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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 8, 2000
REGISTRATION NO. 333-
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CHAPARRAL NETWORK STORAGE, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 3577 84-1451038
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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GARY L. ALLISON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
1951 SOUTH FORDHAM STREET
LONGMONT, COLORADO 80503
(303) 684-3200
(Name, address and telephone number of
principal executive offices and agent for service)
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Copies to:
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RONALD R. LEVINE, II, ESQ. STEPHEN J. SCHRADER, ESQ.
LAURA B. GILL, ESQ. JUSTIN L. BASTIAN, ESQ.
DEBORAH J. FRIEDMAN, ESQ. MELISSA L. MONG, ESQ.
DAVIS, GRAHAM & STUBBS LLP MORRISON & FOERSTER LLP
370 SEVENTEENTH STREET 755 PAGE MILL ROAD
SUITE 4700 PALO ALTO, CALIFORNIA 94304
DENVER, COLORADO 80202 (650) 813-5600
(303) 892-9400
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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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 for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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Common Stock, par value $.001 per share................. $60,000,000 $15,840
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 8, 2000
Shares
[CHAPARRAL NETWORK STORAGE LOGO]
CHAPARRAL NETWORK STORAGE, INC.
Common Stock
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Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $ and
$ per share. We have applied to list our common stock on The Nasdaq Stock
Market's National Market under the symbol "CHAP."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS CHAPARRAL
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<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
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Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON SALOMON SMITH BARNEY
BEAR, STEARNS & CO. INC.
NEEDHAM & COMPANY, INC.
The date of this prospectus is , 2000.
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[Facing Page with Graphic Material]
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................... 5
RISK FACTORS.......................... 8
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 18
USE OF PROCEEDS....................... 18
DIVIDEND POLICY....................... 18
CAPITALIZATION........................ 19
DILUTION.............................. 20
SELECTED FINANCIAL DATA............... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 22
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PAGE
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BUSINESS.............................. 29
MANAGEMENT............................ 47
RELATED PARTY TRANSACTIONS............ 59
PRINCIPAL STOCKHOLDERS................ 67
DESCRIPTION OF CAPITAL STOCK.......... 69
SHARES ELIGIBLE FOR FUTURE SALE....... 72
UNDERWRITING.......................... 74
NOTICE TO CANADIAN RESIDENTS.......... 76
LEGAL MATTERS......................... 77
EXPERTS............................... 77
WHERE YOU CAN FIND ADDITIONAL
INFORMATION ABOUT CHAPARRAL......... 77
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
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DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3
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THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
4
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including the section entitled
"Risk Factors," our financial statements and the related notes included
elsewhere in this prospectus, before making an investment decision.
CHAPARRAL NETWORK STORAGE, INC.
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We are a leading provider of high performance products that facilitate the
movement of data between networked storage devices. We are focused primarily on
developing products for use in the emerging market for Storage Area Networks, or
SANs. SANs are high-speed data networks that interconnect storage systems and
servers using a widely accepted protocol known as Fibre Channel.
Our products include storage routers and external Redundant Array of
Independent Disks, or RAID, controllers for open systems network storage
solutions. Storage routers connect servers and storage systems in a SAN to
enable communication among devices that use different protocols for the
input/output, or I/O, of data. RAID controllers distribute blocks of data across
multiple disks to improve performance and ensure availability of data.
In the last decade, there has been a dramatic increase in the volume of
data created, processed and accessed throughout the business enterprise. This
growth has placed a significant strain on storage systems used in the backup,
sharing and management of this data. In addition, organizations have recognized
the importance and value of enterprise data as mission-critical to their
employees, customers and suppliers and are demanding rapid and reliable access
to data 24 hours a day, seven days a week. The congestion caused by users trying
to access large amounts of data across local area networks, or LANs, has created
a bottleneck between the server and the storage devices. The limitations of
today's most commonly used server-attached storage architecture, where storage
devices are typically connected to only one server using an I/O protocol called
the Small Computer System Interface, or SCSI, have exacerbated this bottleneck.
As a result, enterprises are demanding a faster, more efficient and manageable
means to interconnect new and existing servers, storage devices and LANs.
Our Intelligent Storage Routers facilitate the interconnection of SANs with
existing SCSI-based servers and storage systems. Our external RAID controllers
dynamically distribute data across multiple hard disk drives to increase data
transfer speeds and deliver fault tolerance. Our products are designed to
provide a high level of performance, availability and functionality. They
incorporate a common high-performance hardware platform and foundation software
layer that enable a wide range of SAN applications.
Key benefits of our solutions include the following:
- Increased Performance. We believe our products provide industry-leading
performance and functionality for SAN-attached disk, tape and library
storage devices.
- High Availability and Reliability. Our products increase the
accessibility and protection of enterprise data by providing redundant
I/O paths to storage devices.
- Improved SAN Performance with New Applications. Our products are designed
using a highly flexible and modular embedded software architecture,
enabling us to quickly and cost-effectively implement new SAN
applications.
- Differentiation and Manageability. We have developed a robust,
well-defined user interface called a Common Application Programming
Interface, or CAPI, that enables our customers to incorporate their
proprietary functionalities into our products to differentiate their
solutions in the market. In addition, our customers can design their own
graphical user interface, or GUI, to manage our equipment in conjunction
with their solutions.
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We sell our products to original equipment manufacturers, or OEMs,
including Eurologic Systems, MicroNet Technology, Inc., Qualstar Corporation,
Quantum Corporation/ATL Products, Inc., Trimm Technologies, Inc. and Xyratex
International Ltd., as well as to distribution partners, including Arrow
Electronics, Inc., Bell Microproducts, Inc. and CONSAN Inc. Through December 31,
1999, we sold approximately 4,500 units of our Intelligent Storage Routers and
external RAID controllers.
We intend to capitalize on our Fibre Channel technological expertise to
address the growing SAN market. In addition, we will continue to focus on
expanding and developing distribution relationships with leading computer and
storage systems OEMs, as well as with value added resellers and systems
integrators, to increase our geographic coverage and address new markets. We
intend to continue to work closely with our strategic partners and participate
in industry alliances to facilitate the widespread adoption of SANs and SAN
applications.
We were incorporated in January 1998 as Chaparral Technologies, Inc., a
Delaware corporation. In July 1999, we changed our name to Chaparral Network
Storage, Inc. to reflect our emphasis on providing network storage products. Our
principal executive offices are located at 1951 S. Fordham Street, Longmont,
Colorado 80503, and our telephone number is (303) 684-3200. The address of our
Web site is www.chaparralnet.com. Information contained on our Web site should
not be considered part of this prospectus.
This prospectus contains trademarks and trade names of other companies.
THE OFFERING
Common stock offered................ shares
Common stock outstanding after this
offering............................ shares
Use of proceeds..................... We intend to use the net proceeds from
this offering for working capital and
other general corporate purposes,
including expenditures for research and
development, sales and marketing
efforts and potential acquisitions of
or investments in complementary
businesses, technologies or products.
Proposed Nasdaq National Market
symbol.............................. CHAP
The number of shares of common stock outstanding as of December 31, 1999
excludes:
- 4,057,498 shares subject to outstanding options as of December 31, 1999,
with a weighted average exercise price of $0.86 per share;
- 658,693 shares subject to outstanding warrants as of December 31, 1999,
with a weighted average exercise price of $0.83 per share; and
- 13,381,501 shares reserved for future issuance under stock option, stock
incentive and purchase plans.
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Our fiscal year ends on March 31; thus, a reference to "fiscal 1999" or
"fiscal year 1999," for example, is to the fiscal year ended March 31, 1999. In
addition, except as otherwise indicated, information in this prospectus is based
on the following assumptions:
- our convertible preferred stock will convert to 15,128,853 shares of
common stock upon completion of this offering;
- the underwriters' over-allotment option will not be exercised; and
- we will file our amended and restated certificate of incorporation.
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SUMMARY FINANCIAL DATA
The following tables summarize our financial data. For a more detailed
explanation of our financial condition and operating results, you should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," our financial statements and the notes to those statements included
in this prospectus.
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FISCAL YEAR NINE MONTHS ENDED
ENDED DECEMBER 31,
MARCH 31, ---------------------
1999 1998 1999
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 237 $ 143 $ 6,296
Cost of sales............................................... 107 39 2,927
Gross profit................................................ 130 104 3,369
Loss from operations........................................ (3,623) (2,021) (4,425)
Net loss.................................................... $(3,695) $(2,021) $(4,710)
Net loss per share -- basic and diluted..................... $ (1.40) $ (2.02) $ (0.50)
Weighted average shares..................................... 2,640 999 9,489
Pro forma net loss per share -- basic and diluted........... $ (0.53) $ (0.20)
Pro forma weighted average shares........................... 6,907 23,241
</TABLE>
Pro forma basic and diluted net loss per share is computed using the
weighted average shares of common stock outstanding, including the pro forma
effects of the automatic conversion of all outstanding series of preferred stock
into common stock upon completion of this offering as if the conversion occurred
on April 1, 1998, or at the date the preferred stock was actually issued, if
later.
Per share and weighted average share amounts exclude shares of common stock
that may be issued upon exercise of outstanding options and warrants or that may
be issued under our various stock compensation plans. For additional information
regarding these shares, see note 1 to the table in "Capitalization."
The following table is a summary of our balance sheet as of December 31,
1999. The as adjusted column reflects our receipt of the estimated net proceeds
from the sale of the shares of common stock we are selling in this
offering at an assumed initial public offering price of $ per share, after
deducting underwriting discounts and commissions and estimated offering
expenses.
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AS OF DECEMBER 31,
1999
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AS
ACTUAL ADJUSTED
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $19,679
Working capital............................................. 21,688
Total assets................................................ 24,900
Total stockholders' equity.................................. 22,249
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RISK FACTORS
An investment in our common stock is very risky. You should carefully
consider the risks described below, together with all of the other information
in this prospectus, before making a decision to invest in our common stock.
RISKS RELATED TO OUR FINANCIAL RESULTS
WE HAVE INCURRED SIGNIFICANT LOSSES SINCE OUR INCEPTION, WE EXPECT FUTURE LOSSES
AND WE MAY NEVER BECOME PROFITABLE.
We have incurred significant losses since our inception and expect to
continue to incur losses on both a quarterly and annual basis for the
foreseeable future. As of December 31, 1999, our accumulated deficit was
approximately $8.4 million. For the fiscal year ended March 31, 1999, our net
loss was approximately $3.7 million, and for the nine months ended December 31,
1999, our net loss was approximately $4.7 million. We expect to incur
significant research and development, sales and marketing and administrative
expenses and, as a result, we will need to realize increased revenue to achieve
profitability. Further, even if we achieve profitability, given the competition
in and the evolving nature of the SAN market, we may not be able to sustain or
increase profitability on a quarterly or annual basis.
OUR LIMITED OPERATING HISTORY MAKES FORECASTING DIFFICULT AND PROVIDES LIMITED
INFORMATION UPON WHICH TO EVALUATE OUR BUSINESS.
We were incorporated in January 1998 and sold our first product in October
1998. To date, most of our revenue has been derived from the sale of our
external RAID controllers. Our business is evolving, and we expect to derive an
increasing portion of our future revenue from the sale of our Intelligent
Storage Routers. The revenue and income potential of our products and businesses
are unproven and the market that we are addressing is rapidly evolving, making
the forecast of our future business difficult. In addition, our operating
expenses are largely based on anticipated revenue trends and a high percentage
of our expenses are, and will continue to be, fixed in the short-term. Our
limited operating history and our evolving business make it very difficult for
us and for investors to evaluate or predict our future revenue or business
prospects. For further financial information relating to our business, see
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
WE HAVE A HISTORY OF FLUCTUATIONS IN OUR REVENUE AND OPERATING RESULTS, AND
EXPECT THESE FLUCTUATIONS TO CONTINUE, WHICH MAY RESULT IN VOLATILITY IN OUR
STOCK PRICE.
Our revenue and operating results have varied significantly in the past and
are likely to vary significantly in the future due to a number of factors, many
of which are outside of our control. The primary factors that may cause our
quarterly revenue and operating results to fluctuate include the following:
- fluctuations in demand for our Intelligent Storage Routers and external
RAID controllers;
- the size, timing, terms and fluctuations of customer orders and product
implementations;
- the rate of adoption of SANs as an alternative to existing
server-attached storage architectures;
- the mix of our Intelligent Storage Routers and external RAID controllers
sold;
- the mix of distribution channels through which our products are sold;
- new product introductions by us or our competitors;
- deferrals of customer orders in anticipation of new products, services or
product enhancements introduced by us, our OEMs, our competitors or from
other providers of SAN products;
- changes in our pricing policies or the pricing policies of our
competitors;
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- our ability to develop, introduce, ship and support new products and
product enhancements that meet customer requirements in a timely manner;
- prototype expenses;
- our ability to obtain sufficient supplies of components, including sole
or limited source components;
- increases in the prices of the components we purchase;
- our ability to attain and maintain production volumes and quality levels;
- the ability of our contract manufacturers to produce and distribute our
products in a timely fashion;
- the software enhancements embedded in our hardware platforms;
- the additional software options incorporated in our products;
- costs related to acquisitions of technology or businesses; and
- general economic conditions as well as those specific to the SAN and
related industries.
Accordingly, you should not rely on the results of any past periods as an
indication of our future performance. In future periods our operating results
may be below expectations of public market analysts or investors.
IF WE CANNOT INCREASE OUR SALES VOLUMES, REDUCE OUR COSTS OR INTRODUCE HIGHER
MARGIN PRODUCTS TO OFFSET ANTICIPATED REDUCTIONS IN THE AVERAGE SELLING PRICES
OF OUR PRODUCTS, OUR OPERATING RESULTS MAY SUFFER.
We anticipate that as products in the SAN market become widely available,
the average selling prices of our products may decrease in response to changes
in product mix, competitive pricing pressures, new product introductions by us
or our competitors or other factors. If we are unable to offset the anticipated
decrease in our average selling prices by increasing our sales volumes, our
revenue will decline. In addition, to maintain our gross margin, we must
continue to reduce the manufacturing cost of our products and develop and
introduce new, higher margin products and product enhancements. If we cannot
maintain our gross margin, our business could be seriously harmed.
RISKS RELATED TO OUR INDUSTRY
THE SAN MARKET IN WHICH WE COMPETE IS NEW AND UNPREDICTABLE, AND IF THIS MARKET
DOES NOT DEVELOP AND EXPAND AS WE ANTICIPATE, OUR BUSINESS WILL SUFFER.
Widespread adoption of SANs is critical to our future success. The market
for SANs has only recently begun to develop and is rapidly evolving. Because the
market for SAN products is relatively new, it is difficult to predict its
potential size and evolution and, as a result, we may not be able to forecast
accurately demand for our products. Furthermore, potential end users may be
reluctant or slow to adopt new storage architectures. Our success in generating
revenue in this emerging market will depend on, among other things, our ability
to:
- educate potential OEM customers, distribution channel partners and end
users about the benefits of SANs, storage routers and external RAID
controllers;
- achieve interoperability between our products and those of other SAN
vendors;
- develop, maintain and build relationships with OEM customers,
distributors, resellers, systems integrators and end-user organizations;
and
- develop products that are compliant with existing and evolving standard
protocols.
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In addition, end users often implement SANs in connection with their
deployment of new storage systems and servers. Accordingly, our future success
is also substantially dependent on demand for new storage systems and servers.
WE EXPECT TO FACE COMPETITION FROM MANUFACTURERS OF STORAGE SYSTEMS THAT
INCORPORATE FIBRE CHANNEL INTERFACES INTO THEIR PRODUCTS.
We currently derive a substantial portion of our revenue from our
Intelligent Storage Routers, which are used to connect SCSI-based storage
systems with SANs. The introduction of storage systems that incorporate Fibre
Channel interfaces would enable storage devices to communicate directly with
SANs, without having to use storage routers. We expect that a number of
manufacturers of storage systems will develop products with embedded Fibre
Channel interfaces in the near future. If this occurs, demand for our
Intelligent Storage Routers could be materially reduced and our revenue may
decline.
THE SAN MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGES AND EVOLVING
STANDARDS, AND IF WE DO NOT RESPOND IN A TIMELY MANNER, OUR BUSINESS COULD BE
HARMED.
The SAN market is characterized by rapid technological change, frequent new
product introductions, changes in customer requirements and evolving industry
standards. In developing our products, we have made, and will continue to make,
assumptions regarding which standards will be widely adopted. If the standards
adopted are different from those we have chosen to support, market acceptance of
our products may be significantly reduced or delayed, our competitive position
may be compromised, our existing products may be rendered obsolete and our
business may be seriously harmed. In addition, our research and development
efforts associated with the technologies and standards that do not achieve
widespread adoption would likely have no realizable value. Even if we are
successful in predicting the adopted technologies and standards, any delay in
our development of products based on these technologies and standards would
likely result in lower revenue for our products than we anticipate.
RISKS ASSOCIATED WITH OUR BUSINESS
THE LOSS OF OR SIGNIFICANT REDUCTION IN SALES TO ANY OF OUR OEM CUSTOMERS, WHICH
HAS HAPPENED IN THE PAST, COULD SIGNIFICANTLY REDUCE OUR REVENUE.
Our revenues are currently derived primarily from a small number of OEM
customers. For the nine months ended December 31, 1999, approximately 57% of our
revenue came from three OEM customers, nStor, Quantum/ATL and Eurologics. We
anticipate that our operating results will continue to depend on sales to a
relatively small number of OEM customers. None of our current customers have any
minimum purchase obligations, and they may stop placing orders with us at any
time, regardless of any forecast they may have previously provided. The loss of
any of our OEM customers, or a significant reduction in sales to these
customers, could significantly reduce our revenue.
For example, during the quarter ended December 31, 1999, nStor, our largest
customer in the nine months ended December 31, 1999, returned approximately
$400,000 of our external RAID controllers following an order cancellation by one
of its customers. Although we had shipped these products to nStor in the quarter
ended December 31, 1999, pursuant to a noncancellable purchase order, we chose
not to recognize this revenue. We have not waived any claims arising from
nStor's cancellation of this order. Also, due to this cancellation, we did not
ship additional product pursuant to other nStor noncancellable purchase orders
for approximately $547,000. Primarily as a result of the cancellation of this
order and our decision not to ship additional products to nStor, our revenue for
the quarter ended December 31, 1999 decreased approximately 28% from the
previous quarter. We are not currently shipping to nStor, have received no new
purchase orders from nStor and may not ship to them in the future.
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OUR STRATEGY DEPENDS ON DEVELOPING RELATIONSHIPS WITH NEW OEM CUSTOMERS, WHICH
IS A LENGTHY PROCESS THAT MAY IMPEDE THE GROWTH OF OUR REVENUE.
Our success depends on our ability to initiate, manage and expand our
relationships with new OEM customers. OEMs typically conduct significant
evaluation, testing, implementation and acceptance procedures before they begin
to market and sell new products. Based on our experience, their evaluation
process can be lengthy and can take as long as one year. Additionally, some OEMs
may complete the evaluation of our products but choose to delay implementation.
The qualification process is also complex and may require significant sales,
marketing and management efforts on our part. The complexity of this process
increases if we must qualify our products with multiple customers concurrently.
As a result, we may expend significant resources in developing customer
relationships before recognizing revenue, if any.
OUR STRATEGY DEPENDS ON DEVELOPING RELATIONSHIPS WITH NEW DISTRIBUTORS.
In addition to increasing sales to OEMs, we intend to develop and expand
indirect distribution channels. Our failure to execute this strategy could limit
our ability to grow or sustain revenue. Furthermore, as we expand our sales to
distributors, we will increase our selling costs as these parties generally
require a higher level of customer support than OEMs. Our distributors may not
market our products effectively or devote the resources necessary to provide us
with effective sales, marketing and technical support. Many of our distributors
also sell products that compete with our products. Our failure to successfully
manage our distributor relationships, or their failure to devote adequate
resources to marketing and selling our products, could limit our ability to grow
or sustain our revenue.
COMPETITION IN OUR MARKETS MAY ADVERSELY AFFECT OUR REVENUE, GROSS PROFIT AND
MARKET SHARE.
The market for our products is very competitive. In the external RAID
controller market, our current competitors include CMD Technology, Inc.,
Infotrend Corporation and Mylex Corporation (acquired by IBM Corporation). As we
start selling higher performance RAID products targeted at the enterprise
market, we will face competition from larger and more established companies that
offer more integrated solutions, such as Data General (acquired by EMC
Corporation) and Symbios Logic (acquired by LSI Logic Corporation). In addition
to these companies, we expect to see competition from existing internal RAID
suppliers, such as American Megatrends Inc. and Distributed Processing
Technology (recently acquired by Adaptec, Inc.). Our major competitors in the
storage router market are ATTO Technology, Inc., CrossRoads Systems, Inc. and
Pathlight Technology, Inc. In the future, we may also compete against large data
networking companies that may develop SAN products. Furthermore, we may face
competition from Fibre Channel switch and hub manufacturers that incorporate
storage routing capabilities into their products. We also compete with providers
of data storage solutions that employ traditional storage technologies,
including SCSI-based technology, such as Emulex Corporation and QLogic
Corporation.
Increased competition could result in pricing pressures or reduced sales,
margins, profits and market share. Some of our competitors and potential
competitors have longer operating histories, greater name recognition, access to
larger customer bases, more established distribution channels or substantially
greater resources than we have. In addition, some of our current and potential
competitors have already established supplier or joint development relationships
with divisions of our current or potential customers. These competitors may be
able to leverage their existing relationships to discourage these customers from
purchasing additional products from us or persuade them to replace our products
with their products. As a result, they may be able to respond more quickly than
we can to new or changing opportunities, technologies, standards or customer
requirements. Our inability to compete effectively against current or future
competitors may significantly harm our business.
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WE HAVE LIMITED PRODUCT OFFERINGS, AND OUR SUCCESS DEPENDS ON OUR ABILITY TO
DEVELOP NEW AND ENHANCED PRODUCTS THAT ACHIEVE MARKET ACCEPTANCE.
We derive a substantial portion of our revenue from a limited number of
products, some of which have been introduced and shipped in volume only
recently. Accordingly, market demand and acceptance of these products are
uncertain. Our future success depends upon our ability to address the rapidly
evolving SAN market by developing and introducing high-quality products, product
enhancements and services on a timely basis. In addition, we must successfully
manage the introduction of new or enhanced products to minimize disruption in
our customers' ordering patterns, avoid excessive levels of older product
inventories and ensure that adequate supplies of new products can be delivered
to meet our customers' demands. Our revenue may be reduced if our current
products do not obtain market acceptance or if we fail to develop new products
or product enhancements that are broadly accepted.
Factors that may affect the market acceptance of our products, some of
which are beyond our control, include the following:
- growth and changing requirements of our markets;
- successful development of products that meet customer requirements;
- availability, price, quality and performance of competing products and
technologies;
- expansion of our relationships with existing and new OEM, distributor,
reseller and systems integrator customers;
- performance, quality, price and total cost of ownership of our products;
and
- our customer service and support capabilities and responsiveness.
PRODUCT DEVELOPMENT DELAYS COULD SIGNIFICANTLY HARM OUR BUSINESS.
We may not be able to develop, manufacture and market new products or
product enhancements in a timely manner. Product development delays may result
from numerous factors, including:
- unanticipated engineering complexities;
- changing market or competitive product requirements;
- changing OEM product specifications;
- difficulties with independent contractors;
- difficulties in hiring and retaining necessary personnel;
- difficulties in overcoming resource limitations; and
- inability to license third party technology.
Any delay or unanticipated difficulty associated with new product introductions
or product enhancements could significantly harm our business, results of
operations and financial condition.
BECAUSE WE DEPEND ON SOLE AND LIMITED SOURCE SUPPLIERS FOR KEY COMPONENTS, WE
ARE SUSCEPTIBLE TO SUPPLY SHORTAGES THAT COULD ADVERSELY AFFECT OUR OPERATING
RESULTS.
We depend on Adaptec for our Fibre Channel, SCSI and memory controller
Application Specific Integrated Circuits, or ASICs. In addition, we have limited
supply sources for several key components, including embedded microprocessors,
optical transceivers and power supplies. We may in the future experience
shortages of, or difficulties in acquiring, these components. If we are unable
to buy these components in sufficient quantities, we will not be able to
manufacture our products on a timely basis. We typically purchase three months
of these components in advance and consign these parts to our outsourced
12
<PAGE> 14
manufacturers. If we are required to procure and qualify alternative sources of
supply, we may face both cost increases and time to market delays resulting from
the need to redesign our hardware platforms.
IF OUR CONTRACT MANUFACTURERS ARE UNABLE TO MEET OUR MANUFACTURING NEEDS, OUR
REVENUE MAY SUFFER BECAUSE WE MAY NOT BE ABLE TO MEET OUR CUSTOMER DEMAND.
We currently outsource manufacturing of our products to Surface Mount
Technology Centre Inc. (SMTC) and Saturn Electronics & Engineering, Inc.
(Saturn). We share our contract manufacturers' capacity with numerous companies
whose manufacturing needs may conflict with ours. Our contract manufacturers are
not obligated to supply products to us for any specific period, or in any
specific quantity, except as may be provided in a particular purchase order that
has been accepted by them. If either of our contract manufacturers experiences
delays, disruptions, capacity constraints or quality control problems in its
manufacturing operations, then product shipments to our customers could be
delayed, which could negatively impact our revenue, competitive position and
reputation.
Further, our business would be harmed if we fail to manage the
manufacturing of our products effectively. We generally place firm orders with
our contract manufacturers at least three months prior to scheduled delivery of
products to our customers. Accordingly, if we inaccurately forecast demand for
our products, we may be unable to obtain adequate manufacturing capacity or
adequate quantities of components to meet our customers' delivery requirements
or we may accumulate excess inventories.
We may in the future need or choose to select new contract manufacturers
for volume, cost or quality considerations. We may not find a contract
manufacturer that meets our requirements. Additionally, qualifying a new
contract manufacturer and commencing volume production is expensive and time
consuming.
IF WE ARE UNABLE TO FORECAST ACCURATELY OUR COMPONENT AND MATERIAL REQUIREMENTS,
WE MAY INCUR ADDED COSTS OR BE UNABLE TO MEET CUSTOMER DEMANDS.
We use rolling forecasts based on anticipated product orders from our
customers to determine our component requirements. Lead times for materials and
components that we order vary significantly and depend on factors, such as
specific supplier requirements, contract terms and current market demand for
such components. As a result, we may not accurately forecast our component
requirements. If we overestimate our component requirements, we could have
excess inventory, which would increase our costs. If we underestimate our
component requirements, we may have inadequate inventory, which could interrupt
our manufacturing and delay delivery of our products to our customers. Either
occurrence would negatively impact our business and operating results.
OUR PRODUCTS ARE COMPLEX AND MAY CONTAIN UNDETECTED SOFTWARE OR HARDWARE ERRORS,
WHICH COULD LEAD TO AN INCREASE IN OUR COSTS OR A REDUCTION IN OUR REVENUE.
Our products are complex, and we have, from time to time, found errors in
our existing products. We also may in the future find errors in our existing,
new or enhanced products. Because our products are also integrated with products
from other vendors, it may be difficult to identify the source of any problem.
Hardware and software errors, whether caused by our products or those of another
vendor, could adversely affect sales of our products, cause us to incur
significant warranty and repair costs, divert engineering resources from product
development efforts and cause significant customer relations problems.
IF WE DO NOT HIRE, RETAIN AND INTEGRATE HIGHLY SKILLED PERSONNEL, OUR BUSINESS
MAY SUFFER.
Our success depends to a significant degree on our personnel, many of whom
would be difficult to replace. Currently, we only have employment contracts with
our three most senior executives and do not maintain key person life insurance
on any of our personnel. The loss of any of our key personnel could have a
negative impact on our business.
13
<PAGE> 15
We believe our future success will also depend in large part upon our
ability to attract and retain highly skilled personnel. Competition for these
people is intense, and we may not be successful in attracting and retaining
these individuals. If we are unable to attract or retain qualified personnel in
the future, or if we experience delays in hiring required personnel,
particularly qualified engineers and sales personnel, our ability to develop,
introduce and sell our products could be harmed. In addition, we may be subject
to claims of unfair hiring practices as we pursue highly skilled personnel. Any
claim of this nature could result in material litigation. We could incur
substantial costs in defending ourselves against these claims, regardless of
their merits.
We also believe that our success depends significantly on the ability of
our personnel to operate effectively, both individually and as a group. Many of
our employees have only recently joined us. If we are unable to integrate new
employees in a timely and cost-effective manner, our operating results may
suffer.
IF WE ARE UNABLE TO MANAGE OUR GROWTH SUCCESSFULLY, OUR BUSINESS MAY SUFFER.
We have grown to 61 employees as of December 31, 1999, from eight employees
as of March 31, 1998. We plan to continue to expand our operations significantly
to pursue existing and potential market opportunities. This growth will place a
significant demand on our management and operational resources. In order to
manage our growth effectively, we must implement and improve our operational
systems, procedures and controls on a timely basis. If we fail to manage our
growth effectively or make mistakes in operating our business, we may experience
fluctuations in our operating results or declines in our stock price or both.
WE MAY ENGAGE IN ACQUISITIONS THAT DILUTE OUR STOCKHOLDERS' EQUITY AND CAUSE US
TO INCUR DEBT OR ASSUME CONTINGENT LIABILITIES.
We expect to review opportunities to buy other businesses or technologies
that would complement our current products, expand our market opportunity or
enhance our technical capabilities. We have no current agreements or
negotiations underway. In the event of any future acquisitions, we could incur
debt, assume liabilities or issue stock. The issuance of stock would dilute our
current stockholders' percentage ownership.
