(iii) the Corporation has abandoned its business and has
failed within a reasonable time to take steps to
dissolve, liquidate or distribute its assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the Corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
ARTICLE XII
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.
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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 this Bylaw shall be deemed to deny, limit or restrict
the powers of guaranty or warranty of the Corporation at common law or under any
statute.
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EXHIBIT 10.1
VA LINUX SYSTEMS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is entered into as of
____________, ___ by and between VA Linux Systems, Inc., a Delaware corporation
(the "COMPANY") and ____________________________________ ("INDEMNITEE").
RECITALS
A. The Company and Indemnitee recognize the significant increases in the
cost of liability insurance for the Company's directors, officers, employees,
agents and fiduciaries.
B. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
agents and fiduciaries to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, agents and fiduciaries of the Company may not be willing to
continue to serve in such capacities without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires
that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Indemnification of Expenses. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
or any hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism,
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whether civil, criminal, administrative, investigative or other (hereinafter a
"CLAIM") by reason of (or arising in part out of) any event or occurrence
related to the fact that Indemnitee is or was a director, officer, employee,
agent or fiduciary of the Company, or any subsidiary of the Company, or is or
was serving at the request of the Company as a director, officer, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action or inaction on the part of
Indemnitee while serving in such capacity (hereinafter an "INDEMNIFIABLE EVENT")
against any and all expenses (including attorneys' fees and all other costs,
expenses and obligations incurred in connection with investigating, defending,
being a witness in or participating in (including on appeal), or preparing to
defend, be a witness in or participate in, any such action, suit, proceeding,
alternative dispute resolution mechanism, hearing, inquiry or investigation),
judgments, fines, penalties and amounts paid in settlement (if such settlement
is approved in advance by the Company, which approval shall not be unreasonably
withheld) of such Claim and any federal, state, local or foreign taxes imposed
on Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement (collectively, hereinafter "EXPENSES"), including all interest,
assessments and other charges paid or payable in connection with or in respect
of such Expenses. Such payment of Expenses shall be made by the Company as soon
as practicable but in any event no later than five days after written demand by
Indemnitee therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "EXPENSE ADVANCE") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitees' obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section 1(c) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be
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indemnified in whole or in part under applicable law, Indemnitee shall have the
right to commence litigation seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect thereof,
including the legal or factual bases therefor, and the Company hereby consents
to service of process and to appear in any such proceeding. Any determination by
the Reviewing Party otherwise shall be conclusive and binding on the Company and
Indemnitee.
(c) Change in Control. The Company agrees that if there is a
Change in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then, with respect to all matters
thereafter arising concerning the rights of Indemnitees to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected
by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law and the
Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all
Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid
by the Company to Indemnitee as soon as practicable but in any event no later
than five days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitees' right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In
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addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitees' power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of Indemnitee, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim with counsel approved by
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) Indemnitee shall have the right to
employ Indemnitees' counsel in any such Claim at Indemnitee expense and (ii) if
(A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there is a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not continue to retain such counsel to
defend such Claim, then the fees and expenses of Indemnitee counsel shall be at
the expense of the Company. The Company shall have the right to conduct such
defense as it sees fit in its sole discretion, including the right to settle any
claim against Indemnitee without the consent of the Indemnitee.
3. Additional Indemnification Rights; Nonexclusivity.
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(a) Scope. The Company hereby agrees to indemnify Indemnitee to
the fullest extent permitted by law, notwithstanding that such indemnification
is not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its Board of Directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 8(a) hereof.
(b) Nonexclusivity. The indemnification provided by this
Agreement shall be in addition to any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested directors, the General Corporation Law of
the State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action Indemnitee took or did
not take while serving in an indemnified capacity even though Indemnitee may
have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee are entitled.
6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by
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such policies in such a manner as to provide Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
directors, if Indemnitee is a director; or of the Company's officers, if
Indemnitee is not a director of the Company but is an officer; or of the
Company's key employees, agents or fiduciaries, if Indemnitee is not an officer
or director but is a key employee, agent or fiduciary.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Action or Omissions. (i) To indemnify Indemnitee
for Indemnitee's acts, omissions or transactions from which Indemnitee or the
Indemnitee may not be indemnified under applicable law; or (ii) to indemnify
Indemnity for Indemnity's intentional acts or transactions in violation of the
Company's policies;
(b) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be;
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. Construction of Certain Phrases.
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(a) For purposes of this Agreement, references to the "Company"
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, employees,
agents or fiduciaries, so that if Indemnitee is or was a director, officer,
employee, agent or fiduciary of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director, officer,
employee, agent or fiduciary of another corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise, Indemnitee shall stand in the
same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such director,
officer, employee, agent or fiduciary with respect to an employee benefit plan,
its participants or its beneficiaries; and if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall
be deemed to have occurred if (i) 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 trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding Voting Securities,
increases his beneficial ownership of such securities by 5% or more over the
percentage so owned by such person, or (B) becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than 20% of the total voting power represented by
the Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities
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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 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel"
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other than
with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall
mean any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee are
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall
mean any securities of the Company that vote generally in the election of
directors.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect with respect to Claims relating to Indemnifiable Events
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary of the Company or of any other enterprise at the
Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses
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incurred by Indemnitee with respect to such action, regardless of whether
Indemnitee is ultimately successful in such action, and shall be entitled to the
advancement of Expenses with respect to such action, unless, as a part of such
action, a court of competent jurisdiction over such action determines that each
of the material assertions made by Indemnitee as a basis for such action was not
made in good faith or was frivolous. In the event of an action instituted by or
in the name of the Company under this Agreement to enforce or interpret any of
the terms of this Agreement, Indemnitee shall be entitled to be paid all
Expenses incurred by Indemnitee in defense of such action (including costs and
expenses incurred with respect to Indemnitee counterclaims and cross-claims made
in such action), and shall be entitled to the advancement of Expenses with
respect to such action, unless, as a part of such action, a court having
jurisdiction over such action determines that each of Indemnitee material
defenses to such action was made in bad faith or was frivolous.
14. Notice. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery by
facsimile transmission, if delivered by facsimile transmission, with copy by
first class mail, postage prepaid, and shall be addressed if to Indemnitee, at
the Indemnitee address as set forth beneath Indemnitee signatures to this
Agreement and if to the Company at the address of its principal corporate
offices (attention: Secretary) or at such other address as such party may
designate by ten days' advance written notice to the other party hereto.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
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17. Choice of Law. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between Delaware residents, entered into and
to be performed entirely within the State of Delaware, without regard to the
conflict of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
[Remainder of page intentionally left blank;
signature page follows immediately hereafter]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
VA LINUX SYSTEMS, INC.
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By:
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Title:
Address:
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AGREED TO AND ACCEPTED BY:
Signature:
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Name:
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Address:
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EXHIBIT 10.2
VA LINUX SYSTEMS, INC.
1998 STOCK PLAN
(AS AMENDED AND RESTATED OCTOBER 1999, EFFECTIVE AS OF
THE EFFECTIVE DATE OF THE COMPANY'S INITIAL PUBLIC OFFERING)
1. Purposes of the Plan. The purposes of this 1998 Stock Plan are:
- to attract and retain the best available personnel for positions
of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means VA Linux Systems, Inc., a Delaware corporation.
(h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.
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(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for 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 Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "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.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
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(p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(q) "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.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1998 Stock Plan, as amended and restated.
(y) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b) " means Section 16(b) of the Exchange Act.
(cc) "Service Provider" means an Employee, Director or Consultant.
(dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
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<PAGE> 4
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 27,257,144 Shares, plus an annual increase to be added on
the first day of the Company's fiscal year beginning in 2000 equal to the lesser
of (i) 4,000,000 shares (such number to be adjusted to reflect any stock splits,
reorganizations, consolidations and the like which occur after November 30,
1999), (ii) 4.9% of the outstanding shares on such date or (iii) an amount
determined by the Board. The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. Different Committees with
respect to different groups of Service Providers may administer the Plan.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
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(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option or Stock Purchase Right granted hereunder.
Such terms and conditions include, but are not limited to, the exercise price,
the time or times when Options or Stock Purchase Rights may be exercised (which
may be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or Stock Purchase Right or the shares of Common Stock relating thereto, based in
each case on such factors as the Administrator, in its sole discretion, shall
determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
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<PAGE> 6
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Service Providers. Incentive Stock Options may be granted only
to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 2,000,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 5,000,000
Shares, which shall not count against the limit set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
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<PAGE> 7
8. Term of Option. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement. Moreover, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
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<PAGE> 8
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
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<PAGE> 9
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
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<PAGE> 10
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, the number of shares which may be added to the Plan each fiscal
year (pursuant to Section 3), as well as the price per share of Common Stock
covered by each such outstanding Option
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<PAGE> 11
or Stock Purchase Right, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until fifteen (15) days prior to
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option or Stock Purchase Right shall
lapse as to all such Shares, provided the proposed dissolution or liquidation
takes place at the time and in the manner contemplated. To the extent it has not
been previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
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<PAGE> 12
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of
an Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
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<PAGE> 13
18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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EXHIBIT 10.2
(CONTINUED)
VA LINUX SYSTEMS, INC.
1998 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[OPTIONEE'S NAME AND ADDRESS]
You have been granted an option to purchase Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number _____________________________________
Date of Grant _____________________________________
Vesting Commencement Date _____________________________________
Exercise Price per Share $____________________________________
Total Number of Shares Granted _____________________________________
Total Exercise Price $____________________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _____________________________________
Vesting Schedule:
Subject to accelerated vesting as set forth below, this Option may be
exercised, in whole or in part, in accordance with the following schedule:
<PAGE> 15
Termination Period:
This Option may be exercised for thirty (30) days after Optionee ceases
to be a Service Provider. Upon the death or Disability of the Optionee, this
Option may be exercised for twelve months after Optionee ceases to be a Service
Provider. In no event shall this Option be exercised later than the
Term/Expiration Date as provided above.
II. AGREEMENT
A. Grant of Option.
The Plan Administrator of the Company hereby grants to the Optionee
named in the Notice of Grant attached as Part I of this Agreement (the
"Optionee") an option (the "Option") to purchase the number of Shares, as set
forth in the Notice of Grant, at the exercise price per share set forth in the
Notice of Grant (the "Exercise Price"), subject to the terms and conditions of
the Plan, which is incorporated herein by reference. Subject to Section 15(c) of
the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
B. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
exercise notice, in the form attached hereto as Exhibit A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised (the "Exercised
Shares"), and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall be
completed by the Optionee and delivered to the Vice President, Finance of the
Company. The Exercise Notice shall be accompanied by payment of the aggregate
Exercise Price as to all Exercised Shares. This Option shall be deemed to be
exercised upon receipt by the Company of such fully executed Exercise Notice
accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
-2-
<PAGE> 16
C. Method of Payment.
Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
1. cash; or
2. check; or
3. consideration received by the Company under a "cashless
exercise program" implemented by the Company in connection with the Plan.
D. Non-Transferability of Option.
This Option may not be transferred in any manner otherwise than
by will or by the laws of descent or distribution and may be exercised during
the lifetime of Optionee only by the Optionee. The terms of the Plan and this
Option Agreement shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
E. Term of Option.
This Option may be exercised only within the term set out in the
Notice of Grant, and may be exercised during such term only in accordance with
the Plan and the terms of this Option Agreement.
F. Tax Consequences.
Some of the federal tax consequences relating to this Option, as
of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
G. Exercising the Option.
1. Nonstatutory Stock Option. The Optionee may incur regular
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
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<PAGE> 17
2. Incentive Stock Option. If this Option qualifies as an ISO,
the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
3. Disposition of Shares.
(a) NSO. If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(b) ISO. If the Optionee holds ISO Shares for at least one
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
H. Entire Agreement; Governing Law.
The Plan is incorporated herein by reference. The Plan and this
Option Agreement constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
Delaware.
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<PAGE> 18
I. NO GUARANTEE OF CONTINUED SERVICE.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A
SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING
HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS
OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT
OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE
PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: VA LINUX SYSTEMS, INC.
- -------------------------------- --------------------------------
Signature By
- -------------------------------- --------------------------------
Print Name Title
- --------------------------------
Residence Address
- --------------------------------
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<PAGE> 19
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
--------------------------------
Spouse of Optionee
<PAGE> 20
EXHIBIT A
VA LINUX SYSTEMS, INC.
1998 STOCK OPTION PLAN
EXERCISE NOTICE
VA LINUX SYSTEMS, INC.
1382 Bordeaux Drive
Sunnyvale, CA 94089
Attention: Vice President, Finance
1. Exercise of Option. Effective as of today, ________________, _____,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of VA Linux Systems, Inc. (the "Company")
under and pursuant to the 1998 Stock Plan (the "Plan") and the Stock Option
Agreement dated _____ (the "Option Agreement"). The purchase price for the
Shares shall be $_____, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
<PAGE> 21
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
Delaware.
Submitted by: Accepted by:
PURCHASER: VA LINUX SYSTEMS, INC.
- -------------------------------- --------------------------------
Signature By
- -------------------------------- --------------------------------
Print Name Title
Address: Address:
VA LINUX SYSTEMS, INC.
- -------------------------------- 1382 Bordeaux Drive
- -------------------------------- Sunnyvale, CA 94089
--------------------------------
Date Received
-2-
<PAGE> 1
EXHIBIT 10.3
VA LINUX SYSTEMS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean VA Linux Systems, Inc., a Delaware
corporation, and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
and commissions, exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
<PAGE> 2
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
(i) "Exercise Date" shall mean the last day of each Offering Period.
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable; or
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable; or
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Period" shall mean a period of approximately six (6)
months during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after March 1 and terminating on the
last Trading Day in the period ending the following August 31, or commencing on
the first Trading Day on or after September 1 and terminating on the last
Trading Day in the period ending the following February 28; provided, however,
that the first Offering Period under the Plan shall commence with the first
Trading Day on or after the date on which the Securities and Exchange Commission
declares the Company's Registration Statement effective and ending on the last
Trading Day on or before August 31. The duration of Offering Periods may be
changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower; provided, however, that the Purchase Price
may be adjusted by the Board pursuant to Section 20.
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<PAGE> 3
(n) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(o) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock exchanges
and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after March 1 and September 1 each year, or on such other date as the
Board shall determine, and continuing thereafter until terminated in accordance
with Section 20 hereof; provided, however, that the first Offering Period under
the Plan shall commence with the first Trading Day on or after the date on which
the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before August 31.
The Board shall have the power to change the duration of Offering Periods
(including the commencement dates thereof) with respect to future offerings
without stockholder approval if such change is announced at least five (5) days
prior to the scheduled beginning of the first Offering Period to be affected
thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
-3-
<PAGE> 4
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during an
Offering Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
-4-
<PAGE> 5
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than 1,500
shares (subject to any adjustment pursuant to Section 19), and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The
Option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, the shares purchased upon exercise of his or
her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
-5-
<PAGE> 6
11. Termination of Employment. Upon a participant's ceasing to be an
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be one million (1,000,000) shares, plus an annual increase to be added on
the first day of the Company's fiscal year beginning in 2000 equal to the lesser
of (i) 500,000 shares (subject to adjustments for stock splits, reorganizations,
consolidations and the like which are effected after November 30, 1999), (ii) 1%
of the outstanding shares on such date or (iii) a lesser amount determined by
the Board. If, on a given Exercise Date, the number of shares with respect to
which options are to be exercised exceeds the number of shares then available
under the Plan, the Company shall make a pro rata allocation of the shares
remaining available for purchase in as uniform a manner as shall be practicable
and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
-6-
<PAGE> 7
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
-7-
<PAGE> 8
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the Reserves and the number of shares of Common
Stock which may be added to the Plan each fiscal year (pursuant to Section 12),
the maximum number of shares each participant may purchase per Offering Period
(pursuant to Section 7), as well as the price per share and the number of shares
of Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, the Offering Period
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date"). The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
-8-
<PAGE> 9
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its stockholders. Except as provided
in Section 19 and Section 20 hereof, no amendment may make any change in any
option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
-9-
<PAGE> 10
21. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
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<PAGE> 11
EXHIBIT A
VA LINUX SYSTEMS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in
the VA Linux Systems, Inc. 1999 Employee Stock Purchase Plan (the
"Employee Stock Purchase Plan") and subscribes to purchase shares of
the Company's Common Stock in accordance with this Subscription
Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday during the Offering Period
in accordance with the Employee Stock Purchase Plan. (Please note that
no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and Spouse only): ___.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be
treated for federal income tax purposes as having received ordinary
income at the time of such disposition in an amount equal to the excess
of the fair market value of the shares at the time such shares were
purchased by me over the price which I paid for the shares.
<PAGE> 12
I hereby agree to notify the Company in writing within 30 days after
the date of any disposition of shares and I will make adequate
provision for Federal, state or other tax withholding obligations, if
any, which arise upon the disposition of the Common Stock. The Company
may, but will not be obligated to, withhold from my compensation the
amount necessary to meet any applicable withholding obligation
including any withholding necessary to make available to the Company
any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any
time after the expiration of the 2-year holding period, I understand
that I will be treated for federal income tax purposes as having
received income only at the time of such disposition, and that such
income will be taxed as ordinary income only to the extent of an amount
equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I
paid for the shares, or (2) 15% of the fair market value of the shares
on the first day of the Offering Period. The remainder of the gain, if
any, recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
--------------------------------------------
(First) (Middle) (Last)
---------------------- --------------------------------------------
Relationship
--------------------------------------------
(Address)
Employee's Social
Security Number:
--------------------------------------------
Employee's Address:
--------------------------------------------
--------------------------------------------
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<PAGE> 13
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
------------- -----------------------------------------------
Signature of Employee
-----------------------------------------------
Spouse's Signature
(If beneficiary other than spouse)
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<PAGE> 14
EXHIBIT B
VA LINUX SYSTEMS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the VA Linux
Systems, Inc. 1999 Employee Stock Purchase Plan which began on ___________,
______ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
--------------------------------------------
--------------------------------------------
--------------------------------------------
Signature:
--------------------------------------------
Date:
---------------------------------------
<PAGE> 1
EXHIBIT 10.4
VA LINUX SYSTEMS, INC.
1999 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1999 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the common stock of the Company.
(d) "Company" means VA Linux Systems, Inc., a Delaware corporation.
(e) "Director" means a member of the Board.
(f) "Disability" means total and permanent disability as defined in
section 22(e)(3) of the Code.
(g) "Employee" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
<PAGE> 2
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(j) "Inside Director" means a Director who is an Employee.
(k) "Option" means a stock option granted pursuant to the Plan.
(l) "Optioned Stock" means the Common Stock subject to an Option.
(m) "Optionee" means a Director who holds an Option.
(n) "Outside Director" means a Director who is not an Employee.
(o) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(p) "Plan" means this 1999 Director Option Plan.
(q) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(r) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 500,000 Shares, plus an annual increase to be added on
the first day of the Company's Fiscal Year equal to the lesser of (i) 250,000
shares (subject to adjustment to reflect stock splits, consolidations,
reorganizations and the like which occur after November 30, 1999), (ii) 0.5% of
the outstanding shares on such date, or (iii) a lesser amount determined by the
Board of Directors (collectively, the "Pool"). The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
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<PAGE> 3
4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. All grants of Options to Outside Directors
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options.
(ii) Each Outside Director who becomes a director of the Company
after the date of adoption of this Plan shall be automatically granted an Option
to purchase 40,000 Shares (the "First Option") on the date on which the later of
the following events occurs: (A) the effective date of this Plan, as determined
in accordance with Section 6 hereof, or (B) the date on which such person first
becomes an Outside Director, whether through election by the stockholders of the
Company or appointment by the Board to fill a vacancy; provided, however, that
an Inside Director who ceases to be an Inside Director but who remains a
Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically granted an
Option to purchase 16,000 Shares (a "Subsequent Option") immediately following
each annual meeting of the stockholders of the Company commencing with the year
2000 annual meeting, provided he or she is then an Outside Director and if as of
such date, he or she shall have served on the Board for at least the preceding
six (6) months.
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be as
follows:
(A) the term of the First Option shall be ten (10) years.
(B) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be equal to of the
Fair Market Value per Share on the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option shall
become exercisable as to twenty-five percent (25%) of the Shares subject to the
First Option on the first anniversary of its date of grant and as to 1/48th of
the Shares on each monthly anniversary thereafter, provided that the Optionee
continues to serve as a Director on such dates.
-3-
<PAGE> 4
(vi) The terms of a Subsequent Option granted hereunder shall be
as follows:
(A) the term of the Subsequent Option shall be ten (10)
years.