Acquisitions could also involve numerous risks, including:
- problems integrating the purchased operations, technologies or products
with our existing business and products;
- unanticipated costs;
- diversion of management's attention from our core business;
- adverse effects on existing business relationships with our suppliers and
customers;
- incorrect estimates made in the accounting for acquisitions;
- risks associated with entering markets in which we have no or limited
prior experience; and
- potential loss of key employees within our company or any business we
acquire.
We may not be able to integrate successfully any businesses, products,
technologies or personnel that we acquire.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY ADEQUATELY, OUR OPERATING
RESULTS COULD SUFFER.
Because our products rely on proprietary technology and will likely
continue to rely on technological advancements for market acceptance, we believe
that the protection of our intellectual property rights will be critical to the
success of our business. To protect our intellectual property rights, we rely on
a combination of patent, copyright, trademark and trade secret laws and
restrictions on disclosure. We also
14
<PAGE> 16
enter into confidentiality or license agreements with our employees, consultants
and corporate partners and control access to and distribution of our software,
documentation and other proprietary information.
Despite our efforts to protect our proprietary rights, unauthorized parties
may copy or otherwise obtain and use our products or technology. Monitoring
unauthorized use of our products is difficult. We cannot be certain that the
steps we take to protect our intellectual property will adequately protect our
proprietary rights, that others will not independently develop or otherwise
acquire equivalent or superior technology or that we can maintain any of our
technology as trade secrets. We license the core technology that underlies our
products from Adaptec, and we depend on Adaptec to enforce its patents and
protect our proprietary rights. We cannot be certain that Adaptec will
adequately enforce these patents. In addition, the laws of some of the countries
in which our products are or may be sold may not protect our products and
intellectual property rights to the same extent as the laws of the United States
or at all. For a more complete discussion of the protection of our intellectual
property, see "Business -- Intellectual Property." Our failure to protect our
intellectual property rights could adversely affect our business, results of
operations and financial condition.
WE RELY HEAVILY ON OUR INTELLECTUAL PROPERTY, AND CHALLENGES TO OUR INTELLECTUAL
PROPERTY RIGHTS MAY RESULT IN LITIGATION, INCREASED COSTS AND PRODUCT DELAYS.
In recent years, there has been significant litigation in the United States
involving patents, trademarks and other intellectual property rights. Although
we are not currently involved in any intellectual property litigation, we may be
a party to litigation in the future either to protect our intellectual property
or as a result of an alleged infringement of others' intellectual property.
These claims and any resulting litigation could subject us to significant
liability for damages and could cause our proprietary rights to be invalidated.
Regardless of the merits of the claim or outcome, litigation would likely be
time-consuming and expensive to resolve and would divert management time and
attention. Any potential intellectual property litigation could also force us to
do one or more of the following:
- stop using the challenged intellectual property or selling our products
or services that incorporate it;
- obtain a license to use the challenged intellectual property or to sell
products or services that incorporate it, which license may not be
available on reasonable terms, or at all; and
- redesign those products or services that are based on or incorporate the
challenged intellectual property.
If we are forced to take any of the foregoing actions, we may be unable to
manufacture and sell our products, and our business could be substantially
harmed.
WE PLAN TO INCREASE OUR INTERNATIONAL SALES ACTIVITIES, WHICH WILL SUBJECT US TO
ADDITIONAL BUSINESS RISKS.
For the nine months ended December 31, 1999, approximately 22% of our
revenue was from international sales. We plan to increase our international
sales activities. Our international sales will be limited if we cannot establish
relationships with international distributors, establish additional foreign
operations, expand international sales channel management, hire additional
personnel and develop relationships with international service providers. Even
if we are able to successfully continue international operations, we may not be
able to maintain or increase international market demand for our products. Our
international operations are subject to a number of risks, including:
- increased complexity and costs of managing international operations;
- multiple protectionist, adverse and changing governmental laws and
regulations;
- reduced or limited protection of intellectual property rights;
- potentially adverse tax consequences resulting from changes in tax laws;
- longer sales cycles;
15
<PAGE> 17
- greater difficulty in accounts receivable collection and longer
collection periods;
- supporting multiple languages;
- difficulty enforcing our legal rights; and
- political and economic instability.
These factors and others could harm future sales of our products to
international customers, which would negatively impact our business and
operating results.
To date, none of our international revenue and costs have been denominated
in foreign currencies. As a result, an increase in the value of the U.S. dollar
relative to foreign currencies could make our products more expensive and thus
less competitive in foreign markets. A portion of our international revenue may
be denominated in foreign currencies in the future, which would subject us to
risks associated with fluctuations in those foreign currencies.
TO MANAGE OUR GROWTH AND EXPANSION, WE PLAN TO RELOCATE TO NEW FACILITIES, WHICH
MAY DISRUPT OUR BUSINESS.
We plan to relocate our principal executive offices to a larger facility in
the second calendar quarter of 2000. This relocation could be disruptive,
time-consuming and expensive. If we experience delays or difficulties in
relocating, our ability to effectively manage our operations may be compromised.
WE MAY BECOME INVOLVED IN COSTLY AND TIME-CONSUMING LITIGATION THAT MAY
SUBSTANTIALLY INCREASE OUR COSTS AND HARM OUR BUSINESS.
We may from time to time become involved in various lawsuits and legal
proceedings that arise from actions taken in the ordinary course of our
business. Litigation is subject to inherent uncertainties, and an adverse result
in litigation matters that may arise from time-to-time may harm our business.
OUR PRINCIPAL STOCKHOLDERS HAVE SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS
THAT ARE NOT IN THE INTERESTS OF OUR OTHER STOCKHOLDERS.
We anticipate that the executive officers and directors and the entities
affiliated with them will, in the aggregate, beneficially own approximately
% of our outstanding common stock following the completion of this
offering. These stockholders, if acting together, may be able to influence
significantly all matters requiring approval by our stockholders, including the
election of directors and the approval of mergers or other business
combinations, which may not be in the interests of all stockholders. For a full
presentation of the equity ownership of these stockholders, see "Principal
Stockholders."
RISKS RELATED TO THIS OFFERING
OUR MANAGEMENT CAN SPEND THE NET PROCEEDS FROM THIS OFFERING IN WAYS WITH WHICH
OUR STOCKHOLDERS MAY NOT AGREE.
Our management can spend the net proceeds from this offering in ways with
which our stockholders may not agree. We cannot assure you that our investments
and the use of the net proceeds of this offering will yield favorable returns or
results. See "Use of Proceeds."
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
SHARES.
The initial public offering price is substantially higher than the book
value per share of our outstanding common stock immediately after the offering.
Accordingly, if you purchase common stock in the offering, you will incur
immediate dilution of approximately $ in the book value per share of our
common stock from the price you pay for our common stock. For additional
information on this calculation, see "Dilution."
16
<PAGE> 18
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN CONTROL OF OUR COMPANY AND MAY REDUCE THE MARKET PRICE OF OUR COMMON
STOCK.
Provisions of our amended and restated certificate of incorporation or
bylaws may discourage, delay or prevent a merger with, or acquisition of, us
that a stockholder may consider favorable. These provisions include:
- authorizing our board of directors to issue preferred stock without
stockholder approval;
- providing for a classified board of directors with staggered, three-year
terms;
- requiring super-majority voting to effect significant amendments to our
certificate of incorporation and bylaws;
- limiting the ability of stockholders to call special meetings; and
- prohibiting stockholder actions by written consent.
Certain provisions of Delaware law also may discourage, delay or prevent
someone from acquiring or merging with us, which may cause the market price of
our common stock to decline. For example, Delaware law prohibits cumulative
voting in the election of directors unless specifically provided for in the
certificate of incorporation.
OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT
OR ABOVE THE INITIAL PUBLIC OFFERING PRICE.
There has been no public market for our common stock prior to this
offering. The initial public offering price for our common stock will be
determined through negotiations between the underwriters and us. This initial
public offering price may vary from the market price of our common stock after
the offering. If you purchase shares of common stock, you may not be able to
resell those shares at or above the initial public offering price. The market
price of our common stock may fluctuate significantly in response to factors,
some of which are beyond our control, including the following:
- actual or anticipated fluctuations in our operating results;
- changes in market valuations of other technology companies, particularly
those that sell products used in SANs;
- changes in financial estimates by securities analysts or our failure to
perform in line with such estimates;
- announcements by us or our competitors of significant technical
innovations, contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments;
- losses of major OEM customers, value added resellers or distributors;
- introduction of technologies or product enhancements that reduce the need
for our Intelligent Storage Routers and external RAID controllers; and
- additions or departures of key personnel.
In addition, the stock market has experienced extreme volatility that often
has been unrelated to the performance of particular companies. These market
fluctuations may cause our stock price to fall regardless of our performance.
You should read the "Underwriting" section for a more complete discussion
of the factors that were considered in determining the initial public offering
price of our common stock.
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<PAGE> 19
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS
OUR STOCK PRICE.
Our current stockholders hold a substantial number of shares that they will
be able to sell in the public market in the near future after the expiration of
applicable lock-up agreements. Sales of a substantial number of shares of our
common stock after this offering could cause our stock price to fall. In
addition, the sale of these shares could impair our ability to raise capital
through the sale of additional stock. You should read "Shares Eligible for
Future Sale" for a full discussion of shares that may be sold in the public
market in the future.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "may," "will," "expect," "intend," "anticipate,"
"believe," "estimate," "continue" and other similar words. You should read
statements that contain these words carefully because they discuss our future
expectations, make projections of our future results of operations or of our
financial condition or state other "forward-looking" information. We believe
that it is important to communicate our future expectations to our investors.
However, there may be events in the future that we are not able to accurately
predict or control. The factors listed in the sections captioned "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Before you invest in our common stock, you should be aware that the
occurrence of the events described in the "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
sections and elsewhere in this prospectus could have a material adverse effect
on our business, operating results and financial condition.
USE OF PROCEEDS
We expect to receive net proceeds of approximately $ from the sale
of the shares of common stock (approximately $ if the
underwriters exercise their over-allotment option in full), at an assumed
initial public offering price of $ per share, after deducting the estimated
underwriting discount and estimated offering expenses.
Our principal purposes for engaging in this offering are to:
- increase our equity capital;
- create a public market for our common stock; and
- facilitate our future access to public equity markets.
We expect to use the net proceeds from this offering primarily for working
capital and other general corporate purposes, including expenditures for
research and development and sales and marketing efforts. In addition, we may
use a portion of the net proceeds to acquire businesses, products or
technologies that are complementary to our current or future business and
product lines. We are not currently negotiating any acquisitions, and we have no
agreements with any third party for any acquisition. Pending use of the net
proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock, and we
do not intend to pay cash dividends on our common stock in the foreseeable
future. We currently expect to retain any future earnings to fund the operation
and expansion of our business. In addition, the terms of our credit agreement
prohibit the payment of any dividends.
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<PAGE> 20
CAPITALIZATION
The following table sets forth our total capitalization as of December 31,
1999:
- on an actual basis as of December 31, 1999;
- on a pro forma basis to reflect the automatic conversion of all
outstanding shares of preferred stock into 15,128,853 shares of common
stock upon completion of this offering; and
- on a pro forma as adjusted basis to reflect the sale of shares
of common stock offered hereby at an assumed initial public offering
price of $ per share in this offering, after deducting estimated
underwriting discounts and commissions and estimated offering expenses to
be paid by us.
You should read the following table in conjunction with our financial
statements and the notes to those statements, which are included in this
prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ---------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents................................... $19,679 $19,679 $
======= ======= =======
Long term obligations, net of current portion............... -- --
------- ------- -------
Stockholders' equity:
Series A preferred stock, par value $.001 per share;
18,600,000 shares authorized; 18,599,372 shares issued
and outstanding; no shares issued and outstanding pro
forma and pro forma as adjusted........................ 3,102 --
Series B preferred stock, par value $.001 per share;
5,540,200 shares authorized, issued and outstanding; no
shares issued and outstanding pro forma and pro forma
as adjusted............................................ 1,000 --
Series C preferred stock, par value $.001 per share;
5,000,000 shares authorized, issued and outstanding; no
shares issued and outstanding pro forma and pro forma
as adjusted............................................ 2,167 --
Common stock, $.001 par value, 52,000,000 shares
authorized; 17,860,158 shares issued and outstanding;
32,989,011 shares issued and outstanding pro forma;
shares issued and outstanding pro forma as
adjusted(1)............................................ 18 33
Additional paid-in capital................................ 25,750 32,004
Unearned stock option compensation........................ (678) (678)
Notes receivable for stock................................ (670) (670)
Accumulated deficit....................................... (8,440) (8,440)
------- ------- -------
Total stockholders' equity........................ 22,249 22,249
------- ------- -------
Total capitalization.............................. $22,249 $22,249 $
======= ======= =======
</TABLE>
- ---------------
(1) Shares outstanding excludes the following:
- 4,057,498 shares of common stock issuable upon exercise of options
outstanding as of December 31, 1999 with a weighted average exercise
price of $0.86 per share; and
- 658,693 shares of common stock issuable upon exercise of warrants
outstanding as of December 31, 1999 with a weighted average exercise
price of $0.83 per share.
- 13,381,501 shares reserved for future issuance under stock option, stock
incentive and purchase plans.
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<PAGE> 21
DILUTION
Our pro forma net tangible book value at December 31, 1999 was $22.2
million, or $0.67 per share of common stock. Pro forma net tangible book value
per share is determined by dividing our net tangible book value (total tangible
assets less total liabilities) by the pro forma number of shares of common stock
outstanding as of December 31, 1999, after giving effect to the conversion of
all outstanding shares of our preferred stock into 15,128,853 shares of common
stock.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the pro forma net tangible book value per share of
common stock immediately after the completion of this offering. After giving
effect to our sale of shares of common stock in this offering at an
initial public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us, our adjusted pro forma net tangible book value at December 31, 1999 would
have been $ million, or $ per share. This amount represents an immediate
increase in pro forma net tangible book value to our existing stockholders of
$ per share and an immediate dilution to new investors of $ per share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $
Pro forma net tangible book value per share at December
31, 1999............................................... $0.67
Increase in pro forma net tangible book value per share
attributable to new investors..........................
-----
Adjusted pro forma net tangible book value per share after
this offering.............................................
--------
Dilution per share to new investors......................... $
========
</TABLE>
If the underwriters exercise their over-allotment option in full, our
adjusted pro forma net tangible book value at December 31, 1999 would have been
$ million, or $ per share, representing an immediate increase in pro
forma net tangible book value to our existing stockholders of $ per share
and an immediate dilution to new investors of $ per share.
The following table summarizes, on a pro forma basis as of December 31,
1999, the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders and by new investors purchasing shares of common stock in this
offering. These amounts assume conversion of all outstanding series of preferred
stock into common stock. The information presented is based upon an assumed
initial public offering price of $ per share, before deducting estimated
underwriting discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ ------------------------ PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
----------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 32,989,011 % $29,544,580 % $0.90
New investors........................
----------- --- ----------- ---
Total...................... 100% $ 100%
=========== === =========== ===
</TABLE>
This discussion and table assume no exercise of any stock options or
warrants outstanding at December 31, 1999 and no exercise of the underwriters'
over-allotment option. At December 31, 1999, there were options outstanding to
purchase a total of 4,057,498 shares of common stock with a weighted average
exercise price of $0.86 per share. At December 31, 1999, there were warrants
outstanding to purchase a total of 658,693 shares of common stock with a
weighted average exercise price of $0.83 per share. To the extent that any of
these options or warrants are exercised, there will be further dilution to new
investors.
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<PAGE> 22
SELECTED FINANCIAL DATA
The following tables summarize our financial data. For a more detailed
explanation of our financial condition and operating results, you should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," our financial statements and the notes to those statements included
in this prospectus. The balance sheet data at March 31, 1999 and the statement
of operations data for the year ended March 31, 1999 have been derived from
audited financial statements included in this prospectus. The balance sheet data
at December 31, 1999 and the statement of operations data for the nine months
ended December 31, 1998 and 1999 have been derived from unaudited financial
statements included in this prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS ENDED
ENDED DECEMBER 31,
MARCH 31, ---------------------
1999 1998 1999
------------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 237 $ 143 $ 6,296
Cost of sales............................................... 107 39 2,927
Gross profit................................................ 130 104 3,369
Loss from operations........................................ (3,623) (2,021) (4,425)
Net loss.................................................... $(3,695) $(2,021) $(4,710)
Net loss per share -- basic and diluted..................... $ (1.40) $ (2.02) $ (0.50)
Weighted average shares..................................... 2,640 999 9,489
Pro forma net loss per share -- basic and diluted........... $ (0.53) $ (0.20)
Pro forma weighted average shares........................... 6,907 23,241
</TABLE>
Pro forma basic and diluted net loss per share is computed using the
weighted average shares of common stock outstanding, including the pro forma
effects of the automatic conversion of all outstanding series of preferred stock
into common stock upon completion of this offering as if the conversion occurred
on April 1, 1998, or at the date the preferred stock was actually issued, if
later.
Per share and weighted average share amounts exclude shares of common stock
that may be issued upon exercise of outstanding options and warrants or that may
be issued under our various stock compensation plans. For additional information
regarding these shares, see note 1 to the table in "Capitalization."
The following table is a summary of our balance sheet as of December 31,
1999. The as adjusted column reflects our receipt of the estimated net proceeds
from the sale of the shares of common stock we are selling in this
offering at an assumed initial public offering price of $ per share, after
deducting underwriting discounts and commissions and estimated offering
expenses.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1999
------------------
MARCH 31, AS
1999 ACTUAL ADJUSTED
--------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 224 $19,679
Working capital (deficit)................................... (1,272) 21,688
Total assets................................................ 933 24,900
Total stockholders' equity (deficit)........................ (894) 22,249
</TABLE>
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<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and related notes that appear elsewhere in this prospectus. The
following discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ significantly from those
anticipated in these forward-looking statements as a result of certain factors,
including those discussed below and elsewhere in this prospectus, particularly
under the heading "Risk Factors."
OVERVIEW
We are a leading provider of Intelligent Storage Routers and external RAID
controllers for open systems network storage solutions. Our Intelligent Storage
Routers facilitate the interconnection of SANs with existing SCSI-based servers
and storage systems. Our external RAID controllers dynamically distribute data
across multiple hard disk drives to increase data transfer speeds and deliver
fault tolerance. Our products are designed to provide a high level of
performance, availability and functionality.
Our company was incorporated in January 1998 as Chaparral Technologies,
Inc., a Delaware corporation. We initially focused our operating activities on
the research and development of our Intelligent Storage Routers and on building
our organization by hiring engineering, sales and administrative staff. In July
1999, we changed our name to Chaparral Network Storage, Inc. to more accurately
reflect our emphasis on providing network storage products.
In November 1998, we entered into a technology license agreement with
Adaptec for their external Fibre Channel RAID controllers in exchange for a
19.9% equity interest in our company. As part of this technology license, we use
Adaptec's hardware platform in our Intelligent Storage Routers and external RAID
controllers. We began shipping our first external RAID controller products, the
G Series, in November 1998. In March 1999, we completed the design of our next
generation external RAID controllers, which served as the basis for developing
our Intelligent Storage Routers. We began shipping our Intelligent Storage
Routers in April 1999. In November 1999, we announced the next generation of
both the external RAID controllers and Intelligent Storage Routers. Through
December 31, 1999, we sold approximately 4,500 units of our Intelligent Storage
Routers and external RAID controllers.
Since our inception, we have incurred significant losses, and as of
December 31, 1999, we had an accumulated deficit of approximately $8.4 million.
For the nine months ended December 31, 1999, our loss from operations was
approximately $4.4 million. We have not achieved profitability on a quarterly or
annual basis and expect to incur significant losses for the foreseeable future.
For the nine months ended December 31, 1999, approximately 74% of our
revenue was from the sale of our external RAID controllers and the remaining 26%
of revenue was from the sale of our Intelligent Storage Routers. As we continue
to develop and ship Intelligent Storage Routers, we expect they will constitute
an increasing percentage of our revenue, which in turn may result in a higher
gross margin. Our Intelligent Storage Routers may not gain wide market
acceptance.
We sell our products to OEMs, distributors, resellers and systems
integrators. Our OEM customers include Eurologic, MicroNet, nStor, Qualstar,
Quantum/ATL, Trimm and Xyratex. During the nine months ended December 31, 1999,
our three largest OEM customers, nStor, Quantum/ATL and Eurologic, accounted for
24.3%, 21.6% and 10.9% of our revenue, respectively. Although we anticipate the
majority of our revenue will come from new and existing OEM customers, a key
element of our growth strategy is to expand and diversify our distribution
channels. To this end, we have established relationships with industrial
distributors, including Arrow, Bell Microproducts and CONSAN, which resell our
products to value added resellers (VARs) and systems integrators. During the
nine months ended December 31, 1999, sales to CONSAN represented approximately
16% of our revenue. No other distribution channel customer accounted for more
than 10% of our revenue in this period.
We are seeking to diversify our customer base and expand our sales channel.
However, we expect a significant portion of our revenue in the short term will
be derived from a relatively small number of
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OEMs and distribution channel partners. We may not be successful in diversifying
our customer base, and the loss of one of our significant customers could reduce
our total revenue. We do not have long term contracts with any of our customers.
We generally recognize product revenue at the time of shipment. Estimated
product returns are accrued in the period of sale. We recognize a warranty
reserve based on a combination of historical experience and specifically
identified potential warranty liabilities, if any. We warrant our products for
up to three years, and we have had no significant warranty issues to date.
We outsource our manufacturing, which allows us to focus on designing,
developing and marketing our products. We believe the use of a high quality
contract manufacturer, which has multiple manufacturing locations, allows us to
deploy our resources and capital more efficiently. A significant portion of our
cost of sales consists of payments for contract manufacturing. A less
significant amount is spent on components, which we consign to our
manufacturers, and for royalties on licensed technology. Our contract
manufacturers build our products using quality assurance programs and standards
that we establish and monitor. Manufacturing engineering as well as
documentation control are conducted at our facility in Longmont, Colorado.
RESULTS OF OPERATIONS
Because of our limited operating history and the rapidly evolving nature of
our business, we believe that period-to-period comparisons are not meaningful
and should not be relied upon as an indication of future performance. The
following table presents our operating results for our fiscal year ended March
31, 1999, and the nine-month periods ended December 31, 1998 and December 31,
1999.
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS ENDED
ENDED DECEMBER 31,
MARCH 31, ---------------------------
1999 1998 1999
----------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................................... $ 237 $ 143 $ 6,296
Cost of sales............................................. 107 39 2,927
------- ------- -------
Gross profit............................................ 130 104 3,369
------- ------- -------
Operating expenses:
Research and development................................ 1,415 708 2,503
Sales and marketing..................................... 387 196 1,462
General and administrative.............................. 1,951 1,221 2,209
Stock option compensation............................... -- -- 1,620
------- ------- -------
Total operating expenses................................ 3,753 2,125 7,794
------- ------- -------
Loss from operations...................................... (3,623) (2,021) (4,425)
Interest expense, net..................................... 72 -- 285
------- ------- -------
Net loss................................................ $(3,695) $(2,021) $(4,710)
======= ======= =======
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1998
Revenue
Revenue was $6.3 million for the nine months ended December 31, 1999,
compared to $143,000 for the comparable period in 1998. We commenced product
sales in the quarter ended December 31, 1998. For the nine months ended December
31, 1999, sales of our Intelligent Storage Routers constituted $1.6 million, or
26% of our revenue, while for the comparable period in 1998, sales of our
external RAID controllers constituted all of our revenue. For the nine months
ended December 31, 1999, 26 customers accounted for all of our revenue, compared
to three customers in the comparable period in 1998.
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<PAGE> 25
Gross Profit
Cost of sales includes the cost of our contract manufacturing, materials
costs, warranty costs, manufacturing overhead, royalties and a reserve for
inventory obsolescence.
Gross profit increased to $3.4 million for the nine months ended December
31, 1999, from $104,000 for the comparable period in 1998. Gross profit as a
percentage of revenue was 54% for the nine months ended December 31, 1999. Due
to the small amount of revenue for the nine months ended December 31, 1998, we
do not believe that a period-to-period comparison of gross profit is meaningful.
Research and Development
Research and development expense consists primarily of salaries and related
personnel costs, fees paid to consultants and outside service providers,
non-recurring engineering charges and prototype costs related to the design,
development, testing and enhancement of our products and software and systems
development. We expense our research and development costs as they are incurred.
Research and development expense was $2.5 million for the nine months ended
December 31, 1999, an increase of $1.8 million over the comparable period in
1998. This increase was due primarily to costs associated with the addition of
research and development personnel and increased prototype expenses, which
included equipment, supplies and outside consultants. Research and development
personnel increased to 31 at December 31, 1999, from 19 at December 31, 1998. We
believe that strategic product development and other research and development
initiatives are required to remain competitive. As a result, we expect our
research and development expense to increase in absolute dollars in the future.
Sales and Marketing
Sales and marketing expense consists primarily of salaries, commissions and
related expenses for personnel engaged in marketing, sales and customer
engineering support functions, as well as costs associated with promotional and
other marketing expenses.
Sales and marketing expense was $1.5 million for the nine months ended
December 31, 1999, an increase of $1.3 million over the comparable period in
1998. The increase was primarily due to the costs associated with the addition
of sales and marketing personnel as well as trade show and advertising expenses.
Sales and marketing personnel increased to 14 at December 31, 1999, from three
at December 31, 1998. We expect sales and marketing expense will increase
substantially in absolute dollars over the next year, as we hire additional
sales and marketing personnel, expand our customer service and support
organization, initiate additional marketing programs and establish sales offices
in new domestic and international locations.
General and Administrative
General and administrative expense consists primarily of salaries and
related expenses for executive, finance and accounting, facilities and human
resources personnel, recruiting expenses, professional fees, reserves for
doubtful accounts and other corporate expenses.
General and administrative expense increased by $1.0 million to $2.2
million for the nine months ended December 31, 1999, from $1.2 million for the
comparable period in 1998. This increase was due primarily to costs associated
with the addition of general and administrative personnel, increased
professional and consulting activities and a provision for doubtful accounts.
General and administrative personnel increased to ten at December 31, 1999, from
six at December 31, 1998. We expect general and administrative expense to
increase in absolute dollars as we add personnel and incur additional costs
related to the growth of our business and our operation as a public company.
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Stock Option Compensation
We recognized stock option compensation expense of $1.6 million in the nine
months ended December 31, 1999. Of this amount, $818,035, $58,279 and $743,791
relate to research and development, sales and marketing and general and
administrative expenses, respectively. Unearned stock option compensation
expense of $0.7 million will be recognized over the vesting periods of the
associated stock options.
Interest Expense, Net
We had net interest expense of $284,000 for the nine months ended December
31, 1999, as a result of interest paid for financing fees and for debt
outstanding during the period which was repaid as of December 31, 1999. We had
no interest expense for the nine months ended December 31, 1998.
Provision for Income Taxes
There is no provision for income taxes, as we have incurred losses for all
periods to date. As of March 31, 1999, we had approximately $3.6 million of U.S.
federal and state net operating loss carryforwards available to offset future
taxable income. Net operating loss carryforwards will expire in 2019 to the
extent that they are not utilized. We believe the carryforwards may also be
limited by Internal Revenue Code provisions.
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO THE PERIOD FROM INCEPTION TO
MARCH 31, 1998
We had no revenue during the first three months of operations and incurred
only $35,000 of general and administrative expense during this period. For this
reason, it is not meaningful to compare results between the fiscal year ended
March 31, 1999, and the period from inception to March 31, 1998.
QUARTERLY RESULTS OF OPERATIONS
The following table presents historical unaudited quarterly information for
our most recent five quarters. All quarters have been prepared on the same basis
as the audited financial statements appearing elsewhere in this prospectus. In
the opinion of management, all necessary adjustments consisting only of normal
recurring adjustments have been included to present fairly the unaudited
quarterly results when
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<PAGE> 27
read in conjunction with our audited financial statements and the related notes
appearing elsewhere in this prospectus. These operating results are not
necessarily indicative of the results of any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1999 1999 1999 1999
-------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT AS A PERCENTAGE OF REVENUE)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................... $ 142 $ 94 $ 960 $3,103 $ 2,233
Cost of sales............................. 39 68 527 1,408 992
------- --------- ------- ------ -------
Gross profit.............................. 103 26 433 1,695 1,241
------- --------- ------- ------ -------
Operating expenses:
Research and development................ 496 708 650 797 1,056
Sales and marketing..................... 116 190 305 403 754
General and administrative.............. 630 730 599 876 734
Stock option compensation............... -- -- -- -- 1,620
------- --------- ------- ------ -------
Total operating expenses.................. 1,242 1,628 1,554 2,076 4,164
------- --------- ------- ------ -------
Loss from operations...................... (1,139) (1,602) (1,121) (381) (2,923)
Interest expense, net..................... -- 72 15 63 206
------- --------- ------- ------ -------
Net loss.................................. $(1,139) $ (1,674) $(1,136) $ (444) $(3,129)
======= ========= ======= ====== =======
AS A PERCENTAGE OF REVENUE:
Revenue................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 27.5 72.3 54.9 45.4 44.4
------- --------- ------- ------ -------
Gross profit.............................. 72.5 27.7 45.1 54.6 55.6
------- --------- ------- ------ -------
Operating expenses:
Research and development................ 349.3 753.2 67.7 25.7 47.3
Sales and marketing..................... 81.7 202.1 31.8 13.0 33.8
General and administrative.............. 443.7 776.6 62.4 28.2 32.9
Stock option compensation............... -- -- -- -- 72.6
------- --------- ------- ------ -------
Total operating expenses.................. 874.7 1,731.9 161.9 66.9 186.6
------- --------- ------- ------ -------
Loss from operations...................... (802.2) (1,704.2) (116.8) (12.3) (131.0)
Interest expense, net..................... -- 76.7 1.6 2.0 9.2
------- --------- ------- ------ -------
Net loss.................................. (802.2)% (1,780.9)% (118.4)% (14.3)% (140.2)%
======= ========= ======= ====== =======
</TABLE>
Revenue decreased between the third and fourth calendar quarters of 1999 by
$870,000. Revenue decreased primarily because our customer nStor returned
approximately $400,000 of our external RAID controllers following an order
cancellation by one of its customers. Although we had shipped this product to
nStor in the quarter ended December 31, 1999, pursuant to a noncancellable
purchase order, we chose not to recognize this revenue. We have not waived any
claims arising from nStor's cancellation of this order. Also, due to this
cancellation, we did not ship additional product pursuant to other nStor
noncancellable purchase orders for approximately $547,000. For the quarter ended
September 30, 1999, nStor accounted for $1.2 million of our revenue. Primarily
as a result of the cancellation of this order and our decision not to ship
additional products to nStor, our revenue for the quarter ended December 31,
1999 decreased approximately 28% from the previous quarter. We are not currently
shipping to nStor, have received no new purchase orders from nStor and may not
ship to them in the future.