(B) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent Option
shall become exercisable as to twenty-five percent (25%) of the Shares subject
to the Subsequent Option on each anniversary of its date of grant, provided that
the Optionee continues to serve as a Director on such dates.
(vii) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the Board or the shareholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares
to be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
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<PAGE> 5
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or Disability), the Optionee may exercise
his or her Option, but only within three (3) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of such termination, and to the extent that the
Optionee does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as a
Director terminates as a result of Disability, the Optionee may exercise his or
her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of termination, or if he or she does not exercise
such Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.
-5-
<PAGE> 6
(d) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for issuance
under the Plan but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option, as well
as the price per Share covered by each such outstanding Option, and the number
of Shares issuable pursuant to the automatic grant provisions of Section 4
hereof shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the Option
or equivalent option shall continue to be exercisable as provided in Section 4
hereof for so long as the Optionee serves as a Director or a director of the
Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor
-6-
<PAGE> 7
Corporation, as applicable, is terminated other than upon a voluntary
resignation by the Optionee, the Option or option shall become fully
exercisable, including as to Shares for which it would not otherwise be
exercisable. Thereafter, the Option or option shall remain exercisable in
accordance with Sections 8(b) through (d) above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option or if the Director is asked to resign
(and does resign) in connection with the merger or sale of assets, the Option
shall become fully vested and exercisable, including as to Shares for which it
would not otherwise be exercisable. In such event the Board shall notify the
Optionee that the Option shall be fully exercisable for a period of thirty (30)
days from the date of such notice, and upon the expiration of such period the
Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.
-7-
<PAGE> 8
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under applicable state and federal law and any stock exchange rules.
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<PAGE> 9
EXHIBIT 10.4
(CONTINUED)
VA LINUX SYSTEMS, INC.
DIRECTOR OPTION AGREEMENT
VA Linux Systems, Inc., (the "Company"), has granted to
___________________ (the "Optionee"), an option to purchase a total of [________
(____)] shares of the Company's Common Stock (the "Optioned Stock"), at the
price determined as provided herein, and in all respects subject to the terms,
definitions and provisions of the Company's 1999 Director Option Plan (the
"Plan") adopted by the Company which is incorporated herein by reference. The
terms defined in the Plan shall have the same defined meanings herein.
1. Nature of the Option. This Option is a nonstatutory option and is
not intended to qualify for any special tax benefits to the Optionee.
2. Exercise Price. The exercise price is $_______ for each share of
Common Stock.
3. Exercise of Option. This Option shall be exercisable during its term
in accordance with the provisions of Section 8 of the Plan as follows:
(i) Right to Exercise.
(a) This Option shall become exercisable in installments
cumulatively with respect to twenty-five percent (25%) of the Optioned Stock one
year after the date of grant ("Initial Vesting Date"), and as to an additional
1/48th of the Optioned Stock on each monthly anniversary after the Initial
Vesting Date, so that one hundred percent (100%) of the Optioned Stock shall be
exercisable four years after the date of grant; provided, however, that in no
event shall any Option be exercisable prior to the date the stockholders of the
Company approve the Plan.
(b) This Option may not be exercised for a fraction of a share.
(c) In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option is
governed by Section 8 of the Plan.
(ii) Method of Exercise. This Option shall be exercisable by written
notice which shall state the election to exercise the Option and the number of
Shares in respect of which the Option is being exercised. Such written notice,
in the form attached hereto as Exhibit A, shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment of the exercise
price.
4. Method of Payment. Payment of the exercise price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(i) cash;
(ii) check; or
<PAGE> 10
(iii) surrender of other shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (y) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised; or
(iv) delivery of a properly executed exercise notice together with
such other documentation as the Company and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
7. Term of Option. This Option may not be exercised more than ten (10)
years from the date of grant of this Option, and may be exercised during such
period only in accordance with the Plan and the terms of this Option.
8. Taxation Upon Exercise of Option. Optionee understands that, upon
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then Fair Market Value of the Shares purchased
over the exercise price paid for such Shares. Upon a resale of such Shares by
the Optionee, any difference between the sale price and the Fair Market Value of
the Shares on the date of exercise of the Option, to the extent not included in
income as described above, will be treated as capital gain or loss.
DATE OF GRANT:
--------------
VA Linux Systems, Inc.,
a Delaware corporation
By:
------------------------------
-2-
<PAGE> 11
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.
Dated:
--------------
------------------------------
Optionee
-3-
<PAGE> 12
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
VA Linux Systems, Inc.
1382 Bordeaux Drive
Sunnyvale, CA 94089
Attention: Corporate Secretary
1. Exercise of Option. The undersigned ("Optionee") hereby elects to
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of VA Linux Systems, Inc. (the "Company") under and pursuant to the
Company's 1999 Director Option Plan and the Director Option Agreement dated
_______________ (the "Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Agreement.
3. Federal Restrictions on Transfer. Optionee understands that the
Shares must be held indefinitely unless they are registered under the Securities
Act of 1933, as amended (the "1933 Act"), or unless an exemption from such
registration is available, and that the certificate(s) representing the Shares
may bear a legend to that effect. Optionee understands that the Company is under
no obligation to register the Shares and that an exemption may not be available
or may not permit Optionee to transfer Shares in the amounts or at the times
proposed by Optionee.
4. Tax Consequences. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Delivery of Payment. Optionee herewith delivers to the Company the
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding taxes
required to be paid or withheld by the Company.
6. Entire Agreement. The Agreement is incorporated herein by reference.
This Exercise Notice and the Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the
<PAGE> 13
subject matter hereof. This Exercise Notice and the Agreement are governed by
Delaware law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: VA LINUX SYSTEMS, INC.
By: By:
-------------------------- --------------------------
Its:
--------------------------
Address:
Dated: Dated:
----------------------- ------------------------
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<PAGE> 1
EXHIBIT 10.6
VA LINUX SYSTEMS, INC.
FIRST AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This First Amended and Restated Registration Rights Agreement (this
"Agreement") is made as of June 16, 1999 by and among VA Linux Systems, Inc., a
California corporation having its principal executive offices at 1382 Bordeaux
Drive, Sunnyvale, California 94089 (the "Company"), the purchasers of the
Company's Series A Preferred Stock (the "Series A Purchasers") pursuant to that
certain Series A Preferred Stock Purchase Agreement (the "Series A Agreement")
dated as of October 30, 1998 among the Company and the Purchasers of shares of
the Company's Series A Preferred Stock (the "Series A Preferred") and the
purchasers of the Company's Series B Preferred Stock (the "Series B Purchasers"
and, together with the Series A Purchasers, the "Purchasers") pursuant to that
certain Series B Preferred Stock Purchase Agreement (the "Series B Agreement"
and, together with the Series A Agreement, the "Purchase Agreements") dated of
even date herewith among the Company and the Purchasers of shares of the
Company's Series B Preferred Stock (the "Series B Preferred" and, together with
the Series A Preferred, the "Preferred Stock").
RECITALS
WHEREAS, the Company and the Series B Purchasers have entered into the
Series B Agreement pursuant to which the Company agreed to grant to the Series B
Purchasers certain registration rights upon the terms hereinafter set forth;
WHEREAS, the Company and the Series A Purchasers entered into that
certain Registration Rights Agreement dated as of October 30, 1998 (the "Prior
Agreement");
WHEREAS, pursuant to Section 2.3 of the Prior Agreement, the Prior
Agreement may be amended as set forth herein with the prior written consent of
the Company and the holders of a majority of the Registrable Securities under
such Prior Agreement; and
WHEREAS, the Company and the Series A Purchasers desire to amend,
restate and supersede in its entirety the Prior Agreement as set forth herein to
modify certain provisions thereof and to include the Series B Purchasers
hereunder.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
SECTION 1
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
<PAGE> 2
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Conversion Stock" shall mean any and all shares of Common Stock
of the Company issued or issuable upon conversion of the Series A Preferred or
Series B Preferred.
The terms "Holder" or "Holders" shall mean any person or persons
to whom Registrable Securities were originally issued or qualifying transferees
under subsection 1.12 hereof who hold Registrable Securities.
"Initiating Holders" shall mean any Holder or Holders holding
14% or greater of the aggregate of the Registrable Securities then outstanding.
"Registrable Securities" means (i) the Conversion Stock, (ii)
any and all shares of Common Stock of the Company or other securities issued or
issuable in respect of the Series A Preferred or Series B Preferred, and (iii)
any and all shares of Common Stock or other securities issued or issuable upon
any conversion of the Series A Preferred or Series B Preferred upon any stock
split, stock dividend, recapitalization or similar event; provided, however,
that all shares described in clauses (i) through (iii) above which have been
resold to the public shall cease to be Registrable Securities upon such resale
and any shares as to which registration rights have terminated pursuant to
Section 1.5 below shall cease to be Registrable Securities upon such
termination.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 1.2, 1.3 and 1.4 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, normal audit expenses and the reasonable fees and disbursements of
one counsel for all Holders selling Registrable Securities under such
registration statement.
"Restricted Securities" shall mean the securities of the Company
required to bear the legend set forth in Section 8.2 of the Series A Agreement
and Series B Agreement.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders.
1.2 REQUESTED REGISTRATION.
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<PAGE> 3
(a) Request for Registration. If the Company shall receive from
Initiating Holders a written request that the Company effect any registration,
qualification or compliance with respect to not less than 50% of the shares of
Registrable Securities then held by such Initiating Holders (or any lesser
percentage if the reasonably anticipated aggregate price to the public of such
shares, net of underwriting discounts and commissions, would exceed $5,000,000),
the Company shall:
(i) promptly (but not later than 10 days after its
receipt of the written request from the Initiating Holders) give written notice
of the proposed registration, qualification or compliance to all other Holders;
and
(ii) as soon as practicable and, in any event, within
120 days of the receipt of such written request from the Initiating Holders, use
its best efforts to effect such registration, qualification or compliance
(including, without limitation, appropriate qualification under applicable blue
sky or other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request received by the Company within 20 days
after receipt of such written notice from the Company.
Notwithstanding the foregoing to the contrary, the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 1.2:
(A) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act; or
(B) Prior to the earlier of (i) October 29,
2003, or (ii) six (6) months following the effective date of the Company's
initial registration statement relating to an underwritten public offering of
the Company's securities filed under the Securities Act (other than a
registration statement relating either to the sale of securities to employees of
the Company pursuant to a stock option, stock purchase or similar plan or a
Commission Rule 145 transaction); or
(C) Within six months after the effective date
of any other registration statement relating to an underwritten public offering
of the Company's securities filed under the Securities Act; or
(D) After the Company has effected two such
registrations pursuant to this subparagraph 1.2(a), and such registrations have
been declared or ordered effective; or
(E) If the Company, within ten days of the
receipt of the request of the Initiating Holders, gives notice of its bona fide
intention to effect a filing of a registration
-3-
<PAGE> 4
statement with the Commission within 60 days of receipt of such request (other
than with respect to a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase, or similar plan or a Commission Rule 145 transaction); or
(F) If the Company shall furnish to such Holders
a certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 1.2 shall be deferred for a period not to
exceed 120 days from the date of receipt of written request from the Initiating
Holders; provided, however, that the Company shall not exercise such right more
than once in any twelve month period.
(b) Underwriting. 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 part of their request made pursuant to
Section 1.2(a) hereof and the Company shall include such information in the
written notice referred to in Section 1.2(a)(i) above. In such event, the right
of any Holder to registration pursuant to Section 1.2(a) shall be conditioned
upon such Holder's participation in the underwriting arrangements required by
this Section 1.2(b), and the inclusion of such Holder's Registrable Securities
in the underwriting to the extent requested shall be limited to the extent
provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders, but subject to the
Company's reasonable approval. Notwithstanding any other provision of this
Section 1.2, if the managing underwriter advises the Initiating Holders in
writing that marketing factors require a limitation of the number of shares to
be underwritten, the managing underwriter may limit the Registrable Securities
to be included in such offering. The Company shall so advise all Holders of
Registrable Securities and the number of shares of Registrable Securities that
may be included in the registration and underwriting shall be allocated among
all Holders thereof in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by such Holders at the time of filing the
registration statement. No Registrable Securities excluded from the underwriting
by reason of the underwriter's marketing limitation shall be included in such
registration. To facilitate the allocation of shares in accordance with the
above provisions, the Company or the underwriters may round the number of shares
allocated to any Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to 90 days after the effective date
of such registration, or such other shorter period of time as the underwriters
may reasonably require.
-4-
<PAGE> 5
If the underwriter has not limited the number of Registrable Securities
to be underwritten, the Company may include securities for its own account or
the account of others in such registration if the underwriter so agrees and the
number of Registrable Securities which would otherwise have been included in
such registration and underwriting will not thereby be limited.
1.3 COMPANY REGISTRATION.
(a) Notice of Registration. If at any time or from time to time the
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans, (ii) a registration
relating solely to a Commission Rule 145 transaction, and (iii) the Company's
initial registration statement filed in connection with a firm commitment
underwritten public offering filed with the Commission pursuant to the
Securities Act, the Company shall:
(i) promptly give to each Holder written notice thereof,
and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 20 days after receipt of such written notice from the
Company by any Holder.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.3(a)(i). In such event the right of any Holder to
registration pursuant to this Section 1.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of Registrable
Securities in the underwriting to the extent provided herein.
All Holders proposing to distribute their securities through
such underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company. Notwithstanding any other provision of
this Section 1.3, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter may limit the Registrable Securities to be included in such
registration. In such event, the managing underwriter shall first limit or
exclude up to all of the securities of holders (other than Holders) proposing to
distribute their securities through such underwriting to be included in such
registration and may thereafter limit or exclude up to all of the Registrable
Securities to be included in such registration. The foregoing sentence
notwithstanding, following the first such registration, the managing underwriter
may limit the number of shares of Registrable Securities to be underwritten to
not less than twenty percent (20%) of the shares included in the registration
even if as a result the numbers of shares of securities offered by the Company
is reduced. The Company shall so advise all Holders and other holders
distributing their securities through such underwriting and the number of shares
of Registrable Securities that may be included in the registration and
underwriting shall be allocated first among all
-5-
<PAGE> 6
Holders and thereafter to other holders, all such allocations being made in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities and Common Stock held by such Holders and other holders at the time
of filing the registration statement. To facilitate the allocation of shares in
accordance with the above provisions, the Company may round the number of shares
allocated to any Holder or holder to the nearest 100 shares.
If any Holder or holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to 90 days after the effective date
of the registration statement relating thereto, or such other shorter period of
time as the underwriters may require.
(c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 1.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
1.4 REGISTRATION ON FORM S-3.
(a) If any Holder or Holders request that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities, the reasonably
anticipated aggregate price to the public of which would exceed $1,000,000, and
the Company is a registrant entitled to use Form S-3 to register the Registrable
Securities for such an offering, the Company shall use its best efforts to cause
such Registrable Securities to be registered for the offering on such form. The
Company will (i) promptly give written notice of the proposed registration to
all other Holders and (ii) as soon as practicable, use its best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder of Holders joining in
such request as are specified in a written request received by the Company
within 20 days after receipt of such written notice from the Company.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 1.4 (i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act; (ii) if the Company, within
ten days of the receipt of the request of the Initiating Holders, gives notice
of its bona fide intention to effect the filing of a registration statement with
the Commission within 90 days of receipt of such request (other than with
respect to a registration statement relating to a Rule 145 transaction or an
offering solely to employees); (iii) within six months after the effective date
of a registration statement filed in
-6-
<PAGE> 7
connection with the Company's initial public offering; (iv) if the Company shall
furnish to such Holder a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors it would be
seriously detrimental to the Company or its shareholders for registration
statements to be filed in the near future; or (v) more often than one (1) time
during any twelve (12)-month period. With respect to the event described in
clause (iv) in the immediately preceding sentence, the Company's obligation to
use its best efforts to file a registration statement shall be deferred for a
period not to exceed 120 days from the receipt of the request to file such
registration by such Holder; provided, however, that the Company will not
exercise such right more than once in any twelve month period.
1.5 EXPIRATION OF REGISTRATION RIGHTS. The right of any Holder to
request registration or inclusion in any registration pursuant to Sections 1.2,
1.3 and 1.4 shall terminate upon the earliest to occur of the following: (i)
five (5) years following the effective date of the initial offering to the
public of the Company's securities pursuant to a firm commitment registered
underwriting pursuant to the Securities Act (an "Initial Public Offering"), (ii)
any date on which there are no Registrable Securities outstanding, or (iii) such
date after an Initial Public Offering as all shares of Registrable Securities
held or entitled to be held upon conversion by such Holder may immediately be
sold under Rule 144 during any 90-day period.
1.6 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
Closing Date, the Company shall not enter into any agreement granting any holder
or prospective holder of any securities of the Company registration rights with
respect to such securities unless (i) such new registration rights, including
standoff obligations, are on a pari passu basis with those rights of the Holders
hereunder or (ii) such new registration rights, including standoff obligations,
are subordinate to the registration rights granted Holders hereunder.
1.7 EXPENSES OF REGISTRATION.
(a) All Registration Expenses incurred in connection with (i)
the registrations pursuant to Section 1.2, (ii) all registrations pursuant to
Section 1.3, and (iii) up to two (2) registrations pursuant to Section 1.4 shall
be borne by the Company. Unless otherwise stated, all Selling Expenses relating
to securities registered on behalf of the Holders and all other Registration
Expenses shall be borne by the Holders of such securities pro rata on the basis
of the number of shares so registered.
(b) The Company shall not be required to pay for expenses of any
registration proceeding begun pursuant to Section 1.2, the request for which is
subsequently withdrawn by the Initiating Holders for reasons other than a
material adverse change in the business or financial condition of the Company
occurring prior to the effectiveness of such registration statement, in which
case, such expenses shall be borne by the Holders of Registrable Securities
requesting such withdrawal, pro rata on the basis of the number of shares of
Registrable Securities so included in the registration request unless the
Holders of a majority of Registrable Securities agree to forfeit their right to
one requested registration pursuant to Section 1.2 in which event such right
shall be forfeited by all Holders.
-7-
<PAGE> 8
1.8 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its diligent 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
until the Holder or Holders have completed the distribution relating thereto.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement for up to 120 days.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, such obligation to continue for 120 days.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
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<PAGE> 9
(i) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
(j) In the event of any underwritten public offering, cooperate
to the extent reasonably requested by the Holders requesting registration
pursuant to this Section, the underwriters participating in the offering and
their counsel in any due diligence investigation reasonably requested by the
Holder or the underwriters in connection therewith, and participate, to the
extent reasonably requested by the managing underwriter for the offering or the
Holders, in efforts to sell the Registrable Securities under the offering
(including, without limitation, participating in "roadshow" meetings with
prospective investors) that would be customary for underwritten primary
offerings of a comparable amount of equity securities by the Company.
1.9 INDEMNIFICATION.
(a) To the extent permitted by law, the Company will indemnify
and defend each Holder of Registrable Securities, each of such Holder's officers
and directors and partners, and each person controlling such Holder, within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities, or actions in respect thereof (including any of
the foregoing incurred in settlement of any litigation, commenced or
threatened), arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, or any
violation or alleged violation by the Company of the Securities Act, the
Securities Exchange Act of 1934, as amended, ("Exchange Act") or any state
securities law applicable to the Company or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any such state law or alleged
violation in connection with any such registration, qualification or compliance,
and the Company will reimburse each such Holder, each of its officers, directors
and partners, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating, preparing,
defending or settling any such claim,
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<PAGE> 10
loss, damage, liability or action, as such expenses are incurred, provided,
however, that the indemnity agreement contained in this subsection 1.9(a) shall
not apply to amounts paid in settlement of any such claim, loss, damage,
liability, or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld) and, provided
further, that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission or alleged untrue statement or omission, made
in reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder, controlling person or
underwriter specifically for use therein.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by or issuable to such Holder are included in the
securities as to which such registration, qualification or compliance is being
effected, indemnify and defend the Company, each of its directors and officers,
each underwriter, if any, of the Company's securities covered by such
registration statement, each person who controls the Company or such underwriter
within the meaning of Section 15 of the Securities Act, and each other such
Holder, each of its officers, directors and partners and each person controlling
such Holder within the meaning of Section 15 of the Securities Act, against all
claims, losses, expenses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating, preparing, defending or settling any such claim,
loss, damage, liability or action, as such expenses are incurred, in each case
to the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by such Holder specifically for use therein; provided, however,
that the indemnity agreement contained in this subsection 1.9(b) shall not apply
to amounts paid in settlement of any such claim, loss, damage, liability or
action if such settlement is effected without the consent of the Holder (which
consent shall not be unreasonably withheld); and provided further, that the
total amount for which any Holder shall be liable under this subsection 1.9(b)
shall not in any event exceed the aggregate proceeds received by such Holder
from the sale of Registrable Securities held by such Holder in such
registration.