Since the introduction of our Intelligent Storage Routers in April 1999,
our gross profit as a percentage of revenue has increased as a result of the
higher margins earned by these products.
We had net interest expense for the fourth calendar quarter of 1999 as a
result of interest paid for financings fees and for debt outstanding during the
period which was repaid as of December 31, 1999.
Our revenue, gross profit and operating results may vary significantly from
quarter to quarter due to a number of factors, many of which are outside of our
control, including those specifically discussed in the
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section captioned "Risk Factors." The primary factors that may cause our
quarterly revenue and operating results to fluctuate include the following:
- fluctuations in demand for our Intelligent Storage Routers and external
RAID controllers;
- the size, timing, terms and fluctuations of customer orders and product
implementations;
- the rate of adoption of SANs as an alternative to existing
server-attached storage architectures;
- the mix of our Intelligent Storage Routers and external RAID controllers
sold;
- the mix of distribution channels through which our products are sold;
- new product introductions by us or our competitors;
- deferrals of customer orders in anticipation of new products, services or
product enhancements introduced by us, our OEMs, our competitors or from
other providers of SAN products;
- changes in our pricing policies or the pricing policies of our
competitors;
- our ability to develop, introduce, ship and support new products and
product enhancements that meet customer requirements in a timely manner;
- prototype expenses;
- our ability to obtain sufficient supplies of components, including sole
or limited source components;
- increases in the prices of the components we purchase;
- our ability to attain and maintain production volumes and quality levels;
- the ability of our contract manufacturers to produce and distribute our
products in a timely fashion;
- the software enhancements embedded in our hardware platforms;
- the additional software options incorporated in our products; and
- general economic conditions as well as those specific to the SAN and
related industries.
Our operating expense is largely based on anticipated revenue trends. A
high percentage of our expenses are and will continue to be fixed in the short
term. As a result, a delay in generating or recognizing revenue for these
reasons could cause significant variations in our operating results from quarter
to quarter.
We expect to experience seasonality in our operating results. Our results
of operations may be adversely affected in the third calendar quarter due to a
slowdown of sales in Europe and other foreign areas in the summer months. We
also expect that, generally in the first calendar quarter, our results may be
adversely affected due to our customers' budgeting cycles.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through the sale
of common and preferred stock, generating aggregate proceeds of $29.0 million,
net of issuance costs. For the nine months ended December 31, 1999, cash flows
from financing activities were $24.6 million. In the past, we also have financed
a portion of our operations through loans from a bank and from individuals. We
currently have no debt outstanding.
We used $4.9 million in cash for operations during the nine months ended
December 31, 1999, an increase of $3.2 million over the comparable period in
1998. This increase was primarily due to increases in our net loss, increases in
trade receivables and inventory, partially offset by increases in accounts
payable and accrued liabilities.
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For the nine months ended December 31, 1999, cash flows from investing
activities consisted of $336,000 for capital expenditures. Cash flows from
investing activities for the comparable period in 1998 totaled $395,000,
including the non-cash acquisition of equipment from Adaptec.
In July 1999, we obtained a $3.0 million line of credit from a bank,
secured by our accounts receivable and other collateral, at a variable rate
equal to the bank's prime rate plus 1.5% per annum. During the nine months ended
December 31, 1999, the maximum outstanding balance on this line was $750,000. As
of December 31, 1999, there was no outstanding balance. This line of credit was
terminated and replaced in January 2000.
In January 2000, we entered into a loan agreement with Norwest Bank
Colorado N.A.-Boulder. Under the loan agreement, we can borrow and reborrow up
to the lesser of $3.0 million or an amount equal to 90% of our U.S. issued debt
instruments plus 80% of our investment grade commercial paper, with a maturity
of one year or less and held in a Norwest account and pledged to Norwest.
Borrowings bear interest at Norwest's prime rate. Interest is payable monthly in
arrears on the last day of the month, and borrowings must be repaid on or before
August 31, 2000. Under the loan agreement, we have agreed to provide Norwest
with certain financial information about our business, to maintain at least $4.0
million in cash plus investment grade marketable securities, to maintain a
minimum net worth and minimum ratio of debt to net worth as set forth in the
agreement and to use Norwest as our principal depository for demand and savings
business accounts. We also have agreed not to pay dividends on our stock, create
liens on our properties or borrow under other credit arrangements. We have not
borrowed under this loan agreement.
At December 31, 1999, cash and cash equivalents totaled $19.7 million. Our
capital requirements depend on numerous factors, including:
- market acceptance of our products;
- the resources we devote to developing, marketing, selling and supporting
our products;
- the timing and extent of establishing international operations; and
- the timing and build-out of our new facility and related interoperability
testing lab.
We expect to devote substantial capital resources to continue our research
and development efforts, to hire and expand our sales, support, marketing and
product development organizations, to expand marketing programs, to establish
additional facilities and for other general corporate activities. We believe the
net proceeds of this offering, together with our cash and cash equivalents, will
be sufficient to fund our operations through at least the next 12 months.
However, there can be no assurance that we will not require additional financing
within this time period or that such additional funding, if needed, will be
available on terms acceptable to us or at all.
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BUSINESS
OVERVIEW
We are a leading provider of high performance products that facilitate the
movement of data between networked storage devices. We are focused primarily on
developing products for use in the emerging market for SANs. Our Intelligent
Storage Routers facilitate the interconnection of SANs with existing SCSI-based
servers and storage systems. Our external RAID controllers dynamically
distribute data across multiple hard disk drives to increase data transfer
speeds and deliver fault tolerance. Our products are designed to provide a high
level of performance, availability and functionality. When used in conjunction
with a SAN, our products enable organizations to take advantage of a wide range
of SAN applications, such as LAN-free backup. Our Intelligent Storage Routers
and external RAID controllers incorporate a common, high-performance hardware
platform and foundation software layer, which enables us to quickly and
cost-effectively introduce new products into the market. We sell our products
through OEMs, including Eurologics, MicroNet, Qualstar and Quantum/ATL, as well
as through distribution partners, including Arrow, Bell Microproducts and
CONSAN.
INDUSTRY BACKGROUND
GROWTH AND CHANGING NATURE OF ENTERPRISE DATA
In the last decade, there has been a dramatic increase in the volume of
data created, processed and accessed throughout the business enterprise.
According to International Data Corporation (IDC), an independent industry
research company, shipments of multi-user disk storage capacity grew from
approximately 10,000 terabytes in 1994 to approximately 184,641 terabytes in
1999 and is forecasted to reach approximately 1.9 million terabytes in 2003. The
near annual doubling of growth in the volume of enterprise data storage needs
has been fueled by a number of factors, including:
- the increase of Internet and e-commerce based businesses;
- the rapid growth of Web hosting, digital video and other multimedia
applications;
- the rise of network computing;
- the need for redundant repositories of data; and
- advances in storage technology and the resulting decline in the cost of
storage.
In addition, organizations have recognized the increasing importance and
value of enterprise data as mission-critical and as a strategic and competitive
asset to their employees, customers and suppliers. These organizations are
demanding rapid and reliable access to this data 24 hours a day, seven days a
week. The increased use of open-systems computing environments, which link
multiple applications, files and databases to networked computers, makes this
task increasingly difficult. The continued deployment of mission-critical,
client-server applications, coupled with the growth of enterprise data, has
placed significant strain on current storage architectures.
LIMITATIONS OF EXISTING STORAGE INFRASTRUCTURE
The growth of enterprise data has resulted in a corresponding challenge to
backup, share and manage this data. This growth has traditionally been addressed
by connecting individual high-performance computers, known as servers, to
dedicated storage devices. Typically, storage devices are connected through SCSI
technology to only one server and not to any of the other servers used by an
enterprise which results in a "captive" storage architecture.
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The captive storage architecture can be depicted as follows:
[Graphic depicting the captive storage architecture, including the SCSI
connections between storage devices and servers and the connections between
servers and network end-users through a Local Area Network.]
Traditional captive storage architectures have several significant
limitations, including:
PERFORMANCE CONSTRAINTS
Data storage, retrieval and backup using the traditional captive storage
architecture results in a significant strain on servers and local area networks,
or LANs. Storage-to-server data transmission speeds increased by approximately
ten times in the 1990s when local and wide-area network transmission speeds
increased by more than 100 times. In captive storage architectures, client data
is transferred across the LAN to servers and their dedicated storage devices,
causing an I/O bottleneck. Because LANs were not designed to efficiently
transfer data in large blocks, data backup has been a major contributor to
performance constraints.
LIMITED AVAILABILITY AND ACCESSIBILITY OF DATA
In traditional server-attached architectures, the loss of a server causes
data on its connected storage devices to become inaccessible. In addition, the
critical data backup function in the traditional server-attached storage
architecture is a lengthy process and often requires the network to be powered
down. Because many networks need to be accessible 24 hours a day, seven days a
week, the time available to accomplish data backup has been reduced considerably
or eliminated entirely, while the amount of data requiring backup has increased
dramatically.
LIMITED FAULT AND DISASTER TOLERANCE
Because SCSI-connected devices are limited to a maximum of 25 meters of
transmission distance, redundant storage devices in remote locations are
generally not practical or cost effective. As a result, sustained data
availability in a captive storage architecture following a system failure or
disaster is difficult to achieve.
SCALABILITY CONSTRAINTS
The SCSI protocol can only support a maximum of 15 individual storage
devices on a single bus or channel, which is the dedicated circuit that carries
information to and from data storage devices. Because servers have limited space
for additional SCSI adapter cards, businesses that wish to add storage capacity
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<PAGE> 32
generally must add additional servers, increasing the total cost of storing
data. Additionally, the distance limitation of the SCSI protocol constrains the
amount of storage that can be attached to a single server.
LACK OF MANAGEABILITY
The traditional server-attached storage architecture has made it difficult
to network storage devices and realize the benefits of managing a centralized
data repository. As a result, isolated islands of information are stored
throughout the enterprise, each of which must be administered and managed
locally.
DEVELOPMENT OF STORAGE AREA NETWORKS BASED ON FIBRE CHANNEL TECHNOLOGY
In recent years, demand has increased for a faster, more efficient and
manageable interconnection of servers, storage devices and LANs. SANs are
rapidly gaining acceptance as a means of addressing this demand through the
support of a transmission protocol known as Fibre Channel. Fibre Channel is an
open standard technology designed specifically for high performance, I/O
intensive applications, with the ability to attach storage in shared network
environments. Fibre Channel is capable of supporting up to 15.5 million devices
and transferring data across distances of ten kilometers at speeds of up to 200
megabytes per second. Similar to LANs and wide area networks, or WANs, the SAN
applies the networked approach to computer storage and servers, enabling
businesses to create a pool of shared data storage devices that can be accessed
by multiple servers and network users.
The following graphic depicts a basic SAN architecture.
[Graphic depicting a basic SAN arcitecture, including the major SAN network
elements, such as Switches, Routers and Hubs, the Servers, and the various types
of storage devices, such as disk arrays and tape systems.]
SANs offer the following benefits:
- improved performance by decreasing storage traffic on the LAN and
increasing the speed of a dedicated network for storage;
- higher accessibility and availability of data through any-to-any
connectivity, which creates redundancies and improves fault-tolerance;
- greater scalability by significantly increasing the distance between and
number of devices that can be connected;
- ease of management facilitated by the networked architecture and
centralization of storage; and
- lower cost of ownership from improved efficiencies, reduced management
requirements and shared storage resources.
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While in its early stages of development, the open systems SAN market is
expected to grow rapidly. According to the Gartner Group, an independent
industry research company, more than 70% of shared storage in network
environments is projected to be reorganized into SANs by the year 2002. IDC has
estimated that worldwide SAN storage systems revenues will grow from less than
$3.8 billion in 1999 to over $11.5 billion in 2002, representing a compound
annual growth rate of 45%.
OPEN SYSTEMS SAN EVOLUTION
To date, SANs have been deployed in an evolutionary fashion. Initial SAN
implementations of Fibre Channel devices focused simply on connectivity and
interoperability of devices, including hubs, switches and host bus adapters.
Because most organizations had made significant investments in SCSI storage
devices and servers, companies were unwilling to move to SANs unless they were
able to connect to these devices. Products such as storage routers were
introduced to provide this connectivity between SCSI storage devices and Fibre
Channel SANs. Additionally, because Fibre Channel storage devices are
network-attached in SANs, vendors needed to ensure interoperability among these
devices. As a result, vendors originally focused on providing connectivity
between SCSI and Fibre Channel protocols and ensuring interoperability.
While SANs are being successfully implemented and connectivity and
interoperability issues are being addressed, many of the benefits offered by the
SAN, including enhanced data transfer rates, improved reliability and
accessibility and more robust features, have yet to be fully realized. Because
data will now be shared by and accessible to multiple servers and networked
users, enterprises will require not only high performance but also high
availability of mission-critical data. For widespread adoption of SANs to occur,
these requirements must be addressed.
THE CHAPARRAL SOLUTION
We have developed Fibre Channel-based SAN solutions that provide both high
performance and high availability. We are the only independent provider of both
storage routers and external RAID controllers. Our Fibre Channel-to-SCSI routers
and external RAID controllers enable organizations to realize the full benefits
of Fibre Channel SANs, such as increased bandwidth performance, improved
scalability and centralized storage management efficiencies, while preserving
their investments in new and existing SCSI storage devices. This is a key
requirement because organizations have already made, and are expected to
continue to make, significant investments in SCSI-based servers and storage
systems. IDC estimates that SCSI is currently the most popular interconnect for
high-performance disk drives, representing more than 90% of units in 1999, and
will still represent approximately two-thirds of units in 2002.
Key benefits of our solutions include the following:
INCREASED PERFORMANCE
We believe our products provide industry-leading performance and
functionality to facilitate the interconnection of SANs and SCSI-based storage
devices. Both our Intelligent Storage Routers and external RAID controllers are
designed using our architecture, which includes embedded software and a high
speed ASIC. This ASIC has a dual internal data path that is completely
independent of the computer processor. This ASIC also enables our products to
move data at high speeds and with minimal interruption between the Fibre Channel
connections to the servers and the SCSI connections to the storage devices. As a
result, we are able to deliver market-leading I/O performance.
HIGH AVAILABILITY AND RELIABILITY
We believe that our products provide the highest level of availability and
reliability. Our external RAID controllers dynamically distribute data across
multiple hard disk drives with a special error correction and detection
algorithm designed to ensure the immediate availability of data, even in the
event of a partial or complete disk drive failure. Our external RAID controllers
also utilize sophisticated algorithms to recreate lost data in any one disk
drive. In addition, our external RAID controllers provide an active-active
failover capability. This feature enables two external RAID controllers to be
actively
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working in tandem because they are connected to the disk drives as well as to
each other. In the event one of these external RAID controllers fails, the other
external RAID controller takes over the entire workload, maintaining
accessibility to the stored data. Because two active external RAID controllers
share the workload of distributing and accessing data on the disk drives,
throughput is effectively doubled. This active-active failover capability
permits higher availability of data and protects the enterprise against both
disk drive and controller failure and the resulting inaccessibility and
potential loss of mission-critical data.
We have leveraged our external RAID controller expertise to develop what we
believe will be the industry's first and only active-active failover
functionality for storage routers. We are currently in Beta evaluation with OEM
customers for storage routers with this functionality. We believe this
functionality will be a key differentiator and a mandatory requirement for the
effective implementation and widespread deployment of SANs for mission-critical
applications. In addition, our Intelligent Storage Routers incorporate our
real-time operating system. This operating system has been designed to provide
both high performance and high availability, which we believe will be required
for the next wave of SAN implementations.
We have incorporated diagnostics and monitoring software into both our
Intelligent Storage Routers and our external RAID controllers to provide early
warning and failure notification, as well as the ability to remotely monitor and
manage these controllers.
IMPROVED SAN PERFORMANCE WITH NEW APPLICATIONS
Because we have designed our products using a highly flexible and modular
embedded software architecture, we can quickly and cost-effectively implement
new software agents that enable SAN applications such as server-free backup.
Server-free backup enables automated data movement between storage systems
directly across the SAN, allowing data backup to be performed while using a very
small percentage of the server's internal data processing capacity. As a result,
organizations no longer need to identify lengthy time periods, or "backup
windows," for disconnecting servers from the network in order to perform backup.
We were the first company to successfully publicly demonstrate server-free
backup. Our Intelligent Storage Routers enable server-free backup in connection
with software anticipated to be released by Legato and other companies in the
near future. Although our competitors have recently developed this capability,
we believe the higher speeds with which our products operate will provide us
with a competitive advantage in the market for server-free backup.
DIFFERENTIATION AND MANAGEABILITY
We have developed a robust, well-defined user interface, which we call
CAPI, to enable our customers to incorporate their proprietary functionality
into our products for differentiation in the market. In addition, our customers
can design their own GUI to manage our equipment in conjunction with their
solutions.
We also work closely with leading independent software vendors, such as
Legato Systems, Inc., Veritas Software Corporation and Computer Associates
International, Inc., to help ensure that our Intelligent Storage Routers can be
managed through their network management software applications. Our Intelligent
Storage Routers are also designed with features that enable organizations to
conduct systems diagnostics and management, as well as real-time application
monitoring, from remote locations.
STRATEGY
LEVERAGE COMMON HARDWARE AND SOFTWARE ARCHITECTURE
Our Intelligent Storage Routers and external RAID controllers share a
common hardware and embedded software architecture. We intend to continue to use
this common architecture to quickly and cost-effectively introduce
next-generation products into the market. We utilize a modular hardware
architecture that includes a separate snap-on card, called a daughter card, for
the Fibre Channel interface.
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<PAGE> 35
We believe this daughter card will allow us to introduce higher performance,
next-generation products without changing the basic architecture of our hardware
platforms. For example, when two gigabit Fibre Channel integrated circuits
become commercially available, we believe we will be able to quickly introduce
new products with the improved transfer rates that these chips provide without
redesigning the entire hardware platform. We expect our daughter card
architecture will give us a time-to-market competitive advantage, reduce our
development costs and allow us to leverage our interoperability with existing
products.
We plan to leverage our common embedded software architecture to introduce
the server-free backup capability into our external RAID controllers for fast
disk-to-disk copy capability. We also intend to leverage our modular embedded
software architecture to facilitate the development of future SAN applications,
such as data replication, non-stop unattended backup and continuous remote
mirroring.
ACTIVELY PURSUE NEW STRATEGIC ALLIANCES TO ENABLE NEW APPLICATIONS
We plan to partner with leading independent software vendors to integrate
value-added functionality into our products to meet the evolving needs of our
customers. By incorporating embedded software agents into our products, we
expect to rapidly expand the capabilities we are able to offer and, in doing so,
increase the market for our solutions. For example, we were the first to have
the capability to incorporate an Extended Copy embedded software agent into our
Intelligent Storage Routers. By incorporating this software agent, we were able
to extend the functionality of our Intelligent Storage Routers to enable
server-free backup. We publicly demonstrated server-free backup with Legato and
Quantum/ATL at the Networld/Interop trade show in May 1999 and expect to ship
products with this function in connection with software anticipated to be
released by Legato and other companies in the near future.
As the SAN market evolves, we intend to work with leading independent
software vendors to jointly define embedded software agents that integrate
management functionality into our products. By establishing strategic
relationships with independent software vendors, we believe we will be able to
significantly increase the value of our product offerings and ensure a product
migration path in line with the needs of our customers.
DRIVE EMERGING I/O MARKET OPPORTUNITIES
We plan to leverage our significant technological expertise in storage
routing to drive emerging I/O market opportunities. As part of these efforts, we
are currently working on the development of an Intelligent Storage Router that
would extend the capabilities of the SAN over the WAN. While Fibre Channel SANs
can currently transfer data over distances of up to ten kilometers, we can
provide access to storage devices over virtually unlimited distances by bridging
Fibre Channel with WAN protocols, such as asynchronous transfer mode, or ATM. We
also are focusing our development efforts on a number of other emerging I/O
technologies including Peripheral Control Interface-X (PCI-X), Transfer Control
Protocol/ Internet Protocol (TCP/IP) and gigabit Ethernet, as well as future I/O
technologies, such as the InfiniBand protocol. We will continue to contribute to
the development of these and other I/O interfaces as these technologies gain
market acceptance. We believe that this participation will help us to define
improved ways of building intelligent I/O interconnections, influence relevant
standards, quickly implement and deliver products to OEMs and other customers.
EXPAND RELATIONSHIPS WITH OEMS
We intend to continue to focus on developing relationships with OEMs. We
believe that working with OEMs enables us to effectively distribute our
products, anticipate the needs of the market, introduce new products to meet
those needs and target new markets. We intend to continue to offer high-value,
easily integrated products that can be quickly brought to market. We believe
that these products will help us expand our OEM customer base. For example, the
small size of our controller board is attractive to OEMs because they can easily
integrate it internally into their tape libraries and subsystem products.
Additionally,
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we plan to enhance our CAPI functionality to incorporate new SAN applications
that will be attractive to OEMs.
As new disk and tape technologies with significantly higher transfer rates
emerge, we intend to leverage the high performance features of our Intelligent
Storage Routers and external RAID controllers to take advantage of each new OEM
qualification and sourcing cycle. We believe our technology will enable us to
continue to capture OEMs that require high performance and high availability in
their storage solutions.
EXPAND DISTRIBUTION CHANNELS
While sales to our OEM customers have accounted for the majority of our
revenue, we believe that our success depends in part on the successful creation
of an open systems market channel through both subsystem vendors and
distributors. We have established relationships with several distributors,
including Arrow, Bell Microproducts and CONSAN in the United States, and CPI,
Hammer Distributing, Infodip and United Digital in Europe. We intend to enter
into additional agreements, both domestically and internationally, to increase
our geographic coverage and address new markets. We also intend to develop
relationships with key SAN systems integrators. We expect that sales through
these distribution channels will constitute an increasing portion of our total
sales in the future.
WORK CLOSELY WITH STRATEGIC PARTNERS AND INDUSTRY ALLIANCES TO FACILITATE
WIDESPREAD ADOPTION OF SANS
We intend to continue working closely with leaders in the storage,
networking and computing industries to develop new and enhanced SAN products. We
believe that establishing strategic relationships with technology partners is
essential in facilitating the efficient and reliable integration of their
capabilities into our SAN solutions. We are developing strategic relationships
and industry alliances with leading technology companies, including the
following:
Adaptec
(Supplier of integrated circuits)
Ancor
(Fibre Channel switches)
Brocade
(Fibre Channel switches)
CI Designs
(Supplier of power and packaging)
Emulex
(Fibre Channel hubs)
Gadzoox Networks
(Fibre Channel hubs and switches)
Highground
(Storage management applications)
IBM Corporation
(Storage device interface technologies)
JMR
(Supplier of power and packaging)
JNI
(Supplier of Fibre Channel integrated circuits)
Kingston Technology
(Supplier of power and packaging)
Legato
(Data backup applications)
McData
(Fibre Channel switches)
Qualstar
(Supplier of Advantage Intelligent Tape technologies)
Quantum/ATL
(Supplier of Digital Linear Tape technologies)
Seagate
(Storage device interface technologies)
Trimm
(Supplier of power and packaging)
Veritas
(Storage management and data backup applications)
Vixel
(Fibre Channel hubs and switches)
We are also active in industry associations and standards-setting
organizations including the Storage Networking Industry Association, the Fibre
Channel Industry Association, the Fibre Alliance and the RAID Advisory Board. By
promoting the role and capabilities of SANs through work with industry-standard
organizations, partners and OEMs, we believe we can facilitate adoption of SANs
and create a broader and more robust market for our products.
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PRODUCTS
We currently offer two product lines: Intelligent Storage Routers and
external RAID controllers. Our products are designed to provide high-performance
data storage and Fibre Channel SAN solutions in an open systems computing
environment. These products share a common hardware and embedded software
architecture. Our embedded software agents are also offered separately as
optional features for each of our products.
INTELLIGENT STORAGE ROUTERS
Our Intelligent Storage Routers enable seamless bi-directional connectivity
between SCSI devices and Fibre Channel networks, allowing companies to take
advantage of the benefits of Fibre Channel technology while protecting their
investment in new and legacy SCSI storage devices. Our Intelligent Storage
Routers utilize our external RAID controller platform but are configured with
different embedded software for SCSI peripherals including tape drives,
automated robotic tape libraries and optical storage devices. Our Intelligent
Storage Routers meet the performance and availability requirements of both
departmental and enterprise server needs as well as advanced applications for
SANs. Our Intelligent Storage Routers also have the ability to offer high-speed
backup over Fibre Channel in connection with software anticipated to be released
by Legato and other companies in the near future. Server-free backup allows
users to perform backup operations directly from disk to tape without first
copying data to the host computer. Server-free backup accelerates the backup
operation as well as off-loading the operations from the LAN and host computer.
F Series. Our F Series of Intelligent Storage Routers is an integral
component of our SAN solutions and are critical to enabling organizations to
attain the benefits of these solutions within their existing computer network
infrastructures. We believe these products offer the highest performance
available in the market today. These products are available as an individual
board or in an enclosed 1.7-inch high rack. All of these products also offer the
optional Celestra Extended Copy embedded software agent to provide server-free
backup. In November 1999, we announced our third generation products (FS2420x).
These products incorporate a dual-loop Fibre Channel interface as well as the
industry's first Ultra 3 SCSI with 160 megabyte per second performance per
channel, providing both higher availability and higher performance.
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<PAGE> 38
INTELLIGENT STORAGE ROUTERS
<TABLE>
<CAPTION>
PRODUCT FIRST
NAME SHIPMENT PRODUCT DESCRIPTION PRODUCT BENEFITS
- ------- --------- ------------------- ----------------
<S> <C> <C> <C>
FS1310x B: 3/99 - One Fibre Channel port and three - First router for new LVD tape
C: 7/99 80 MB/sec LVD SCSI device ports drives such as AIT2, DIT8000 and
R: 12/99+ Mammoth 2
- 90 MB/sec overall throughput - Offers over twice the throughput
of competitive routers
- Serial port and CAPI - Facilitate easy integration with
existing storage management
software
- Optional Extended Copy embedded - High-performance server-free
software agent backup
- B: 5inches X 7inches size board - Smaller size facilitates
mounting inside tape libraries and
storage subsystems
- C: 5.25inches CD-ROM size - SCSI cable-ready canister
canister product
- R: 1.7inches X 17inches X - 1U form factor and GBIC
9.5inches Rack mount enclosure (1U interface allow for easy mounting
form factor) with GBIC Fibre into existing communications
Channel connection racks and tape libraries
FS2420x B: 6/00* - Two Fibre Channel ports (dual - Dual loop Fibre Channel and
R: 6/00* loop) and four ULTRA 3 SCSI 160 first ULTRA 3 160 SCSI router
MB/sec
- 180 MB/sec overall throughput - Offers over twice the throughput
of competitive routers
- Serial port and CAPI - Facilitate easy integration with
existing storage management
software
- Optional Extended Copy embedded - High-performance server-free
software agent backup
- B: 4.24inches X 9inches size - Smaller size facilitates
board mounting inside tape libraries and
storage subsystems
- 1U form factor and GBIC
- R: 1.7inches X 7inches X interface allow for easy mounting
9.5inches Rackmount enclosure (1U into existing communications
form factor) with GBIC Fibre racks and tape libraries
Channel connection
</TABLE>
- ---------------
B = Board
C = Canister
R = Rack
+ We are currently in Beta evaluation with several key OEMs. We expect to begin
commercial shipments of this product in March 2000. However, commercial
shipments may not begin in this time frame.
* We expect to ship Beta evaluation units to OEMs during the first half of 2000.
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EXTERNAL RAID CONTROLLERS
Our external RAID controllers offer many fault-tolerance features for
mission-critical computing, such as high performance, redundancy, security and
protection. These products target the external storage business in the open
systems server market as well as the SAN marketplace.
G Series. Our G Series of products consists of external RAID controller
boards that are typically sold to OEMs for integration into their external
storage subsystems. The first generation of these products targeted
department-level users and feature performance that is rated at either 55
megabytes per second for image-intensive applications or 5,000 I/Os per second
for transaction processing and database applications. In November 1999, we
announced our third generation of external RAID controllers, which feature two
Fibre Channel ports and four Ultra 3 SCSI 160 megabyte per second storage device
channels.
The third generation products feature performance that is rated at either
180 megabytes per second or 15,000 I/Os per second. These RAID controllers offer
the active-active failover feature for maximum availability.