(c) Each party entitled to indemnification under this Section
1.9 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as
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<PAGE> 11
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 1.9 unless the failure to give such notice is materially
prejudicial to an Indemnifying Party's ability to defend such action and
provided further, that an Indemnified Party (together with all other Indemnified
Parties which may be represented without conflict by one counsel) shall have the
right to retain one separate counsel, with the 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 a
conflict of interest between such Indemnified Party and any other party
represented by such counsel in such proceeding. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, which consent may be withheld in such Indemnified Party's
sole discretion, 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. No Indemnified Party shall consent to
entry of any judgment or enter into any settlement without the consent of each
Indemnifying Party, which consent shall not be unreasonably withheld.
(d) If the indemnification provided for in this Section 1.9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, 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,
liability, claim, damage, or expense in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
that resulted in such loss, liability, claim, damage, or expense as well as any
other relevant equitable considerations; provided that in no event shall any
contribution by a Holder hereunder exceed the aggregate proceeds from the
offering received by such Holder. The relative fault of the indemnifying party
and of the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission.
(e) The obligations of the Company and Holders under this
Section 1.9 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 in 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.
(f) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
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<PAGE> 12
1.10 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in this Section
1.
1.11 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the date that the Company becomes and remains subject to the reporting
requirements of the Securities Act or the Exchange Act.
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements).
(c) So long as a Holder owns any Registrable Securities, to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the 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 filed by
the Company with the Commission as a Holder may reasonably request in complying
with any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
(d) Use its best efforts to take such action, including the
voluntary registration of its Common Stock under Section 12 of the Exchange Act,
as is necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as reasonably
practicable after the end of the fiscal year in which the first registration
statement filed by the Company for the offering of its securities to the general
public is declared effective.
1.12 TRANSFER OF RIGHTS. The rights to cause the Company to register
securities granted Holders under Sections 1.2, 1.3 and 1.4 and the right to
receive certain financial information about the Company granted to certain
Holders pursuant to Section 1.14 may be assigned to a transferee or assignee of
a Holder reasonably acceptable to the Company in connection with any transfer or
assignment of Registrable Securities by a Holder provided that in each instance:
(i) such transfer may otherwise be effected in accordance with applicable
securities laws; (ii) such assignee or transferee acquires at least 729,927
shares of Series A Preferred or 1,094,890 shares of Registrable Securities
issued in respect of the Series A Preferred (which number takes into account the
3-for-2
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<PAGE> 13
stock split of the Company's Common Stock effective as of March 30, 1999 and
which shall be appropriately adjusted for any further stock splits,
combinations, recapitalizations and the like) or 129,534 shares of Series B
Preferred or 129,534 shares of Registrable Securities issued in respect of the
Series B Preferred (appropriately adjusted for stock splits, combinations,
recapitalizations and the like); (iii) the Company is given written notice by
the Holder within a reasonable period of time after said transfer or assignment
of such Registrable Securities, stating the name and address of said transferee
or assignee and identifying the securities with respect to which such
registration rights are being transferred or assigned; (iv) the transferee or
assignee of such rights is not deemed by the Board of Directors of the Company,
in its reasonable judgment, to be a competitor of the Company; and (v) the
transferee or assignee of such rights assumes in writing the obligations and
liabilities of such Holder under this Agreement. Notwithstanding the foregoing,
the rights to cause the Company to register securities may be assigned to any
constituent partner or member of a Holder without compliance with item (ii)
above.
1.13 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date hereof, the Company shall not, without the prior written consent of the
Holders (which consent will not be unreasonably withheld) of not less than a
majority of the Registrable Securities then outstanding, enter into any
agreement with any holder or prospective holder of any securities of the Company
which would allow such holder or prospective holder (a) to demand any
registration or include such securities in any registration filed under
subsections 1.2, 1.3 or 1.4 hereof if such inclusion would adversely affect the
rights of any Holder (or any qualifying transferee under subsection 1.12) under
such subsections, including reducing the number of shares of Registrable
Securities of a Holder able to be included in any registration, or (b) to make a
demand registration under Section 1.2 hereof which could result in such
registration statement being declared effective prior to the earlier of either
of the dates set forth in subsection 1.2(a)(B) or within 120 days of the
effective date of any registration effected pursuant to Section 1.2.
1.14 FINANCIAL INFORMATION. With respect to each Purchaser, as long as
each such Purchaser is a Purchaser of no less than 729,927 shares of Series A
Preferred Stock or 1,094,890 shares of Registrable Securities issued in respect
of the Series A Preferred (which numbers take into account the 3-for-2 stock
split of the Company's Common Stock effective as of March 30, 1999 and which
shall be appropriately adjusted for all further stock splits, dividends,
subdivisions, combinations, recapitalizations and the like) or no less than
129,534 shares of Series B Preferred or Registrable Securities issued in respect
of the Series B Preferred (appropriately adjusted for all stock splits,
dividends, subdivisions, combinations, recapitalizations and the like), the
Company will mail to each Purchaser:
(a) As soon as practicable after the end of each fiscal year,
and in any event within 90 days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end such fiscal year and
consolidated statements of income and surplus and consolidated statements of
cash flows and of changes in financial position of the Company and its
subsidiaries, if any, for such fiscal year, prepared in accordance with
generally accepted accounting principles and setting forth in each case in
comparative form the figures for the previous fiscal year (or, at the election
of the Company, setting forth in comparative form the budgeted figures for the
current fiscal
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<PAGE> 14
year), all in reasonable detail and audited by independent public accountants of
national standing selected by the Company and approved by the Board of
Directors. Not later than thirty (30) days prior to the beginning of each fiscal
year of the Company, the Company will deliver to each such Purchaser the
Company's business plan and projected operating budget for the next fiscal year.
(b) 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 45 days thereafter, a consolidated balance sheet of the Company
and its subsidiaries, if any, as of the end of each such quarterly period, and
consolidated statements of income and surplus and consolidated statements of
cash flows and changes in financial condition of the Company and its
subsidiaries, if any, for such period and for the current fiscal year to date,
prepared in accordance with generally accepted accounting principles (other than
for accompanying notes), subject to changes resulting from year-end audit
adjustments, all in reasonable detail and signed by the principal financial or
accounting officer of the Company.
(c) Each Purchaser agrees that any information obtained by it
pursuant to subsections 1.14(a) and 1.14(b) will not be disclosed to any person
or entity without the prior written consent of the Company; provided, however,
that such consent shall not be unreasonably withheld and that notwithstanding
the foregoing, each Purchaser may disclose such information without the prior
written consent of the Company to its partners, shareholders, legal counsel,
professional accountants, associates or employees in order to evaluate this
investment and as may be necessary to continue to evaluate the Company. Each
Purchaser agrees that any recipient of information obtained by the Purchaser
pursuant to subsections 1.14(b) and 1.14(b) shall agree to be bound by the
provisions of this subsection 1.14(c) respect to such information. Each
Purchaser's obligations under this subsection 1.14(c) shall not apply to any
information which:
(i) was in the public domain at the time it was
communicated to the Purchaser by the Company;
(ii) entered the public domain subsequent to the time it
was communicated to the Purchaser through no fault of the Purchaser;
(iii) was in the Purchaser's possession free of any
obligation of confidence at the time it was communicated to the Purchaser by the
Company;
(iv) was rightfully communicated to the Purchaser by a
third party free of any obligation of confidence subsequent to the time it was
communicated to the Purchaser by the Company;
(v) was disclosed by the Purchaser in response to a
valid order by a court or other governmental body, was otherwise required by
law, or was necessary to establish the rights of either party under this Rights
Agreement; or
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<PAGE> 15
(vi) was independently developed by the Purchaser
without using the confidential information of the Company.
(d) The covenants set forth in this Section 1.14 shall terminate
and be of no further force or effect at such time as the Company is required to
file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended.
1.15 MARKET STANDOFF AGREEMENT. Each Holder agrees in connection with a
public offering of the Company's securities that, upon request of the Company or
the underwriters managing any underwritten offering of the Company's securities,
such Holder shall not sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any securities of the Company (other
than those included in the registration and those that the Holder purchases in
the public market or from underwriters in the Company's initial public offering
or any secondary or follow-on offering) without the prior written consent of the
Company or such underwriters, as the case may be, which consent may be withheld
in their sole and absolute discretion, for such period of time (not to exceed
180 days with respect to the initial public offering of the Company's Common
Stock and 90 days with respect to any follow-on or secondary public offerings)
from the effective date of such registration as may be reasonably requested by
the underwriters, provided that the officers, directors of the Company who own
securities of the Company and holders of 5% or more of the Company's outstanding
equity securities also agree to such restrictions; provided however, that the
restrictions imposed by this sentence shall not apply to to Holders in
connection with any follow-on or secondary public offering following the second
anniversary of the Company's initial public offering. Each Holder shall enter
into such underwriter's standard form of agreement with respect to such
restrictions in form satisfactory to the Company and such underwriter. The
shares held by all constituent partners of any entity holding registration
rights hereunder shall be bound by this standoff agreement. Without limiting the
generality of the foregoing, Larry M. Augustin, the Company's President and
Chief Executive Officer, hereby agrees that all shares of Common Stock owned by
him as of the date hereof shall be subject to the terms and conditions of this
Section 1.15.
SECTION 2
RIGHT OF FIRST REFUSAL
2.1 New Issuances. The Company hereby grants to Holders of at least
100,000 shares of Preferred Stock or of 150,000 shares of Common Stock issued on
conversion of such number of shares of Series A Preferred Stock and/or of
100,000 shares of Common Stock issued on conversion of such number of shares of
Series B Preferred Stock (as such numbers are adjusted for any stock splits,
stock dividends, recapitalizations and the like), the right of first refusal
(the "Right of First Refusal") (and to the transferees and assignees of such
Holders so long as such transferees hold the requisite number of shares of
Preferred Stock or Common Stock set forth above)to purchase a Pro Rata Share
(hereinafter defined) (rounded to the next lowest number) of all (or any part)
of any "New Securities" (as defined in Section 2.1(a)) that the Company may,
from time to time propose to sell and issue. The term "Pro Rata Share", for
purposes of this Right of First Refusal, is the ratio of the number of shares of
Preferred Stock (calculated on an as-converted into Common Stock basis) then
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<PAGE> 16
owned by such Holder to the total number of shares of Common Stock outstanding
immediately prior to such issuance calculated on a fully diluted basis (i.e., as
if all securities convertible into or exercisable for Common Stock had been
fully converted into or exercised for shares of Common Stock immediately prior
to such issuances). This right of first refusal shall be subject to the
following provisions:
(a) "New Securities" shall mean any Common Stock and Preferred
Stock of the Company whether or not authorized on the date hereof, and rights,
options, or warrants to purchase Common Stock or Preferred Stock and equity
securities of any type whatsoever that are, or may become, convertible into
Common Stock or Preferred Stock; provided, however, that "New Securities" does
not include the following:
(i) issuances of (A) shares of the Company's Common
Stock issued upon conversion of the Preferred Stock and (B) any other securities
issued in respect of the Preferred Stock, or the Common Stock issued upon
conversion of the Preferred Stock, upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event;
(ii) securities of the Company issued pursuant to the
acquisition of a business by the Company by merger, purchase of assets, or other
acquisition, recapitalization, reorganization or reincorporation approved by the
Board of Directors;
(iii) securities of the Company issued in connection
with equipment lease transactions, loan guarantees, commercial loans, bank
financing transactions or technology licenses approved by the Board of
Directors;
(iv) shares of Common Stock, or options to purchase
shares of Common Stock, issued or granted to officers, directors, employees and
consultants of the Company pursuant to stock plans and option plans or other
arrangements approved by the Board of Directors;
(v) shares of Common Stock or preferred stock issued in
connection with any stock split, stock dividend, or recapitalization by the
Company;
(vi) securities of the Company issued pursuant to a
joint venture arrangement or other strategic financing arrangement, so long as
such issuance is not primarily for equity financing purposes and is approved by
the Board of Directors; and
(vii) securities offered to the public pursuant to an
offering registered under the Securities Act.
(b) In the event that the Company proposes to undertake an
issuance of New Securities, it shall give each Holder who has the Right of First
Refusal written notice of its intention, describing the type of New Securities,
the price, and the general terms upon which the Company proposes to issue the
same. Each Holder who has the Right of First Refusal shall have ten (10)
business days after receipt of such notice to agree to purchase its Pro Rata
Share of such New
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<PAGE> 17
Securities at the price and upon the terms specified in the notice by giving
written notice to the Company and stating therein the quantity of New Securities
to be purchased.
(c) Each holder of shares of the Company's New Securities issued
after the date hereof who is not already a party to the following agreements
shall be added as a party to (i) the First Amended and Restated Voting Agreement
of even date herewith (the "Voting Agreement"), as a "Shareholder" (and all
shares of the Company's stock held by such "Shareholder" shall become shares
subject to the Voting Agreement) and (ii) the Series B Shareholders' Agreement
of even date herewith (the "Shareholder's Agreement") as a "Purchaser" (and all
shares of the Company's stock held by such "Purchaser" shall become shares
subject to and shall be bound by the Shareholders' Agreement) and each Holder
shall be bound by and entitled to the terms and conditions therein by the
execution of a signature page to each such agreement, which execution shall
occur upon issuance of such New Securities to such Holder.
(d) In the event that the Holders who have the Right of First
Refusal fail to exercise in full the Right of First Refusal within the ten (10)
business day period specified above, (a "Nonpurchasing Holder"), then such
Nonpurchasing Holder shall forfeit the right hereunder to purchase that part of
its Pro Rata Share of such New Securities that it did not so agree to purchase
and the Company shall promptly give each Holder (if any) who has timely agreed
to purchase its full Pro Rata Share of such offering of New Securities (a
"Purchasing Holder") written notice of the failure of any Nonpurchasing Holder
to purchase such Nonpurchasing Holder's full Pro Rata Share of such offering of
New Securities (the "Overallotment Notice"). Each Purchasing Holder shall have a
right of overallotment such that such Purchasing Holder may agree to purchase a
portion of the Nonpurchasing Holders' unpurchased Pro Rata Share of such
offering on a pro rata basis according to the relative Pro Rata Shares of the
Purchasing Holders at any time within ten (10) business days after receiving the
Overallotment Notice. In the event that the Holders fail to exercise in full the
right of first refusal within the ten (10) (plus ten (10)) business day period
specified above, the Company shall have ninety (90) days to sell (or enter into
an agreement to sell) the New Securities respecting which the rights of the
Holders who have the Right of First Refusal were not exercised at a price and
upon terms no more favorable to the purchasers thereof than specified in the
Company's notice. In the event the Company has not sold (or entered into an
agreement to sell) the New Securities within such ninety (90) day period the
Company shall not thereafter issue or sell any New Securities, without first
offering such New Securities to the Holders who have the Right of First Refusal
in the manner provided above.
(e) This Right of First Refusal may be transferred or assigned
by a Holder to (i) a transferee or assignee of at least 100,000 shares of the
Preferred Shares, or of Common Stock issued on conversion of such number of the
Preferred Stock, (ii) to any constituent partner of a Holder, and (iii) to such
Holder's family trusts, living trusts, or other estate planning entities,
provided in each instance that (x) the Company is given written notice by the
Holder within five (5) business days of said transfer or assignment of such
Preferred Stock, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such rights are being
transferred or assigned; (y) the transferee or assignee of such rights is not
deemed by the Board of Directors of the Company, in its sole discretion, to be a
competitor of the Company; and (z) the transferee or assignee
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<PAGE> 18
of such rights assumes in writing the obligations of such Holder under this
Agreement, the Voting Agreement and the Shareholders' Agreement of even date
herewith.
(f) This Right of First Refusal shall terminate as to any Holder
(or any transferee or assignee of such Holder) at such time as such Holder
ceases to own at least 100,000 shares of Preferred Stock or shares of Common
Stock issued upon conversion of at least 100,000 shares of Preferred Stock.
(g) This Right of First Refusal shall terminate (i) immediately
before the closing of the Company's initial public offering, or (ii) upon (A)
the acquisition of all or substantially all the assets of the Company or (B) an
acquisition of the Company by another corporation or entity by consolidation or
merger that results in the transfer of 50% or more of the outstanding voting
power of the Company, provided that such acquisition, merger or consolidation is
approved by the Board of Directors.
SECTION 3
MISCELLANEOUS
3.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the internal laws of the State of California.
3.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
3.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought;
provided, however, that holders of a majority of the Registrable Securities may,
with the Company's prior written consent, waive, modify or amend on behalf of
all holders, any provisions hereof.
3.4 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to any holder of any Registrable Securities, at such address as
such holder shall have furnished the Company in writing, or, until any such
holder so furnishes an address to the Company, then to and at the address of the
last holder of such shares who has so furnished an address to the Company or (b)
if to the Company, one copy should be sent to its address set forth above and
addressed to the attention of the Corporate Secretary, or at such other address
as the Company shall have furnished to the holders.
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<PAGE> 19
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally or by messenger, or, if sent by mail, at the earlier of its
receipt or 72 hours after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and mailed as
aforesaid.
3.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all parties to this
Agreement, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
3.6 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
3.7 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
3.8 AGGREGATION OF STOCK. All shares of Preferred Stock and Registrable
Securities held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
[Signatures to follow.]
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<PAGE> 20
This First Amended and Restated Registration Rights Agreement is hereby
executed as of the date first above written.
COMPANY:
VA LINUX SYSTEMS, INC.
By: /s/ LARRY M. AUGUSTIN
-------------------------------------
Name: Larry M. Augustin
-----------------------------------
Title: President
----------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 21
SERIES A PURCHASERS:
SEQUOIA CAPITAL VIII
SEQUOIA INTERNATIONAL TECHNOLOGY
PARTNERS VIII
SEQUOIA INTERNATIONAL TECHNOLOGY
PARTNERS VIII(Q)
By: SC VIII Management, LLC
a California limited liability
company
Its: General partner
By: [Signature illegible]
-------------------------------------
Its: Managing Member
------------------------------------
CMS PARTNERS LLC
SEQUOIA 1997
By: [Signature illegible]
-------------------------------------
STANFORD UNIVERSITY
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 22
WS INVESTMENT COMPANY 98B
By: /s/ JUDITH M. O'BRIEN
-------------------------------------
Name: Judith M. O'Brien
-----------------------------------
Title: General Partner
----------------------------------
VLG INVESTMENTS 1998
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
BARTON INVESTMENTS, LLC
By:
-------------------------------------
Name: Harris Barton
-----------------------------------
Its: Managing Member
------------------------------------
JONES LIVING TRUST, DTD 7/27/90
By:
-------------------------------------
Name: Brent Jones, Trustee
-----------------------------------
By:
-------------------------------------
Name: Dana Jones, Trustee
-----------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 23
WS INVESTMENT COMPANY 98B
By:
-------------------------------------
Name: Judith M. O'Brien
-----------------------------------
Title: General Partner
----------------------------------
VLG INVESTMENTS 1998
By: /s/ ELIAS J. BLAWIE
-------------------------------------
Name: Elias J. Blawie
-----------------------------------
Title: Managing Partner
----------------------------------
BARTON INVESTMENTS, LLC
By:
-------------------------------------
Name: Harris Barton
-----------------------------------
Its: Managing Member
------------------------------------
JONES LIVING TRUST, DTD 7/27/90
By:
-------------------------------------
Name: Brent Jones, Trustee
-----------------------------------
By:
-------------------------------------
Name: Dana Jones, Trustee
-----------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 24
WS INVESTMENT COMPANY 98B
By:
-------------------------------------
Name: Judith M. O'Brien
-----------------------------------
Title: General Partner
----------------------------------
VLG INVESTMENTS 1998
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
BARTON INVESTMENTS, LLC
By: /s/ HARRIS BARTON
-------------------------------------
Name: Harris Barton
-----------------------------------
Its: Managing Member
------------------------------------
JONES LIVING TRUST, DTD 7/27/90
By:
-------------------------------------
Name: Brent Jones, Trustee
-----------------------------------
By:
-------------------------------------
Name: Dana Jones, Trustee
-----------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 25
THOMAS A. VARDELL
By:
-------------------------------------
Name: Thomas A. Vardell
-----------------------------------
JSY ENTERPRISES
By:
-------------------------------------
Its:
------------------------------------
JEFF ALLEN
By: /s/ JEFF ALLEN
-------------------------------------
Name: Jeff Allen
-----------------------------------
EDMUND S. RUFFIN
By:
-------------------------------------
Name: Edmund S. Ruffin, Jr.
-----------------------------------
LARRY M. AUGUSTIN
By:
-------------------------------------
Name: Larry M. Augustin
-----------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 26
THOMAS A. VARDELL
By:
-------------------------------------
Name: Thomas A. Vardell
-----------------------------------
JSY ENTERPRISES
By:
-------------------------------------
Name:
-----------------------------------
Its:
------------------------------------
JEFF ALLEN
By:
-------------------------------------
Name: Jeff Allen
-----------------------------------
EDMUND S. RUFFIN
By: /s/ EDMUND S. RUFFIN, JR.
-------------------------------------
Name: Edmund S. Ruffin, Jr.
-----------------------------------
LARRY M. AUGUSTIN
By:
-------------------------------------
Name: Larry M. Augustin
-----------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 27
THOMAS A. VARDELL
By:
-------------------------------------
Name: Thomas A. Vardell
-----------------------------------
JSY ENTERPRISES
By:
-------------------------------------
Name:
-----------------------------------
Its:
------------------------------------
JEFF ALLEN
By:
-------------------------------------
Name: Jeff Allen
-----------------------------------
EDMUND S. RUFFIN
By:
-------------------------------------
Name: Edmund S. Ruffin, Jr.
-----------------------------------
LARRY M. AUGUSTIN
By: /s/ LARRY M. AUGUSTIN
-------------------------------------
Name: Larry M. Augustin
-----------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 28
INTEL CORPORATION
By: [Signature illegible]
-------------------------------------
Name: [illegible]
-----------------------------------
Title: [illegible]
----------------------------------
O'BRIEN FAMILY TRUST
By:
-------------------------------------
Name: Judith M. O'Brien
-----------------------------------
Its: Trustee
-------------------------------------
CARL REDFIELD
By:
-------------------------------------
Name: Carl Redfield
-----------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 29
INTEL CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
O'BRIEN FAMILY TRUST
By: /s/ JUDITH M. O'BRIEN
-------------------------------------
Name: Judith M. O'Brien
-----------------------------------
Its: Trustee
-------------------------------------
CARL REDFIELD
By:
-------------------------------------
Name: Carl Redfield
-----------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 30
INTEL CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
O'BRIEN FAMILY TRUST
By:
-------------------------------------
Name: Judith M. O'Brien
-----------------------------------
Its: Trustee
-------------------------------------
CARL REDFIELD
By: /s/ CARL REDFIELD
-------------------------------------
Name: Carl Redfield
-----------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 31
SERIES B PURCHASERS:
Capital Research and Management Company
on behalf of
SMALLCAP World Fund, Inc.
By: /s/ DOREEN L. GEE
-------------------------------------
Doreen L. Gee
Its: Vice President
------------------------------------
SILICON GRAPHICS, INC.
Silicon Graphics, Inc.,
By:
-------------------------------------
Its:
------------------------------------
LEHMAN BROTHERS VENTURE
CAPITAL PARTNERS L.P.
By: Lehman Brothers Venture
Associates Inc.
Its: General Partner
By:
-------------------------------------
Its:
------------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 32
SERIES B PURCHASERS:
SMALLCAP WORLD FUND
SMALLCAP World Fund
By:
-------------------------------------
Its:
------------------------------------
SILICON GRAPHICS, INC.
Silicon Graphics, Inc.,
By: [Signature illegible]
-------------------------------------
Its: Sr. VP and Chief Financial Officer
------------------------------------
LEHMAN BROTHERS VENTURE
CAPITAL PARTNERS L.P.
By: Lehman Brothers Venture
Associates Inc.
Its: General Partner
By:
-------------------------------------
Its:
------------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 33
SERIES B PURCHASERS:
SMALLCAP WORLD FUND
SMALLCAP World Fund
By:
-------------------------------------
Its:
------------------------------------
SILICON GRAPHICS, INC.
Silicon Graphics, Inc.,
By:
-------------------------------------
Its:
------------------------------------
LEHMAN BROTHERS VENTURE
PARTNERS L.P.
By: Lehman Brothers Venture
Associates Inc.
Its: General Partner
By: [Signature illegible]
-------------------------------------
Its: Vice President
------------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 34
LEHMAN BROTHERS VENTURE
CAPITAL PARTNERS I, L.P.
By: LB I Group Inc.
Its: General Partner
By: [Signature illegible]
-------------------------------------
Its: [Illegible]
------------------------------------
LEHMAN BROTHERS VC PARTNERS L.P.
By: LB I Group Inc.
Its: General Partner
By: [Signature illegible]
-------------------------------------
Its: [Illegible]
------------------------------------
INTEL CORPORATION
Intel Corporation
By:
-------------------------------------
Its:
------------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 35
LEHMAN BROTHERS VENTURE
CAPITAL PARTNERS I, L.P.
By: LB I Group Inc.
Its: General Partner
By:
-------------------------------------
Its:
------------------------------------
LEHMAN BROTHERS VC PARTNERS L.P.
By: LB I Group Inc.
Its: General Partner
By:
-------------------------------------
Its:
------------------------------------
INTEL CORPORATION
Intel Corporation
By: /s/ SATISH RISHI
-------------------------------------
Satish Rishi
Its: Assistant Treasurer International
Intel Corporation
------------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 36
SEQUOIA CAPITAL
Sequoia Capital VIII
Sequoia International Technology
Partners VIII
Sequoia International Technology
Partners VIII (Q)
By: SC VIII Management, LLC
a California limited
liability company
Its: General Partner
By: [Signature illegible]
-------------------------------------
Managing Member
CMS Partners LLC
Sequoia 1997
By: [Signature illegible]
-------------------------------------
SUMITOMO CORPORATION
By:
-------------------------------------
Its:
------------------------------------
PRESIDIO VENTURE PARTNERS, LLC
By:
-------------------------------------
Its:
------------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 37
SEQUOIA CAPITAL
Sequoia Capital VIII
Sequoia International Technology
Partners VIII
Sequoia International Technology
Partners VIII (Q)
By: SC VIII Management, LLC
a California limited
liability company
Its: General Partner
By:
-------------------------------------
Managing Member
CMS Partners LLC
Sequoia 1997
By:
-------------------------------------
SUMITOMO CORPORATION
By: /s/ SHIGEO KURIMOTO
-------------------------------------
Shigeo Kurimoto
Its: General Manager, Information
Electronics Dept.
------------------------------------
PRESIDIO VENTURE PARTNERS, LLC
By:
-------------------------------------
Its:
------------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 38
SEQUOIA CAPITAL
Sequoia Capital VIII
Sequoia International Technology
Partners VIII
Sequoia International Technology
Partners VIII (Q)
By: SC VIII Management, LLC
a California limited
liability company
Its: General Partner
By:
-------------------------------------
Managing Member
CMS Partners LLC
Sequoia 1997
By:
-------------------------------------
SUMITOMO CORPORATION
By:
-------------------------------------
Its:
------------------------------------
PRESIDIO VENTURE PARTNERS, LLC
By: /s/ HASIYUKI ABE
-------------------------------------
Hasiyuki Abe
Its: President
------------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 39
PACIFIC TECHNOLOGY VENTURES USA, L.P.
Pacific Technology Ventures USA, L.P.
By: IDG Ventures, LLC
Its: General Partner
By: /s/ KIMBERLY DAVIS
-------------------------------------
Kimberly Davis, Managing Member
SYNNEX CORPORATION
By:
-------------------------------------
Its:
------------------------------------
WR HAMBRECHT & COMPANY
By:
-------------------------------------
Its:
------------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 40
PACIFIC TECHNOLOGY VENTURES USA, L.P.
Pacific Technology Ventures USA, L.P.
By: IDG Ventures, LLC
Its: General Partner
By:
-------------------------------------
Kimberly Davis, Managing Member
SYNNEX INFORMATION TECHNOLOGIES, INC.
By: [Signature illegible]
-------------------------------------
Its: President/CEO
------------------------------------
W.R. HAMBRECHT/VA RESEARCH, LLC
W.R. Hambrecht/VA Research, LLC
By: W.R. Hambrecht/VA Research
Management, LLC
Its: Managing member
By:
-------------------------------------
a managing member
[Signature Page to Registration Rights Agreement]
<PAGE> 41
PACIFIC TECHNOLOGY VENTURES USA, L.P.
Pacific Technology Ventures USA, L.P.
By: IDG Ventures, LLC
Its: General Partner
By:
-------------------------------------
Kimberly Davis, Managing Member
SYNNEX INFORMATION TECHNOLOGIES, INC.
By:
-------------------------------------
Its:
------------------------------------
W.R. HAMBRECHT/VA RESEARCH, LLC
W.R. Hambrecht/VA Research, LLC
By: W.R. Hambrecht/VA Research
Management, LLC
Its: Managing member
By:[Signature illegible]
-------------------------------------
a managing member
[Signature Page to Registration Rights Agreement]
<PAGE> 42
WS INVESTMENT COMPANY 99A
WS Investment Company 99A
By: /s/ JUDITH M. O'BRIEN
-------------------------------------
Its:
------------------------------------
O'BRIEN FAMILY TRUST
Judith M. O'Brien, Trustee of the
O'Brien Family Trust
By: /s/ JUDITH M. O'BRIEN
-------------------------------------
Judith M. O'Brien, Trustee
IRWIN GROSS
By:
-------------------------------------
DAVID FRAZEE
By:
-------------------------------------
LAUREN BORO
By:
-------------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 43
WS INVESTMENT COMPANY 99A
WS Investment Company 99A
By:
-------------------------------------
Its:
------------------------------------
O'BRIEN FAMILY TRUST
Judith M. O'Brien, Trustee of the
O'Brien Family Trust
By:
-------------------------------------
Judith M. O'Brien, Trustee
IRWIN GROSS
By: /s/ IRWIN GROSS
-------------------------------------
DAVID FRAZEE
By:
-------------------------------------
LAUREN BORO
By:
-------------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 44
WS INVESTMENT COMPANY 99A
WS Investment Company 99A
By:
-------------------------------------
Its:
------------------------------------
O'BRIEN FAMILY TRUST
Judith M. O'Brien, Trustee of the
O'Brien Family Trust
By:
-------------------------------------
Judith M. O'Brien, Trustee
IRWIN GROSS
By:
-------------------------------------
DAVID FRAZEE
By: /s/ DAVID FRAZEE
-------------------------------------
LAUREN BORO
By:
-------------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 45
WS INVESTMENT COMPANY 99A
WS Investment Company 99A
By:
-------------------------------------
Its:
------------------------------------
O'BRIEN FAMILY TRUST
Judith M. O'Brien, Trustee of the
O'Brien Family Trust
By:
-------------------------------------
Judith M. O'Brien, Trustee
IRWIN GROSS
By:
-------------------------------------
DAVID FRAZEE
By:
-------------------------------------
LAUREN BORO
By: /s/ LAUREN BORO
-------------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 46
VLG INVESTMENTS 1999
VLG Investments 99
By: /s/ ELIAS J. BLAWIE
-------------------------------------
Elias J. Blawie
Its: Managing Partner
------------------------------------
EDMUND S. RUFFIN, JR.
By:
-------------------------------------
FRANCIE JOHNSTON
By:
-------------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 47
VLG INVESTMENTS 1999
VLG Investments 99
By:
-------------------------------------
Its:
------------------------------------
EDMUND S. RUFFIN, JR.
By: /s/ EDMUND S. RUFFIN, JR.
-------------------------------------
FRANCIE JOHNSTON
By:
-------------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 48
VLG INVESTMENTS 1999
VLG Investments 99
By:
-------------------------------------
Its:
------------------------------------
EDMUND S. RUFFIN, JR.
By:
-------------------------------------
FRANCIE JOHNSTON
By: /s/ FRANCIE JOHNSTON
-------------------------------------
[Signature Page to Registration Rights Agreement]
<PAGE> 1
EXHIBIT 10.7
VA RESEARCH, INC.
FOUNDER'S STOCK REPURCHASE AGREEMENT
THIS AGREEMENT is made as of October 30, 1998, by and between VA
Research, Inc., a California corporation (the "COMPANY"), and Larry M. Augustin
("FOUNDER").
RECITALS
A. The Company has entered into that certain Stock Purchase Agreement of
even date herewith (the "PURCHASE AGREEMENT") for the purchase and sale of the
Company's Series A Preferred Stock with those certain purchasers (the
"PURCHASERS") listed on Exhibit A attached to the Stock Purchase Agreement.
B. As of the date hereof, Founder is the owner of 1,650,000 shares of
Common Stock of the Company (the "SHARES").
NOW, THEREFORE, in consideration of the mutual covenants and
representations herein set forth, the Company and Founder agree as follows:
1. Repurchase Option.
(a) In the event of any voluntary or involuntary termination of
Founder's employment by or service to the Company for any or no reason,
including death or disability, (a "TERMINATION") before all of the Shares are
released from the Company's repurchase option pursuant to Section 2 hereof, the
Company shall, upon the date of a Termination (as reasonably fixed and
determined by the Company) have an irrevocable, exclusive option (the
"REPURCHASE OPTION") for a period of 90 days from such date to repurchase all
(but not less than all) of the Shares that shall constitute the Unreleased
Shares (as such term is defined in Section 2(c)) at such time, at a purchase
price calculated after the two-for-one split of the Company's Common Stock equal
to $0.06 per share (the "REPURCHASE PRICE").
(b) The Repurchase Option shall be exercised by the Company by
written notice to Founder or Founder's executor (with a copy to the Escrow Agent
(as that term is defined in Section 4 hereof)) and, at the Company's option, (i)
by delivery to Founder or Founder's executor with such notice of a check in the
amount of the Repurchase Price for the Shares being repurchased, (ii) by
cancellation by the Company of an amount of Founder's indebtedness, if any, to
the Company equal to the Repurchase Price for the Shares being repurchased, or
(iii) by a combination of (i) and (ii) so that the combined payment and
cancellation of indebtedness equals the aggregate Repurchase Price. Upon
delivery of such notice and the payment of the purchase price in any of the ways
described above, the Company shall become the legal and beneficial owner of the
Shares being repurchased and all rights and interests therein or relating
thereto, and the Company shall have the right to retain and transfer to its own
name the number of Shares being repurchased by the Company.
<PAGE> 2
(c) Whenever the Company shall have the right to repurchase
Shares under this Section 1 or under Section 3 hereof, the Company may designate
and assign one or more employees, officers, directors, or shareholders of the
Company or other persons or organizations to exercise all or a part of the
Company's purchase rights under this Agreement and purchase all or a part of
such Shares. If the fair market value of the Shares to be repurchased on the
date of such designation or assignment (the "REPURCHASE FMV") exceeds the
aggregate Repurchase Price of such Shares, then each such designee or assignee
shall pay the Company cash equal to the difference between the Repurchase FMV
and the aggregate Repurchase Price of such Shares.
2. Release of Shares From Repurchase Option.
(a) Three-Fifths (3/5) of the Shares shall be released from the
Company's Repurchase Option as of the date of the execution of this Agreement,
and an additional One Twenty-Fourth (1/24) of the Shares shall be released each
calendar month thereafter until all of the Shares have been released; provided
in each case that Founder has not ceased to be an employee or a director of or a
consultant to the Company prior to the date of any such release.
(b) Notwithstanding anything set forth in Section 2(a) above,
50% of the Unreleased Shares shall be released from the Repurchase Option upon
the occurrence of both of the following: (i) a Change of Control (as that term
is defined below) and (ii) the Involuntary Termination of Founder's service with
the Company or the termination of Founder' service with the Company without
Cause (as that term is defined below), in each case, on or before the first
anniversary of the effective date of such Change of Control. For purposes of the
foregoing, a "CHANGE OF CONTROL" shall occur upon the closing of (A) a merger or
consolidation of the Company with or into any other corporation or other entity,
or sale of all or substantially all of the assets of the Company, unless the
shareholders of the Company immediately prior to such transaction hold at least
50% of the outstanding equity securities of the entity surviving such merger or
consolidation or the entity purchasing such assets, or (B) upon a sale or
transfer of more than 50% of the Company's voting securities to a person or
persons acting as a group, who is or are not controlled directly or indirectly
by the Company, in a single transaction or series of related transactions. For
the purposes of this Section 2(b), the term "INVOLUNTARY TERMINATION" shall mean
(i) without Founder's express written consent, the significant reduction of
Founder's title, duties or responsibilities relative to Founder's title, duties
or responsibilities in effect immediately prior to such reduction; provided,
however, that a reduction in title, duties or responsibilities solely by virtue
of the Company being acquired and made part of a larger entity (as, for example,
when Founder, if Chief Executive Officer of the Company immediately prior to a
Change of Control, remains as such following a Change of Control and is not made
the Chief Executive Officer of the acquiring corporation or a division thereof)
shall not constitute an "Involuntary Termination;" (ii) without Founder's
express written consent, a reduction by the Company in the annual base salary or
in the maximum dollar amount of potential annual cash bonuses relative to the
annual base salary and maximum dollar amount of potential annual cash bonuses as
in effect immediately prior to such reduction; (iii) without Founder's express
written consent, a material reduction by the Company in the kind or level of
employee benefits to which Founder is entitled immediately prior to such
reduction with the result that Founder's overall benefits package is
significantly reduced; (iv) the relocation of Founder to a facility or a
location more than 50 miles from Founder's then present location, without
Founder's express written consent; or (v) any
-2-
<PAGE> 3
purported termination of Founder by the Company which is not effected for Cause.
The term "CAUSE" shall mean any of the following: (a) any act of personal
dishonesty involving Founder in connection with his responsibilities as an
employee or director of the Company; (b) the conviction of or plea of guilty or
nolo contendere to a felony by Founder; (c) a willful act by Founder which
constitutes gross misconduct and which is injurious to the Company; or (iv)
continued violations by Founder of his obligations as an employee or director of
the Company which are demonstrably willful and deliberate on Founder's part
after there has been delivered to Founder a written demand for performance from
the Company which describes the basis for the Company's belief that Founder has
not substantially performed his duties.
(c) Any of the Shares which have not yet been released from the
Repurchase Option are referred to herein as "UNRELEASED SHARES".
(d) The Shares which have been released from the Repurchase
Option shall be delivered to Founder by the Escrow Agent (as defined in Section
4 below) at Founder's request.
3. Restriction on Transfer.
(a) Founder shall not sell, transfer, pledge, or otherwise
dispose of any Shares that remain subject to the Repurchase Option other than a
pledge in connection with indebtedness owed to the Company or than by will or
the laws of descent and distribution. Founder agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records. The Company shall not be
required (i) to transfer on its books any Shares that have been sold or
otherwise transferred in violation of any of the provisions of this Agreement or
(ii) to treat as owner of such Shares or to accord the right to vote or pay
dividends to any purchaser or other transferee to whom such Shares shall have
been so transferred.
(b) Before any Shares may be sold or transferred (including
transfer by operation of law), such Shares shall first be offered to the Company
(the "RIGHT OF FIRST REFUSAL").
(i) Notice. In the event Founder wishes to sell the
Shares, Founder shall deliver a notice ("Notice") to the Company stating (A) his
bona fide intention to sell or transfer such Shares, (B) the number of such
Shares to be sold or transferred, (C) the price for which he proposes to sell or
transfer such Shares, and (D) the name of the proposed purchaser or transferee.
(ii) Election to Purchase. Within thirty (30) days after
receipt of the Notice, the Company or its assignee may elect to purchase all or
none of the Shares to which the Notice refers, at the price per share specified
in the Notice. The purchase of the Shares in either such event shall occur at a
closing held at the Company's principal office at a mutually agreed upon time
which in no event shall be more than thirty (30) days following the end of the
time period in which the Company had to elect to purchase such Shares.
-3-
<PAGE> 4
(iii) Sale of Shares by Purchaser. If all of the Shares
to which the Notice refers are not elected to be purchased, as provided in this
Section 3(b), Purchaser may sell the Shares to any person named in the Notice at
the price specified in the Notice or at a higher price, provided that such sale
or transfer is consummated within sixty (60) days of the date of said Notice to
the Company, and provided, further, that any such sale is in accordance with all
the terms and conditions hereof.