K Series. Our K Series of products uses our second generation external RAID
controller board and features a higher level of integration, including battery,
control panel and SCSI cable-ready connectors. Our second generation external
RAID controllers feature performance that is rated at either 90 megabytes per
second or 8,500 I/Os per second. Unlike our G Series, which is designed at the
board level, our K Series is designed into a canister the size of a typical
CD-ROM and fits into a standard 5.25-inch device bay. We sell our K Series
primarily through our distributors to VARs, who desire an integrated product
that can be readily incorporated into a subsystem solution.
In addition, both series of our RAID controllers include an on-line
expansion capability that allows capacity to be added without taking the
external RAID controller off-line for reconfiguration. Our external RAID
controllers are operating system independent and can be deployed without having
to purchase additional software drivers.
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<PAGE> 40
EXTERNAL RAID CONTROLLERS
<TABLE>
<CAPTION>
PRODUCT FIRST
NAME SHIPMENT PRODUCT DESCRIPTION PRODUCT BENEFITS
- ------- -------- ------------------- ----------------
<S> <C> <C> <C>
G7313 10/98 - Our first generation product
- One Fibre Channel port and three - Up to 45 SCSI devices can be
ULTRA 2 SCSI 80 MB/sec device attached to a Fibre Channel
ports
- 55 MB/sec bandwidth throughput - High bandwidth performance for
image-intensive applications
- 5,000+ I/Os per second - High transaction throughput
- Online capacity expansion - Can dynamically add disk capacity
without having to power down
- Serial port and CAPI - Facilitate easy integration with
existing storage management software
K7413 4/99 - Our second generation product
- One Fibre Channel port and three - Up to 45 SCSI devices can be
ULTRA 2 SCSI 80 MB/sec device attached to a Fibre Channel
ports
- 90 MB/sec bandwidth throughput - Maximum performance with a single
Fibre Channel port
- 8,500+ I/Os per second - Higher throughput for heavy
transaction processing workloads
- Online capacity expansion - Can dynamically add disk capacity
without having to power down
- Serial port and CAPI - Facilitate easy integration with
existing storage management software
G7324 3/00* - Our third generation product
- Two Fibre Channel ports and four - Ability to support dual loop Fibre
ULTRA 3 SCSI 160 MB/sec device Channel networks as well as new
ports ULTRA 3 disk storage devices
- 180 MB/sec bandwidth throughput - Maximum sustained performance with
two Fibre Channel ports
- 15,000+ I/Os per second - Approximately three times the
performance of first generation
and almost double the performance
of second generation products
- Online capacity expansion - Can dynamically add disk capacity
without having to power down
- Serial port and CAPI - Facilitate easy integration with
existing storage management software
</TABLE>
- ---------------
* This represents the date we shipped Beta evaluation units to OEMs.
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<PAGE> 41
EMBEDDED SOFTWARE
In 2000, we expect to ship our embedded software products as
separately-priced, value-added features for both our Intelligent Storage Routers
and external RAID controllers. These products can be provided electronically so
that installed Intelligent Storage Routers and external RAID controllers can be
remotely upgraded at the customer's site. Our embedded software agent is
anticipated to provide server-free backup capability in connection with Legato's
Celestra Networker backup software. We plan to implement this as an optional
feature for our external RAID controllers in the second half of 2000.
In addition, we have developed embedded software that permits our customers
to prevent access to selected storage devices on a server-by-server basis. This
feature provides greater data security by restricting access to shared data on
the SAN only to authorized users. We expect to offer this as an optional feature
for our Intelligent Storage Routers in the first half of 2000.
CUSTOMERS
We sell our products to OEMs and distribution channel partners.
OEM CUSTOMERS
Our OEM customers accounted for 75.4% of our revenue for the nine months
ended December 31, 1999 and included Eurologics, MicroNet, nStor, Qualstar,
Quantum/ATL, Trimm, and Xyratex.
For the nine months ended December 31, 1999, our three largest OEM
customers were nStor, Quantum/ATL Products and Eurologics, which accounted for
24.3%, 21.6% and 10.9% of revenue, respectively. We believe we can expand our
current base of OEM customers by offering high-performance, easily integrated
products that can be quickly brought to market.
DISTRIBUTION CHANNEL PARTNERS
Our distribution channel partners accounted for the remaining 24.6% of our
revenue during the nine months ended December 31, 1999. These partners are
comprised of distributors and resellers. Our current distribution channel
partners include Arrow, Bell Microproducts and CONSAN.
During the nine months ended December 31, 1999, CONSAN represented 16.1% of
our revenue. No other distribution channel partner represented more than 10% of
our revenue. We are currently directing significant marketing and development
efforts towards educating and expanding our network of distribution channel
partners.
SALES AND MARKETING
Our sales and marketing strategy focuses on an indirect sales model
executed through OEMs, distributors, resellers and systems integrators. We have
focused primarily on developing OEM relationships with storage subsystem
suppliers, tape library manufacturers and computer system manufacturers. We
believe the strong market position of these customers will shorten our sales
cycle and further increase sales productivity. Our experienced OEM sales
professionals are supported by application engineers who work in conjunction
with the OEM's engineering team during the qualification process.
We have established relationships with three industrial distributors in the
United States: Arrow, Bell Microproducts and CONSAN. We have also established
relationships with industrial distributors in Europe, including CPI, Hammer
Distributing, Infodip and United Digital. Industrial distributors resell our
products with other complementary products, such as Fibre Channel switches or
hubs to VARs. This channel is serviced by our regional distribution sales
representatives and inside sales representatives, who provide training and sales
support to distributors. We plan to add additional distributors, including
commercial distributors, that will bundle our products with their storage and
server solutions.
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<PAGE> 42
We are in the process of expanding our international sales channels. We
have established relationships with distributors in England, France and Germany.
In the future, we intend to expand our sales efforts to Asia, Australia and
South America.
Our marketing efforts focus on product marketing, marketing communications,
business development and partnership marketing. We have dedicated significant
marketing efforts towards:
- establishing relationships with OEMs, distributors, resellers and systems
integrators;
- participating in trade shows to promote and launch our products; and
- identifying new business opportunities.
Our initial partnership marketing efforts have focused on cooperative
marketing with complementary vendors in the markets for tape backup software and
Fibre Channel switches and hubs. In order to support and develop opportunities
for our indirect distribution channels, we plan to expand our field sales and
support staff significantly.
We have developed the Chaparral Partners Program to ensure that our
solutions are interoperable with products from multiple vendors. We are working
to provide certified SAN solutions for key systems integrators to offer to their
customers. We believe this program is important both for reference purposes and
to accelerate the acceptance of SANs. We have established a relationship with
Legato to introduce the server-free backup Celestra application worldwide. To
further support our marketing efforts, we intend to establish relationships with
key partners to provide vertical market applications.
CUSTOMER SERVICE AND SUPPORT
We believe that a broad range of support services is essential to the
successful installation and ongoing support of our Intelligent Storage Routers
and external RAID controllers. Our support engineers have a broad range of
storage and networking experience. Our customer service and support organization
provides comprehensive training programs and telephone, e-mail and Web-based
direct post sales support to our OEM and distributor customers. We believe these
programs allow us to minimize the need for a large end-user support organization
by enabling our OEM and distributor customers to provide installation, service
and primary technical support to their customers, while we focus on high-level
secondary support. In the future, we intend to significantly expand our
pre-sales and post-sales service and support efforts as well as pursue
opportunities to partner with third party support organizations.
TECHNOLOGY
We develop and market Intelligent Storage Routers and external RAID
controllers. These products combine a number of hardware and software
technologies. Our primary areas of expertise include embedded software and
platform architecture.
Embedded software. Our Intelligent Storage Routers and external RAID
controllers contain a significant amount of common software. Our embedded
software is designed to enable the high speed capabilities of the ASICs we
license from Adaptec. We utilize the C++ programming language, a highly modular
software architecture, which allows us to use and reuse many of our software
elements in both our Intelligent Storage Routers and external RAID controllers.
Our embedded software provides the following:
- a real-time operating system, or RTOS, specifically designed for high
performance;
- data caching and buffering functionality, I/O drivers, configuration
utilities and system monitoring;
- an embedded multiplex user interface, or MUI, which provides a
feature-rich management tool that is accessible either in-band over the
SCSI/Fibre Channel ports or out-of-band via a serial port;
- a CAPI, which enables our customers to implement GUI applications for
management, configuration and monitoring purposes; and
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- the ability to add new features such as active-active failover.
Platform Architecture. Our products are small form-factor, high performance
"single-board computers" that perform specialized functions such as data routing
or RAID operations. We have developed a proprietary architecture that addresses
important customer requirements, such as:
- high performance, both in terms of sustained throughput and I/Os per
second;
- multiple I/O channels;
- high reliability;
- small physical size;
- configuration flexibility;
- low power dissipation;
- manageability; and
- cost effectiveness.
Our designs incorporate custom ASICs and dual internal data buses, greatly
increasing data processing speed and throughput capability. Our platform
architecture includes a separate snap-on card, called a daughter card, for the
Fibre Channel interface. This daughter card architecture provides us with a cost
effective means to quickly implement next generation Fibre Channel integrated
circuits as well as configuration and manufacturing flexibility.
Our hardware platforms use x86-based microprocessors, such as the Pentium
and Pentium II, and associated integrated circuits and memory modules, all of
which are widely used in the PC industry. As a result, we are able to develop
multiple generations of products that leverage the scalability, performance and
cost advantages of the high volume PC industry with minimal change to our
architecture.
RESEARCH AND DEVELOPMENT
Our research and development expenses were approximately $1.4 million for
the year ended March 31, 1999, and $2.5 million for the nine months ended
December 31, 1999, excluding stock option compensation expense. We believe our
research and development efforts are essential to our ability to deliver
innovative products that address the needs of the market and influence the
evolving capabilities of the SAN. As of December 31, 1999, our staff included 31
people in our engineering, product development department and testing and
technical support departments. Our core hardware and software engineering teams
have worked together for approximately four years, including two years at
Adaptec prior to joining Chaparral.
We possess a high level of multi-disciplinary technological expertise,
which we use in designing our products. This expertise includes the following
core competencies:
- computer systems architecture and design;
- embedded software design using advanced methodologies;
- storage systems;
- high-speed, high-density circuit design;
- Fibre Channel and SCSI interface technologies; and
- ASIC architecture and design.
We believe that our expertise in these technologies provides us with
competitive advantages in time-to-market, price/performance, interoperability
and product capabilities. We focus our research and
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development efforts on developing products that meet the evolving network
storage needs of our customers. For example, we are leveraging our expertise and
technology from our external RAID controllers to incorporate high-availability
features, such as active-active failover, into our future Intelligent Storage
Routers to meet the need for fault tolerance.
In addition to the development of our core technologies, we plan to
continue to partner with other leading providers of network storage products and
services to jointly develop high-performance network storage solutions.
Both our Intelligent Storage Routers and external RAID controllers have
been designed using a common modular architecture. This common architecture
facilitates a relatively short product design and development cycle and reduces
the time to market for our new products and features. We intend to continue to
leverage our common architecture to develop and introduce additional products
and embedded software enhancements in the future.
INTELLECTUAL PROPERTY
Our success depends on our proprietary technology. We rely on a combination
of patents, trademarks and trade secrets, as well as confidentiality agreements
and other contractual restrictions with employees and third parties, to
establish and protect our proprietary rights. In November 1998, Adaptec granted
us a perpetual, worldwide license to the core technology that underlies our
products. The Adaptec license is exclusive to us except for the rights retained
by Adaptec to use this technology in non-competing products as described in the
license. Adaptec currently holds two United States patents with respect to this
core technology. Adaptec also has pending patent applications in the United
States with respect to certain aspects of the core technology and is seeking
patent protection for certain aspects of the technology in selected
international locations. However, it is possible that patents may not be issued
for these applications. Despite these precautions, third parties could copy or
otherwise obtain and use our products or technology without authorization, or
develop similar technology independently. The measures we undertake may not be
adequate to protect our proprietary technology, and these measures may not
preclude competitors from independently developing products with functionality
or features similar to our products. There can be no assurance that we can
prevent misappropriation or infringement of our technology.
Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. Any intellectual property litigation
could result in substantial costs and diversion of our resources and could
significantly harm our business. We may receive notice of claims of infringement
of other parties' proprietary rights. Infringement or other claims could be
asserted or prosecuted against us in the future, and possible past or future
assertions or prosecutions could harm our business. Any such claims, with or
without merit, could be time-consuming, result in costly development and release
of our products, or require us to develop non-infringing technology or enter
into royalty or licensing arrangements. Such royalty or licensing arrangements,
if required, may not be available on terms acceptable to us, or at all. For
these reasons, infringement claims could significantly harm our business.
COMPETITION
The markets for our products are becoming increasingly competitive and are
characterized by evolving standards and rapid technological change. We are
currently the only independent provider of both storage routers and external
RAID controllers. Our principal competitors in the storage router market are
ATTO, CrossRoads and Pathlight. We compete in the external RAID controller
market primarily with CMD, Infotrend and Mylex (acquired by IBM).
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We believe the primary competitive factors in the storage router and
external RAID controller markets are the following:
- product performance, features and form factor;
- product reliability and interoperability;
- customer service and technical support;
- price;
- ability to meet delivery schedules;
- OEM endorsement; and
- strength of distribution channel.
As the market for our products continues to grow, we may face competition
from traditional networking companies and other manufacturers of networking
equipment. These networking companies may enter the market by introducing their
own products or by acquiring or entering into an alliance with an existing
storage router or RAID controller provider. Our OEM customers could also develop
and introduce products that are competitive with our product offerings.
Some of our current and potential competitors have longer operating
histories, significantly greater resources and name recognition and a larger
installed base of customers. As a result, these competitors may have greater
credibility with our existing and potential customers. They also may be able to
adopt more aggressive pricing policies and devote greater resources to the
development, promotion and sale of their products than we can to ours, which
would allow them to respond more quickly to new or emerging technologies and
changes in customer requirements. In addition, some of our current and potential
competitors have already established supplier or joint development relationships
with our current or potential customers. These competitors may be able to
leverage their existing relationships to discourage these customers from
purchasing additional products from us or persuade them to replace our products
with their products. Increased competition could result in pricing pressures,
reduced sales, reduced margins, reduced profits, reduced market share or the
failure of our products to achieve or maintain market acceptance.
We may not have the financial resources, technical expertise or marketing,
manufacturing, distribution and support capabilities to compete successfully in
the future. Additionally, we may not be able to compete successfully against
current or future competitors and competitive pressures may significantly harm
our business.
MANUFACTURING
We outsource our manufacturing, which reduces our need to make costly
investments in capital equipment and manufacturing facilities. SMTC and Saturn
currently manufacture our products and are responsible for nearly all material
procurement, assembly and testing, including in-circuit testing and functional
testing. We develop the architecture and drawings for our products and design
functional tests. Once our product passes all initial testing, it is shipped to
our facility, where we load all necessary microcode, perform final testing,
package and ship the product. As our product volume grows, we plan to outsource
all aspects of the manufacturing and shipping process.
SMTC manufactures approximately 80% of our product volume in both its San
Jose, California, and Thornton, Colorado, facilities. Saturn manufactures our
products in Fremont, California. In addition, SMTC offers European distribution
capabilities. We place purchase orders with SMTC and Saturn based on periodic
forecasts. In the future, we may need to add new manufacturing partners to
achieve higher production volumes or lower costs or to secure second source
product availability.
While our contract manufacturers are responsible for most facets of the
manufacturing process, we are directly involved in qualifying vendors and the
key components used in our products. While most of the
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materials used in our products are standard and can be obtained from multiple
qualified manufacturers, some of our key components are proprietary or sole
sourced and require extended lead times. For example, we depend upon single
sources for our Fibre Channel, SCSI and memory controller ASICs. If we were
required to find new vendors for these sole-sourced components, we would have to
qualify replacement components and possibly reconfigure our hardware. This
qualification or reconfiguration process could result in product shipment
delays. Our supply management team works closely with strategically important
suppliers who offer proprietary or sole-sourced products. In addition, our
operations team is focused on developing production test equipment, designing
for manufacturability, transferring products effectively from development to
production and monitoring supplier performance and quality.
BACKLOG
As of December 31, 1999, the backlog for our products was approximately
$794,000, all of which is scheduled for shipment to customers during the quarter
ended March 31, 2000. We had no significant backlog at March 31, 1999. All
orders are subject to cancellation or delay by customers with limited or no
penalty. Therefore, our backlog is not necessarily indicative of actual sales
for any succeeding period.
Typically, our OEM customers forecast expected purchases on a three to
six-month rolling basis, as compared to distributor customers that order as
required with minimal order fulfillment time. OEM forecasts are not binding and
are subject to change.
EMPLOYEES
As of December 31, 1999, we had 61 employees, all but two of whom are full
time and all but seven of whom were located at our principal offices in
Longmont, Colorado. Of the total number of employees, 31 employees were engaged
in research and development, 14 were in sales and marketing, six were in
manufacturing and ten were in finance, administration and information services.
None of our employees are represented by a labor union. We have not experienced
any work stoppages and consider our relations with our employees to be good.
Our future performance depends in significant part upon the continued
service of our key technical, sales and senior management personnel. We only
have employment agreements requiring service for any defined period of time with
three of our executive officers. The loss of services of one or more of our key
employees could significantly harm our business, financial condition and results
of operations. Our future success also depends on our continuing ability to
attract, train and retain highly qualified technical, sales and managerial
personnel. Competition for such personnel is intense, and we may not be able to
retain our key personnel in the future.
LITIGATION
We may from time to time become involved in various lawsuits and legal
proceedings that arise from actions taken in the ordinary course of our
business. As of the date of this prospectus, we are not a party to any legal
proceedings.
FACILITIES
Our principal executive offices consist of approximately 20,000 square feet
located in Longmont, Colorado. We have a license, granted by Adaptec to occupy
our corporate headquarters facility on a month-to-month basis pursuant to a
license agreement that may be terminated by either Adaptec or us upon 30 days'
written notice. The monthly license fee is $25,439. We also have a license
granted by Adaptec to occupy approximately 1,325 square feet in Foothill Ranch,
California, pursuant to a license agreement that expires in May 2004. The
license is on a month-to-month basis, with a monthly license fee of $3,000.
In response to our need for additional space to accommodate our growth
plans, we have signed an agreement to lease 40,000 square feet in Longmont,
Colorado from BTC Development, LLC, with
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an option to lease up to an additional 20,000 square feet. This lease will
commence on March 15, 2000 and expire on March 31, 2005, with options to renew.
We have issued 42,000 shares of our common stock to BTC Development, LLC in lieu
of payment for approximately five months rent, or $126,000. We plan to relocate
our principal executive offices to this facility in the second calendar quarter
of 2000. We believe this facility will be adequate to meet our needs for the
foreseeable future.
We have the exclusive use of two furnished private offices located in
Irvine, California pursuant to an office services agreement dated October 22,
1999 with VANTAS, Inc. The monthly charge for the use of these two offices is
$3,600. After the initial term expires on May 1, 2000, the office services
agreement will renew automatically every six months with a 5% increase in the
monthly charge upon each renewal.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning our directors
and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Gary L. Allison............................ 59 Chairman of the Board and Chief Executive
Officer
Michael J. Gluck........................... 53 President and Chief Operating Officer,
Director
Jerry L. Walker............................ 57 Executive Vice President for Engineering
and Operations, Director
Douglas J. Lehrmann........................ 54 Vice President, Finance and Chief Financial
Officer
F. Grant Saviers(1)........................ 55 Director
</TABLE>
- ---------------
(1) Member of the compensation committee
Set forth below is certain additional information with respect to the
directors and executive officers.
Gary L. Allison is a co-founder of Chaparral and serves as our Chairman of
the board of directors and Chief Executive Officer. He has served in both of
these capacities for Chaparral since its inception in 1998. Mr. Allison was also
the founder and served as Chairman of the board of directors and Chief Executive
Officer of Breece Hill Technologies, Inc. from 1993 to 1997. From 1965 to 1989,
Mr. Allison was employed in various capacities by IBM Corporation, Xytex
Corporation, Wheelabrator Technologies, Jabobs Engineering, Seagate Technology
and other companies. Mr. Allison received his B.S. in mechanical engineering
from the University of California, Los Angeles, and an M.S. in mechanical
engineering from the University of Southern California. Mr. Allison has over 30
years of experience in the computer industry.
Michael J. Gluck is a co-founder of Chaparral and serves as a Director and
our President and Chief Operating Officer. He has served in both of these
capacities for Chaparral since its inception in 1998. Mr. Gluck was also the
Chairman of the Board, Chief Executive Officer and President of Vangard
Technology, Inc. from 1996 to 1997. Mr. Gluck served as an Executive Vice
President and Director of Fujitsu America, Inc. from 1984 to 1995. From 1968 to
1983, he was with Control Data Corporation. Mr. Gluck received his B.S. in
metallurgical engineering from the University of Wisconsin and his M.B.A. from
the University of Chicago. Mr. Gluck has over 30 years of experience in the
computer industry.
Jerry L. Walker is a co-founder of Chaparral and serves as a Director and
our Executive Vice President for Engineering and Operations. He has served in
this capacity since its inception in 1998. Mr. Walker was also Vice President,
Engineering for Colorado Micro Display from 1996 to 1997. Mr. Walker served as
Vice President, Engineering for Exabyte Corporation from 1990 to 1996. From 1985
to 1990, Mr. Walker served as Vice President, Engineering for Cipher Data
Products, Inc. Mr. Walker was employed in various capacities by Storage
Technology Corporation from 1978 to 1984 and IBM from 1971 to 1978. Mr. Walker
received his B.S. and M.S. in electrical engineering from the University of
Houston. Mr. Walker has 29 years of experience in the computer industry.
Douglas J. Lehrmann is our Vice President, Finance and Chief Financial
Officer. Mr. Lehrmann has served in this capacity since September 1998. Prior to
joining Chaparral, Mr. Lehrmann served as Vice President, Finance and
Administration for Sitera Inc. from 1997 to 1998. Mr. Lehrmann served as
President of Rainbow Display Devices from 1995 to 1997. Mr. Lehrmann served as
Vice President, Finance and Administration for Microelectronics and Computer
Technology Corporation (MCC) from 1993 to 1995. From 1972 to 1993, Mr. Lehrmann
served in similar capacities for other companies, including Microchip, Advantage
Production Technology, Benzing Technologies and Computer Devices International.
Mr. Lehrmann received a B.A. in history from St. Mary's College of California
and an
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<PAGE> 49
M.B.A. -- Finance from the University of California, Berkeley, and he is a
certified public accountant. Mr. Lehrmann has 25 years of experience in the
computer industry.
F. Grant Saviers is a Director. He has served as a Director for Chaparral
since September 1998. From 1992 until he retired in August 1998, Mr. Saviers
served as a member of the board of directors of Adaptec and in various executive
officer positions at Adaptec, including Chairman of the Board and Chief
Executive Officer from August 1997 through August 1998, Chief Executive Officer
from July 1995 through August 1997 and President and Chief Operating Officer
from August 1992 through July 1995. Prior to joining Adaptec, Mr. Saviers was
employed in various positions by Digital Equipment Corporation from 1968 to
1992. Mr. Saviers presently serves on the board of directors of Analog Devices,
Inc. and NetSilicon. Mr. Saviers received a B.S. in engineering from Case
Institute of Technology and an M.S. in engineering from Case Western Reserve
University. Mr. Saviers has over 32 years of experience in the computer
industry.
OTHER KEY EMPLOYEES
The following individuals are among the key employees of Chaparral who are
not executive officers, but hold important positions and have an important role
in Chaparral's success.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Brian J. Allison........................... 34 Vice President for Sales
Michael V. Hardy........................... 41 Vice President for Business Development
Robert N. Morris........................... 41 Vice President for Marketing
M. Katherine Sills......................... 53 Vice President for Administration
</TABLE>
Brian J. Allison is our Vice President for Sales. Brian Allison has served
in this capacity since April 1998. Prior to joining Chaparral, he served as Vice
President, Sales of Breece Hill from 1997 to 1998, and as Sales Manager and
Director of North American Sales for Breece Hill from 1995 to 1997. Brian
Allison served as an Electronic Commerce Analyst and Systems Engineer for
Electronic Data Systems from 1989 to 1993. Brian Allison received his B.A. in
economics from the University of San Diego and his M.B.A. from the Cox School of
Business, Southern Methodist University. Brian Allison has nine years of
experience in the computer industry. Gary Allison and Brian Allison are father
and son.
Michael V. Hardy is our Vice President for Business Development. He has
served in this capacity since October 1999. Prior to joining Chaparral, Mr.
Hardy served as Senior Product Marketing Manager for TeraStor Corporation from
1997 to 1999. Mr. Hardy served as Market Development Manager for Silicon
Graphics Corporation from 1996 to 1997. From 1995 to 1996, Mr. Hardy served as a
product manager for Vangard Technology. Prior to 1995, Mr. Hardy was employed as
Product Manager for ATL. Mr. Hardy received his B.A. in computer science from
the University of California, San Diego. Mr. Hardy has 13 years of experience in
the computer industry.
Robert N. Morris is our Vice President for Marketing. He has served in this
capacity for Chaparral since October 1999. Prior to joining Chaparral, Mr.
Morris served as President and Chief Operating Officer of Gambit, Inc. from 1998
to 1999. Mr. Morris served as Vice President of Marketing for Vangard Technology
from 1996 to 1998. Mr. Morris has also served as Vice President of Marketing for
ATG Cygnet, Inc., from 1995 to 1996, and Conner Peripherals, from 1994 to 1995.
Mr. Morris served as a General Manager for Fujitsu Computer Products, Inc. from
1985 to 1994. Mr. Morris has attended Cal Poly Pomona, New Hampshire College,
Pasadena City College and Phoenix University. Mr. Morris has over 20 years of
experience in the computer industry.
M. Katherine Sills is our Vice President for Administration. She has served
in this capacity since its inception in 1998. Prior to joining Chaparral, Ms.
Sills served as Corporate Administration Manager for Breece Hill from 1991 to
1997. Ms. Sills also served as Office Manager for Ferrotec, Inc. from 1986 to
1991. From 1971 to 1986, Ms. Sills was employed in various capacities by Xytex
Corporation, Storage
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Tech and N.S. Machining and Engineering. Ms. Sills received her B.S. from the
University of Colorado. Ms. Sills has over 25 years of experience in the
computer industry.
STRATEGIC TECHNICAL ADVISORY COUNCIL
The Strategic Technical Advisory Council, or STAC, was formed to provide
independent insight into the strategic product opportunities available to us.
The STAC assists our management in determining appropriate corporate strategies
and current and future product and application initiatives. The STAC meets
quarterly. In 1999, each member of our STAC received options to purchase 10,000
shares of our common stock, except that Mr. Trimmer received options for an
aggregate of 9,167 shares because he served less than a full year. For 2000,
each member of our STAC will receive an option to purchase 4,000 shares of our
common stock at an exercise price of $8.50 per share, which option vests in
equal quarterly installments commencing April 1, 2000. The STAC currently
consists of three members: Michael Peterson, F. Grant Saviers (see above) and
Don Trimmer.
Michael Peterson has served on our STAC since January 1999. He has served
as President and Senior Analyst for Strategic Research Corporation since 1988.
Mr. Peterson was employed by Applied Magnetics from 1980 to 1988, by Sloan
Technology from 1978 to 1980 and by Information Magnetics from 1972 to 1978. Mr.
Peterson received his B.S. in mechanical engineering from the University of
California at Santa Barbara. Mr. Peterson is the founder of the Storage
Networking Industry Association. Mr. Peterson has over 28 years of experience in
the computer industry.
Don Trimmer has served on our STAC since February 1999. He has served as
Senior Technical Strategist for Legato Systems since 1999. From 1987 to 1999 he
served in various executive capacities for Intelliguard Software and Delta
Microsystems including President and Co-Chairman. Prior to his experience with
Delta Microsystems, Mr. Trimmer was employed by Lawrence Livermore National
Laboratory from 1974 to 1987 in the areas of systems management, software
development for data acquisition and systems programming. Mr. Trimmer received
his B.S. in nuclear chemistry from San Jose State University. Mr. Trimmer has
over 16 years of experience in the computer industry.
CLASSIFIED BOARD OF DIRECTORS
Following this initial public offering, our board of directors will be
divided into three classes of directors, as nearly equal in size as is
practicable, to serve staggered three-year terms:
- Class I, whose term will expire at the annual meeting of stockholders to
be held in fiscal 2001;
- Class II, whose term will expire at the annual meeting of stockholders to
be held in fiscal 2002; and
- Class III, whose term will expire at the annual meeting of stockholders
to be held in fiscal 2003.
Each director's term will end on the election and qualification of his or
her successor, or his or her earlier death, resignation or removal.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has established an audit committee and a
compensation committee.
The Audit Committee makes recommendations to our board of directors
regarding the selection of our independent auditors, reviews the results and
scope of our annual audits, reviews the fees to be paid to the auditors and
their performance, evaluates the compliance with our accounting and financial
policies and monitors management's procedures and policies relating to the
adequacy of our internal accounting controls. The members of the audit committee
are , and .
The Compensation Committee reviews and makes recommendations to our board
of directors regarding our compensation policies and all forms of compensation
to be provided to our directors, executive officers and certain other employees.
In addition, the compensation committee reviews bonus and stock compensation
arrangements for all of our other employees. The compensation committee also
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<PAGE> 51
administers our stock option and employee stock purchase plan. The members of
the compensation committee are Mr. Saviers and .
DIRECTORS COMPENSATION
Directors currently do not receive any fees from us for their services as
directors, although by resolution of the board, they may receive a fixed sum and
reimbursement for expenses in connection with their attendance at board and
committee meetings. In the past, we have granted our outside director, Mr.
Saviers, options in lieu of cash compensation for his services as a director.
During the year ended March 31, 1999, we granted Mr. Saviers 50,000 shares of
common stock and an option to purchase 125,000 shares of our common stock at an
exercise price of $0.12 per share. During the nine months ended December 31,
1999, we granted Mr. Saviers an option to purchase 50,000 shares of our common
stock at a price of $3.19 per share, which option vests 25% after 12 months and
1/48th per month thereafter.
Effective following this offering, each outside director will receive an
initial option to purchase 30,000 shares of our common stock upon being elected
to our board of directors under the 2000 stock incentive plan. In addition, each
outside director will receive an option to purchase 10,000 shares of our common
stock on the date of each annual meeting of stockholders, provided that he or
she has served as a director for at least six months. Each option will be
immediately exercisable for all of the option shares; however, we may
repurchase, at the exercise price paid per share, any shares purchased under the
option that are not vested at the time of the optionee's cessation of board
service. The shares subject to each initial 30,000-share automatic option grant
will vest in a series of three successive annual installments upon the
optionee's completion of each year of board service over the three-year period
measured from the grant date. The shares subject to each annual 10,000-share
automatic grant will vest upon the optionee's completion of one year of service
measured from the grant date. The shares will immediately vest in full upon
certain changes in control or ownership or upon the optionee's death or
disability while serving as a board member.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee is comprised of Mr. Saviers and . No
member of our compensation committee currently serves, or has ever served, as an
officer or employee of Chaparral, and no executive officer or director of
Chaparral has ever served as a member of the compensation committee or board of
directors of an entity that had an executive officer who was also a member of
our compensation committee.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated certificate of incorporation limits the personal
liability of directors for breach of fiduciary duty to the maximum extent
permitted by Delaware law. Delaware law provides that directors of a corporation
will not be personally liable to us or our stockholders for monetary damages for
breach of their fiduciary duties as directors, except for:
- any breach of the director's duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases, redemptions
or other distributions; or
- any transaction from which the director derived an improper personal
benefit.
Our bylaws require that we indemnify our directors and officers to the
extent permitted by Delaware law. We may, in our discretion, indemnify other
employees and agents to the extent permitted by Delaware law. We believe that
indemnification under our amended and restated certificate of incorporation and
bylaws cover at least negligence and gross negligence on the part of indemnified
parties. Our amended and restated certificate of incorporation also permits us
to secure insurance on behalf of any of our officers,
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<PAGE> 52
directors, employees or other agents for any liability incurred in that capacity
or arising out of that status, regardless of whether indemnification is
permitted under Delaware law.
We have also entered into agreements to indemnify our directors and
officers. These agreements indemnify our directors and officers for some
expenses, including attorneys' fees, judgments, fines and settlement amounts
incurred by them in any action or proceeding, including any action by or in the
right of our company, arising out of their services as one of our directors or
officers, any of our subsidiaries or any other company or enterprise to which
the person provides services at our request. In addition, we have obtained
directors' and officers' insurance providing indemnification for some of our
directors, officers and employees for certain liabilities. We believe that these
provisions, agreements and insurance are necessary to attract and retain
qualified directors and officers.
The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against our directors and officers, even
though a derivative action, if successful, might otherwise benefit us and our
stockholders. Moreover, a stockholder's investment in us may be adversely
affected to the extent we pay the costs of settlement or damage awards against
our directors and officers under these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
EXECUTIVE COMPENSATION
The following table provides the total compensation paid to our chief
executive officer and our other executive officers whose compensation (salary
and bonus) exceeded $100,000 in fiscal 1999. In addition to salary, Messrs.
Allison, Gluck and Walker did not receive personal benefits in excess of the
lesser of $50,000 or 10% of their respective annual salaries. Messrs. Gluck and
Walker did not receive salaries until May 1998. For fiscal year 2000, the board
of directors has established the salaries for Messrs. Allison, Gluck and Walker
at $180,000. The amounts listed under "All Other Compensation" represent
employer contributions to our 401(k) plan.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------ ------------
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) OPTIONS(1) COMPENSATION ($)
- --------------------------- ------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Gary L. Allison............................. 1999 158,248 -- 2,500
Chief Executive Officer 1998 42,500(2) 1,000,000 --
Michael J. Gluck............................ 1999 140,148 1,000,000 2,500
President and Chief Operating Officer
Jerry L. Walker............................. 1999 140,327 1,000,000 2,500
Executive Vice President for Engineering
and Operations
</TABLE>
- ---------------
(1) Refer to "Option Grants in Last Fiscal Year" table for more information.
(2) Amount includes $22,500 paid to Chaparral Systems, Inc., a corporation of
which Gary Allison is the sole stockholder, for consulting fees. These fees
were paid by the issuance to Chaparral Systems of 225,000 shares of Series A
preferred stock, which were subsequently assigned to Mr. Allison.
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EMPLOYMENT AGREEMENTS
We entered into a two-year employment agreement with Gary Allison, which
expired on February 28, 2000. Under the employment agreement, Mr. Allison agreed
to serve as our Chairman and Chief Executive Officer. Mr. Allison received as
compensation an option to purchase 1,000,000 shares at an exercise price of
$0.10 per share. Although the employment agreement provided for an annual salary
of $120,000 and quarterly bonus payments of $4,500, Mr. Allison was paid a
reduced salary for a portion of the year and a higher salary for the last half
of the year.
We entered into two-year executive employment and noncompetition agreements
effective April 1, 2000 with Messrs. Allison, Gluck and Walker. Under these
agreements, Mr. Allison agrees to serve as Chairman of the Board and Chief
Executive Officer, Mr. Gluck agrees to serve as President and Chief Operating
Officer and Mr. Walker agrees to serve as Executive Vice President for
Engineering and Operations. The executive employment agreements are
automatically renewed for successive one-year periods unless terminated by
either party. The executive employment agreements provide for a minimum base
salary of $180,000 per year and a discretionary quarterly cash bonus of up to
25% of base salary for the period and/or additional stock options. Under the
executive employment agreements, the executive is entitled to participate in
company benefit plans.
Our executive employment agreements provide for payments in the event of
termination of the executive's employment due to incapacity, death, cause and
other than for cause. In the event of termination due to incapacity or death,
the executive or his heirs will receive amounts equal to the executive's base
salary and bonus (at the rates in effect at the time of the termination) for one
year, which are reduced, in the case of incapacity, by amounts paid to him under
our long-term disability plans. Termination other than for cause also includes
termination by the executive for "good reason" in the event we:
- assign them to duties that are inconsistent with or substantially
diminished from their current responsibilities;
- materially reduce their compensation and benefits;
- relocate our offices to a location outside a 50-mile radius of Longmont,
Colorado; or
- breach the employment agreements in any material respect.
In the event of termination other than for cause, Messrs. Allison, Gluck and
Walker would be entitled to receive base salary and bonus and to continue to
participate in our employee benefit plans for one year. In addition, all stock
options held by them would immediately vest and remain exercisable for one year,
and restrictions imposed by us on any restricted stock would immediately lapse.
Our executive employment agreements also provide benefits to Messrs.
Allison, Gluck and Walker in the event their employment is terminated within 180
days after a change in control of Chaparral, or if they choose to terminate
their own employment for good reason within that period. A change in control of
Chaparral is defined in the agreement to occur if:
- any person or group were to become the beneficial owner of more than 50%
of the then outstanding stock of Chaparral;
- at any time during three consecutive years individuals who at the
beginning of that period constitute the board of directors and others
they elect ceased for any reason to constitute a majority of the board of
directors; or
- our stockholders approved a merger or consolidation of Chaparral with any
other company in which our stockholders would have less than 80% of the
combined voting power in the surviving entity or an agreement for the
sale of substantially all of our assets.
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For 180 days following a change in control, our executives may terminate their
employment with us for good reason if we or our successor company take any of
the actions described in the preceding paragraph as termination other than for
cause, or if the surviving company fails to assume their executive employment
agreements. In the event Messrs. Allison, Gluck or Walker is terminated after a
change of control or terminates his employment for good reason, he will be
entitled to receive a lump sum payment from us equal to two years base salary
and bonus and to continue to participate in our benefit plans for two years.
Each stock option not vested at the time of a change in control will be
accelerated by 12 months. An executive's options will be 100% vested if he is
terminated following a change in control or if the successor company does not
adopt our stock option plan in its entirety or convert to a plan of equivalent
value.
Under our executive employment agreements, Messrs. Allison, Gluck and
Walker have agreed that during their employment and for a period of two years
following termination of their employment, they will not disclose our
confidential information and materials. Each of them also has agreed that he
will not solicit our customers or suppliers, attempt to hire away any of our
employees or knowingly engage in any activity that would harm our company or our
business relationships for a period of one year following termination of his
employment.
We require each of our employees to enter into confidentiality agreements
prohibiting the employee from disclosing any of our confidential or proprietary
information. In addition, the agreements generally provide that upon
termination, the employee will not solicit our employees for a period of 12
months. At the time of commencement of employment, our employees also generally
sign offer letters specifying certain basic terms and conditions of employment.
Other than as described above, our employees are not subject to written
employment agreements.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information concerning individual grants of
stock options made during fiscal 1999 to our chief executive officer and our two
other most highly compensated executive officers. We have never granted any
stock appreciation rights.
The exercise prices represent our board's estimate of the fair market value
of the common stock on the grant date. In establishing these prices, our board
considered many factors, including our financial condition and operating
results, recent transactions and the market for comparable stocks.
The amounts shown as potential realizable value represent hypothetical
gains that could be achieved for the respective options if exercised at the end
of the option term. These amounts represent certain assumed rates of
appreciation in the value of our common stock. The 5% and 10% assumed annual
rates of compounded stock price appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent our estimate or
projection of the future price of our common stock. The potential realizable
value is calculated based on the ten-year term of the option at its time of
grant. It is calculated based on the fair market value of our common stock on
the date of grant and assumes that the value appreciates at the indicated annual
rate compounded annually for the entire term of the option and that the option
is exercised and sold on the last day of its term for the appreciated stock
price. Actual gains, if any, on stock option exercises depend on the future
performance of our common stock. The options shown in the table have been
exercised, and the potential realizable values reflected in the table were not
achieved.
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<PAGE> 55
We granted these options under our 1998 stock option plan. These options
were exercised in November 1998. We have the right to repurchase, at the
exercise price as adjusted, any shares as to which the repurchase right has not
lapsed at the time the optionee terminates employment with us. At the date of
exercise, we had the right to repurchase two-thirds of the shares acquired on
exercise, and the repurchase right lapses with respect to 1/24th of the
remaining shares each month thereafter. Our repurchase right terminates upon
completion of our initial public offering. The percentage of total options
granted to our employees in the last fiscal year is based on options to purchase
an aggregate of 5,851,000 shares of common stock granted during fiscal 1999. The
following table sets forth information concerning the individual grants of stock
options to our Chief Executive Officer and our two other most highly compensated
executive officers in fiscal 1999 and option values at March 31, 1999, assuming
the options remained unexercised.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------- VALUE OF ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM($)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------
NAME GRANTED(#) FISCAL 1999(%) SHARE($) DATE 5% 10%
- ---- ---------- -------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gary L. Allison............ -- -- -- -- -- --
Michael J. Gluck........... 1,000,000 17.1 0.10 11/25/08 $162,889 $259,374
Jerry L. Walker............ 1,000,000 17.1 0.10 11/25/08 $162,889 $259,374
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information about stock options exercised
during fiscal year 1999 and held as of March 31, 1999 by our Chief Executive
Officer and our two other most highly compensated executive officers. The value
realized is based on a value of $0.12 per share, the fair market value of our
common stock on the date of exercise, minus the per share exercise price,
multiplied by the number of shares underlying the option. As of March 31, 1999,
none of these executive officers held any unexercised options.
OPTION EXERCISES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED($)
- ---- ----------- -----------
<S> <C> <C>
Gary L. Allison....................................... 1,000,000 20,000
Michael J. Gluck...................................... 1,000,000 20,000
Jerry L. Walker....................................... 1,000,000 20,000
</TABLE>
1998 STOCK OPTION PLAN
On November 20, 1998, our board of directors and our stockholders approved
the 1998 stock option plan. Our board of directors amended the 1998 stock option
plan, effective June 1999 and September 1999, to increase the number of shares
of our common stock authorized for issuance under the plan. The purpose of the
1998 stock option plan is to strengthen our company by providing an incentive to
our employees, officers, consultants and directors through the granting or
awarding of incentive and nonqualified stock options, thereby encouraging them
to devote their abilities and energies to our success.
The 1998 stock option plan is administered by our board of directors. Under
the 1998 stock option plan, our board of directors has the authority to delegate
administration of the 1998 stock option plan to a committee acting under the
authority of our board of directors. Our board of directors, or a committee
delegated administration of the 1998 stock option plan, has authority to, among
other things, grant options,
54
<PAGE> 56
select persons to whom awards will be granted, determine the type, size and the
terms and conditions of awards.
Under the 1998 stock option plan, 14,000,000 shares of common stock are
authorized and reserved for the grant of awards to eligible individuals. Awards
granted under the 1998 stock option plan are exercisable over a ten-year period.
As of December 31, 1999, options to purchase 10,488,163 shares of common stock
have been granted, of which options to purchase 6,788,332 shares of common stock
have been exercised. The 1998 stock option plan will terminate on November 19,
2008. Our board of directors may at any time and from time to time amend or
terminate the 1998 stock option plan; provided, however, that no amendment will
be effective without the approval of a majority of the stockholders if the
amendment will increase the number of shares which may be granted or expand the
class of persons who can receive incentive stock options.
2000 STOCK INCENTIVE PLAN
The 2000 stock incentive plan will become effective upon completion of our
initial public offering. The 2000 stock incentive plan was approved by our board
of directors on February 21, 2000 and by our stockholders on , 2000.
Share reserve. We have authorized shares of our common stock for
issuance under the incentive plan, which amount includes shares of
common stock authorized but unissued under our 1998 stock option plan. The share
reserve under the incentive plan will automatically increase on the first
trading day in January of each calendar year, beginning with calendar year 2001,
by an amount equal to 4.5% of the total number of shares of our common stock
outstanding on the last trading day of December in the prior calendar year, but
in no event will this annual increase exceed 4,000,000 shares.
Programs. The incentive plan has five separate programs:
- the discretionary option grant program, under which eligible employees
may be granted options to purchase shares of our common stock at an
exercise price not less than the fair market value of those shares on the
grant date;
- the stock issuance program, under which eligible individuals may be
issued shares of common stock directly, upon the attainment of
performance milestones, the completion of a specified period of service
or as a bonus for past services;
- the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary each year to the
acquisition of stock option grants with an exercise price between 85% and
100% of the fair market value of a share of common stock;
- the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date; and
- the director fee option grant program, under which our non-employee board
members may be given the opportunity to apply a portion of any director
fee otherwise payable to them in cash each year to the acquisition of
option grants.
Eligibility. The individuals eligible to participate in the incentive plan
include our officers and other employees, our non-employee board members and any
consultants we hire.
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<PAGE> 57
Administration. The discretionary option grant and stock issuance programs
will be administered by our board of directors, but the board may delegate such
authority in whole or in part to a primary committee. The board or the primary
committee will determine:
- the eligible individuals who are to receive option grants or stock
issuances under those programs;
- the time or times when the grants or issuances are to be made;
- the number of shares subject to each grant or issuance;
- the status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws;
- the vesting schedule to be in effect for the option grant or stock
issuance; and
- the maximum term for which any granted option is to remain outstanding.
The board of directors or the primary committee will also have the authority to
select the executive officers and other highly compensated employees who may
participate in the salary investment option grant program in the event that
program is put into effect for one or more calendar years.
Change in control. The incentive plan includes the following change in
control provisions, which may result in the accelerated vesting of outstanding
option grants and stock issuances. A change in control of Chaparral is defined
in the incentive plan to occur if:
- any person or group were to become the beneficial owner of more than 50%
of the then outstanding voting stock of Chaparral;
- at any time during three consecutive years individuals who at the
beginning of that period constitute the board of directors and others
they elect ceased for any reason to constitute a majority of the board of
directors; or
- our stockholders approved a merger or consolidation of Chaparral with any
other company in which our stockholders would have less than 80% of the
combined voting power in the surviving entity or an agreement for the
sale of substantially all of our assets.
Discretionary option grant program. Under this program, eligible persons
(employees, non-employee members of our board of directors and consultants) may
receive options to purchase shares of common stock at the discretion of our
board of directors. The exercise price per share is fixed by the plan
administrator and may be less than, equal to or greater than fair market value.
No option granted under this program shall have an exercise term greater than
ten years. Incentive stock options may be granted to employees under the program
at an exercise price not less than the fair market value per share. Chaparral
may repurchase, at the exercise price paid per share, any shares purchased under
the option which are not vested at the time of the optionee's cessation of
employment.
Stock issuance program. In the event our board of directors decides to put
this program into effect, our employees, non-employee members of our board of
directors and consultants may receive shares of common stock or share right
awards at the discretion of our board. The purchase price per share is fixed by
the plan administrator and may be less than, equal to or greater than the fair
market value per share. The plan administrator may issue shares of common stock
that fully and immediately vest or that vest in one or more installments over
the participant's employment period or upon attainment of specific performance
objectives.
Salary investment option grant program. In the event our board of directors
decides to put this program into effect for one or more calendar years, each of
our executive officers and other highly compensated employees may elect to
reduce his or her base salary for the calendar year by an amount not less than
$5,000 nor more than $50,000. Each selected individual who makes such an
election will automatically be granted, on the first trading day in January of
the calendar year for which his or her salary reduction is to be in effect, an
option to purchase that number of shares of common stock
56
<PAGE> 58
determined pursuant to a formula contained in the plan. Each option will have an
exercise price per share that may range from 85% to 100% of the fair market
value of the option shares on the grant date. As a result, the option will be
structured so that the fair market value of the option shares on the grant date
less the exercise price payable for those shares will be equal to the amount of
the salary reduction. The option will become exercisable in a series of 12 equal
monthly installments over the calendar year for which the salary reduction is to
be in effect.
Automatic option grant program. Each individual who first becomes a
non-employee board member at any time after the effective date of this offering
will receive a non-qualified option grant to purchase 30,000 shares of common
stock on the date such individual joins the board. In addition, on the date of
each annual stockholders meeting held after the effective date of this offering,
each non-employee board member who is to continue to serve as a non-employee
board member, including each of our current non-employee board members, will
automatically be granted an option to purchase 10,000 shares of common stock;
provided such individual has served on the board for at least six months.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of ten years, subject to earlier termination upon the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's cessation of board service. The shares subject to each initial
30,000-share automatic option grant will vest in a series of three successive
annual installments upon the optionee's completion of each year of board service
over the three-year period measured from the grant date. The shares subject to
each annual 10,000-share automatic grant will vest upon the optionee's
completion of one year of service measured from the grant date. However, the
shares will immediately vest in full upon certain changes in control or
ownership or upon the optionee's death or disability while then serving as a
board member.
Director fee option grant program. If this program is put into effect in
the future, then each non-employee board member may elect to apply all or a
portion of any cash retainer fee for the year to the acquisition of a
below-market option grant. The option grant will automatically be made on the
first trading day in January of the calendar year for which the non-employee
board member would otherwise be paid the cash retainer fee in the absence of his
or her election. The option will have an exercise price per share ranging from
85% to 100% of the fair market value of the option shares on the grant date, and
the number of shares subject to the option will be determined pursuant to a
certain formula contained in the incentive plan. As a result, the option will be
structured so that the fair market value of the option shares on the grant date
less the exercise price payable for those shares will be equal to the portion of
the retainer fee applied to that option. The option will become exercisable in a
series of 12 equal monthly installments over the calendar year for which the
election is in effect. However, the option will become immediately exercisable
for all the option shares upon the death or disability of the optionee while
then serving as a board member.
2000 EMPLOYEE STOCK PURCHASE PLAN
Introduction. Our employee stock purchase plan was adopted by our board of
directors on February 21, 2000 and was approved by our stockholders on
, 2000. The purchase plan is designed to allow our eligible
employees and the eligible employees of our participating subsidiaries, if any,
to purchase shares of common stock at semi-annual intervals with their
accumulated payroll deductions. The purchase plan will become effective on
completion of our initial public offering.
Share reserve. We have initially reserved 6,000,000 shares of our common
stock for issuance under the purchase plan. The reserve will automatically
increase on the first trading day of January in each calendar year, beginning in
calendar year 2001, by an amount equal to 2% of the total number of outstanding
shares of our common stock on that date or a lesser amount determined by our
board of directors. In no event will any such annual increase exceed 1,000,000
shares.
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<PAGE> 59
Offering periods. The purchase plan has a series of successive offering
periods, each continuing until terminated by our board of directors. The initial
offering period will begin when the Securities and Exchange Commission declares
our registration statement effective and will end on the last trading day on or
before July 31, 2000. The next offering period will start on the first business
day in August 2001, and subsequent offering periods will be set by our board of
directors.
Eligible employees. Individuals scheduled to work more than 20 hours per
week for more than five calendar months per year may join an offering period
after they have been with us for six months. Individuals who become eligible
employees after the start date of an offering period may join the plan on any
subsequent semi-annual entry date within that offering period.
Payroll deductions. A participant may contribute up to 10% of his or her
base salary through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per share
on the participant's entry date into the offering period or, if lower, 85% of
the fair market value per share on the semi-annual purchase date. Semi-annual
purchase dates will occur on the last business day of May and November each
year.
Change in control. In the event of a change in control, which is defined in
the purchase plan in the same way it is defined in the incentive plan, all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of the change in control. The purchase price will be equal to
85% of the market value per share on the participant's entry date into the
offering period in which an acquisition occurs or, if lower, 85% of the fair
market value per share immediately prior to the acquisition.
Termination and amendment of purchase plan. The purchase plan will
terminate no later than February 21, 2010. The board may at any time amend,
suspend or discontinue the purchase plan. Some amendments, however, may require
stockholder approval.
401(K) PLAN
Our profit sharing plan allows employees to defer up to 15% of their
compensation, up to a maximum of $10,500 in the year 2000. We will match these
funds with a percentage to be determined by our board of directors on a
quarterly basis. We may contribute an additional amount at the end of the fiscal
year at the discretion of our board of directors. Mr. Lehrmann serves as trustee
of the profit sharing plan. Our 401(k) profit sharing plan was adopted in
November 1998.
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<PAGE> 60
RELATED PARTY TRANSACTIONS
Since our inception in January 1998, there has not been nor is there
currently proposed any transaction or series of similar transactions to which we
were or are to be a party in which the amount involved exceeds $60,000 and in
which any director, executive officer, holder of more than 5% of our common
stock, or any member of the immediate family of any of them, had or will have a
direct or indirect material interest other than (1) compensation agreements and
other arrangements, which are described above under the caption "Management,"
and (2) the transactions described below.
TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS
Common Stock. On June 16, 1998, we issued the following shares of common
stock at a price of $0.002 per share to our founders, all of which were
purchased with cash.
<TABLE>
<CAPTION>
SHARES OF
PURCHASER COMMON STOCK
- --------- ------------
<S> <C>
Gary Allison.................................... 500,000
Michael Gluck................................... 500,000
Jerry Walker.................................... 500,000
Brian Allison................................... 100,000
</TABLE>
On November 25, 1998, each of the founders named above agreed to rescind
their shares in exchange for a promissory note from Chaparral in an amount equal
to the purchase price of the founder shares. The promissory note was then
contributed by each founder to Chaparral in exchange for the issuance of the
same number of shares to the founders pursuant to a Contribution Agreement,
dated November 25, 1998.
Woodcarvers Limited, LLC, a greater than 5% stockholder, purchased shares
of our common stock as follows:
<TABLE>
<CAPTION>
SHARES OF PRICE PER
PURCHASER COMMON STOCK DATE SHARE($)
- --------- ------------ ---------- ---------
<S> <C> <C> <C>
Woodcarvers....................................... 300,000 08/09/1999 1.00
Woodcarvers....................................... 153,846 08/12/1999 1.30
Woodcarvers....................................... 266,667 11/05/1999 3.00
Woodcarvers....................................... 64,286 11/22/1999 3.50
</TABLE>
We issued 27,857 shares of common stock valued at $3.50 per share to
Sentinel Consulting, LLC, a greater than 5% stockholder, in November 1999 in
payment for $97,500 in commissions for its assistance in raising approximately
$1.5 million from another investor.
Pursuant to the exercise of pre-emptive rights associated with shares of
preferred stock, the following shares of common stock were purchased:
<TABLE>
<CAPTION>
SHARES OF PRICE PER
PURCHASER COMMON STOCK DATE SHARE($)
- --------- ------------ ---------- ---------
<S> <C> <C> <C>
Gary Allison...................................... 20,252 12/16/1999 1.00
Gary Allison...................................... 10,385 12/16/1999 1.30
Gary Allison...................................... 840 01/10/2000 1.00
Gary Allison...................................... 448 01/10/2000 1.30
Grant Saviers..................................... 51,550 12/17/1999 1.00
Grant Saviers..................................... 26,436 12/17/1999 1.30
Grant Saviers..................................... 2,139 02/04/2000 1.00
Grant Saviers..................................... 1,140 02/04/2000 1.30
Adaptec .......................................... 101,998 12/21/1999 1.00
Adaptec .......................................... 52,307 12/21/1999 1.30
Adaptec .......................................... 4,233 01/05/2000 1.00
Adaptec .......................................... 2,256 01/05/2000 1.30
</TABLE>
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<PAGE> 61
<TABLE>
<CAPTION>
SHARES OF PRICE PER
PURCHASER COMMON STOCK DATE SHARE($)
- --------- ------------ ---------- ---------
<S> <C> <C> <C>
William Childs.................................... 110,463 12/11/1999 1.00
William Childs.................................... 56,648 12/11/1999 1.30
William Childs.................................... 4,587 01/08/2000 1.00
William Childs.................................... 2,444 01/08/2000 1.30
Harvest Storage Technology........................ 17,740 12/06/1999 3.00
Harvest Storage Technology........................ 33,629 12/06/1999 3.50
Harvest Storage Technology........................ 13,975 12/06/1999 3.74
Harvest Storage Technology........................ 34,875 12/06/1999 4.00
Harvest Storage Technology........................ 34,648 12/12/1999 3.00
Harvest Storage Technology........................ 86,769 12/12/1999 3.50
Harvest Storage Technology........................ 12,274 12/17/1999 1.00
Harvest Storage Technology........................ 6,294 12/17/1999 1.30
Harvest Storage Technology........................ 510 02/11/2000 1.00
Harvest Storage Technology........................ 272 02/11/2000 1.30
Woodcarvers....................................... 194,494 12/06/1999 3.00
Woodcarvers....................................... 368,705 12/06/1999 3.50
Woodcarvers....................................... 153,217 12/06/1999 3.74
Woodcarvers....................................... 382,361 12/06/1999 4.00
Woodcarvers....................................... 379,871 12/12/1999 3.00
Woodcarvers....................................... 951,313 12/12/1999 3.50
Woodcarvers....................................... 134,176 12/17/1999 1.00
Woodcarvers....................................... 68,808 12/17/1999 1.30
Woodcarvers....................................... 5,570 02/11/2000 1.00
Woodcarvers....................................... 2,968 02/11/2000 1.30
</TABLE>
Series A Preferred Stock. We issued shares of our Series A preferred stock
at various times from November 1998 through June 1999. The purchasers of the
Series A preferred stock included, among others, the following officer, director
and greater than 5% stockholders:
<TABLE>
<CAPTION>
SHARES OF
SERIES A PRICE PER
PURCHASER PREFERRED STOCK DATE SHARE($)
- --------- --------------- -------- ---------
<S> <C> <C> <C>
Gary Allison....................................... 1,100,000 11/24/98 0.10
Grant Saviers...................................... 2,500,000 11/27/98 0.10
Grant Saviers...................................... 300,000 2/10/99 0.25
Haim Brill......................................... 2,000,000 11/25/98 0.10
William Childs..................................... 6,000,000 11/25/98 0.10
Harvest Storage Technology......................... 666,667 12/15/98 0.18
Woodcarvers........................................ 800,000 01/13/99 0.25
Woodcarvers........................................ 400,000 02/02/99 0.25
Woodcarvers........................................ 300,000 02/27/99 0.25
Woodcarvers........................................ 555,556 03/31/99 0.36
Woodcarvers........................................ 526,316 04/15/99 0.38
Woodcarvers........................................ 375,000 05/18/99 0.40
Woodcarvers........................................ 62,500 05/24/99 0.40
Woodcarvers........................................ 62,500 05/28/99 0.40
Woodcarvers........................................ 325,000 06/11/99 0.40
Woodcarvers........................................ 200,000 06/15/99 0.40
Woodcarvers........................................ 17,500 06/16/99 0.40
</TABLE>
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<PAGE> 62
By letter agreement dated November 1998, Mr. Saviers, a director, agreed to
purchase up to 2,500,000 shares of Series A preferred stock at a price of $0.10
per share. Mr. Saviers conditioned his purchase on the following:
- the sale by Adaptec of certain assets;
- the rights, preferences, privileges and restrictions of the Series A
preferred stock being as stated in the amended and restated certificate
of incorporation;
- the issuance of the Series A preferred stock being on terms and
conditions not inferior to the terms and conditions of the Series B
preferred stock issued to Adaptec; and
- his continued service as a member of the board of directors.
Mr. Saviers purchased 2,500,000 shares on Series A preferred stock on November
27, 1998.
Mr. Childs, a greater than 5% stockholder, purchased 400,000 shares at
$0.50 per share, on July 10, 1998. Those shares were subsequently repriced on
October 19, 1998, at $0.10 per share for a total purchase of 2,000,000 shares.
In addition, we issued 2,500,000 shares of Series A preferred stock to Mr.