(iv) Termination of Restrictions. Notwithstanding the
provisions of Section 3(a) above, the Company's Right of First Refusal shall
terminate immediately as to all Shares upon the occurrence of the first to occur
of the following events:
(A) the acquisition of the Company by another
entity by means of the merger or consolidation of the Company with or into
another corporation in which the stockholders of the Company immediately prior
to such merger or consolidation own less than 50% of the voting securities of
the surviving entity,
(B) the sale of all or substantially all of the
assets of the Company, or
(C) the date upon which a public market exists
for the Company's capital stock (or any other stock issued to purchasers in
exchange for the Shares purchased under this Agreement). For the purpose of this
Agreement, a "Public Market" shall be deemed to exist if (1) such stock is
listed on a national securities exchange (as that term is used in the Securities
Exchange Act of 1934), or (2) such stock is traded on the over-the-counter
market and prices are published daily on business days in a recognized financial
journal.
(v) Exempt Transfers. The provisions of this Section 3
shall not apply to a transfer of any Shares by Founder, either during his
lifetime or on death by will or intestacy to his ancestors, descendants or
spouse, or any custodian or trustee for the account of Purchaser or Purchaser's
ancestors, descendants or spouse; provided, in each such case that the
transferee shall receive and hold such Shares subject to all of the provisions
of this Section 3 and there shall be no further transfer of such Shares except
in accordance herewith.
4. Escrow of Shares. The Shares held by the Founder shall be delivered
to an escrow agent designated by the Company (the "Escrow Agent"), along with a
stock assignment executed by Founder in blank in the form attached hereto as
Exhibit A, to be held in escrow pursuant to the terms of the Joint Escrow
Instructions attached hereto as Exhibit B.
5. Stock Certificate Legends. The share certificate(s) evidencing the
Shares shall be endorsed with the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH AND ARE SUBJECT TO A REPURCHASE RIGHT
-4-
<PAGE> 5
IN FAVOR OF THE COMPANY PURSUANT TO THE TERMS OF AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON
FILE WITH THE SECRETARY OF THE COMPANY.
6. Adjustment for Stock Split. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
7. General Provisions.
(a) This Agreement shall be governed by the laws of the State of
California as they apply to contracts entered into and wholly to be performed in
such state. This Agreement represents the entire agreement between the parties
with respect to the subject matter of this Agreement and may only be modified or
amended in writing signed by both parties.
(b) Any dispute, claim or controversy of any kind (including but
not limited to tort, contract and statute) arising under, in connection with, or
relating to this Agreement shall at the request of either party be resolved
exclusively by binding arbitration in Palo Alto, California, or any other
location mutually agreeable to the parties, in accordance with the Commercial
rules of the American Arbitration Association then in effect. Founder and the
Company agree to waive any objection to personal jurisdiction or venue in any
forum located in Palo Alto, California, or any other location mutually agreeable
to the parties. Judgment may be entered on the arbitrator's award in any court
having jurisdiction.
(c) Any notice, demand or request required or permitted to be
given by either the Company or Founder pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
(d) The rights and benefits of the Company under this Agreement
shall be transferable to any one or more persons or entities, and all covenants
and agreements hereunder shall inure to the benefit of, and be enforceable by
the Company's successors and assigns. The rights and obligations of Founder
under this Agreement may only be assigned with the prior written consent of the
Company.
(e) Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions, nor prevent that party thereafter from
enforcing each and every other provision of this Agreement. The rights granted
both parties herein are cumulative and shall not constitute a waiver of either
party's right to assert all other legal remedies available to it under the
circumstances.
(f) Founder agrees upon request to execute any further documents
or instruments necessary or desirable to carry out the purposes or intent of
this Agreement.
-5-
<PAGE> 6
(g) FOUNDER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE
PROVIDED IN SECTION 2(b) HEREOF TO THE CONTRARY, THE VESTING OF SHARES PURSUANT
TO SECTION 2 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE,
CONSULTANT OR DIRECTOR AT THE WILL OF THE COMPANY. FOUNDER FURTHER ACKNOWLEDGES
AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE
VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED
PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE, CONSULTANT OR DIRECTOR FOR THE
VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH
FOUNDER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE FOUNDER'S EMPLOYMENT OR
CONSULTING RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
(h) Founder has reviewed this Agreement in its entirety, has had
an opportunity to obtain the advice of counsel prior to executing this Agreement
and fully understands all provisions of this Agreement.
[Signatures to follow.]
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<PAGE> 7
IN WITNESS WHEREOF, the parties have duly executed this Founder's Stock
Repurchase Agreement as of the day and year first set forth above.
VA RESEARCH, INC., FOUNDER:
a California corporation
By: /s/ LARRY M. AUGUSTIN By: /s/ LARRY M. AUGUSTIN
--------------------------------- -------------------------------------
Larry M. Augustin, President Larry M. Augustin
1235 Pear Avenue, Suite 109 824 Sonia Way
Mountain View, CA 94043 Mountain View, CA 94040
<PAGE> 8
CONSENT OF SPOUSE
I, Alice Kitsuta Augustin, spouse of Larry M. Augustin, have read and
approve the foregoing Founder's Stock Repurchase Agreement (the "AGREEMENT"). In
consideration of the benefit that my spouse and I receive on account of the
Series A Preferred Stock financing that is closing simultaneously with the
execution and delivery of this Agreement, I hereby appoint my spouse as my
attorney-in-fact in respect to the exercise of any rights under the Agreement
and agree to be bound by the provisions of the Agreement insofar as I may have
any rights in said Agreement or any shares issued pursuant thereto under the
community property laws of the State of California or similar laws relating to
marital property in effect in the state of our residence as of the date of the
signing of the foregoing Agreement.
Dated: __________, 1998
Signed:
--------------------------------
Alice Kitsuta Augustin
<PAGE> 9
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I,____________________________, hereby sell, assign
and transfer unto___________________________, ______________________
(__________) shares of the Common Stock of VA Research, Inc. standing in my name
of the books of said corporation represented by Certificate No. _____ herewith
and do hereby irrevocably constitute and appoint
__________________________________________, attorney, to transfer the said stock
on the books of the within named corporation with full power of substitution in
the premises.
This Assignment Separate from Certificate was executed in conjunction
with the terms of a Founder's Stock Repurchase Agreement between VA Research,
Inc. and the undersigned dated as of October __, 1998.
Dated: _______________, _______
----------------------------------------
(to be signed exactly as name is to
appear on stock certificate)
INSTRUCTIONS: Please do not fill in the blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
"repurchase option," as set forth in the Agreement, without requiring additional
signatures on the part of Founder.
<PAGE> 10
EXHIBIT B
JOINT ESCROW INSTRUCTIONS
October __, 1998
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Judith Mayer O'Brien, Esq.
Dear Ms. O'Brien:
As Escrow Agent for both VA Research, Inc., a California corporation
(the "COMPANY"), and the undersigned purchaser of stock of the Company (the
"FOUNDER"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of Founder's Stock Repurchase Agreement
(the "AGREEMENT") between the Company and the undersigned, in accordance with
the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively for convenience herein as the "COMPANY") exercises the Company's
repurchase option set forth in the Agreement, the Company shall give to Founder
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 Company. Founder and the Company 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 the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver the same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, cancellation of indebtedness or some combination thereof) for the
number of shares of stock being purchased pursuant to the exercise of the
Company's repurchase option.
3. Founder irrevocably authorizes the Company 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 defined in the Agreement. Founder
does hereby irrevocably constitute and appoint you as Founder's attorney-in-fact
and agent for the term of this escrow to execute with respect to such securities
all documents necessary or appropriate to make such securities negotiable and to
complete any transaction
<PAGE> 11
herein contemplated, including but not limited to the filing with any applicable
state blue sky authority of any required applications for consent to, or notice
of transfer of, the securities. Subject to the provisions of this paragraph 3,
Founder shall exercise all rights and privileges of a shareholder of the Company
while the stock is held by you.
4. Upon written request of Founder, but no more than once per calendar
year, unless the Company's repurchase option has been exercised, you will
deliver to Founder a certificate or certificates representing so many shares of
stock as are not then subject to the Company's repurchase option, provided that
such shares do not secure an unpaid promissory note. Within 90 days after
cessation of Founder's continuous employment by the Company or any parent or
subsidiary of the Company, you will deliver to Founder a certificate or
certificates representing the aggregate number of shares held or issued pursuant
to the Agreement and not purchased by the Company or its assignees pursuant to
exercise of the Company's repurchase option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities or other property belonging to Founder, you
shall deliver all of the same to Founder and shall be discharged of all further
obligations hereunder.
6. 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. 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 Founder 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, 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,
authorities 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 the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
-2-
<PAGE> 12
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
13. 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.
14. 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 held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes 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.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto 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.
COMPANY: VA Research, Inc.
1235 Pear Avenue, Suite 109
Mountain View, CA 94043
Founder: Larry M. Augustin
824 Sonia Way
Mountain View, CA 94040
ESCROW AGENT: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: Judith Mayer O'Brien
16. 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.
-3-
<PAGE> 13
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the laws of the State of California.
Very truly yours,
VA RESEARCH, INC.
By:
-------------------------------------
Larry M. Augustin, President
Founder
----------------------------------------
Larry M. Augustin
ESCROW AGENT:
- ----------------------------------------
Judith Mayer O'Brien
<PAGE> 1
EXHIBIT 10.9
================================================================================
VA RESEARCH, INC.
LOAN AND SECURITY AGREEMENT
================================================================================
<PAGE> 2
This LOAN AND SECURITY AGREEMENT (this "Agreement") is entered into as of
February 18, 1999, by and between COMERICA BANK-CALIFORNIA ("Bank") and VA
RESEARCH, INC. ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions.
As used in this Agreement, the following terms shall have the
following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of
the foregoing.
"Advance" or "Advances" means a loan advance under the Committed
Revolving Line.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls
or is controlled by or is under common control with such Person, and each of
such Person's senior executive officers, directors, partners and, for any
Person that is a limited liability company, such Persons, managers and members.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents (including fees and
expenses of appeal or review, or those incurred in any Insolvency Proceeding),
whether or not suit is brought.
"Base Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "Base Rate," whether or not such announced
rate is the lowest rate available from Bank.
"Borrower's Books" means all of Borrower's books and records
including without limitation: ledgers, records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and
all computer programs or tape files, and the equipment containing such
information.
"Borrowing Base" means: (i) at any time prior to the Equity
Infusion, an amount equal to eighty percent (80%) of Eligible Accounts plus
$250,000, and (ii) at any time from and after the Equity Infusion, an amount
equal to eighty percent (80%) of Eligible Accounts, in either case as
determined by Bank with reference to the most recent Borrowing Base Certificate
delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
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<PAGE> 3
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
hereto.
"Committed Revolving Line" means a credit extension of up to
Four Million Dollars ($4,000,000).
"Committed Equipment Line" means a credit extension of up to
Five Hundred Thousand Dollars ($500,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means each Advance, Equipment Advance, Letter
of Credit, Exchange Contract or any other extension of credit by Bank for the
benefit of Borrower hereunder.
"Current Liabilities" means, as of any applicable date,
all amounts that should, in accordance with GAAP, be included as current
liabilities on the consolidated balance sheet of Borrower and its Subsidiaries,
as at such date, plus, to the extent not already included therein, all
outstanding Credit Extensions made under this Agreement, including all
indebtedness that is payable upon demand or within one year from the date of
determination thereof unless such indebtedness is renewable or extendable at
the option of Borrower or any Subsidiary to a date more than one year from the
date of determination, but excluding Subordinated Debt.
"Debt Service Coverage" means, as measured quarterly as of the
last day of each fiscal quarter of Borrower, on a consolidated basis determined
in accordance with GAAP, the ratio of (a) an amount equal to the sum of (i) net
income, plus (ii) depreciation and amortization of intangible assets and other
non-cash charges to income to (b) an amount equal to the sum of all scheduled
repayments and mandatory prepayments of principal on account of long-term
indebtedness for such quarter.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided, that
standards of eligibility may be fixed and revised from time to time by Bank in
Bank's reasonable judgment and upon thirty (30) days prior written notification
thereof to Borrower in accordance with the provisions hereof. Unless otherwise
agreed to by Bank in writing, Eligible Accounts shall not include the following:
2
<PAGE> 4
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, twenty-five
percent (25%) of whose Accounts the account debtor has failed to pay within
ninety (90) days of invoice date;
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed twenty percent (20%) of
all Accounts, to the extent such obligations exceed the aforementioned
percentage, except as approved in writing by Bank;
(d) Accounts with respect to which the account debtor does not
have its principal place of business in the United States except for Eligible
Foreign Accounts;
(e) Accounts with respect to which the account debtor is a
federal, state or local governmental entity or any department, agency, or
instrumentality thereof;
(f) Accounts with respect to which Borrower is liable to the
account debtor, but only to the extent of any amounts owing to the account
debtor (sometimes referred to as "contra" accounts, e.g. accounts payable,
customer deposits, credit accounts, etc.);
(g) Accounts generated by demonstration or promotional
equipment, or with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, bill and hold, or other terms by reason
of which the payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(k) Accounts the collection of which Bank reasonably determines
after reasonable inquiry and reasonable consultation with Borrower to be
doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which
the account debtor does not have its principal place of business in the United
States and that are: (1) covered by credit insurance in form and amount, and by
an insurer satisfactory to Bank less the amount of any deductible(s) which may
be or become owing thereon; or (2) supported by one or more letters of credit
either advised or negotiated through Bank or in favor of Bank as beneficiary,
in an amount and of a tenor, and issued by a financial institution, acceptable
to Bank; or (3) that Bank approves on a case-by-case basis.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"Equipment Advance" has the meaning set forth in Section 2.1.3.
"Equipment Availability End Date" has the meaning set forth in
Section 2.1.3.
3
<PAGE> 5
"Equity Infusion" means the first date after the date hereof on
which Borrower receives net proceeds from the issuance of its equity securities
or Subordinated Debt.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect in the United Sates from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means all of Borrower's
right, title and interest in and to the following:
(a) Copyrights, Trademarks, Patents, and Mask Works;
(b) Any and all trade secrets, and any and all intellectual
rights in computer software and computer software products now or hereafter
existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower
now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but
not the obligation, to sue for and collect such damages for said use or
infringement of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights,
Patents, Trademarks, or Mask Works, and all license fees and royalties arising
from such use to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks, Patents or Mask Works; and
(g) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
"Inventory" means all present and future inventory in
which Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and
any documents of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
4
<PAGE> 6
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Letter of Credit" means a letter of credit or similar
undertaking issued by Bank pursuant to Section 2.1.2.
"Letter of Credit Reserve" has the meaning set forth in Section
2.1.2.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note
or notes executed by Borrower, and any other present or future agreement
entered into between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated from time to time.
"Mask Works" means all mask works or similar rights available
for the protection of semiconductor chips, now owned or hereafter acquired.
"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means December 31, 2002.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement
or any other agreement, whether absolute or contingent due or to become due,
now existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Patents" means all patents, patent applications and like
protections, including without limitation improvements, divisions,
continuations, renewals, reissues, extentions and continuations-in-part of the
same.
"Payment Date" means the first calendar day of each month,
commencing on the first such date after the Closing Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Indebtedness to trade creditors and with respect to surety
bonds and similar obligations incurred in the ordinary course of business;
(d) Subordinated Debt;
(e) Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of Borrower (provided
that the primary obligations are not prohibited
5
<PAGE> 7
hereby), and indebtedness of any Subsidiary to any other Subsidiary and
Contingent Obligations of any Subsidiary with respect to obligations of any
other Subsidiary (provided that the primary obligations are not prohibited
hereby);
(f) Indebtedness secured by Permitted Liens;
(g) Capital leases and indebtedness incurred solely to purchase
equipment which is secured in accordance with clause (c) of "Permitted Liens"
below and is not in excess of the lesser of the purchase price of such equipment
or the fair market value of such equipment on the date of acquisition; provided
that the total aggregate amount of such capital leases and indebtedness
(including any Equipment Advances drawn under the Committed Equipment Line)
shall not exceed $1,000,000 in any fiscal year; and
(h) Extensions, refinancings, modifications, amendments and
restatements of any of items of Permitted Indebtedness (a) through (g) above,
provided that the principal amount thereof is not increased or the terms
thereof are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having the highest rating obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii)
certificates of deposit maturing no more than one (1) year from the date of
investment therein issued by Bank, and (iv) any Investments permitted by
Borrower's investment policy, as amended from time to time, provided that such
investment policy (and such amendments thereto) has been approved by Bank;
(c) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transaction in the ordinary
course of business;
(d) Investments accepted in connection with Transfers permitted
by Section 7.1;
(e) Investments consisting of (i) compensation of employees,
officers and directors of Borrower or its Subsidiaries so long as the Board of
Directors of Borrower determines that such compensation is in the best
interests of Borrower, (ii) travel advances, employee relocation loans and
other employee loans and advances in the ordinary course of business, and (iii)
loans to employees, officers or directors relating to the purchase of equity
securities of Borrower or its Subsidiaries pursuant to employee stock purchase
plans or agreements approved by Borrower's Board of Directors;
(f) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers and
in settlement of delinquent obligations of, and other disputes with, customers
or suppliers arising in the ordinary course of business;
(g) Investments pursuant to or arising under currency agreements
or interest rate agreements entered into in the ordinary course of business;
(h) Investments consisting of notes receivable of, or prepaid,
royalties and other credit extensions to, customers and suppliers who are not
Affiliates, in the ordinary course of business; provided that this paragraph
(i) shall not apply to investments by Borrower in any Subsidiary;
(i) Investments constituting acquisitions permitted under
Section 7.3;
(j) Deposit accounts of Borrower in which Bank has a Lien prior
to any other Lien;
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<PAGE> 8
(k) Deposit accounts of any Subsidiaries maintained in the
ordinary course of business; and
(l) other investments approved by Borrower's board of directors
not exceeding Five Hundred Thousand Dollars ($500,000) in the aggregate in any
fiscal year.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents:
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings and as to which adequate reserves are maintained on
Borrower's Books in accordance with GAAP, provided the same have no priority
over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of
such Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such equipment at the time
of its acquisition, provided that the Lien is confined solely to the property
so acquired and improvements thereon, and the proceeds of such Equipment;
(d) Liens on Equipment leased by Borrower or any Subsidiary
pursuant to an operating or capital lease in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such Equipment (including Liens pursuant to
leases permitted pursuant to Section 7.1 and Liens arising from UCC financing
statements regarding leases permitted by this Agreement);
(e) Leases or subleases and licenses or sublicenses granted to
others in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower and its Subsidiaries taken as a
whole, and any interest or title of a lessor, licensor or under any lease or
license, provided that such leases, subleases, licenses and sublicenses do not
prohibit the grant of the security interest granted hereunder;
(f) Liens on assets (including the proceeds thereof and
accessions thereto) that existed at the time such assets were acquired by
Borrower or any Subsidiary (including Liens on assets of any corporation that
existed at the time it became or becomes a Subsidiary); provided such Liens are
not granted in contemplation of or in connection with the acquisition of such
asset by Borrower or a Subsidiary;
(g) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.8;
(h) Easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
affecting real property not constituting a Material Adverse Effect;
(i) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payments of customs duties in connection with the
importation of goods;
(j) Liens that are not prior to the Lien of Bank which
constitute rights of set-off of a customary nature or banker's Liens with
respect to amounts on deposit, whether arising by operation of law or by
contract, in connection with arrangement entered in to with banks in the
ordinary course of business;
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(k) Earn-out and royalty obligations existing on the date hereof
or entered into in connection with an acquisition permitted by Section 7.3;
(l) Liens on insurance proceeds in favor of insurance companies
granted solely as security for financed premiums; and
(m) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a), (c), (e), (f), (g) and (i) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Quick Assets" means, as of any applicable date, the
unrestricted cash; unrestricted cash-equivalents; net, billed accounts
receivable and investments with maturities of fewer than one year of Borrower
determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer,
the President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means the date immediately preceding
the first anniversary of the date of this Agreement.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity
of which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.
"Tangible Net Worth" means, as of any applicable date, the
consolidated total assets of Borrower and its Subsidiary minus, without
duplication, (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense, patents, trade
and service marks and names, copyrights and research and development expenses
except prepaid expenses, and (c) all reserves not already deducted from assets,
and (ii) Total Liabilities.
"Total Liabilities" means, as of any applicable date, all
obligations that should, in accordance with GAAP, be classified as liabilities
on the consolidated balance sheet of Borrower, including in any event all
indebtedness, but specifically excluding Subordinated Debt.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections and the entire goodwill of the business of Assignor connected
with and symbolized by such trademarks.