Childs pursuant to a $250,000 convertible debenture dated August 5, 1998. The
convertible debenture was due February 5, 1999, accrued interest at 8% per year
and was unsecured. We also issued 1,500,000 shares to Mr. Childs at $0.10 per
share.
Series B Preferred Stock. On November 25, 1998, we issued 5,540,200 shares
of our Series B preferred stock to Adaptec in connection with our purchase of
certain assets from Adaptec. See "-- Agreements with Adaptec."
Series C Preferred Stock. Effective October 15, 1999, we issued Woodcarvers
1,763,637 shares of our Series C preferred stock at $0.44 per share and
1,900,000 shares at $0.50 per share.
Warrants. Pursuant to a financial consulting agreement, we issued warrants
to purchase shares of our common stock to Sentinel Consulting Corporation, a
greater than 5% stockholder, as payment of financing fees in connection with the
private placement of shares of our common stock and preferred stock. We also
issued warrants to Harvest Storage Technology Group, LLC, an affiliate of
Sentinel, as payment for financing fees. The warrants granted to Sentinel and
Harvest were granted and exercised as follows:
<TABLE>
<CAPTION>
SHARES PRICE
DATE OF ISSUED ON DATE OF PER
WARRANT HOLDER ISSUE EXERCISE EXERCISE SHARE($)
-------------- -------- --------- -------- --------
<S> <C> <C> <C> <C>
Sentinel Consulting......................... 02/08/99 75,000 01/13/00 0.50
Sentinel Consulting......................... 03/31/99 27,778 01/13/00 0.72
Sentinel Consulting......................... 04/28/99 26,316 01/13/00 0.76
Sentinel Consulting......................... 05/28/99 52,125 01/13/00 0.80
Sentinel Consulting......................... 07/07/99 88,182 01/13/00 0.88
Sentinel Consulting......................... 07/20/99 95,000 01/13/00 1.00
Sentinel Consulting......................... 08/09/99 30,000 01/13/00 1.00
Sentinel Consulting......................... 08/12/99 15,384 01/13/00 1.30
Sentinel Consulting......................... 11/04/99 26,667 01/13/00 3.00
Harvest Storage Technology.................. 12/15/98 55,555 12/15/99 0.002
</TABLE>
We also issued warrants to purchase an aggregate of 117,500 shares of our
common stock to Mr. Childs as payment of financing fees for loans Mr. Childs
made to us. These loans are discussed below under the caption "-- Loans." Mr.
Childs exercised his warrants in full on January 25, 2000.
On August 19, 1999, we granted each of Messrs. Allison and Gluck a warrant
to purchase up to 10,000 shares of common stock at an exercise price of $0.25
per share. These warrants were granted in lieu of cash payment for fees due on
loans from Messrs. Allison and Gluck to us. These warrants expire to
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<PAGE> 63
the extent they are not exercised on the earlier of August 18, 2004 or
commencement of our initial public offering.
Pursuant to the warrant agreements by which we granted most of the warrants
discussed above, we also granted certain registration rights with respect to
524,507 shares of common stock issued upon exercise of the warrants. See
"Description of Capital Stock -- Summary of Registration Rights" for details of
these registration rights.
When we signed a three-year Integrated Circuit Agreement with Adaptec on
March 1, 2000, we issued a warrant to Adaptec to purchase 300,000 shares of our
common stock at an exercise price of $20 per share. This warrant is not
exercisable for a period of nine months and terminates to the extent unexercised
after 15 months.
Loans.
During January and February 1998, Chaparral Systems, Inc., an entity whose
sole stockholder is Mr. Allison, loaned us the following amounts:
<TABLE>
<CAPTION>
INTEREST
DATE AMOUNT($) RATE(%)
- ---- --------- --------
<S> <C> <C>
01/20/98.............................................. 6,000 10.5
02/10/98.............................................. 7,000 10.5
02/17/98.............................................. 6,000 10.5
02/24/98.............................................. 10,000 10.5
</TABLE>
These loans were evidenced by promissory notes that were payable on demand. The
$29,000 in principal and $350 of interest due on these notes was paid in cash on
March 24, 1998.
In April and June 1998, Chaparral Systems loaned us additional amounts, as
follows:
<TABLE>
<CAPTION>
INTEREST SHARES OF SERIES A
DATE AMOUNT($) RATE(%) ISSUED AS PAYMENT
- ---- --------- -------- -------------------
<S> <C> <C> <C>
04/03/98............................... 30,000 10.5 300,000
04/15/98............................... 20,000 10.5 200,000
04/20/98............................... 15,000 10.5 150,000
06/23/98............................... 22,500 10.5 225,000
</TABLE>
These loans were evidenced by promissory notes that were payable on demand. The
principal amounts on these notes were repaid as of November 24, 1998 by our
issuing to Mr. Allison 875,000 shares of Series A preferred stock.
On February 3, 1999, Messrs. Allison and Gluck each loaned us $25,000. Each
note is unsecured and accrues interest at the rate of 8% per year. The note also
stated a fee of 10% payable in cash or in the form of a warrant to purchase
10,000 shares of common stock at $0.25 per share. These notes were repaid by us
on August 19, 1999, and each of Messrs. Allison and Gluck took his fee in the
form of warrants.
On February 3, 1999, Mr. Saviers loaned us $75,000, evidenced by a
promissory note. The note is unsecured and accrued interest at the rate of 8%
per year, compounded. The note also stated a fee of 10% ($7,500) payable in cash
or in the form of a warrant to purchase shares of common stock at a price per
share equal to 50% of the price per share paid by investors in our subsequent
private placement. This note was originally due on March 31, 1999, but was
subsequently extended to June 30, 1999. The note was repaid by our issuance to
him of 300,000 shares of Series A preferred stock at $0.25 per share, effective
as of February 3, 1999. No payment was made for interest or the 10% financing
fee.
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<PAGE> 64
During 1999, Mr. Childs loaned us the following amounts, evidenced by
promissory notes payable on demand:
<TABLE>
<CAPTION>
FEE IN WARRANTS
TO PURCHASE
COMMON STOCK
------------------
NUMBER
INTEREST DUE OF EXERCISE
DATE AMOUNT($) RATE(%) DATE SHARES PRICE($)
---- --------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
01/27/99.................... 50,000(1) 8.00 04/27/99 5,000 1.00
03/01/99.................... 400,000(1) 11.75(2) 06/01/99 40,000 1.00
03/18/99.................... 200,000(1) 11.75(2) 06/18/99 20,000 1.00
04/01/99.................... 200,000(1) 11.75(2) 07/01/99 20,000 1.00
04/14/99.................... 200,000(1) 11.75(2) 07/15/99 20,000 1.00
06/04/99.................... 250,000(3) 11.75 09/03/99 12,500 1.00
</TABLE>
- ---------------
(1) The aggregate principal amount of $1,050,000 and interest of $10,882 were
paid on December 13, 1999.
(2) Interest was paid directly to Silicon Valley Bank, from whom Mr. Childs had
borrowed the funds that he lent to us, in an amount equal to the prime rate
plus 1% and additional interest of 1% or $7,375 was paid to Mr. Childs.
(3) Principal of $250,000 and interest of $4,741 were paid on August 13, 1999.
On November 25, 1998, we made loans to each of our executive officers and
to Brian Allison, our Vice President of Sales and Mr. Allison's son, in
connection with the purchase by each of them of shares of our common stock upon
early exercise of options. Each loan is evidenced by a promissory note, which is
unsecured and accrues interest at the rate of 6% per year, compounded annually.
Each note is repayable upon the earliest of the resale of the shares of our
common stock, a change in control of Chaparral, within 90 days following the
individual's termination of employment or November 25, 2008. These loans are
summarized below:
<TABLE>
<CAPTION>
SHARES OF EXERCISE
DATE OF COMMON PRICE PER
NAME AMOUNT($) EXERCISE STOCK SHARE($)
- ---- --------- -------- --------- ---------
<S> <C> <C> <C> <C>
Gary Allison........................... 98,000 11/25/98 1,000,000 0.10
Michael Gluck.......................... 98,000 11/25/98 1,000,000 0.10
Jerry Walker........................... 98,000 11/25/98 1,000,000 0.10
Douglas Lehrmann....................... 29,500 12/04/98 250,000 0.12
Douglas Lehrmann....................... 11,800 03/25/99 100,000 0.12
Brian Allison.......................... 24,500 11/25/98 250,000 0.12
</TABLE>
From January 1999 through August 1999, Woodcarvers issued 21 promissory
notes payable to us in the aggregate amount of $2,743,000 as payment of the
purchase for shares of our Series A preferred stock, Series C preferred stock
and common stock. The notes bore interest at the rate of 8%, were payable on
demand and had stated maturities of two months or less. The last promissory note
was paid on October 18, 1999.
On July 5, 1999, we entered into a Support Agreement with each of Messrs.
Allison and Lehrmann for the benefit of Wells Fargo Business Credit, Inc. as
part of the Credit and Security Agreement entered into on the same day between
us and Wells Fargo. Pursuant to each Support Agreement, we and the executive
officer agreed that if Wells Fargo came into possession of any of the collateral
securing the Credit and Security Agreement because of an event of default on the
Credit Agreement, then we and the executive officer would incur certain
obligations. If the executive officer were still employed by us, we would cause
him to exert his best efforts to obtain sales of the collateral at the best
commercially obtainable prices and collect the accounts. If the executive
officer ceased to be employed by us, he was required to assist Wells Fargo as
its independent contractor, for a period not to exceed 150 days, for the
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<PAGE> 65
purpose of disposing of the collateral and collecting the accounts. In the
latter circumstance, Wells Fargo was required to pay the executive officer a
weekly salary at 115% of the average salary paid to him by us in the 12 months
preceding the commencement of such services. If the executive officer failed to
fulfill his obligations, he was required to pay Wells Fargo $50,000 in
liquidated damages, as well as costs and expenses incurred in enforcing the
liquidated damages provision. If the executive officer died, became mentally or
physically incapacitated or ceased to be employed by us, we were required to
replace him and use our best efforts to cause his replacement to execute a
support agreement. Both Support Agreements terminated when we terminated the
Credit and Security Agreement in January 2000.
Also on July 5, 1999, Mr. Childs entered into a Subordination Agreement for
the benefit of Wells Fargo. Pursuant to the Subordination Agreement, Mr. Childs
agreed to subordinate promissory notes for an aggregate principal amount of
$1,050,000, payable by us to Mr. Childs, to each debt, liability and obligation
that we would owe to Wells Fargo under the credit agreement. This Subordination
Agreement was terminated when we terminated our Credit Agreement with Wells
Fargo in January 2000.
Agreements with Adaptec
Initial Agreements. We entered into a Memorandum of Understanding with
Adaptec in December 1997. The agreement was amended in March 1999, under which
Chaparral was granted a license to modify the Adaptec External Fibre Channel
RAID controller and adapt it to the storage router market. Adaptec agreed to
provide up to $200,000 of funding in exchange for a 19.9% equity interest in
Chaparral in the form of a one year convertible debenture at 5% interest. In
July 1998 Adaptec decided to divest its Fibre Channel technology, and in
September 1998 we entered into a Memorandum of Understanding to license and to
purchase certain Fibre Channel RAID controller technology and assets. In
conjunction with this Memorandum of Understanding, Adaptec provided an
additional $550,000 loan advance on similar terms to the original loans. The
$550,000 loan was repaid by Chaparral on November 25, 1998 in connection with
the Adaptec Asset Transfer Agreement and Contribution Agreement discussed below.
Asset Transfer Agreement. On November 25, 1998, we entered into an Asset
Transfer Agreement with Adaptec. Pursuant to the Asset Transfer Agreement, we
received certain tangible assets and inventory, copies of Adaptec's marketing
and sales information and a license to use certain assets of Adaptec. In return,
we issued to Adaptec 5,540,200 shares of our Series B preferred stock. As a
result of this transaction, Adaptec owns 100% of the outstanding Series B
preferred stock. In connection with the Asset Transfer Agreement and on the same
date, we entered into an Investors' Rights Agreement, a Contribution Agreement,
a Technology Cross-License Agreement, a Board Manufacturing and Transition
Agreement and an Occupancy License Agreement, all of which are summarized below.
Fourth Amended Investors' Rights Agreement. Under the Fourth Amended
Investors' Rights Agreement entered into as of March 1, 2000, Adaptec and
holders of our Series A preferred stock, Series B preferred stock and Series C
preferred stock received information rights, the registration rights described
in "Description of Capital Stock -- Registration Rights" and a right of first
refusal to purchase, in some specified circumstances, a pro-rata share of
certain securities that we may issue from time to time (pre-emptive rights). In
addition, Adaptec was permitted to have one representative attend all meetings
of our board of directors in a non-voting, observer capacity.
Pre-emptive rights are not applicable to certain stock issuances,
including, among others:
- up to 8,000,000 shares of our common stock issued to employees, officers,
directors or consultants pursuant to incentive agreements or plans;
- securities offered to the public pursuant to a registration statement;
- securities issued in a merger or acquisition; and
- up to 3,000,000 shares of our common stock (and/or options or warrants
therefor) issued or issuable in connection with strategic alliances or
partnering arrangements approved by our board of directors.
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<PAGE> 66
Preemptive rights terminate immediately before the closing of our initial public
offering.
Contribution Agreement. Under the Contribution Agreement with Adaptec and
certain of our stockholders, we issued 5,540,200 shares of our Series B
preferred stock to Adaptec in exchange for the transfer by Adaptec of the assets
set forth in the Asset Transfer Agreement and in exchange for the cancellation
of debt owed by us to Adaptec. In addition, we issued an aggregate of 1,875,000
shares of our common stock and an aggregate of 1,150,000 shares of our Series A
preferred stock to certain of our stockholders, including 250,000 shares of
Series A preferred stock and 1,000,000 shares of common stock to Mr. Allison,
and 900,000 shares of Series A preferred stock to Mr. Childs, in exchange for
their agreement to cancel debt owed by us to each of them. The debt owed to
Adaptec and to each stockholder was evidenced by various promissory notes, all
of which were delivered to us and canceled. All parties to the Contribution
Agreement that received our stock agreed that upon our request or the request of
the underwriters managing any public offering of our securities under the
Securities Act, they will not sell or otherwise dispose of the shares acquired
for a period of 180 days without our consent or the managing underwriters'
consent.
Technology Cross-License Agreement. Under the Technology Cross-License
Agreement, Adaptec granted us an irrevocable and perpetual worldwide license to
use certain technology related to Adaptec's business. In addition, we granted
Adaptec an irrevocable, worldwide and nonexclusive license to use, copy and
modify certain software. Each party agreed to indemnify the other for any claims
arising from the infringement on any third party's intellectual property rights
licensed under the agreement.
Board Manufacturing and Transition Agreement. Under the Manufacturing
Agreement, Adaptec agreed to purchase, assemble and manufacture certain of the
products the technology for which was transferred to us under the Asset Purchase
Agreement during a transition period not to extend beyond April 30, 1999.
Adaptec, however, continued manufacturing our products until August 31, 1999.
Occupancy License Agreements. On March 15, 1998, we entered into an
Occupancy License Agreement with Adaptec, under which Adaptec granted us a
nonassignable, non-transferable right and revocable license for the use of
approximately 7,573 square feet of space in Longmont, Colorado, on a
month-to-month basis at a monthly license fee of $7,573. On October 1, 1998, we
entered into a new Occupancy License Agreement with Adaptec pursuant to which we
licensed additional space at the same location for a total of approximately
20,000 square feet. This license was for a period of nine months at a monthly
license fee of $25,440. The original term of the license was nine months, but
the parties amended the agreement on July 15, 1999 to extend the term on a
month-to-month basis. We also entered into a similar agreement with Adaptec on
May 10, 1999 to occupy 1,325 square feet of space located in Foothill Ranch,
California. The license for the California property is for a period of 60
months, with a monthly license fee of $2,700 for the first 30 months, and $2,850
for months 31-60. Upon commencement of our occupancy under this license, an
Occupancy License Agreement with Adaptec that we entered into on October 1, 1998
to occupy approximately 1,000 square feet of space in Irvine, California at a
monthly license fee of $3,000 was terminated.
Integrated Circuit Agreement. On March 1, 2000, we signed an Integrated
Circuit Agreement with Adaptec. Pursuant to this agreement, Adaptec agreed to
sell and we agreed to buy ASICs for a term of three years. The agreement also
provides that in certain circumstances, including the bankruptcy of Adaptec or
breach by Adaptec of the agreement, we have certain backup rights to the
technology for the ASIC. These backup rights enable us to purchase ASICs
directly from Adaptec's manufacturer or to select our own manufacturer to
produce the ASIC for us using the technology from Adaptec. As part of the
Integrated Circuit Agreement, we issued to Adaptec a warrant to purchase 300,000
shares of our common stock at a purchase price of $20 per share.
INDEMNIFICATION
We have entered into indemnification agreements with each of our directors
and officers. Such indemnification agreements require us to indemnify our
directors and officers to the fullest extent permitted by Delaware law. See
"-- Limitation of Liability and Indemnification."
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<PAGE> 67
CONFLICT OF INTEREST POLICY
We believe that all transactions with affiliates described above were made
on terms no less favorable to us than could have been obtained from unaffiliated
third parties. Our policy is to require that a majority of the independent and
disinterested outside directors on our board of directors approve all future
transactions between us and our officers, directors, principal stockholders and
their affiliates. Such transactions will continue to be on terms no less
favorable to us than we could obtain from unaffiliated third parties.
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<PAGE> 68
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 1, 2000 and after giving effect to
this offering, but without giving effect to the exercise of the underwriters'
over-allotment option, by:
- each person known by us to beneficially own more than 5% of our common
stock;
- each executive officer named in the Summary Compensation Table on page
51;
- each of our directors; and
- all of our executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to the securities. Except as indicated by footnote, the persons named in
the table have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them. The number of shares of common
stock used to calculate the percentage ownership of each listed person includes
the shares of common stock underlying options or warrants held by such persons
that are exercisable within 60 days of this offering. The percentage of
ownership is based on 33,843,504 shares, consisting of 18,714,651 shares of
common stock outstanding as of March 1, 2000 and 15,128,853 shares issuable upon
the conversion of preferred stock, and assumes no exercise of underwriters'
over-allotment option.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
NUMBER OF OUTSTANDING(%)
SHARES -------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
Directors and Executive Officers:
Gary L. Allison(1)........................................ 2,114,782 6.2
Michael J. Gluck(2)....................................... 1,691,833 5.0
Jerry L. Walker(3)........................................ 1,681,833 5.0
F. Grant Saviers(4)....................................... 1,633,718 4.8
All directors and executive officers as a group (5
persons)............................................... 7,652,999 22.2
Other 5% Stockholders:
Adaptec, Inc.(5).......................................... 3,089,335 9.1
691 South Milpitas Blvd.
Milpitas, California 95035
William R. Childs(6)...................................... 3,416,319 10.1
390 Union Boulevard, Suite 260
Lakewood, Colorado 80228
Harvest Storage Technology Group, LLC(7).................. 8,264,132 24.4
7700 Irvine Center Drive, Suite 245
Irvine, California 92618
Robert T. Harvey(7)....................................... 8,264,132 24.4
7700 Irvine Center Drive, Suite 245
Irvine, California 92618
Sentinel Consulting Corporation, LLC(7)................... 8,264,132 24.4
7700 Irvine Center Drive, Suite 245
Irvine, California 92618
</TABLE>
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<PAGE> 69
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
NUMBER OF OUTSTANDING(%)
SHARES -------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
Woodcarvers Limited, LLC(7)............................... 8,264,132 24.4
7700 Irvine Center Drive, Suite 245
Irvine, California 92618
</TABLE>
- ---------------
(1) Gary L. Allison. These shares include 572,857 shares issuable upon the
conversion of our Series A preferred stock, 10,000 shares that are subject
to an exercisable warrant and 1,531,925 shares of our common stock.
(2) Michael J. Gluck. These shares include 166,833 shares subject to stock
options exercisable within 60 days, 10,000 shares issuable upon exercise of
warrants and 1,515,000 shares of our common stock.
(3) Jerry L. Walker. These shares include 166,833 shares subject to stock
options exercisable within 60 days, and 1,515,000 shares of our common
stock.
(4) F. Grant Saviers. These shares include 1,458,182 shares issuable upon the
conversion of our Series A preferred stock, 44,271 shares subject to stock
options exercisable within 60 days and 131,265 shares of our common stock.
(5) Adaptec, Inc. These shares include 2,928,361 shares issuable upon conversion
of our Series B preferred stock and 160,794 shares of our common stock.
(6) William F. Childs. These shares include 3,124,677 shares issuable upon
conversion of our Series A preferred stock and 291,642 shares of our common
stock.
(7) Harvest Storage Technology Group, LLC, Robert T. Harvey, Sentinel Consulting
Corporation, LLC and Woodcarvers Limited, LLC. These shares include:
- 1,887,499 shares issuable upon conversion of our Series A preferred
stock, 1,842,315 shares issuable upon conversion of our Series C
preferred stock and 3,426,282 shares of our common stock held by
Woodcarvers Limited, LLC;
- 347,186 shares issuable upon conversion of our Series A preferred stock
and 296,541 shares of our common stock held by Harvest Storage Technology
Partners, LLC; and
- 464,309 shares of our common stock held by Sentinel Consulting
Corporation, LLC.
These stockholders may be deemed to beneficially own each other's shares,
because Mr. Harvey is the Operating Manager of each of Woodcarvers Limited,
LLC, Harvest Storage Technology Group, LLC and Sentinel Consulting
Corporation, LLC. Each of these stockholders, however, disclaims beneficial
ownership of the other's shares, except for Mr. Harvey, who disclaims
beneficial ownership of the shares of the other entities except to the
extent of his pecuniary interest.
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<PAGE> 70
DESCRIPTION OF CAPITAL STOCK
Currently, our authorized capital stock consists of 52,000,000 shares of
common stock, par value $0.001 per share, and 29,140,200 shares of preferred
stock, par value $0.001 per share. Upon completion of this offering, our
authorized capital stock will consist of 120,000,000 shares of common stock, par
value $0.001 per share, and 40,000,000 shares of preferred stock, par value
$0.001 per share. The following summary is qualified by reference to our
certificate of incorporation and our bylaws, forms of which have been filed as
exhibits to the registration statement of which this prospectus is a part.
COMMON STOCK
As of December 31, 1999, there were 17,860,158 shares of common stock
outstanding that were held of record by 60 stockholders. Holders of our common
stock are entitled to one vote for each share held on all matters to be voted
upon by stockholders, including the election of directors. Our certificate of
incorporation does not provide for cumulative voting for the election of
directors, and as a result, minority stockholders will not be able to elect
directors on the basis of their votes alone.
Subject to limitations under Delaware law and preferences that may apply to
any outstanding shares of preferred stock, holders of common stock are entitled
to receive ratably dividends or other distributions, if any, that may be
declared by our board of directors out of legally available funds. In the event
of our liquidation, dissolution or winding up, holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to the liquidation preference of any outstanding preferred stock. Our
common stock has no preemptive, conversion or other rights to subscribe for
additional securities of Chaparral. All outstanding shares of common stock are,
and all shares of common stock to be outstanding upon completion of the offering
will be, validly issued, fully paid and nonassessable. The rights, preferences
and privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock that we may designate and issue in the future.
PREFERRED STOCK
As of December 31, 1999, there were 18,599,372 shares of Series A preferred
stock outstanding, 5,540,200 shares of Series B preferred stock outstanding and
5,000,000 shares of Series C preferred stock outstanding. Upon the closing of
this offering, all outstanding shares of Series A, Series B and Series C
preferred stock will automatically convert into 15,128,853 shares of common
stock.
Our board of directors will have the authority, without further approval of
the stockholders, to issue up to 10,859,800 shares of preferred stock in one or
more series, to fix the rights, preferences, privileges and restrictions of the
authorized preferred stock and to issue shares of each such series. The issuance
of preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of restricting
dividends on the common stock, diluting the voting power for the common stock,
impairing the liquidation rights of the common stock, delaying or preventing a
change in control of our company, discouraging bids for our common stock at a
premium or otherwise adversely affecting the market price of our common stock.
WARRANTS
Other than the warrants granted to directors, executive officers and
greater than 5% stockholders described in "Certain Transactions -- Warrants,"
there were outstanding as of March 1, 2000 warrants to purchase up to an
aggregate of 84,741 shares of our common stock held by two people. These
warrants may be exercised at prices ranging from $0.01 per share to $0.80 per
share. Warrants to purchase 1,250 shares terminate on September 8, 2001, 63,491
shares terminate on November 8, 2004, and 20,000 shares terminate on December
13, 2004. These warrants automatically terminate if they are not exercised prior
to our initial public offering.
69
<PAGE> 71
REGISTRATION RIGHTS
Holders of all shares of our preferred stock and certain shares of our
common stock have registration rights.
Fourth Amended Investors' Rights Agreement
Pursuant to the Fourth Amended Investors' Rights Agreement, dated March 1,
2000, certain of our investors have registration rights. These rights include
demand registration rights, piggyback registration rights and Form S-3
registration rights.
Demand Registration Rights. If we receive a written request from the
holders of at least two-thirds of the registrable securities (as defined in the
agreement) after six months of our initial public offering that we file a
registration covering the registrable securities, then we will give notice to
all holders of registrable securities of the request within 20 days, and file a
registration statement as soon as practicable covering the shares of all holders
who request such registration. Our obligation is contingent on at least 25% of
all registrable securities then outstanding requesting to have their shares
included in the registration statement.
Piggyback Registration Rights. If we file a registration statement we must
notify all holders of registrable securities 30 days prior to the filing of such
registration statement. Each holder then has an opportunity to include his or
her shares in the registration provided that he or she notifies us within 20
business days of receiving notice from us.
Form S-3 Registration Rights. If we receive a written request from holders
of at least 25% of the then outstanding registrable securities to file a Form
S-3 with respect to the registrable securities, then we will promptly give
notice to each holder, effect such registration as soon as practicable and pay
all registration expenses. We are not obligated to effect such registration,
however, if:
- the aggregate offering price of all shares included in the proposed
registration is less than $1.0 million;
- we determine in good faith that such registration would be seriously
detrimental to us and our stockholders (in which case we can defer such
registration for 120 days); or
- we have already effected two registrations on Form S-3 in the last 12
months.
Warrant Agreements
Pursuant to the terms of various warrant agreements, Harvest Storage
Technology, Mr. Gluck, Mr. Allison, Mr. Childs and Sentinel Consulting each have
demand registration rights and piggyback registration rights with respect to
524,508 shares of our common stock.
Demand Registration Rights. If we receive a written request from Harvest
Storage Technology, Mr. Gluck, Mr. Allison, Mr. Childs or Sentinel Consulting
within six months of an initial public offering that we file a registration
statement covering registrable securities (defined as shares of common stock
issued upon exercise of the warrants) having a value of at least $1.0 million,
we are required to use our best efforts to file promptly a registration
statement covering all of the shares requested to be included. Each warrant
agreement grants each of Harvest Storage Technology, Mr. Gluck, Mr. Allison, Mr.
Childs and Sentinel Consulting one such demand registration, and such demand may
not be made during the period starting 60 days prior to the estimated date of
filing our initial registration statement and ending on the date six months
following our initial public offering.
Piggyback Registration Rights. If we file a registration statement, other
than on Form S-8 or other similar form or in connection with a Rule 145
transaction, we must promptly notify Harvest Storage Technology, Mr. Gluck, Mr.
Allison, Mr. Childs and Sentinel Consulting prior to the filing of such
registration statement. Harvest Storage Technology, Sentinel Consulting and
Messrs. Gluck, Allison and Childs then each have an opportunity to include their
shares in the registration statement; provided that
70
<PAGE> 72
each notifies us within 20 business days of receiving our notice. Each warrant
agreement grants each of Harvest Storage Technology, Sentinel Consulting, Mr.
Gluck, Mr. Allison and Mr. Childs three such piggyback registration rights.
PROVISIONS IN OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS
AND IN DELAWARE LAW THAT MAY HAVE ANTI-TAKEOVER EFFECTS
Our certificate of incorporation and bylaws will be amended and restated as
of the date of completion of this offering. Our amended and restated certificate
of incorporation and bylaws will contain certain provisions that may have the
effect of delaying, deferring or preventing a third party from acquiring us,
even if the acquisition would benefit our stockholders.
Our amended and restated certificate of incorporation and bylaws provide
that our board of directors shall consist of three classes of directors, each
serving for a three-year term ending in successive years. This provision may
make it more difficult to effect a takeover because it would generally take more
than one annual meeting of our stockholders for an acquiring party to elect a
majority of the board of directors. As a result, a classified board of directors
may discourage proxy contests for the election of directors or purchases of a
substantial block of our stock because it could operate to prevent a potential
acquiror from obtaining control of our board of directors in a relatively short
period of time.
In addition, our amended and restated certificate of incorporation and
bylaws will provide that stockholders may take action only at a duly called and
held meeting and may not take action by written consent. This provision may make
it more difficult to effect a takeover through various types of transactions,
such as a merger or sale of assets, by requiring a potential acquiror to hold a
stockholders' meeting before such a transaction could be consummated.
Our amended and restated certificate of incorporation and bylaws also will
provide that the "staggered board" provision and the provisions concerning
voting rights of stockholders may be amended only by a vote of two-thirds of the
outstanding shares of our capital stock entitled to vote generally in the
election of directors, voting as a single class.
Finally, we are subject to Section 203 of the Delaware General Corporation
Law, which imposes restrictions on certain business combinations with interested
persons. That section defines an "interested person" as any person who acquires
15% or more of our outstanding voting stock. In general, we are prohibited from
engaging in business combinations with an interested person for a period of
three years from the date that person becomes an interested person, subject to
certain exceptions. By restricting our ability to engage in business
combinations with an interested person, the application of Section 203 may
provide a barrier to takeovers not approved in advance by our board of
directors.