1.2 Accounting and other terms.
All accounting terms not specifically defined herein shall be
construed in accordance with GAAP and all calculations and determinations made
hereunder shall be made in accordance with GAAP.
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When used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including", "includes" shall always be read as
meaning "including (or includes) without limitation," when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions
Borrower promises to pay to the order of Bank, in lawful money of
the United States of America, the aggregate unpaid principal amount of all
Credit Extensions made by Bank to Borrower hereunder. Borrower shall also pay
interest on the unpaid principal amount of such Credit Extensions at rates in
accordance with the terms hereof.
2.1.1 Revolving Advances
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate outstanding
amount not to exceed (i) the Committed Revolving Line or the Borrowing Base as
defined in Section 1.1, whichever is less, minus (ii) the face amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit; provided, however, that Borrower may request and Bank agrees to make
Advances to Borrower of up to $500,000 regardless of the Borrowing Base. Subject
to the terms and conditions of this Agreement, amounts borrowed pursuant to
this Section 2.1.1 may be repaid and reborrowed at any time prior to the
Revolving Maturity Date.
(b) Whenever Borrower desires an Advance, Borrower will
notify Bank by facsimile transmission or telephone no later than 3:00 p.m.
Pacific time, on the Business Day that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, or without instructions if in
Bank's discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a Responsible
Officer or a designee thereof, and Borrower shall indemnify and hold Bank
harmless for any damages or loss suffered by Bank as a result of such reliance.
Bank will credit the amount of Advances made under this Section 2.1 to
Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Advances under this Section 2.1 and
other amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
2.1.2 Letters of Credit
(a) Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued Letters of Credit for the account of
Borrower in an aggregate outstanding face amount not to exceed (i) the lesser of
the Committed Revolving Line or the Borrowing Base, whichever is less, minus
(ii) the then outstanding principal balance of the Advances, provided that the
face amount of outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit and any Letter of Credit Reserve) shall not in any case exceed
One Million Dollars ($1,000,000). Each Letter of Credit shall have an expiry
date no later than the Revolving Maturity Date. All Letters of Credit shall be,
in form and substance, acceptable to Bank in its sole discretion and shall be
subject to the terms and conditions of Bank's form of standard Application and
Letter of Credit Agreement.
(b) The obligation of Borrower to immediately reimburse
Bank for drawings made under Letters of Credit shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms
of this Agreement and such Letters of Credit, under all circumstances
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whatsoever. Borrower shall indemnify, defend, protect and hold Bank harmless
from any loss, cost, expense or liability, including, without limitation,
reasonable attorneys' fees, arising out of or in connection with any Letters of
Credit.
(c) Borrower may request that Bank issue a Letter of
Credit payable in a currency other than United States Dollars. If a demand for
payment is made under any such Letter of Credit, Bank shall treat such demand as
an Advance to Borrower of the equivalent of the amount thereof (plus cable
charges) in United States currency at the then prevailing rate of exchange in
San Francisco, California, for sales of that other currency for cable transfer
to the country of which it is the currency.
(d) Upon the issuance of any Letter of Credit payable
in a currency other than United States Dollars. Bank shall create a reserve
under the Committed Revolving Line for Letters of Credit against fluctuations
in currency exchange rates, in an amount equal to ten percent (10%) of the face
amount of such Letter of Credit. The amount of such reserve may be amended by
Bank from time to time to account for fluctuations in the exchange rate. The
availability of funds under the Committed Revolving Line shall be reduced by the
amount of such reserve for so long as such Letter of Credit remains outstanding.
2.1.3 Equipment Advances.
(a) Subject to and upon the terms and conditions of
this Agreement, at any time from the date hereof through December 31, 1999 (the
"Equipment Availability End Date"), Bank agrees to make advances (each an
"Equipment Advance" and, collectively, the "Equipment Advances") to Borrower in
an aggregate outstanding amount not to exceed the Committed Equipment Line. To
evidence the Equipment Advance or Equipment Advances. Borrower shall deliver to
Bank, at the time of each Equipment Advance request, an invoice and canceled
check for the equipment to be purchased. The Equipment Advances shall be used
only to finance Equipment acceptable to and approved by Bank, and shall not
exceed one hundred percent (100%) of the invoice amount of such Equipment,
excluding taxes, shipping, warranty charges, freight discounts and installation
expense.
(b) Interest shall accrue from the date of each
Equipment Advance at the rate specified in Section 2.3(a), and shall be payable
monthly on each Payment Date. The first $250,000 of Equipment Advances that are
drawn by Borrower and outstanding on the Equipment Availability End Date or such
earlier date on which the first $250,000 in Equipment Advances is drawn by
Borrower (such date being the "First Term Date") will be payable in thirty-six
(36) equal monthly installments of principal, plus all accrued interest,
beginning on the Payment Date of the month following the First Term Date (but
in no event later than January 1, 2000). Any Equipment Advances drawn by
Borrower in excess of the initial $250,000 and outstanding on the Equipment
Availability End Date or such earlier date on which the entire remaining
$250,000 of the Committed Equipment Line is drawn (such date being the "Second
Term Date") will be payable in thirty-six (36) equal monthly installments of
principal, plus all accrued interest beginning on the Payment Date of the month
following the Second Term Date (but in no event later than January 1, 2000).
All unpaid Equipment Advances, together with accrued interest thereon and any
other amounts owing under this Agreement shall be due and payable on the
Maturity Date. Equipment Advances, once repaid, may not be reborrowed.
(c) When Borrower desires to obtain an Equipment
Advance, Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission to be received no later than 3:00 p.m. Pacific time one
(1) Business Day before the day on which the Equipment Advance is to be made.
Such notice shall be substantially in the form of Exhibit B. The notice shall
be signed by a Responsible Officer or its designee and include a copy of the
invoice and canceled check for the Equipment to be financed.
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2.2 Overadvances.
If, at any time or for any reason, the amount of Obligations
owed by Borrower to Bank pursuant to Section 2.1.1 and 2.1.2 of this Agreement
is greater than the aggregate amount available to be drawn under Section 2.1.1,
Borrower shall immediately pay to Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section 2.3(b),
any Advances and/or Equipment Advances shall bear interest on the average daily
balance thereof, at a per annum rate equal to three quarters of a percentage
point (0.75%) above the Base Rate.
(b) Default Rate. All Obligations shall bear interest, from
and after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on
each Payment Date. Borrower hereby authorizes Bank to debit any accounts with
Bank, including, without limitation. Account Number __________ for payments of
principal and interest due on the Obligations and any other amounts owing by
Borrower to Bank. Bank will notify Borrower of all debits which Bank has made
against Borrower's accounts. Any such debits against Borrower's accounts in no
way shall be deemed a set-off. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Base Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Base Rate is
changed, by an amount equal to such change in the Base Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments.
Prior to the occurrence of an Event of Default, Bank shall
credit a wire transfer of funds, check, or other item of payment to such deposit
account or Obligation as Borrower specifies. After the occurrence of an Event of
Default, the receipt by Bank of any wire transfer of funds, check, or other item
of payment, whether directed to Borrower's deposit account with Bank or to the
Obligations or otherwise, may be immediately applied to conditionally reduce
Obligations, but shall not be considered a payment in respect of the Obligations
unless such payment is of immediately available federal funds or unless and
until such check or other item of payment is honored when presented for payment.
Notwithstanding anything to the contrary contained herein, any wire transfer or
payment received by Bank after 12:00 noon Pacific time shall be deemed to have
been received by Bank as of the opening of business on the immediately following
Business Day. Whenever any payment to Bank under the Loan Documents would
otherwise be due (except by reason of acceleration) on a date that is not a
Business Day, such payment shall instead be due on the next Business Day, and
additional fees or interest, as the case may be, shall accrue and be payable for
the period of such extension.
2.5 Fees.
Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to Seventeen Thousand
Five Hundred Dollars ($17,500), which fee shall be due on the Closing Date and
shall be fully earned and non-refundable;
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(b) Financial Examination and Appraisal Fees. Bank's
customary fees and out-of-pocket expenses for Bank's audits of Borrower's
Accounts (not to exceed $750 per audit), and for each appraisal of Collateral
and financial analysis and examination of Borrower performed from time to time
by Bank or its agents;
(c) Bank Expenses. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due.
2.6 Additional Costs.
In case any change in any law, regulation, treaty or
official directive or the interpretation or application thereof by any court or
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law), in each case
after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to
its performance under this Agreement;
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans. Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error: provided, however, that Borrower shall
not be liable for any such amount attributable to any period prior to the date
of hundred eight (180) days prior to the date of such certificate.
2.7 Term.
Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations (excluding
Obligations under Section 2.6 and 12.2 to the extent they remain inchoate at
the time outstanding payment obligations are paid in full) are outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension.
The obligation of Bank to make the initial Credit Extension
is subject to the condition precedent that Bank shall have received, in form and
substance satisfactory to Bank, the following:
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(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) financing statements (Forms UCC-I);
(d) insurance certificate;
(e) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;
(f) a satisfactory audit of the Collateral;
(g) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions.
The obligation of Bank to make each Credit Extension, including
the initial Credit Extension, is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of
such Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Advance as to the accuracy of the
facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest.
Borrower grants and pledges to Bank a continuing security
interest in all presently existing and hereafter acquired or arising Collateral
in order to secure prompt payment of any and all Obligations and in order to
secure prompt performance by Borrower of each of its covenants and duties under
the Loan Documents. Except as set forth in the Schedule, such security interest
constitutes a valid, first priority security interest in the presently existing
Collateral, and will constitute a valid, first priority security interest in
Collateral acquired after the date hereof, in each case, to the extent that a
security interest in such Collateral can be perfected by the filing of a
financing statement or, in the case of Collateral consisting of instruments,
documents, chattel paper or certificated securities, to the extent that Bank
takes possession of such Collateral. Borrower acknowledges that Bank may place a
"hold" on any Deposit Account pledged as Collateral to secure the Obligations.
Bank agrees to execute and deliver to Borrower from time to time such
subordination agreements as Borrower may request and as are necessary to give
to other lenders which finance equipment for Borrower a first priority security
interest in the equipment financed so long as the Liens and the indebtedness
incurred with respect to such equipment financing are permitted under this
Agreement. Notwithstanding termination of this Agreement, Bank's Lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
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4.2 Delivery of Additional Documentation Required
Borrower shall from time to time execute and deliver to Bank, at
the request of Bank, all Negotiable Collateral, all financing statements and
other documents that Bank may reasonably request, in form satisfactory to Bank,
to perfect and continue perfected Bank's security interests in the Collateral
and in order to fully consummate all of the transactions contemplated under the
Loan Documents.
4.3 Right to Inspect.
Bank (through any of it officers, employees, or agents) shall
have the right, upon reasonable prior notice, from time to time during
Borrower's usual business hours, to inspect Borrower's Books and to make copies
thereof and to check, test, and appraise the Collateral in order to verify
Borrower's financial condition or the amount, condition of, or any other matter
relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification.
Borrower and each Subsidiary is a corporation duly existing and
in good standing under the laws of its state of incorporation and qualified and
licensed to do business in, and is in good standing in, any state in which the
conduct of its business or its ownership of property requires that it be so
qualified, except for states as to which any failure to so qualify would not
have a Material Adverse Effect.
5.2 Due Authorization: No Conflict.
The execution, delivery, and performance of the Loan Documents
are within Borrower's powers, have been duly authorized, and are not in
conflict with nor constitute a breach of any provision contained in Borrower's
Articles/Certificate of Incorporation or Bylaws, nor will they constitute an
event of default under any material agreement to which Borrower is a party or
by which Borrower is bound. Borrower is not in default under any agreement to
which it is a party or by which it is bound, which default could reasonably be
expected to have a Material Adverse Effect.
5.3 No Prior Encumbrances.
Borrower has good and indefeasible title to the Collateral, free
and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts.
The Eligible Accounts are bona fide existing obligations. The
service or property giving rise to such Eligible Accounts has been performed or
delivered to the account debtor or to the account debtor's agent for immediate
shipment to and unconditional acceptance by the account debtor. Borrower has not
received notice of actual or imminent Insolvency Proceeding of any account
debtor whose accounts are included in any Borrowing Base Certificate as an
Eligible Account.
5.5 Merchantable Inventory.
All inventory is in all material respects of good and marketable
quality, free from all material defects
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5.6 Intellectual Property.
Borrower is the sole owner of the Intellectual Property Collateral,
except for nonexclusive licenses granted by Borrower to its customers in the
ordinary course of business. Each of the Patents is valid and enforceable, and
no part of the Intellectual Property Collateral has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property Collateral violates the rights of any third party.
5.7 Name; Location of Chief Executive Office.
Except as disclosed in the Schedule, Borrower has not done business
and will not without at least thirty (30) days prior written notice to Bank, do
business under any name other than that specified on the signature page hereof.
The chief executive office of Borrower is located at the address indicated in
Section 10 hereof.
5.8 Litigation.
Except as set forth in the Schedule, there are no actions or
proceedings pending or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary before any court or administrative agency in which
an adverse decision could reasonably be expected to have a Material Adverse
Effect or a material adverse effect on Borrower's interest or Bank's security
Interest in the Collateral.
5.9 No Material Adverse Change in Financial Statements.
All consolidated financial statements related to Borrower and any
Subsidiary that have been delivered by Borrower to Bank fairly present in all
material respects Borrower's consolidated financial condition as of the date
thereof and Borrower's consolidated results of operations for the period then
ended. There has not been a material adverse change in the consolidated
financial condition of Borrower since the date of the most recent of such
financial statements submitted to Bank on or about the Closing Date.
5.10 Solvency.
The fair saleable value of Borrower's assets (including goodwill
minus disposition costs) exceeds the fair value of its liabilities; the
Borrower is not left with unreasonably small capital after the transactions
contemplated by this Agreement; and Borrower is able to pay its debts
(including trade debts) as they mature.
5.11 Regulatory Compliance.
Borrower and each Subsidiary has met the minimum funding requirements
of ERISA with respect to any employee benefit plans subject to ERISA. No event
has occurred resulting from Borrower's failure to comply with ERISA that is
reasonably likely to result in Borrower's incurring any liability that could
reasonably be expected to have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940. Borrower is not
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation G, T and U of the Board of Governors of the
Federal Reserve System). Borrower has complied with all the provisions of the
Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.12 Environmental Condition.
None of Borrower's or any Subsidiary's properties or assets has ever
been used by Borrower or any Subsidiary or, to the best of Borrower's
knowledge, by previous owners or operators, in the
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disposal of, or to produce, store, handle, treat, release, or transport, any
hazardous waste or hazardous substance other than in accordance with applicable
law; to the best of Borrower's knowledge none of Borrower's properties or assets
has ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute; no lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned by
Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received
a summons, citation, notice, or directive from the Environmental Protection
Agency, or any other federal, state or other governmental agency concerning any
action or omission by Borrower or any Subsidiary resulting in the release or
other disposition of hazardous waste or hazardous substances into the
environment.
5.13 Taxes.
Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed on timely basis, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein, except
those being contested in good faith by proper proceedings with adequate reserves
under GAAP.
5.14 Subsidiaries.
Borrower does not own any stock, partnership interest or
other equity securities of any Person, except for Permitted Investments.
5.15 Government Consents.
Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with and given
all notices to all governmental authorities that are necessary for the continued
operation of Borrower's business as currently conducted except where the failure
got obtain any such consent, approval or authorization, to make any such
declaration or filing, or to be given any such notice could not reasonably be
expected to have a Material Adverse Effect.
5.16 Full Disclosure
No representation, warranty or other statement made by
Borrower in any certificate or written statement furnished to Bank contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained in such certificates or statements not
misleading (it being recognized by Bank that the projections and forecasts
provided by Borrower are not to be viewed as facts and that actual results
during the period or period covered by any such projections and forecasts may
differ from the projected or forecasted results).
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
all outstanding Obligations, and for so long as Bank may have any commitment to
make a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing.
Borrower shall maintain its and each of its Subsidiaries'
corporate existence and good standing in its jurisdiction of incorporation and
maintain qualification in each jurisdiction in which the failure to so qualify
could reasonably be expected to have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could reasonably be except
to have a Material Adverse Effect.
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6.2 Government Compliance.
Borrower shall meet, and shall cause each Subsidiary to
meet, the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. Borrower shall comply, and shall cause each
Subsidiary to comply, with all statutes, laws, ordinances and government rules
and regulations to which it is subject, noncompliance with which could
reasonably be expected to have a Material Adverse Effect or a material adverse
effect on the Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates.
Borrower shall deliver to Bank: (a) as soon as available,
but in any event within twenty-five (25) days after the end of each month, a
company prepared consolidated balance sheet and income statement covering
Borrower's consolidated operations during such period, in a form and certified
by an Officer of Borrower reasonably acceptable to Bank; (b) as soon as
available, but in any event within ninety (90) days after the end of Borrower's
fiscal year, audited consolidated financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an unqualified opinion
on such financial statements of an independent certified public accounting firm
reasonably acceptable to Bank; (e) within five (5) days of filing, copies of all
statements, reports and notices sent or made available generally by Borrower to
its security holders or to any holders of Subordinated Debt and all reports on
Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission; (d)
promptly upon receipt of notice thereof, a report of any legal actions pending
or threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000)
or more; and (e) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
Within fifteen (15) days after the last day of each month,
Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in substantially the form of Exhibit C hereto, together with
aged listings of accounts receivable and accounts payable.
Within twenty-five (25) days after the last day of each
month, Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit
Borrower's Accounts at Borrower's expense, provided that such audits will be
conducted no more often than every six (6) months unless an Event of Default has
occurred and is continuing.
6.4 Inventory; Returns.
Borrower shall keep all inventory in good and marketable
condition, free from all material defects. Returns and allowances, if any, as
between Borrower and its account debtors shall be on the same basis and in
accordance with the usual customary practices of Borrower, as they exist at the
time of the execution and delivery of this Agreement. Borrower shall promptly
notify Bank of all returns and recoveries and of all disputes and claims, where
the return, recovery, dispute or claim involves more than Fifty Thousand Dollars
($50,000).
6.5 Taxes.
Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request,
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furnish Bank with proof satisfactory to Bank indicating that Borrower or a
Subsidiary has made such payments or deposits; provided that Borrower or a
Subsidiary need not make any payment if the amount or validity of such payment
is (i) contested in good faith by appropriate proceedings, (ii) is reserved
against (to the extent required by GAAP) by Borrower and (iii) no lien other
than a Permitted Lien results.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as are reasonably satisfactory to Bank. All
such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. So long as no
Event of Default has occurred and is continuing, Borrower shall have the option
of applying the proceeds of any casualty policy to the replacement or repair of
destroyed or damaged property; provided, that after the occurrence and during
the continuance of an Event of Default, all proceeds payable under any such
policy shall, at the option of Bank, be payable to Bank to be applied on account
of the Obligations.
6.7 Principal Depository.
Borrower shall maintain its principal depository and operating
accounts with Bank.
6.8 Quick Ratio.
Borrower shall maintain a ratio of Quick Assets to Current
Liabilities of at least: (i) 1.25 to 1.0 as of the last day of each calendar
month from the date hereof through June 30, 1999; (ii) 1.0 to 1.0 as of the
last day of each calendar month from July 1, 1999 through December 31, 1999;
and (iii) 1.25 to 1.0 as of the last day of each calendar month from and after
January 1, 2000.
6.9 Debt-Net Worth Ratio.
Borrower shall maintain a ratio of Total Liabilities less
Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more than:
(i) 2.0 to 1.0 as of the last day of each calendar month, from the date hereof
through November 30, 1999; and (ii) 1.0 to 1.0 as of the last day of each
calendar month from and after December 1, 1999.
6.10 Tangible Net Worth.
Borrower shall maintain, as of the last day of each calendar
month, a Tangible Net Worth of not less than Four Million Two Hundred Fifty
Thousand Dollars ($4,250,000) plus (i) 75% of Borrower's quarterly net income
(but not loss) for each fiscal quarter of the Borrower after the date hereof,
plus (ii) 100% of the net proceeds of any issuance by Borrower of its equity
securities or Subordinated Debt after the date hereof.
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6.11 Profitability.
Borrower shall have a minimum net profit of One Dollar
($1) for the fiscal quarter ending December 31, 1999. Commencing with the fiscal
quarter ending March 31, 2000 and thereafter. Borrower shall have a minimum net
profit of One Dollar ($1) for each fiscal quarter, except that Borrower may
suffer a loss not exceeding $250,000 for one fiscal quarter in any fiscal year.