DIVIDENDS
We have not paid any cash dividends on our common stock or preferred stock
and intend to retain future earnings to finance our business. We are subject to
restrictions on paying dividends under state law and our revolving credit
agreement.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company, and its address is 12039 W. Alameda Parkway, Suite
Z-2, Lakewood, Colorado 80228.
NASDAQ NATIONAL MARKET LISTING
We have applied to have our common stock approved for quotation on the
Nasdaq Stock Market's National Market, subject to official notice of issuance,
under the trading symbol "CHAP."
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<PAGE> 73
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and there can be no assurance that a significant public market for the
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock, including shares issued upon exercise of
outstanding options and warrants, in the public market following this offering
could adversely affect market prices prevailing from time to time and could
impair our ability to raise capital through the sale of our equity securities.
Sales of substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering and based on shares outstanding at March
1, 2000, we will have outstanding shares of common stock assuming no
exercise of the underwriters' over-allotment option and no exercise of any
outstanding options or warrants. All the shares sold in this offering, plus any
shares issued upon exercise of the underwriters' over-allotment option, will be
freely tradable without restriction under the Securities Act, unless purchased
by our "affiliates" as that term is defined in Rule 144 under the Securities
Act.
The remaining shares of common stock outstanding are "restricted
securities" within the meaning of Rule 144 under the Securities Act. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which are summarized below.
Our directors, officers and stockholders have entered into lock-up
agreements with the underwriters of this offering generally providing that they
will not offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of our shares of common stock or any securities exercisable
for or convertible into our common stock owned by them prior to this offering
for a period of 180 days after the effective date of the registration statement
filed pursuant to this offering without the prior written consent of Credit
Suisse First Boston Corporation. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, shares subject to lock-up agreements may not be sold
until such agreements expire or are waived by Credit Suisse First Boston
Corporation. Taking into account the lock-up agreements, and assuming Credit
Suisse First Boston Corporation does not release stockholders from these
agreements prior to the expiration of the 180 day lock-up period, the following
shares will be eligible for sale in the public market at the following times:
- beginning on the effective date of the registration statement, the
shares sold in this offering, and additional shares,
will be immediately available for sale in the public market;
- beginning 180 days following the date of this prospectus,
additional shares will become eligible for sale under Rule 144 subject to
volume restrictions as described below; and
- the remainder of the restricted securities will be eligible for sale from
time to time thereafter, subject in some cases to compliance with Rule
144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year, including the holding period of any prior owner
except an affiliate, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about Chaparral. Under Rule 144(k), a person who is
72
<PAGE> 74
not deemed to have been our "affiliate," as defined in the Securities Act, at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, including the
holding period of any prior owner except an affiliate, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any of our employees, officers,
directors or consultants who purchased shares under a written compensatory plan
or contract may be entitled to rely on the resale provisions of Rule 701. Rule
701 permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. All holders of Rule 701 shares are
required to wait until 90 days after the date of this prospectus before selling
such shares. However, Rule 701 shares are subject to lock-up
agreements and will only become eligible for sale at the earlier of the
expiration of the 180-day lock-up agreements or no sooner than 90 days after the
offering upon obtaining the prior written consent of Credit Suisse First Boston
Corporation.
Following the effectiveness of this offering, we intend to file a
registration statement on Form S-8 registering shares of common stock,
the shares of common stock reserved for issuance under our 1998 stock option
plan, the 2000 equity incentive plan and the 2000 employee stock purchase plan.
Upon the filing of the registration statement on Form S-8, common stock issued
upon exercise of outstanding vested options or issued under our purchase plan,
other than common stock issued to our affiliates, will be available for
immediate resale in the open market.
73
<PAGE> 75
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000 we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Salomon Smith
Barney Inc., Bear, Stearns & Co. Inc. and Needham & Company, Inc. are acting as
representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Salomon Smith Barney Inc. ..................................
Bear, Stearns & Co. Inc. ...................................
Needham & Company, Inc. ....................................
--------
Total ............................................
========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The underwriters
and selling group members may allow a discount of $ per share on sales to
other broker/dealers. After the initial public offering, the public offering
price and concession and discount to broker/dealers may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------------------- -------------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and Commissions paid
by us.................................... $ $ $ $
Expenses payable by us..................... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, announce our
intention to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Securities and Exchange Commission a registration statement under
the Securities Act relating to, any shares of common stock or securities
convertible into or exchangeable or exercisable for any common stock, or
publicly disclose the intention to make an offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus.
Our officers and directors and all of our security holders have agreed that
they will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any shares of our common stock or securities convertible
into or exchangeable or exercisable for any shares of our common stock, enter
into a transaction which would have the same effect, or enter into any swap,
hedge or other arrangement that
74
<PAGE> 76
transfers, in whole or in part, any of the economic consequences of ownership of
our common stock, whether any such aforementioned transaction is to be settled
by delivery of our common stock or such other securities, in cash or otherwise,
or publicly disclose the intention to make any such offer, sale, pledge or
disposition, or to enter into any such transaction, swap, hedge or other
arrangement, without, in each case, the prior written consent of Credit Suisse
First Boston Corporation for a period of 180 days after the date of this
prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and certain
other persons associated with us who have expressed an interest in purchasing
common stock in this offering. The number of shares available for sale to the
general public in this offering will be reduced to the extent these persons
purchase the reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments that the underwriters may be required
to make in that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market subject to official notice of issuance, under the
symbol "CHAP."
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price include:
- the information in this prospectus and otherwise available to the
underwriters;
- the history and the prospects for the industry in which we compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934, as amended.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq Stock Market's National Market or otherwise and, if commenced, may be
discontinued at any time.
75
<PAGE> 77
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws, which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under the securities laws; (ii) where required
by law, that such purchaser is purchasing as principal and not as agent; and
(iii) such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against the issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. Such report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one such report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
76
<PAGE> 78
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Davis, Graham & Stubbs LLP, Denver, Colorado. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Morrison & Foerster LLP, Palo Alto, California.
EXPERTS
The financial statements of Chaparral Network Storage, Inc. (formerly
Chaparral Technologies, Inc.) as of March 31, 1998 and 1999 and for the period
from inception (January 22, 1998) to March 31, 1998 and the year ended March 31,
1999 have been included in this prospectus and the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION ABOUT CHAPARRAL
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits and schedules, under the Securities
Act with respect to the shares of common stock to be sold in this offering. This
prospectus does not contain all the information included in the registration
statement and the exhibits thereto. For further information about us and the
shares of our common stock to be sold in this offering, please refer to this
registration statement. Complete exhibits have been filed with our registration
statement on Form S-1.
You may read and copy any contract, agreement or other document referred to
in this prospectus and any portion of our registration statement or any other
information from our filings at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the Securities and
Exchange Commission at 1800SEC0330 for further information about the public
reference rooms. Our filings with the Securities and Exchange Commission,
including our registration statement, are also available to you without charge
at the Securities and Exchange Commission's Web site, http://www.sec.gov.
Upon the completion of this offering, we will be subject to the information
and reporting requirements of the Exchange Act and will file and furnish to our
stockholders annual reports containing financial statements audited by our
independent auditors, make available to our stockholders quarterly reports
containing unaudited financial data for the first three quarters of each fiscal
year, proxy statements and other information with the Securities and Exchange
Commission.
You may read and copy any reports, statements or other information on file
at the public reference rooms or at the Securities and Exchange Commission's web
site referred to above. You can also request copies of these documents, for a
copying fee, by writing to the Commission.
Our web site is www.chaparralnet.com. The information contained on our web
site is not incorporated by reference into this prospectus.
77
<PAGE> 79
CHAPARRAL NETWORK STORAGE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of March 31, 1998 and 1999 and December
31, 1999 (unaudited)...................................... F-3
Statements of Operations for the period from inception
(January 22, 1998) to March 31, 1998, the year ended March
31, 1999 and the nine months ended December 31, 1998 and
1999 (unaudited).......................................... F-4
Statements of Stockholders' Equity (Deficit) for the period
from inception (January 22, 1998) to March 31, 1998, the
year ended March 31, 1999 and the nine months ended
December 31, 1999 (unaudited)............................. F-5
Statements of Cash Flows for the period from inception
(January 22, 1998) to March 31, 1998, the year ended March
31, 1999 and the nine months ended December 31, 1998 and
1999 (unaudited).......................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 80
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Chaparral Network Storage, Inc.:
We have audited the accompanying balance sheets of Chaparral Network
Storage, Inc. (formerly Chaparral Technologies, Inc.) (Company) as of March 31,
1998 and 1999, and the related statements of operations, stockholders' equity
(deficit) and cash flows for the period from inception (January 22, 1998) to
March 31, 1998 and the year ended March 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Chaparral Network Storage,
Inc. as of March 31, 1998 and 1999, and the results of its operations and its
cash flows for the period from inception (January 22, 1998) to March 31, 1998
and the year ended March 31, 1999, in conformity with generally accepted
accounting principles.
Boulder, Colorado
December 17, 1999
F-2
<PAGE> 81
CHAPARRAL NETWORK STORAGE, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1998 1999 1999
--------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 21,405 $ 224,097 $19,679,152
Trade receivables, net of allowance of $75,000 at
December 31, 1999.................................. -- 103,624 2,006,857
Inventory............................................. -- 183,022 2,507,411
Prepaid expenses...................................... -- 45,000 145,200
-------- ----------- -----------
Total current assets.......................... 21,405 555,743 24,338,620
Furniture, fixtures and equipment, net.................. 3,488 377,618 561,033
-------- ----------- -----------
Total assets.................................. $ 24,893 $ 933,361 $24,899,653
======== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable......................................... $ 60,000 $ 900,000 $ --
Accounts payable...................................... -- 367,436 1,506,306
Accrued liabilities................................... -- 509,866 1,144,103
Deferred revenue...................................... -- 50,000 --
-------- ----------- -----------
Total current liabilities..................... 60,000 1,827,302 2,650,409
-------- ----------- -----------
Stockholders' equity (deficit):
Series A preferred stock, par value $.001 per share;
18,600,000 shares authorized; 0, 15,655,556 and
18,599,372 shares issued and outstanding,
respectively; liquidation preference of $0,
$1,565,556 and $1,859,937, respectively............ -- 2,085,617 3,102,167
Series B preferred stock, par value $.001 per share;
0, 5,540,200 and 5,540,200 shares authorized,
issued and outstanding, respectively; liquidation
preference of $0, $1,000,000 and $1,000,000,
respectively....................................... -- 1,000,000 1,000,000
Series C preferred stock, par value $.001 per share;
0, 0 and 5,000,000 shares authorized, issued and
outstanding; liquidation preference of $0, $0 and
$2,200,000, respectively........................... -- -- 2,166,770
Common stock, par value $.001 per share; 52,000,000
shares authorized; 0, 7,995,000 and 17,860,158
shares issued and outstanding, respectively........ -- 7,995 17,860
Additional paid-in capital............................ -- 652,718 25,750,301
Unearned stock option compensation.................... -- -- (677,877)
Notes receivable for preferred and common stock....... -- (909,860) (669,860)
Accumulated deficit................................... (35,107) (3,730,411) (8,440,117)
-------- ----------- -----------
Total stockholders' equity (deficit).......... (35,107) (893,941) 22,249,244
-------- ----------- -----------
Commitments and contingencies
Total liabilities and stockholders' equity
(deficit)................................... $ 24,893 $ 933,361 $24,899,653
======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 82
CHAPARRAL NETWORK STORAGE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JANUARY 22, NINE MONTHS ENDED
1998) TO YEAR ENDED DECEMBER 31,
MARCH 31, MARCH 31, -------------------------
1998 1999 1998 1999
------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue................................... $ -- $ 236,855 $ 142,899 $ 6,296,214
Cost of sales............................. -- 107,177 39,348 2,927,371
-------- ----------- ----------- -----------
Gross profit.................... -- 129,678 103,551 3,368,843
Operating expenses:
Research and development, excluding
$818,035 of stock option compensation
for the nine months ended December
31, 1999............................. -- 1,415,349 707,844 2,502,936
Sales and marketing, excluding $58,279
of stock option compensation for the
nine months ended December 31,
1999................................. -- 386,468 196,472 1,461,833
General and administrative, excluding
$743,791 of stock option compensation
for the nine months ended December
31, 1999............................. 35,107 1,950,929 1,220,714 2,209,382
Stock option compensation............... -- -- -- 1,620,105
-------- ----------- ----------- -----------
Loss from operations............ (35,107) (3,623,068) (2,021,479) (4,425,413)
Interest expense.......................... -- (72,236) -- (389,932)
Interest income........................... -- -- -- 105,639
-------- ----------- ----------- -----------
Net loss........................ $(35,107) $(3,695,304) $(2,021,479) $(4,709,706)
======== =========== =========== ===========
Net loss per share -- basic and diluted... $ -- $ (1.40) $ (2.02) $ (0.50)
======== =========== =========== ===========
Weighted average number of common shares
outstanding -- basic and diluted........ -- 2,640,123 998,700 9,488,703
======== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 83
CHAPARRAL NETWORK STORAGE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
----------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at inception (January 22,
1998).............................. -- $ -- -- $ -- -- $ --
Net loss............................. -- -- -- -- -- --
---------- ---------- --------- ---------- --------- ----------
Balances at March 31, 1998........... -- -- -- -- -- --
Issuance of common stock for cash and
notes receivable................... -- -- -- -- -- --
Issuance of common stock warrants for
services........................... -- -- -- -- -- --
Issuance of common stock for
services........................... -- -- -- -- -- --
Issuance of Series A preferred stock
for cash and notes receivable, net
of issuance costs of $34,500....... 15,655,556 2,095,500 -- -- -- --
Issuance of common stock warrants for
issuance costs of preferred
stock.............................. -- (9,883) -- -- -- --
Issuance of Series B preferred stock
for assets and repayment of note
payable............................ -- -- 5,540,200 1,000,000 -- --
Net loss............................. -- -- -- -- -- --
---------- ---------- --------- ---------- --------- ----------
Balances at March 31, 1999........... 15,655,556 2,085,617 5,540,200 1,000,000 -- --
Issuance of common stock for cash,
less issuance costs consisting of
$37,440 cash, warrants for 90,158
common shares and 1,527,857 shares
of common stock.................... -- -- -- -- -- --
Issuance of common stock options and
warrants for services.............. -- -- -- -- -- --
Issuance of Series A preferred stock
for cash, less issuance costs of
$42,020............................ 2,943,816 1,119,700 -- -- -- --
Issuance of common stock warrants for
issuance costs of preferred
stock.............................. -- (99,584) -- -- -- (35,133)
Issuance of common stock for
services........................... -- -- -- -- -- --
Issuance of common stock warrants for
interest expense................... -- -- -- -- -- --
Issuance of Series C preferred stock
for cash, less issuance costs of
$103,559........................... -- -- -- -- 5,000,000 2,216,441
Collection of notes receivable....... -- -- -- -- -- --
Issuance of common stock for issuance
costs of preferred stock........... -- (3,566) -- -- -- (14,538)
Issuance of common stock options at
less than fair value............... -- -- -- -- -- --
Amortization of unearned stock option
compensation....................... -- -- -- -- -- --
Net loss............................. -- -- -- -- -- --
---------- ---------- --------- ---------- --------- ----------
Balances at December 31, 1999
(unaudited)........................ 18,599,372 $3,102,167 5,540,200 $1,000,000 5,000,000 $2,166,770
========== ========== ========= ========== ========= ==========
<CAPTION>
NOTES
RECEIVABLE
COMMON STOCK ADDITIONAL UNEARNED FOR PREFERRED
-------------------- PAID-IN STOCK OPTION AND COMMON ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION STOCK DEFICIT TOTAL
---------- ------- ----------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at inception (January 22,
1998).............................. -- $ -- $ -- $ -- $ -- $ -- $ --
Net loss............................. -- -- -- -- -- (35,107) (35,107)
---------- ------- ----------- ----------- --------- ----------- -----------
Balances at March 31, 1998........... -- -- -- -- -- (35,107) (35,107)
Issuance of common stock for cash and
notes receivable................... 7,945,000 7,945 622,805 -- (614,860) -- 15,890
Issuance of common stock warrants for
services........................... -- -- 14,080 -- -- -- 14,080
Issuance of common stock for
services........................... 50,000 50 5,950 -- -- -- 6,000
Issuance of Series A preferred stock
for cash and notes receivable, net
of issuance costs of $34,500....... -- -- -- -- (295,000) -- 1,800,500
Issuance of common stock warrants for
issuance costs of preferred
stock.............................. -- -- 9,883 -- -- -- --
Issuance of Series B preferred stock
for assets and repayment of note
payable............................ -- -- -- -- -- -- 1,000,000
Net loss............................. -- -- -- -- -- (3,695,304) (3,695,304)
---------- ------- ----------- ----------- --------- ----------- -----------
Balances at March 31, 1999........... 7,995,000 7,995 652,718 -- (909,860) (3,730,411) (893,941)
Issuance of common stock for cash,
less issuance costs consisting of
$37,440 cash, warrants for 90,158
common shares and 1,527,857 shares
of common stock.................... 9,502,082 9,502 21,933,449 -- (30,000) -- 21,912,951
Issuance of common stock options and
warrants for services.............. -- -- 140,170 -- -- -- 140,170
Issuance of Series A preferred stock
for cash, less issuance costs of
$42,020............................ -- -- -- -- -- -- 1,119,700
Issuance of common stock warrants for
issuance costs of preferred
stock.............................. -- -- 134,717 -- -- -- --
Issuance of common stock for
services........................... 212,208 212 315,507 -- (25,000) -- 290,719
Issuance of common stock warrants for
interest expense................... -- -- 257,805 -- -- -- 257,805
Issuance of Series C preferred stock
for cash, less issuance costs of
$103,559........................... -- -- -- -- -- -- 2,216,441
Collection of notes receivable....... -- -- -- -- 295,000 -- 295,000
Issuance of common stock for issuance
costs of preferred stock........... 150,868 151 17,953 -- -- -- --
Issuance of common stock options at
less than fair value............... -- -- 2,297,982 (2,297,982) -- -- --
Amortization of unearned stock option
compensation....................... -- -- -- 1,620,105 -- -- 1,620,105
Net loss............................. -- -- -- -- -- (4,709,706) (4,709,706)
---------- ------- ----------- ----------- --------- ----------- -----------
Balances at December 31, 1999
(unaudited)........................ 17,860,158 $17,860 $25,750,301 $ (677,877) $(669,860) $(8,440,117) $22,249,244
========== ======= =========== =========== ========= =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 84
CHAPARRAL NETWORK STORAGE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JANUARY 22, YEAR NINE MONTHS ENDED
1998) TO ENDED DECEMBER 31,
MARCH 31, MARCH 31, -------------------------
1998 1999 1998 1999
------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................ $(35,107) $(3,695,304) $(2,021,479) $(4,709,706)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization........ 100 69,421 27,176 152,314
Common stock and common stock options
and warrants issued for services
and interest expense............... -- 20,080 19,600 688,694
Amortization of unearned stock option
compensation....................... -- -- -- 1,620,105
Changes in operating assets and
liabilities:
Trade receivables.................... -- (103,624) (49,820) (1,903,233)
Inventory............................ -- (87,199) (28,019) (2,324,389)
Prepaid expenses..................... -- (45,000) -- (100,200)
Accounts payable..................... -- 367,436 326,496 1,138,870
Accrued liabilities.................. -- 509,866 30,000 634,237
Deferred revenue..................... -- 50,000 -- (50,000)
-------- ----------- ----------- -----------
Net cash used by operating
activities.................... (35,007) (2,914,324) (1,696,046) (4,853,308)
-------- ----------- ----------- -----------
Cash flows from investing activities --
expenditures for furniture, fixtures and
equipment............................... (3,588) (89,374) (41,319) (335,729)
-------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from sale of preferred stock... -- 1,800,500 1,410,000 3,336,141
Proceeds from sale of common stock...... -- 15,890 15,690 21,912,951
Collection of notes receivable for
preferred stock...................... -- -- -- 295,000
Proceeds from notes payable............. 60,000 1,450,000 550,000 798,508
Repayments of notes payable............. -- (60,000) (60,000) (1,698,508)
-------- ----------- ----------- -----------
Net cash provided by financing
activities.................... 60,000 3,206,390 1,915,690 24,644,092
-------- ----------- ----------- -----------
Net increase in cash and cash
equivalents................... 21,405 202,692 178,325 19,455,055
Cash and cash equivalents at beginning of
period.................................. -- 21,405 21,405 224,097
-------- ----------- ----------- -----------
Cash and cash equivalents at end of
period.................................. $ 21,405 $ 224,097 $ 199,730 $19,679,152
======== =========== =========== ===========
Supplemental disclosures of cash flows
information -- cash paid for interest... $ -- $ 8,445 $ 7,317 $ 103,393
======== =========== =========== ===========
Supplemental disclosures of non-cash
investing and financing activities:
Notes payable converted to preferred
stock................................ $ -- $ 550,000 $ 550,000 $ --
======== =========== =========== ===========
Assets acquired in exchange for
preferred stock:
Inventory............................ $ -- $ 95,823 $ 95,823 $ --
======== =========== =========== ===========
Furniture, fixtures and equipment.... $ -- $ 354,177 $ 354,177 $ --
======== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 85
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999
(INFORMATION AS OF DECEMBER 31, 1999 AND FOR THE NINE-MONTH
PERIODS ENDED DECEMBER 31, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION
Chaparral Network Storage, Inc. (formerly Chaparral Technologies, Inc.)
(Chaparral or the Company) was incorporated on January 22, 1998. The Company
operates in one industry segment, developing and marketing storage networking
solutions for data intensive enterprise applications.
The accompanying unaudited financial information as of December 31, 1999
and for the nine-month periods ended December 31, 1998 and 1999 has been
prepared in accordance with generally accepted accounting principles for interim
financial information. All significant adjustments, consisting of only normal
and recurring adjustments, that, in the opinion of management, are necessary for
a fair presentation of the results of operations and cash flows for the
nine-month periods ended December 31, 1998 and 1999 have been included.
Operating results for the nine-month periods ending December 31, 1998 and 1999
are not necessarily indicative of the results that may be expected for the full
year.
(b) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ significantly from those estimates.
(c) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less at the date of purchase to be cash equivalents.
(d) INVENTORY
Inventory is recorded at the lower of standard cost (which approximates
average cost) or market.
(e) FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are recorded at cost. Depreciation and
amortization are calculated using the straight-line method over the estimated
useful lives of the assets, which are generally three years.
(f) IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for long-lived assets under the provisions of
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
(SFAS No. 121). SFAS No. 121 requires impairment losses to be recognized on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted future cash flows estimated to be generated by those assets
are less than the assets' carrying amounts. If such assets are considered
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the asset exceeds the estimated fair value. Assets to be
disposed of are reported at the lower of the carrying value or fair value, less
costs to sell. No impairment has been recognized.
F-7
<PAGE> 86
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(g) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of certain of the Company's financial instruments,
including accounts receivable, accrued liabilities and notes receivable for
stock approximate fair value because of their short maturities.
(h) REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment of the product to
customers. Costs of products shipped for customer evaluation are expensed at
shipment. Revenue is reduced for estimated customer returns and allowances.
Provision for estimated warranty costs, including estimated costs of support for
embedded software, is recorded at the time of sale based upon expected failure
rates and costs of repair. This provision is periodically adjusted to reflect
actual experience.
(i) RESEARCH AND DEVELOPMENT
Expenditures related to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred. The Company capitalizes certain software development costs
subsequent to the establishment of technological feasibility. To date, costs
incurred following technological feasibility, but prior to general release, have
been insignificant.
(j) INCOME TAXES
Income taxes are accounted for under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS No.
109). Under SFAS No. 109, deferred income taxes are recognized for the future
tax consequences of differences between the tax bases of assets and liabilities
and their financial statement carrying amounts based on enacted tax laws and
statutory rates applicable to the periods in which the differences are expected
to affect taxable income. A valuation allowance is recorded to the extent
deferred tax assets may not be realizable.
(k) STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation using the
intrinsic value based method prescribed by Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations
(APB No. 25). The Company provides pro forma disclosure of net loss as if the
fair value based method of accounting for the plan, as prescribed by Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), had been applied. Pro forma disclosures include the
effects of employee stock options granted. Equity instruments granted to
non-employees are accounted for in accordance with SFAS No. 123.
(l) ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs amounted to
$80,000 and $252,000 for the year ended March 31, 1999 and the nine-month period
ended December 31, 1999.
In addition to its own advertising activities, the Company accrues a
percentage of sales over certain contractual minimums to reimburse distributors
for a portion of their advertising costs. Any unused allowance expires if not
used during the six months following the date of sale. Cooperative advertising
expense for the nine-month period ended December 31, 1999 totaled $37,000 and is
included in sales and marketing expense.
(m) LOSS PER SHARE
Loss per share is presented in accordance with the provisions of Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128).
Under SFAS No. 128, basic earnings (loss) per share (EPS) excludes dilution for
potential common stock and is computed by dividing income or loss
F-8
<PAGE> 87
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. Basic and diluted EPS are the same for
all periods presented, as all potential common stock instruments are
antidilutive.
(2) INVENTORY
The Company generally contracts for the manufacture of inventory. Certain
components are purchased by the Company and supplied to the contract
manufacturers. Inventory consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
(UNAUDITED)
<S> <C> <C>
Finished goods.............................................. $136,263 $ 948,865
Raw materials............................................... 46,759 1,558,546
-------- ----------
Total............................................. $183,022 $2,507,411
======== ==========
</TABLE>
(3) FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------- DECEMBER 31,
1998 1999 1999
--------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Equipment........................................... $3,588 $443,755 $ 602,788
Purchased software.................................. -- -- 176,696
Furniture and fixtures.............................. -- 3,384 3,384
------ -------- ---------
3,588 447,139 782,868
Less accumulated depreciation and amortization...... (100) (69,521) (221,835)
------ -------- ---------
$3,488 $377,618 $ 561,033
====== ======== =========
</TABLE>
(4) NOTES PAYABLE
In July 1999, the Company obtained a $3.0 million line of credit from a
bank, secured by accounts receivable and other collateral, at a variable rate
equal to the bank's prime rate plus 1.5% per annum. As of December 31, 1999,
there was no outstanding balance. This line of credit was terminated in January
2000.
In January 2000, the Company entered into a loan agreement with a bank.
Under the loan agreement, the Company can borrow and reborrow up to the lesser
of $3.0 million or an amount equal to 90% of the Company's U.S. government debt
securities plus 80% of the Company's investment grade commercial paper, with a
maturity of one year or less and held on deposit at the bank. Borrowings bear
interest at the prime rate. Interest is payable monthly, and borrowings must be
repaid on or before August 31, 2000. Under the loan agreement, the Company
agreed to provide certain financial information, maintain at least $4.0 million
in cash plus investment grade marketable securities, maintain a minimum net
worth and minimum ratio of debt to net worth. The Company has also agreed not to
pay dividends on its stock, create liens on its properties or borrow under other
credit arrangements. The Company has not borrowed under this loan agreement.
F-9
<PAGE> 88
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) STOCKHOLDERS' EQUITY (DEFICIT)
(a) REVERSE STOCK SPLIT
In October 1999, the Company's board of directors authorized a one-for-two
reverse stock split. All share and per share amounts disclosed herein reflect
the effect of this reverse split.
(b) SERIES A PREFERRED STOCK
Series A preferred shares are convertible into 9,686,168 shares of common
stock as of December 31, 1999, subject to adjustment for dilution that may occur
from future equity transactions, and have voting rights on an as-converted
basis. The Series A preferred shares are entitled to receive dividends equal to
$.008 per share on an annual basis when and if declared by the Board of
Directors. In the event of liquidation of the Company, holders of the Series A
preferred shares are entitled to receive an amount equal to $.10 per share, plus
any declared and unpaid dividends. The Series A preferred shares are convertible
at any time, at the option of the holder, and convert automatically upon
consummation of a public offering of common stock resulting in proceeds to the
Company of not less than $15.0 million and at an offering price per share equal
to at least $2.20.
(c) SERIES B PREFERRED STOCK
Series B preferred shares are convertible into 2,928,361 shares of common
stock as of December 31, 1999, subject to adjustment for dilution that may occur
from future equity transactions, and have voting rights on an as-converted
basis. The Series B preferred shares are entitled to receive dividends equal to
$.009 per share on an annual basis when and if declared by the Board of
Directors. In the event of liquidation of the Company, the holder of the Series
B preferred shares is entitled to receive an amount equal to $.18 per share,
plus any declared and unpaid dividends. The Series B preferred shares are
convertible at any time, at the option of the holder, and convert automatically
upon consummation of a public offering of common stock resulting in proceeds to
the Company of not less than $15.0 million and at an offering price per share
equal to at least $2.20.
(d) SERIES C PREFERRED STOCK
Series C preferred shares are convertible into 2,514,324 shares of common
stock as of December 31, 1999, subject to adjustment for dilution that may occur
from future equity transactions, and have voting rights on an as-converted
basis. The Series C preferred shares are entitled to receive dividends equal to
$.0352 per share on an annual basis when and if declared by the Board of
Directors. In the event of liquidation of the Company, holders of the Series C
preferred shares are entitled to receive an amount equal to $.44 per share, plus
any declared and unpaid dividends. The Series C preferred shares are convertible
at any time, at the option of the holder and are subject to mandatory conversion
upon consummation of a public offering of common stock resulting in proceeds to
the Company of not less than $15.0 million and at an offering price per share
equal to at least $2.20.