6.12 Debt Service Coverage.
Commencing with the fiscal quarter ending December 31,
1999, Borrower shall maintain as of the last day of each of Borrower's fiscal
quarters, a Debt Service Coverage of at least 1.50 to 1.0.
6.13 Further Assurances.
At any time and from time to time Borrower shall execute
and deliver such further instruments and take such further actin as may
reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit
Extension hereunder shall be available and until payment in full of the
outstanding Obligations or for so long as Bank may have any commitment to make
any Advances, Borrower will not do any of the following:
7.1 Dispositions.
Convey, sell, lease, transfer or otherwise dispose of
(collectively a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than Transfers (i) of inventory
in the ordinary course of business, (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business, (iii) Transfers of worn-out or obsolete Equipment
or Equipment financed by other vendors, (iv) Transfers which constitute
liquidation of Investments permitted under Section 7.7, and (v) other Transfers
not otherwise permitted by this Section 7.1 not exceeding One Hundred Thousand
Dollars ($100,000) in the aggregate in any fiscal year.
7.2 Changes in Business, Ownership, Management or Business
Locations.
Engage in any business or permit any of its Subsidiaries
to engage in any business, other than the businesses currently engaged in by
Borrower and any business substantially similar or related thereto (or
incidental thereto), or suffer a material change in Borrower's ownership.
Borrower will not, without at least thirty (30) days prior written notification
to Bank, relocate its chief executive office or add any new offices or business
locations.
7.3 Mergers or Acquisitions.
Without prior consent of Bank which will not unreasonably
withheld, merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with or into any other business organization, or acquire, or permit
any of its Subsidiaries to acquire, all or substantially all of the capital
stock or property of another Person.
7.4 Indebtedness.
Create, incur, assume or be or remain liable with respect
to any indebtedness, or permit any Subsidiary so to do, other than Permitted
indebtedness.
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7.5 Encumbrances.
Create, incur, assume or suffer to exist any Lien with
respect to any of its property (including intellectual property), or assign or
otherwise convey any right to receive income, including the sale of any
Accounts, or permit any of its Subsidiaries so to do, except for Permitted
Liens.
7.6 Distributions.
Pay any dividends or make any other distribution or payment
on account of or in redemption, retirement or purchase of any capital stock,
provided that (i) Borrower may declare and make any dividend payment or other
distribution payable in its equity securities (ii) Borrower may convert any of
its convertible securities into other securities pursuant to the terms of such
convertible securities or otherwise in exchange therefor and (iii) for so long
as an Event of Default has not occurred, Borrower may repurchase stock from
former employees of Borrower in accordance with the terms of repurchase or
similar agreements between Borrower and such employees.
7.7 Investments.
Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates.
Directly or indirectly enter into or permit to exist any
material transaction with any Affiliate of Borrower except for transactions that
are in the ordinary course of Borrower's business, upon fair and reasonable
terms that are no less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person and except for transactions
with a Subsidiary that are upon fair and reasonable terms and transactions
constituting Permitted Investments.
7.9 Intellectual Property Agreements.
Borrower shall not permit the inclusion in any material
contract to which it becomes a party of any provisions that could or might in
any way prevent the creation of a security interest in Borrower's rights and
interests in any property included within the definition of the Intellectual
Property Collateral acquired under such contracts.
7.10 Subordinated Debt.
Make any payment in respect of any Subordinated Debt, or
permit any of its Subsidiaries to make any such payment, except in compliance
with the terms of such Subordinated Debt, or amend any provision contained in
any documentation relating to the Subordinated Debt without Bank's prior written
consent.
7.11 Inventory.
Store the Inventory with a bailee, warehouseman, or similar
party unless Bank has received a pledge of any warehouse receipt covering such
Inventory. Except for Inventory sold in the ordinary course of business and
except for such other locations as Bank may approve in writing, Borrower shall
keep the Inventory only at the location set forth in Section 10 hereof and such
other locations of which Borrower gives Bank prior written notice and as to
which Borrower signs and files a financing statement where needed to perfect
Bank's security interest.
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7.12 Compliance.
Become an "investment company" or a company controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose; fail
to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral, or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
8.1 Payment Default.
If Borrower fails to pay, when due, any of the Obligations;
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under
Sections 6.3, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11, 6.12, or 6.13 or violates any of
the covenants contained in Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after the occurrence
thereof; provided, however, that if the default cannot by its nature be cured
within the ten (10) day period or cannot after diligent attempts by Borrower be
cured within such ten (10) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional reasonable
period (which shall not in any case exceed thirty (30) days) to attempt to cure
such default, and within such reasonable time period the failure to have cured
such default shall not be deemed an Event of Default (provided that no Credit
Extensions will be required to be made during such cure period);
8.3 Material Adverse Change.
If there (i) occurs a material adverse change in the
business, operations, or condition (financial or otherwise) of Borrower or (ii)
is a material impairment of the prospect of repayment of any portion of the
Obligations or (iii) is a material impairment of the value or priority of Bank's
security interests in the Collateral;
8.4 Attachment.
If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgement or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of
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Default where such action or event is stayed or an adequate bond has been posted
pending a good faith contest by Borrower (provided that no Credit Extensions
will be required to be made during such cure period);
8.5 Insolvency.
If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within thirty (30) days
(provided that no Credit Extensions will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements.
If there is a default in any agreement to which Borrower
is a party with a third party or parties resulting in a right by such third
party or parties, whether or not exercised, to accelerate the maturity of any
Indebtedness in an amount in excess of One Hundred Thousand Dollars ($100,000)
or that could reasonably be expect to have a Material Adverse Effect;
8.7 Subordinated Debt.
If Borrower makes any payment on account of Subordinated
Debt, except to the extent such payment is allowed under any subordination
agreement entered into with Bank;
8.8 Judgments.
If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Credit Extensions will
be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations.
If any material misrepresentation or material misstatement
exists now or hereafter in any warranty or representation set forth herein or in
any certificate or writing delivered to Bank by Borrower or any Person acting on
Borrower's behalf pursuant to this Agreement or to induce Bank to enter into
this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies.
Upon the occurrence and during the continuance of an Event
of Default, Bank may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are authorized
by Borrower.
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement or under any other agreement
between Borrower and Bank;
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(c) Demand that Borrower (i) deposit cash with Bank in an amount
equal to the amount of any Letters of Credit remaining undrawn, as collateral
security for the repayment of any future drawings under such Letters of Credit,
and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in
advance all Letters of Credit fees scheduled to be paid or payable over the
remaining term of the Letters of Credit;
(d) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(e) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or
any part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior
to its security interest and to pay all expenses incurred in connection
therewith. With respect to any of Borrower's premises, Borrower hereby grants
Bank a license to enter such premises and to occupy the same, without charge,
in order to exercise any of Bank's rights or remedies provided herein, at law,
in equity, or otherwise;
(f) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral;
(h) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to the
Obligations in whatever manner or order Bank deems appropriate;
(i) Bank may credit bid and purchase at any public sale, or at
any private sale as permitted by law; and
(j) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
(k) Bank shall have a non-exclusive, royalty-free license to use
the Intellectual Property Collateral to the extent reasonably necessary to
permit Bank to exercise its rights and remedies upon the occurrence of an Event
of Default.
9.2 Power of Attorney
Effective only upon the occurrence and during the continuance of
an Event of Default, Borrower hereby irrevocably appoints Bank (and any of
Bank's designated officers, or employees) as Borrower's true and lawful
attorney to: (a) send requests for verification of Accounts or notify account
debtors of Bank's security interest in the Accounts; (b) endorse Borrower's
name on any checks or other forms of payment or security that may come into
Bank's possession; (c) sign Borrower's name on any invoice or bill of lading
relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; (e) settle and adjust disputes and
claims respecting the accounts directly with account debtors, for amounts and
upon terms which Bank determines to be reasonable; (f) to file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral, without the signature of Borrower
where permitted by law; and (g) to transfer the Intellectual Property
Collateral into the name of Bank
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or a third party to the extent permitted under the California Uniform Commercial
Code, provided Bank may exercise such power of attorney to sign the name of
Borrower on any of the documents described in Section 4.2 regardless of whether
an Event of Default has occurred. The appointment of Bank as Borrower's attorney
in fact, and each and every one of Bank's rights and powers, being coupled with
an interest, is irrevocable until all of the Obligations have been fully repaid
and performed and Bank's obligation to provide advances hereunder is terminated.
9.3 Accounts Collection.
At any time from the date of this Agreement, Bank may notify
any Person owing funds to Borrower of Bank's security interest in such funds and
verify the amount of such Account. Borrower shall collect all amounts owing to
Borrower for Bank, receive in trust all payments as Bank's trustee, and, if
requested or required by Bank, immediately deliver such payments to Bank in
their original form as received from the account debtor, with proper
endorsements for deposit.
9.4 Bank Expenses.
If Borrower fails to pay any amounts or furnish any required
proof of payment due to third persons or entities, as required under the terms
of this Agreement, then Bank may do any or all of the following: (a) make
payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral.
So long as Bank complies with its obligations under Section
9207 of the Code, Bank shall not in any way or manner be liable or responsible
for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto
occurring or arising in any manner or fashion from any cause; (c) any diminution
in the value thereof; or (d) any act or default of any carrier, warehouseman,
bailee, forwarding agency, or other person whomsoever. All risk of loss, damage
or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative.
Bank's rights and remedies under this Agreement, the Loan
Documents, and all other agreements shall be cumulative. Bank shall have all
other rights and remedies not expressly set forth herein as provided under the
Code, by law, or in equity. No exercise by Bank of one right or remedy shall be
deemed an election, and no waiver by Bank of any Event of Default on Borrower's
part shall be deemed a continuing waiver. No delay by Bank shall constitute a
waiver, election, or acquiescence by it. No waiver by Bank shall be effective
unless made in a written document signed on behalf of Bank and then shall be
effective only in the specific instance and for the specific purpose for which
it was given.
9.7 Demand; Protest.
Borrower waives demand, protest, notice of protest, notice
of default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Bank on which Borrower may in any way be liable.
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10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower: VA Research, Inc.
1235 Pear Ave. Suite 109
Mountain View, CA 94043
Attn: Jack Anderson
FAX:
----------------------------
If to Bank: Comerica Bank-California
55 Almaden Blvd., 2nd Floor
San Jose, CA 95113
Attn: Alan M. Jepsen
FAX: (408) 271-4021
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE
The Loan Documents shall be governed by, and construed in
accordance with, the internal laws of the State of California, without regard to
principles of conflicts of law. Each of Borrower and Bank hereby submits to the
exclusive jurisdiction of the state and Federal courts located in the County of
Santa Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns.
(a) This Agreement shall bind and inure to the benefit of the
respective successors and permitted assigns of each of the parties; provided,
however, that neither this Agreement nor any rights hereunder may be assigned by
Borrower without Bank's prior written consent, which consent may be granted or
withheld in Bank's sole discretion. Bank shall have the right without the
consent of or notice to Borrower to sell, transfer, negotiate, or grant
participations in all or any part of, or any interest in, Bank's obligations,
rights, and benefits hereunder, subject to the provisions of this Section 12.1.
(b) Bank may sell, negotiate or grant participations to other
financial institutions in all or part of the obligations of the Borrower
outstanding under the Loan Documents, without notice to or the approval of
Borrower; provided that any such sale, negotiation or participation shall be in
compliance with the applicable federal and state securities laws and the other
requirements of this Section 12.1. Notwithstanding the
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sale, negotiation or grant of participations. Bank shall remain solely
responsible for the performance of its obligations under this Agreement, and
Borrower shall continue to deal solely and directly with Bank in connection with
this Agreement and the other Loan Documents.
(c) The grant of a participation interest shall be on such
terms as Bank determines are appropriate, provided only that (1) the holder of
such a participation interest shall not have any of the rights of Bank under
this Agreement except, if the participation agreement so provides, rights to
demand the payment of costs of the type described in Section 2.6, provided that
the aggregate amount that the Borrower shall be required to pay under Section
2.6 with respect to any ratable share of the Committed Revolving Line or any
Advance (including amounts paid to participants) shall not exceed the amount
that Borrower would have had to pay if no participation agreements had been
entered into, and (2) the consent of the holder of such a participation interest
shall not be required for amendments or waivers of provisions of the Loan
Agreement other than those which (i) increase the amount of the Committed
Revolving Line, (ii) extend the term of this Agreement, (iii) decrease the rate
of interest or the amount of any fee or any other amount payable to Bank under
this Agreement, (iv) reduce the principal amount payable under this Agreement,
or (v) extend the date fixed for the payment of principal or interest or any
other amount payable under this Agreement.
(d) Bank may assign, from time to time, all or any portion of
the Committed Revolving Line to an Affiliate of Bank or to The Federal Reserve
Bank or, subject to the prior written approval of Borrower (which approval will
not be unreasonably withheld), to any other financial institution; provided
that (i) the amount of the Committed Revolving Line being assigned pursuant to
each such assignment shall in no event be less than Five Hundred Thousand
Dollars ($500,000) and shall be an integral multiple of One Hundred Thousand
Dollars ($100,000) and (ii) the parties to each such assignment shall execute
and deliver to Borrower an assignment agreement in a form reasonably acceptable
to each. Upon such execution and delivery, from and after the effective date
specified in such assignment agreement (x) the assignee thereunder shall be a
party hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such assignment agreement have the rights and
obligations of a Bank hereunder and (y) Bank shall, to the extent that rights
and obligations hereunder have been assigned by it pursuant to such assignment
agreement, relinquish its rights and be released from its obligations under this
Agreement (other than pursuant to this Section 12.1(d)), and, in the case of an
assignment covering all or the remaining portion of Bank's rights and
obligations under this Agreement. Bank shall cease to be a party hereto. In the
event of an assignment hereunder, the parties agree to amend this Agreement to
the extent necessary to reflect the mechanical changes which are necessary to
document such assignment. Each party shall bear its own expenses (including
without limitation attorneys' fees and costs) with respect to such an amendment.
12.2 Indemnification.
Borrower shall indemnify, defend, protect and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence.
Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 Severability of Provisions.
Each provision of this Agreement Shall be severable from
every other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
26
<PAGE> 28
12.5 Amendments in Writing, Integration.
This Agreement cannot be amended or terminated except by a
writing signed by Borrower and Bank. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts.
This Agreement may be executed in any number of counterparts and
by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement.
12.7 Survival.
All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
(excluding Obligations under Section 2.6 and 12.2 to the extent they remain
inchoate at the time the outstanding payment Obligations are paid in full)
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run, provided that so
long as the obligations referred to in the first sentence of this Section 12.7
have been satisfied, and Bank has no commitment to make any Credit Extensions or
to make any other loans to Borrower, Bank shall release all security interests
granted hereunder and redeliver all Collateral held by it in accordance with
applicable law.
12.8 Confidentiality.
In handling any confidential information, Bank shall exercise
the same degree of care that it exercises with respect to its own proprietary
information of the same types to maintain the confidentiality of any non-public
information thereby received or received pursuant to this Agreement, except that
disclosure of such information may be made (i) to the subsidiaries or affiliates
of Bank in connection with their present or prospective business relations with
Borrower, (ii) to prospective transferees or purchasers of any interest in the
Loans, provided that they have entered into a comparable confidentiality
agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as
required by law, regulations, rule or order, subpoena, judicial order or similar
order, (iv) as may be required in connection with the examination, audit or
similar investigation of Bank and (v) as Bank may deem appropriate in connection
with the exercise of any remedies hereunder. Confidential information hereunder
shall not include information that either: (a) is in the public domain or in the
knowledge or possession of Bank when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank through no fault of Bank; or (b) is
disclosed to Bank by a third party, provided Bank does not have actual knowledge
that such third party is prohibited from disclosing such information.
27
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
VA RESEARCH, INC.
By: [ILLEGIBLE]
-------------------------
Title: CFO
----------------------
COMERICA BANK - CALIFORNIA
By: ALAN JASPER
-------------------------
Title: VICE PRESIDENT
----------------------
28
<PAGE> 30
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. DEFINITIONS AND CONSTRUCTION................................... 1
1.1 Definitions............................................. 1
1.2 Accounting and Other Terms.............................. 8
2. LOAN AND TERMS OF PAYMENT...................................... 9
2.1 Credit Extensions....................................... 9
2.2 Overadvances............................................ 11
2.3 Interest Rates, Payments, and Calculations.............. 11
2.4 Crediting Payments...................................... 11
2.5 Fees.................................................... 11
2.6 Additional Costs........................................ 12
2.7 Term................................................... 12
3. CONDITIONS OF LOANS........................................... 12
3.1 Conditions Precedent to Initial Credit Extension....... 12
3.2 Conditions Precedent to all Credit Extensions.......... 13
4. CREATION OF SECURITY INTEREST................................. 13
4.1 Grant of Security Interest............................. 13
4.2 Delivery of Additional Documentation Required.......... 14
4.3 Right to Inspect....................................... 14
5. REPRESENTATIONS AND WARRANTIES................................ 14
5.1 Due Organization and Qualification..................... 14
5.2 Due Authorization; No Conflict......................... 14
5.3 No Prior Encumbrances.................................. 14
5.4 Bona Fide Eligible Accounts............................ 14
5.5 Merchantable Inventory................................. 14
5.6 Intellectual Property.................................. 15
5.7 Name; Location of Chief Executive Office............... 15
5.8 Litigation............................................. 15
5.9 No Material Adverse Change in Financial Statements..... 15
5.10 Solvency............................................... 15
5.11 Regulatory Compliance.................................. 15
5.12 Environmental Condition................................ 15
5.13 Taxes.................................................. 16
5.14 Subsidiaries........................................... 16
5.15 Government Consents.................................... 16
5.16 Full Disclosure........................................ 16
6. AFFIRMATION COVENANTS......................................... 16
6.1 Good Standing.......................................... 16
6.2 Government Compliance.................................. 17
6.3 Financial Statements, Reports, Certificates............ 17
6.4 Inventory; Returns..................................... 17
6.5 Taxes.................................................. 17
6.6 Insurance.............................................. 18
6.7 Principal Depository................................... 18
6.8 Quick Ratio............................................ 18
</TABLE>
-i-
<PAGE> 31
TABLE OF CONTENTS
CONTINUED
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
6.9 Debt-Net Worth Ratio............................................... 18
6.10 Tangible Net Worth................................................. 18
6.11 Profitability...................................................... 19
6.12 Debt Service Coverage.............................................. 19
6.13 Further Assurances................................................. 19
7. NEGATIVE COVENANTS........................................................ 19
7.1 Dispositions....................................................... 19
7.2 Changes in Business, Ownership, Management or Business Locations... 19
7.3 Mergers or Acquisitions............................................ 19
7.4 Indebtedness....................................................... 19
7.5 Encumbrances....................................................... 20
7.6 Distributions...................................................... 20
7.7 Investments........................................................ 20
7.8 Transactions with Affiliates....................................... 20
7.9 Intellectual Property Agreements................................... 20
7.10 Subordinated Debt.................................................. 20
7.11 Inventory.......................................................... 20
7.12 Compliance......................................................... 20
8. EVENTS OF DEFAULT......................................................... 21
8.1 Payment Default.................................................... 21
8.2 Covenant Default................................................... 21
8.3 Material Adverse Change............................................ 21
8.4 Attachment......................................................... 21
8.5 Insolvency......................................................... 22
8.6 Other Agreements................................................... 22
8.7 Subordinated Debt.................................................. 22
8.8 Judgments.......................................................... 22
8.9 Misrepresentations................................................. 22
9. BANK'S RIGHTS AND REMEDIES................................................ 22
9.1 Rights and Remedies................................................ 22
9.2 Power of Attorney.................................................. 23
9.3 Accounts Collection................................................ 24
9.4 Bank Expenses...................................................... 24
9.5 Bank's Liability for Collateral.................................... 24
9.6 Remedies Cumulative................................................ 24
9.7 Demand; Protest.................................................... 24
10. NOTICES................................................................... 25
11. CHOICE OF LAW AND VENUE................................................... 25
12. GENERAL PROVISIONS........................................................ 25
12.1 Successors and Assigns............................................. 25
12.2 Indemnification.................................................... 26
12.3 Time of Essence.................................................... 26
12.4 Severability of Provisions......................................... 26
12.5 Amendments in Writing, Integration................................. 27
</TABLE>
-ii-
<PAGE> 32
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
12.6 Counterparts....................................................... 27
12.7 Survival........................................................... 27
12.8 Confidentiality.................................................... 27
</TABLE>
-iii-
<PAGE> 1
EXHIBIT 10.12
GNU GENERAL PUBLIC LICENSE
Version 2, June 1991
Copyright (C) 1989, 1991 Free Software Foundation, Inc.
59 Temple Place, Suite 330, Boston, MA 02111-1307 USA
Everyone is permitted to copy and distribute verbatim copies of this license
document, but changing it is not allowed.
Preamble
The licenses for most software are designed to take away your freedom to
share and change it. By contrast, the GNU General Public License is intended to
guarantee your freedom to share and change free software--to make sure the
software is free for all its users. This General Public License applies to most
of the Free Software Foundation's software and to any other program whose
authors commit to using it. (Some other Free Software Foundation software is
covered by the GNU Library General Public License instead.) You can apply it to
your programs, too.
When we speak of free software, we are referring to freedom, not price. Our
General Public Licenses are designed to make sure that you have the freedom to
distribute copies of free software (and charge for this service if you wish),
that you receive source code or can get it if you want it, that you can change
the software or use pieces of it in new free programs; and that you know you can
do these things.
To protect your rights, we need to make restrictions that forbid anyone to
deny you these rights or to ask you to surrender the rights. These restrictions
translate to certain responsibilities for you if you distribute copies of the
software, or if you modify it.
For example, if you distribute copies of such a program, whether gratis or
for a fee, you must give the recipients all the rights that you have. You must
make sure that they, too, receive or can get the source code. And you must show
them these terms so they know their rights.
We protect your rights with two steps: (1) copyright the software, and (2)
offer you this license which gives you legal permission to copy, distribute
and/or modify the software.
Also, for each author's protection and ours, we want to make certain that
everyone understands that there is no warranty for this free software. If the
software is modified by someone else and passed on, we want its recipients to
know that what they have is not the original, so that any problems introduced by
others will not reflect on the original authors' reputations.
Finally, any free program is threatened constantly by software patents. We
wish to avoid the danger that redistributors of a free program will individually
obtain patent licenses, in effect making the program proprietary. To prevent
this, we have made it clear that any patent must be licensed for everyone's free
use or not licensed at all.
The precise terms and conditions for copying, distribution and modification
follow.
GNU GENERAL PUBLIC LICENSE
TERMS AND CONDITIONS FOR COPYING, DISTRIBUTION AND MODIFICATION
0. This License applies to any program or other work which contains a
notice placed by the copyright holder saying it may be distributed under the
terms of this General Public License. The "Program", below, refers to any such
program or work, and a "work based on the Program"
<PAGE> 2
means either the Program or any derivative work under copyright law: that is to
say, a work containing the Program or a portion of it, either verbatim or with
modifications and/or translated into another language. (Hereinafter, translation
is included without limitation in the term "modification".) Each licensee is
addressed as "you".
Activities other than copying, distribution and modification are not covered by
this License; they are outside its scope. The act of running the Program is not
restricted, and the output from the Program is covered only if its contents
constitute a work based on the Program (independent of having been made by
running the Program). Whether that is true depends on what the Program does.
1. You may copy and distribute verbatim copies of the Program's source
code as you receive it, in any medium, provided that you conspicuously and
appropriately publish on each copy an appropriate copyright notice and
disclaimer of warranty; keep intact all the notices that refer to this License
and to the absence of any warranty; and give any other recipients of the Program
a copy of this License along with the Program.
You may charge a fee for the physical act of transferring a copy, and you may at
your option offer warranty protection in exchange for a fee.
2. You may modify your copy or copies of the Program or any portion of
it, thus forming a work based on the Program, and copy and distribute such
modifications or work under the terms of Section 1 above, provided that you also
meet all of these conditions:
a) You must cause the modified files to carry prominent notices
stating that you changed the files and the date of any change.
b) You must cause any work that you distribute or publish, that in
whole or in part contains or is derived from the Program or any part
thereof, to be licensed as a whole at no charge to all third parties
under the terms of this License.
c) If the modified program normally reads commands interactively when
run, you must cause it, when started running for such interactive use
in the most ordinary way, to print or display an announcement
including an appropriate copyright notice and a notice that there is
no warranty (or else, saying that you provide a warranty) and that
users may redistribute the program under these conditions, and telling
the user how to view a copy of this License. (Exception: if the
Program itself is interactive but does not normally print such an
announcement, your work based on the Program is not required to print
an announcement.)
These requirements apply to the modified work as a whole. If identifiable
sections of that work are not derived from the Program, and can be reasonably
considered independent and separate works in themselves, then this License, and
its terms, do not apply to those sections when you distribute them as separate
works. But when you distribute the same sections as part of a whole which is a
work based on the Program, the distribution of the whole must be on the terms of
this License, whose permissions for other licensees extend to the entire whole,
and thus to each and every part regardless of who wrote it.
Thus, it is not the intent of this section to claim rights or contest your
rights to work written entirely by you; rather, the intent is to exercise the
right to control the distribution of derivative or collective works based on the
Program.
In addition, mere aggregation of another work not based on the Program with the
Program (or with a work based on the Program) on a volume of
<PAGE> 3
a storage or distribution medium does not bring the other work under the scope
of this License.
3. You may copy and distribute the Program (or a work based on it, under
Section 2) in object code or executable form under the terms of Sections 1 and 2
above provided that you also do one of the following:
a) Accompany it with the complete corresponding machine-readable
source code, which must be distributed under the terms of Sections 1
and 2 above on a medium customarily used for software interchange; or,
b) Accompany it with a written offer, valid for at least three years,
to give any third party, for a charge no more than your cost of
physically performing source distribution, a complete machine-readable
copy of the corresponding source code, to be distributed under the
terms of Sections 1 and 2 above on a medium customarily used for
software interchange; or,
c) Accompany it with the information you received as to the offer to
distribute corresponding source code. (This alternative is allowed
only for noncommercial distribution and only if you received the
program in object code or executable form with such an offer, in
accord with Subsection b above.)
The source code for a work means the preferred form of the work for making
modifications to it. For an executable work, complete source code means all the
source code for all modules it contains, plus any associated interface
definition files, plus the scripts used to control compilation and installation
of the executable. However, as a special exception, the source code distributed
need not include anything that is normally distributed (in either source or
binary form) with the major components (compiler, kernel, and so on) of the
operating system on which the executable runs, unless that component itself
accompanies the executable.
If distribution of executable or object code is made by offering access to copy
from a designated place, then offering equivalent access to copy the source code
from the same place counts as distribution of the source code, even though third
parties are not compelled to copy the source along with the object code.
4. You may not copy, modify, sublicense, or distribute the Program except
as expressly provided under this License. Any attempt otherwise to copy, modify,
sublicense or distribute the Program is void, and will automatically terminate
your rights under this License. However, parties who have received copies, or
rights, from you under this License will not have their licenses terminated so
long as such parties remain in full compliance.
5. You are not required to accept this License, since you have not signed
it. However, nothing else grants you permission to modify or distribute the
Program or its derivative works. These actions are prohibited by law if you do
not accept this License. Therefore, by modifying or distributing the Program (or
any work based on the Program), you indicate your acceptance of this License to
do so, and all its terms and conditions for copying, distributing or modifying
the Program or works based on it.
6. Each time you redistribute the Program (or any work based on the
Program), the recipient automatically receives a license from the original
licensor to copy, distribute or modify the Program subject to these terms and
conditions. You may not impose any further restrictions on the recipients'
exercise of the rights granted herein. You are not responsible for enforcing
compliance by third parties to this License.
<PAGE> 4
7. If, as a consequence of a court judgment or allegation of patent
infringement or for any other reason (not limited to patent issues), conditions
are imposed on you (whether by court order, agreement or otherwise) that
contradict the conditions of this License, they do not excuse you from the
conditions of this License. If you cannot distribute so as to satisfy
simultaneously your obligations under this License and any other pertinent
obligations, then as a consequence you may not distribute the Program at all.
For example, if a patent license would not permit royalty-free redistribution of
the Program by all those who receive copies directly or indirectly through you,
then the only way you could satisfy both it and this License would be to refrain
entirely from distribution of the Program.
If any portion of this section is held invalid or unenforceable under any
particular circumstance, the balance of the section is intended to apply and the
section as a whole is intended to apply in other circumstances.
It is not the purpose of this section to induce you to infringe any patents or
other property right claims or to contest validity of any such claims; this
section has the sole purpose of protecting the integrity of the free software
distribution system, which is implemented by public license practices. Many
people have made generous contributions to the wide range of software
distributed through that system in reliance on consistent application of that
system; it is up to the author/donor to decide if he or she is willing to
distribute software through any other system and a licensee cannot impose that
choice.
This section is intended to make thoroughly clear what is believed to be a
consequence of the rest of this License.
8. If the distribution and/or use of the Program is restricted in certain
countries either by patents or by copyrighted interfaces, the original copyright
holder who places the Program under this License may add an explicit
geographical distribution limitation excluding those countries, so that
distribution is permitted only in or among countries not thus excluded. In such
case, this License incorporates the limitation as if written in the body of this
License.
9. The Free Software Foundation may publish revised and/or new versions
of the General Public License from time to time. Such new versions will be
similar in spirit to the present version, but may differ in detail to address
new problems or concerns.
Each version is given a distinguishing version number. If the Program specifies
a version number of this License which applies to it and "any later version",
you have the option of following the terms and conditions either of that version
or of any later version published by the Free Software Foundation. If the
Program does not specify a version number of this License, you may choose any
version ever published by the Free Software Foundation.
10. If you wish to incorporate parts of the Program into other free
programs whose distribution conditions are different, write to the author to ask
for permission. For software which is copyrighted by the Free Software
Foundation, write to the Free Software Foundation; we sometimes make exceptions
for this. Our decision will be guided by the two goals of preserving the free
status of all derivatives of our free software and of promoting the sharing and
reuse of software generally.
NO WARRANTY
11. BECAUSE THE PROGRAM IS LICENSED FREE OF CHARGE, THERE IS NO WARRANTY
<PAGE> 5
FOR THE PROGRAM, TO THE EXTENT PERMITTED BY APPLICABLE LAW. EXCEPT WHEN
OTHERWISE STATED IN WRITING THE COPYRIGHT HOLDERS AND/OR OTHER PARTIES PROVIDE
THE PROGRAM "AS IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESSED OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. THE ENTIRE RISK AS TO THE QUALITY AND
PERFORMANCE OF THE PROGRAM IS WITH YOU. SHOULD THE PROGRAM PROVE DEFECTIVE, YOU
ASSUME THE COST OF ALL NECESSARY SERVICING, REPAIR OR CORRECTION.
12. IN NO EVENT UNLESS REQUIRED BY APPLICABLE LAW OR AGREED TO IN WRITING
WILL ANY COPYRIGHT HOLDER, OR ANY OTHER PARTY WHO MAY MODIFY AND/OR REDISTRIBUTE
THE PROGRAM AS PERMITTED ABOVE, BE LIABLE TO YOU FOR DAMAGES, INCLUDING ANY
GENERAL, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OR
INABILITY TO USE THE PROGRAM (INCLUDING BUT NOT LIMITED TO LOSS OF DATA OR DATA
BEING RENDERED INACCURATE OR LOSSES SUSTAINED BY YOU OR THIRD PARTIES OR A
FAILURE OF THE PROGRAM TO OPERATE WITH ANY OTHER PROGRAMS), EVEN IF SUCH HOLDER
OR OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
END OF TERMS AND CONDITIONS
How to Apply These Terms to Your New Programs
If you develop a new program, and you want it to be of the greatest
possible use to the public, the best way to achieve this is to make it free
software which everyone can redistribute and change under these terms.
To do so, attach the following notices to the program. It is safest to
attach them to the start of each source file to most effectively convey the
exclusion of warranty; and each file should have at least the "copyright" line
and a pointer to where the full notice is found.
<one line to give the program's name and a brief idea of what it does.>
Copyright (C) 19yy <name of author>
This program is free software; you can redistribute it and/or modify it
under the terms of the GNU General Public License as published by the Free
Software Foundation; either version 2 of the License, or (at your option)
any later version.
This program is distributed in the hope that it will be useful, but WITHOUT
ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or
FITNESS FOR A PARTICULAR PURPOSE. See the GNU General Public License for
more details.
You should have received a copy of the GNU General Public License along
with this program; if not, write to the Free Software Foundation, Inc., 59
Temple Place, Suite 330, Boston, MA 02111-1307 USA
Also add information on how to contact you by electronic and paper mail.
If the program is interactive, make it output a short notice like this when it
starts in an interactive mode:
Gnomovision version 69, Copyright (C) 19yy name of author Gnomovision comes
with ABSOLUTELY NO WARRANTY; for details type `show w'. This is free
software, and you are welcome to redistribute it under certain conditions;
type `show c' for details.
The hypothetical commands `show w' and `show c' should show the appropriate
parts of the General Public License. Of course, the commands you use may be
called something other than `show w' and `show c'; they could even be
mouse-clicks or menu items--whatever suits your program.
<PAGE> 6
You should also get your employer (if you work as a programmer) or your school,
if any, to sign a "copyright disclaimer" for the program, if necessary. Here is
a sample; alter the names:
Yoyodyne, Inc., hereby disclaims all copyright interest in the program
`Gnomovision' (which makes passes at compilers) written by James Hacker.
<signature of Ty Coon>, 1 April 1989 Ty Coon, President of Vice
This General Public License does not permit incorporating your program into
proprietary programs. If your program is a subroutine library, you may consider
it more useful to permit linking proprietary applications with the library. If
this is what you want to do, use the GNU Library General Public License instead
of this License.
<PAGE> 1
EXHIBIT 10.13
[VA RESEARCH INC. LETTERHEAD]
October 21, 1998
Daniel R. Shore
305 Wilona Lane
Knoxville, TN 37922
Dear Daniel:
At VA Research, we depend on the commitment, enthusiasm and skills of our team
members to lead the company's growth. Each person has both the luxury and the
duty to contribute to the future success of the company in the most meaningful
way he or she can.
With this in mind, we are pleased to offer you a permanent position as Vice
President of Operations, effective immediately.
We view your appointment as the beginning of a new stage in the VA Research
business plan. We're looking to you to fulfill the company's goal to become a
recognized leader in Linux, with a sincere understanding of the Open Source
culture and an ability to deliver quality products in a timely manner.
As Vice President of Operations, you will play a senior management role in
directing the company. Your areas of responsibility will include:
Responsibility for the complete order fulfillment process, from receipt of
order to shipment to customer.
Representing the company on a variety of issues to customers, the Linux
community, suppliers, investors, media representatives and the general
community.
Modifying your responsibilities as the company's needs warrant.
Your compensation will consist of:
A monthly salary of $10,416.66.
Participation in the company's stock option plan with 164,285 shares (1.5%
equity stake on a post venture financing basis) at the standard option
price granted on your starting date (currently $0.13 per share) and
vesting according to the plan schedule (currently 25% vested after 1 year
and 1/48 per month thereafter).
Health insurance through Lifeguard and dental insurance through the
Guardian. Life insurance coverage of 2 times annual salary.
3 weeks paid vacation each year.
A signing bonus of $20,000 paid on your first day of employment. An
additional $10,000 bonus to be paid if the first day of employment is
November 9, 1998 or earlier. All travel and relocation expenses are
intended to be covered by the signing bonus.
<PAGE> 2
[VA RESEARCH INC. LETTERHEAD]
In the event of involuntary termination for any reason, a severance package
equal to the higher of either 1 month salary for every year of service or 3
month's salary will be paid on a salary continuation basis with medical
benefits coverage during the severance period.
As with all VA Research staff, your employment is "at will," meaning either you
or the company may terminate your employment with two weeks written notice. If
you ever feel it necessary to discuss issues of your employment, please feel
free to raise them frankly with us.
Welcome to our team.
Sincerely,
/s/ LARRY M. AUGUSTIN
Larry M. Augustin, PhD John T. Hall
President Vice President
Accepted by:
/s/ DANIEL R. SHORE 10-28-98
- ------------------------ --------------
Daniel R. Shore Date
I will begin my employment with VA Research on Monday November 9, 1998.
<PAGE> 1
EXHIBIT 10.14
[VA RESEARCH LETTERHEAD]
December 11, 1998
Greg E. Zehr
105 Lorain Pl.
Los Gatos, CA 95032
Dear Greg:
At VA Research, we depend on the commitment, enthusiasm and skills of our team
members to lead the company's growth. Each person has both the luxury and the
duty to contribute to the future success of the company in the most meaningful
way he or she can.
With this in mind, we are pleased to offer you a position as Vice President of
Engineering, effective immediately.
We view your appointment as the beginning of a new stage in the VA Research
business plan. We're looking to you to help fulfill the company's goal to
become a recognized leader in Linux systems, in the context of a sincere
understanding of the Open Source culture and an ability to engineer quality
products in the tight margin environment.
As Vice President of Engineering, you will play a senior management role in
directing the company. Your areas of responsibility will include:
Managing the complete product engineering process, from concept to product
launch.
Representing the company in engineering issues to customers, the Linux
community, suppliers, investors, media representatives and the general
community.
Modifying your responsibilities as the company's needs warrant.
Your compensation will consist of:
A monthly salary of $12,500.00.
Pending approval by the Board of Directors, participation in the company's
stock option plan with 219,047 shares (2.0% equity stake on a post venture
financing basis) granted on your starting date and vesting according to
the plan schedule (currently 25 percent after one year and 1/48 per month
thereafter), with one year acceleration in the event of a change of
control and involuntary termination.
Health insurance through Lifeguard and dental insurance through the
Guardian.
Participation in the company's 401K plan.
3 weeks paid vacation each year.
An opportunity for a performance bonus in monthly installments totalling
$50,000.00 over the course of a year.
<PAGE> 2
In the event of involuntary termination for any reason, a severance package
equal to six months' salary and pro-rated bonus will be paid on a salary
continuation basis with medical benefits coverage during the severance
period.
As with all VA Research staff, your employment is "at will," meaning either
you or the company may terminate your employment with two weeks written notice.
If you ever feel it necessary to discuss issues of your employment, please feel
free to raise them frankly with us.
Welcome to our team.
Sincerely,
/s/ LARRY M. AUGUSTIN /s/ JOHN T. HALL
- ----------------------- ---------------------
Larry M. Augustin, PhD John T. Hall
President Vice President
Accepted by:
/s/ GREG E. ZEHR 12/11/98
- --------------------- -------------------
Greg E. Zehr Date
<PAGE> 1
EXHIBIT 10.15
May 24, 1999
Todd B. Schull
7913 Paragon Circle
Pleasanton, CA 94588
Dear Todd:
At VA Research, we depend on the commitment, enthusiasm and skills of our team
members to lead the company's growth. Each person has both the luxury and the
duty to contribute to the future success of the company in the most meaningful
way he or she can.
With this in mind, we are pleased to offer you a permanent position as Chief
Financial Officer, effective immediately.
We view your appointment as the beginning of a new stage in the VA Research
business plan. We're looking to you to fulfill the company's goal to become a
recognized leader in Linux, with a sincere understanding of the Open Source
culture and an ability to deliver quality products in a timely manner.
As Chief Financial Officer, you will play a senior management role in directing
the company. Your areas of responsibility will include:
Financial planning, budgeting, and reporting.
Sales order administration.
All general administrative functions of the company.
Facilities management.
General accounting functions including payables, receivables, and
invoicing.
Human resources, recruiting, and payroll.
Investor relations and financing.
Representing the company on a variety of issues to customers, the Linux
community, suppliers, investors, media representatives and the general
community.
Modifying your responsibilities as the company's needs warrant.
Your compensation will consist of:
A monthly salary of $15,000.
Subject to approval by the board of directors, participation in the
company's stock option plan with 249,717 shares at the standard option
price granted on your starting date and vesting according to the plan
schedule (currently 25% vested after 1 year and 1/48 per month thereafter)
Health insurance through Lifeguard and dental insurance through the
Guardian.
3 weeks paid vacation each year.
In the event of involuntary termination for any reason, a severance package
equal to the higher of either 1 month salary for every year of service or 3
month's salary will be paid on a salary continuation basis with medical
benefits coverage during the severance period.
<PAGE> 2
As with all VA Research staff, your employment is "at will," meaning either you
or the company may terminate your employment with two weeks written notice. If
you ever feel it necessary to discuss issues of your employment, please feel
free to raise them frankly with us.
Welcome to our team.
Sincerely,
/s/ LARRY M. AUGUSTIN
- --------------------------
Larry M. Augustin, PhD
President & CEO
Accepted by:
- -------------------------- -------------
Todd B. Schull Date