(e) NOTES RECEIVABLE FOR PREFERRED AND COMMON STOCK
Notes receivable due from stockholders from the sale of Series A preferred
and common stock bear interest at 8% and are due at various dates through 2003
and are shown as a reduction of stockholders' equity.
(f) STOCK OPTIONS
The Company has a stock option plan pursuant to which the Company's Board
of Directors may grant stock options to officers, employees and consultants of
the Company. The stock option plan authorizes grants to purchase up to
14,000,000 shares of authorized but unissued common stock. At December 31,
F-10
<PAGE> 89
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1999, 4,381,501 shares were available for grant under the stock option plan.
Options vest over periods of up to four years and generally expire ten years
from the date of grant. The weighted average remaining contractual term of
outstanding options was approximately 9.4 years at March 31, 1999. The Company
has also granted options outside the stock option plan to employees and
directors to purchase 1,222,331 shares of common stock with similar terms. Those
options are included in the disclosures below.
The following table summarizes activity for options issued to employees and
directors from inception (January 22, 1998) to December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
---------- --------------
<S> <C> <C>
Options outstanding at inception (January 22, 1998)......... -- $ --
Granted................................................... 1,400,000 .10
----------
Options outstanding at March 31, 1998....................... 1,400,000 .10
Granted................................................... 5,851,000 .11
Exercised................................................. (5,970,000) .10
Forfeited................................................. (35,000) .12
----------
Options outstanding at March 31, 1999....................... 1,246,000 .11
Granted................................................... 4,300,327 .83
Exercised................................................. (713,332) .16
Forfeited................................................. (834,664) .16
----------
Options outstanding at December 31, 1999 (unaudited)........ 3,998,331 .87
==========
</TABLE>
The Company generally grants stock options with exercise prices equal to
fair value at the date of grant, and accordingly, generally does not recognize
compensation expense relating to employee option grants. In November 1999, a
total of 1,222,331 stock options were granted with exercise prices less than
fair value, resulting in total compensation expense to be recognized over the
vesting period of $2,297,982, of which $1,620,105 was recognized in the nine
months ended December 31, 1999.
During the period from inception (January 22, 1998) to March 31, 1998, the
year ended March 31, 1999 and the nine-month period ended December 31, 1999, the
per share weighted-average fair value of stock options granted with exercise
prices equal to the fair value at the grant date was $0.05, $0.06 and $0.44,
respectively, on the date of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions: no dividends; 75% volatility;
risk-free interest rate of 6.5%; and expected life of four years. If the Company
had recorded the options at the grant date under SFAS No. 123, net loss would
have been approximately $37,168, $3,765,142 and $5,305,851 and the net loss per
share would have been approximately $0, $1.43 and $.56 for the period from
inception (January 22, 1998) to March 31, 1998, the year ended March 31, 1999
and the nine-month period ended December 31, 1999, respectively.
F-11
<PAGE> 90
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options issued to
employees and directors outstanding at December 31, 1999 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------ ------------------------------
WEIGHTED AVERAGE
EXERCISE NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ .10 375,000 8.5 $ .10 312,500 $ .10
.12 1,334,750 9.0 .12 587,500 .12
1.12 1,981,081 9.8 1.12 883,581 1.12
3.19 272,500 9.9 3.19 -- 3.19
5.25 35,000 9.9 5.25 -- 5.25
--------- ---------
3,998,331 9.4 1,783,581 .61
========= =========
</TABLE>
Included in options exercisable at December 31, 1999 are 887,500 options
which were exercisable at the date of grant; however, the shares issued upon
exercise will be restricted and subject to repurchase at the exercise price if
employees terminate prior to the vesting of their shares, which is generally
over four years from the grant date of the options. At December 31, 1999,
restricted shares issued for options exercised which are subject to repurchase
totaled 3,078,244 shares, with a weighted average repurchase price of $.10. All
of the restricted shares become fully vested upon an initial public offering.
In addition to options issued to employees and directors, the Company
issued 106,667 and 57,500 common stock options to consultants for services
during the year ended March 31, 1999 and the nine months ended December 31,
1999, respectively. These options have exercise prices ranging from $.10 to $.12
per share, are exercisable at the date of grant and expire at various dates from
November 2008 to August 2009. The fair value of these options was determined to
be $14,080 and $37,658 for the year ended March 31, 1999 and the nine months
ended December 31, 1999, respectively, and was recognized as general and
administrative expense. The fair value was calculated using the Black Scholes
option-pricing model with the following assumptions: risk-free interest rate of
6.5%; contractual lives of ten years; no dividend yield; and 75% volatility. As
of December 31, 1999, 105,000 of these options have been exercised.
(g) WARRANTS
In return for services performed during the nine months ended December 31,
1999, the Company granted warrants to purchase 20,000 common shares at $.01 per
share. These warrants are exercisable at any time and expire in December 2003.
The fair value of these warrants was determined to be $104,840 and was
recognized as general and administrative expense. The fair value was calculated
using the Black Scholes option-pricing model with the following assumptions:
risk-free interest rate of 6.5%; contractual life of four years; no dividend
yield; and 75% volatility.
In connection with issuances of Series A preferred stock and Series C
preferred stock, during the year ended March 31, 1999 and the nine months ended
December 31, 1999, the Company granted warrants to purchase 158,333 and 433,257
shares of common stock, respectively, at prices ranging from $.01 to $1.30 per
share. These warrants are exercisable at any time and expire at various dates
from December 2002 to September 2003. The fair value of these warrants was
determined to be $9,883 and $134,717 for the year ended March 31, 1999 and the
nine months ended December 31, 1999, respectively, and was separately recorded
as warrants for the purchase of common stock and as a reduction to the Series A
and Series C preferred stock. The fair value was calculated using the Black
Scholes option-pricing model with the following assumptions: risk-free interest
rate of 6.5%; contractual lives of four years; no dividend yield; and 75%
volatility. As of December 31, 1999, 180,555 of these warrants have been
exercised.
F-12
<PAGE> 91
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In connection with issuances of notes payable, during the nine months ended
December 31, 1999, the Company granted warrants to purchase 137,500 shares of
common stock at prices ranging from $.25 to $1.00 per share, 20,000 of which
were issued to officers of the Company with exercise prices of $0.25. The fair
value of these warrants was determined to be $257,805 and was recognized as
interest expense. These warrants are exercisable at any time and expire at
various dates through August 2003. The fair value was calculated using the Black
Scholes option-pricing model with the following assumptions: risk-free interest
rate of 6.5%; contractual lives of four years; no dividend yield; and 75%
volatility.
In connection with issuances of common stock, during the nine months ended
December 31, 1999, the Company granted warrants to purchase 90,158 shares of
common stock at prices ranging from $.01 to $3.00 per share. These warrants are
exercisable at any time and expire in November 2003. The fair value of these
warrants was determined to be $269,925 and was recorded in additional paid in
capital. The fair value was calculated using the Black Scholes option-pricing
model with the following assumptions: risk-free interest rate of 6.5%;
contractual lives of four years; no dividend yield; and 75% volatility.
In connection with the execution of an integrated circuit supply agreement
in March 2000, the Company granted warrants to purchase 300,000 shares of common
stock at $20.00 per share. These warrants are exercisable from December 1, 2000
to May 31, 2001. The fair value of these warrants was determined to be $440,000
and will be included in cost of sales at the date of grant. The fair value was
calculated using the Black Scholes option-pricing model with the following
assumptions: risk-free interest rate of 6.5%; contractual life of 15 months; no
dividend yield; and 75% volatility.
(6) INCOME TAXES
Income tax benefit relating to losses for the period from inception
(January 22, 1998) to March 31, 1998, the year ended March 31, 1999 and the nine
months ended December 31, 1999 differs from the amounts that would result from
applying the federal statutory rate of 15% in 1998 and 34% thereafter as
follows:
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION YEAR NINE MONTHS
(JANUARY 22, 1998) ENDED ENDED
TO MARCH 31, MARCH 31, DECEMBER 31,
1998 1999 1999
------------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Expected tax benefit...................... $(5,266) $(1,256,403) $(1,601,300)
State income taxes, net of federal
benefit................................. (1,492) (115,278) (146,923)
Nondeductible interest expense............ -- -- 87,654
Change in valuation allowance for deferred
tax assets.............................. 6,758 1,350,380 1,677,876
Other, net................................ -- 21,301 (17,307)
------- ----------- -----------
Actual income tax benefit....... $ -- $ -- $ --
======= =========== ===========
</TABLE>
F-13
<PAGE> 92
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Temporary differences that give rise to deferred tax assets are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------- DECEMBER 31,
1998 1999 1999
------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Net operating loss carryforwards................. $ 6,758 $ 1,285,338 $ 2,275,572
Stock option compensation........................ -- -- 648,042
Accrued expenses................................. -- 71,800 81,400
Other, net....................................... -- -- 30,000
------- ----------- -----------
Gross deferred tax asset............... 6,758 1,357,138 3,035,014
Valuation allowance.............................. (6,758) (1,357,138) (3,035,014)
------- ----------- -----------
Net deferred tax asset................. $ -- $ -- $ --
======= =========== ===========
</TABLE>
The Company has net operating loss carryforwards for federal income tax
purposes of approximately $3.0 million at March 31, 1999 and $6.1 million at
December 31, 1999 which is available to offset future federal taxable income, if
any, through 2019. Management believes the utilization of the carryforwards may
be limited by Internal Revenue Code Section 382 relating to changes in
ownership, as defined.
Due to the uncertainty regarding the realization of the deferred tax assets
relating to net operating loss carryforwards and other temporary differences, a
valuation allowance has been recorded for the entire amount of the Company's
deferred tax assets.
(7) COMMITMENTS AND CONTINGENCIES
(a) PURCHASE COMMITMENTS
The Company generally enters into firm purchase commitments with suppliers
and third party manufacturers for its estimated inventory requirements for the
succeeding three months. For certain components which require longer lead times,
the Company may enter into firm purchase commitments for estimated usage of up
to six months.
(b) LEASE COMMITMENTS
The Company leases office space under noncancelable operating leases
expiring through 2005. Future minimum lease payments under noncancelable
operating leases with remaining noncancelable lease terms in excess of one year
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
<S> <C>
2000...................................................... $ 19,000
2001...................................................... 227,000
2002...................................................... 227,000
2003...................................................... 227,000
2004...................................................... 227,000
2005...................................................... 208,000
----------
$1,135,000
==========
</TABLE>
Rent expense totaled $207,000 and $306,000 for the year ended March 31,
1999 and the nine months ended December 31, 1999, respectively.
F-14
<PAGE> 93
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(c) EMPLOYEE BENEFIT PLAN
In December 1998, the Company established a 401(k) plan that allows
eligible employees to contribute up to 15% of their compensation up to the
maximum amount set forth in the Internal Revenue Code. The Company matches 25%
of employee contributions. The Company's contributions were $6,914 and $55,317
for the year ended March 31, 1999 and for the nine months ended December 31,
1999, respectively.
(8) SIGNIFICANT CUSTOMER AND SUPPLIER INFORMATION
Revenue attributable to significant customers (as a percentage of total
revenue) was as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
MARCH 31, DECEMBER 31,
1999 1999
---------- ------------
(UNAUDITED)
<S> <C> <C>
Customer A.................................................. 47% 24%
Customer B.................................................. -- 22%
Customer C.................................................. 2% 16%
Customer D.................................................. 20% 11%
Customer E.................................................. 24% 2%
</TABLE>
The Company also had foreign export sales, primarily to European customers,
amounting to 44% and 22% of total sales for the year ended March 31, 1999 and
the nine months ended December 31, 1999, respectively.
The Company obtains key components from two suppliers. A loss of either
source of supply would have a significant impact on the Company's ability to
provide products to customers.
(9) VALUATION AND QUALIFYING ACCOUNTS
The following presents information related to the Company's valuation and
qualifying accounts:
<TABLE>
<CAPTION>
BALANCES AT ADDITIONS BAD DEBT, BALANCES AT
MARCH 31, CHARGED TO WRITE-OFFS AND DECEMBER 31,
1999 OPERATIONS(1) RETURNS(1) 1999
----------- ------------- -------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts.............. $-- $ 75,000 $ -- $ 75,000
Inventory obsolescence reserve............... $-- $100,000 $ -- $100,000
Warranty reserve............................. $-- $ 97,850 $(47,850) $ 50,000
Sales returns and allowances................. $-- $ 92,825 $(10,000) $ 82,825
</TABLE>
- ---------------
(1) Includes provisions for stock rotation rights and other sales returns, and
actual returns which were charged against revenue.
F-15
<PAGE> 94
[INSIDE BACK COVER FOR GRAPHICS]
<PAGE> 95
[BACK COVER]
[CHAPARRAL NETWORK STORAGE LOGO]
<PAGE> 96
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 the
underwriting discount, payable by the Registrant in connection with the sale of
the common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
SEC registration fee........................................ $15,840
NASD filing fee............................................. $ 6,500
Nasdaq National Market listing fee.......................... $ *
Legal fees and expenses..................................... $ *
Accounting fees and expenses................................ $ *
Printing and engraving...................................... $ *
Blue sky fees and expenses (including legal fees)........... $ *
Transfer agent fees......................................... $ *
Miscellaneous............................................... $ *
Total............................................. $ *
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the Delaware General Corporation Law, as amended (the
"DGCL"), the Registrant's certificate of incorporation, as amended, eliminates
in certain circumstances the liability of our directors for monetary damages for
breach of their fiduciary duty as directors. This provision does not eliminate
the liability of a director for: (i) a breach of the director's duty of loyalty
to the Registrant or its shareholders, (ii) acts or omissions by the director
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) a willful or negligent declaration of an unlawful distribution or
(iv) transactions from which the director derived an improper personal benefit.
The Registrant's certificate of incorporation also provides that we shall
indemnify any person and his or her estate and personal representatives against
all liability and expenses incurred by reason of the person being or having been
a director or officer of the Registrant or, while serving as a director or
officer of the Registrant, serving at the request of it or any of its
subsidiaries as a director, an officer, an agent, an associate, an employee, a
fiduciary, a manager, a member, a partner, a promoter, or a trustee of, or to
hold any similar position with, another domestic or foreign corporation or other
entity or of an employee benefit plan, to the full extent permitted under the
DGCL. The DGCL requires a corporation to indemnify its officers and directors
against reasonable expenses incurred in any proceeding to which the officer or
director is a party and was wholly successful, on the merits or otherwise, in
defense of the proceeding. In addition to this mandatory indemnification, the
DGCL provides that a corporation may indemnify its officers and directors
against liability and reasonable expenses if the officer or director acted in
good faith and in a manner reasonably believed to be in the best interests of
the corporation in the case of conduct in an official capacity, in a manner he
or she reasonably believed was at least not opposed to the corporation's best
interests in all other cases, or in a manner he or she had no reasonable cause
to believe was unlawful in the case of criminal proceedings. In actions by or in
the name of the corporation, the DGCL provides the same standard but limits
indemnification to reasonable expenses incurred by the director and prohibits
any indemnification if the director is adjudged liable to the corporation. The
DGCL also prohibits indemnification of a director in connection with actions
charging improper personal benefit to the director if the director is adjudged
liable on that basis.
II-1
<PAGE> 97
DIRECTOR AND OFFICER LIABILITY INSURANCE
Our director and officer insurance policy indemnifies us and/or our
directors and officers for judgments and expenses arising in connection with any
claim made during the policy period for director and officer misconduct other
than dishonest or criminal acts, acts made for the director or officers's
personal profit or gain, fraudulent acts, or acts that are in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The policy reimburses us when we are obligated to indemnify our directors
and officers for judgments and expenses arising from covered misconduct. The
policy reimburses the directors and officers for judgments and expenses arising
out of claims for which indemnification from us is either not available or not
permitted by law. The policy excludes coverage for claims brought by one insured
(director, officer, or the company) against another insured.
The limit under our policy is $ and the premium is $ per
month. The deductible varies depending on whether the claim involves an
individual director or officer or the company, and on whether the claim is
related to a violation of the Exchange Act or the Securities Act of 1933, as
amended (the "Securities Act"). If the claim involves indemnifying an individual
director or officer and is not Securities related, then the deductible is $0. If
the claim involves indemnifying the company and is not Securities related, then
the deductible is $ . The deductible for any Securities related claim
is $ .
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant has issued the following securities since its inception in
January 1998:
Since its inception in January 1998, the Registrant has issued and sold
unregistered securities in the transactions described below. The sale and
issuance of stock, warrants and options were exempt from registration under Rule
506 and Rule 701 under the Securities Act. All such sales made in reliance on
the exemption from registration provided by Rule 506 under the Securities Act
were made to investors who represented that they were accredited investors, that
they intended to acquire the securities for investment only and not with a view
to distribution, and that they had received or had access to adequate
information about the Company. The following share and dollar amounts are
adjusted to reflect the Company's 1-for-2 reverse stock split effective as of
October 15, 1999.
Shares of Common Stock
(1) On June 16, 1998, the Registrant issued 1,875,000 to its founders
pursuant to Rule 506 under the Securities Act at an aggregate purchase price of
$3,750.
(2) On November 25, 1998, each of the founders named above agreed to
rescind their shares in exchange for a promissory note from the Registrant in an
amount equal to the purchase price of the founder shares. The promissory note
was then contributed by each founder to the Registrant in exchange for the
issuance of an aggregate of 1,875,000 shares of common stock to the founders
pursuant to a Contribution Agreement, dated November 25, 1998. The Registrant
issued these shares pursuant to Rule 506 under the Securities Act at an
aggregate purchase price of $3,750.
(3) On February 17, 1999, the Registrant issued 50,000 shares as payment
for services valued at $6,000 to a director who is an accredited investor
pursuant to Rule 506 under the Securities Act.
(4) From July through December 1999, the Registrant issued 44,952 shares to
certain consultants pursuant to Rule 701 under the Securities Act in lieu of
consulting fees in the amount of $36,334.
(5) In August 1999, the Registrant issued 453,846 shares to an accredited
investor pursuant to Rule 506 under the Securities Act. The aggregate purchase
price was $500,000.
(6) From October 31 through December 31, 1999, the Registrant issued
170,112 shares to accredited investors pursuant to Rule 506 under the Securities
Act for an aggregate purchase price of $302,185. These shares were issued in
lieu of payment of various consultants' fees, commissions in connection with
II-2
<PAGE> 98
the sale of the Registrant's securities and 5 months rent for the Registrant's
new principal executive offices.
(7) In September and December 1999, the Registrant issued 1,650,868 shares
to two accredited investors as commissions in connection with the private
placement of securities pursuant to Rule 506 under the Securities Act at an
aggregate purchase price of $1,452,764.
(8) In November 1999, the Registrant issued 1,820,669 shares to accredited
investors pursuant to Rule 506 under the Securities Act at an aggregate purchase
price of $6,242,002.
(9) From November 30, 1999 through February 14, 2000, the Registrant issued
3,663,519 shares to stockholders pursuant to Rule 506 under the Securities Act
in connection with their exercise of preemptive rights at an aggregate purchase
price of $10,743,887.
(10) In December 1999 and January 2000, the Registrant issued 1,201,500
shares to accredited investors pursuant to Rule 506 under the Securities Act at
an aggregate purchase price of $5,033,125.
(11) Through March 1, 2000, the Registrant has issued and sold 7,069,998
shares to directors, employees and consultants upon the exercise of options
granted under its 1998 stock option plan at exercise prices ranging from $0.10
to $1.12.
Shares of Series A Preferred Stock
(1) On November 24 through November 27, 1998, the Registrant issued
11,600,000 shares to certain accredited investors pursuant to Rule 506 under the
Securities Act at an aggregate purchase price of $1,160,000.
(2) On December 11, 1998, the Registrant issued 833,333 shares to an
accredited investor pursuant to Rule 506 under the Securities Act at an
aggregate purchase price of $150,000.
(3) On December 15, 1998, the Registrant issued 666,667 shares to an
accredited investor pursuant to Rule 506 under the Securities Act at an
aggregate purchase price of $120,000.
(4) On January 13, 1999, the Registrant issued 800,000 shares to an
accredited investor pursuant to Rule 506 under the Securities Act at an
aggregate purchase price of $200,000.
(5) In February 1999, the Registrant issued 1,200,000 shares to accredited
investors pursuant to Rule 506 under the Securities Act at an aggregate purchase
price of $300,000.
(6) On March 31, 1999, the Registrant issued 555,556 shares to an
accredited investor pursuant to Rule 506 under the Securities Act at an
aggregate purchase price of $200,000.
(7) In April 1999, the Registrant issued 790,316 shares to accredited
investors pursuant to Rule 506 under the Securities Act at an aggregate purchase
price of $300,320.
(8) In May 1999, the Registrant issued 736,000 shares to accredited
investors pursuant to Rule 506 under the Securities Act at an aggregate purchase
price of $294,400.
(9) In June 1999, the Registrant issued 1,417,500 shares to accredited
investors pursuant to Rule 506 under the Securities Act at an aggregate purchase
price of $567,000.
Shares of Series B Preferred Stock
On November 25, 1998, the Registrant issued 5,540,200 shares to an
accredited investor pursuant to Rule 506 under the Securities Act in exchange
for assets and forgiveness of debt valued at $1,000,000.
Shares of Series C Preferred Stock
On October 15, 1999, the Registrant issued 5,000,000 shares to accredited
investors pursuant to Rule 506 under the Securities Act at an aggregate purchase
price of $2,320,000.
II-3
<PAGE> 99
Warrants to Purchase Common Stock
(1) On December 15, 1998, the Registrant granted a warrant to purchase
55,555 shares at an exercise price of $0.02 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment of commissions in
connection with the sale of securities. This warrant was exercised on December
15, 1999.
(2) On February 8, 1999, the Registrant granted a warrant to purchase
75,000 shares at an exercise price of $0.50 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment of commissions in
connection with the sale of securities. This warrant was exercised on January
13, 2000.
(3) On March 31, 1999, the Registrant granted a warrant to purchase 27,778
shares at an exercise price of $0.72 per share pursuant to Rule 506 under the
Securities Act to an accredited investor as payment of commissions in connection
with the sale of securities. This warrant was exercised on January 13, 2000.
(4) On April 1, 1999, the Registrant granted a warrant to purchase 52,500
shares at an exercise price of $1.00 per share to an accredited investor as fees
in connection with loans made by him to the Registrant. This warrant was
exercised on January 25, 2000.
(5) On April 28, 1999, the Registrant granted a warrant to purchase 26,316
shares at an exercise price of $0.76 per share pursuant to Rule 506 under the
Securities Act to an accredited investor as payment of commissions in connection
with the sale of securities. This warrant was exercised on January 13, 2000.
(6) On May 28, 1999, the Registrant granted a warrant to purchase 52,125
shares at an exercise price of $0.80 per share pursuant to Rule 506 under the
Securities Act to an accredited investor as payment of commissions in connection
with the sale of securities. This warrant was exercised on January 13, 2000.
(7) On July 7, 1999, the Registrant granted a warrant to purchase 88,182
shares at an exercise price of $0.88 per share pursuant to Rule 506 under the
Securities Act to an accredited investor as payment of commissions in connection
with the sale of securities. This warrant was exercised on January 13, 2000.
(8) On July 20, 1999, the Registrant granted a warrant to purchase 95,000
shares at an exercise price of $1.00 per share pursuant to Rule 506 under the
Securities Act to an accredited investor as payment of commissions in connection
with the sale of securities. This warrant was exercised on January 13, 2000.
(9) On August 9, 1999, the Registrant granted a warrant to purchase 30,000
shares at an exercise price of $1.00 per share pursuant to Rule 506 under the
Securities Act to an accredited investor as payment of commissions in connection
with the sale of securities. This warrant was exercised on January 13, 2000.
(10) On August 12, 1999, the Registrant granted a warrant to purchase
15,384 shares at an exercise price of $1.30 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment of commissions in
connection with the sale of securities. This warrant was exercised on January
13, 2000.
(11) On August 13, 1999, the Registrant granted a warrant to purchase
12,500 shares at an exercise price of $1.00 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as fees in connection with loans
made by him to the Registrant. This warrant was exercised on January 25, 2000.
(12) On August 19, 1999, the Registrant granted a warrant to purchase
10,000 shares at an exercise price of $0.25 per share pursuant to Rule 506 under
the Securities Act to each of two executive officers who are accredited
investors as fees in connection with loans made by them to the Registrant.
II-4
<PAGE> 100
(13) On September 8, 1999, the Registrant granted a warrant to purchase
1,250 shares at an exercise price of $0.80 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment of commissions in
connection with the sale of securities.
(14) On September 13, 1999, the Registrant granted a warrant to purchase
125,000 shares at an exercise price of $0.02 per share pursuant to Rule 506
under the Securities Act to a consultant as payment of commissions in connection
with the sale of securities. This warrant was exercised on September 21, 1999.
(15) On November 4, 1999, the Registrant granted a warrant to purchase
26,667 shares at an exercise price of $3.00 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment of commissions in
connection with the sale of securities. This warrant was exercised on January
13, 2000.
(16) On November 8, 1999, the Registrant granted a warrant to purchase
63,491 shares at an exercise price of $0.01 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment of commissions in
connection with the sale of securities.
(17) On December 13, 1999, the Registrant granted a warrant to purchase
52,500 shares at an exercise price of $1.00 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as fees in connection with loans
made by him to the Registrant. This warrant was exercised on January 25, 2000.
(18) On December 13, 1999, the Registrant granted a warrant to purchase
20,000 shares at an exercise price of $0.01 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment for consulting services.
(19) On March 1, 2000, the Registrant granted a warrant to purchase 300,000
shares at an exercise price of $20.00 pursuant to Rule 506 under the Securities
Act to an accredited investor in connection with an agreement pursuant to which
the Registrant will purchase ASICs from the investor.
Options to Purchase Common Stock
The Registrant from time to time has granted stock options to employees,
consultants and directors. The following table sets forth certain information
regarding such grants:
<TABLE>
<CAPTION>
NUMBER RANGE OF
OF SHARES EXERCISE PRICES($)
--------- ------------------
<S> <C> <C>
1998.............................................. 1,400,000 0.10
1999.............................................. 5,957,667 0.10-0.12
2000 (through March 1, 2000)...................... 4,560,577 0.12-10.00
</TABLE>
The above securities were offered and sold by the Registrant in reliance
upon exemptions from registration pursuant to either (i) Section 4(2) of the
Securities Act as transactions not involving any public offering; (ii)
Regulation D promulgated under the Securities Act as limited offers and sales of
securities, or (iii) Rule 701 promulgated under the Securities Act. All
purchasers of the above securities acquired said shares for investment purposes
only and all stock certificates reflect the appropriate legends. No underwriters
were involved in connection with the sales of securities referred to in this
Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant.
</TABLE>
II-5
<PAGE> 101
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
3.2 -- Form of Amended and Restated Certificate of Incorporation
to be Filed Immediately Prior to the Offering.*
3.3 -- Bylaws of the Registrant.
3.4 -- Form of Bylaws to be In Effect Immediately Prior to the
Offering.*
4.1 -- Specimen Common Stock Certificate.*
5.1 -- Opinion of Davis, Graham & Stubbs LLP.
10.1 -- 1998 Stock Option Plan.
10.2 -- Form of 2000 Stock Incentive Plan to be Adopted
Immediately Prior to the Offering.*
10.3 -- Form of 2000 Employee Stock Purchase Plan to be Adopted
Immediately Prior to the Offering.*
10.4 -- Form of Executive Employment and Non-Compete Agreement,
between the Registrant and Gary L. Allison, Michael J.
Gluck and Jerry L. Walker.*
10.5 -- Form of Indemnification Agreement, between the Registrant
and each of its executive officers and directors.*
10.6 -- Investors' Rights Agreement, dated as of November 25,
1998, between the Registrant and holders of its Preferred
Stock.
10.7 -- First Amended Investors' Rights Agreement, dated as of
March 31, 1999, between the Registrant and holders of its
preferred stock.
10.8 -- Second Amended Investors' Rights Agreement, dated as of
August 13, 1999, between the Registrant and holders of
its preferred stock.
10.9 -- Third Amended Investors' Rights Agreement, dated as of
October 16, 1999, between the Registrant and holders of
its preferred stock.
10.10 -- Fourth Investors' Rights Agreement, dated as of March 1,
2000, between the Registrant and holders of its preferred
stock.
10.11 -- Credit and Security Agreement, dated as of July 5, 1999,
between the Registrant and Wells Fargo Business Credit,
Inc.
10.12 -- Collateral Account Agreement, dated as of July 5, 1999,
between the Registrant and Wells Fargo Business Credit,
Inc. and Norwest Bank Colorado, N.A.
10.13 -- Support Agreement, dated as of July 5, 1999, between
Douglas J. Lehrmann and the Registrant for the benefit of
Wells Fargo Business Credit, Inc.
10.14 -- Support Agreement, dated as of July 5, 1999, between Gary
L. Allison and the Registrant for the benefit of Wells
Fargo Business Credit, Inc.
10.15 -- Subordination Agreement, dated as of July 5, 1999,
between William R. Childs and Wells Fargo Business
Credit, Inc.
10.16 -- Loan Agreement, dated as of January 14, 2000, between the
Registrant and Norwest Bank Colorado N.A. -- Boulder.
10.17 -- Occupancy License Agreement, effective as of October 1,
1998, between the Registrant and Adaptec, Inc., as
amended by First Amendment to Occupancy License
Agreement, effective as of July 15, 1999.
10.18 -- Lease, dated as of September 1, 1999, between the
Registrant and BTC Development, LLC, as amended by
Addendum to Lease Agreement dated November 15, 1999.
10.19 -- Asset Transfer Agreement, dated as of November 25, 1998,
between the Registrant and Adaptec, Inc.
</TABLE>
II-6
<PAGE> 102
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.20 -- Contribution Agreement, dated as of November 25, 1998,
between the Registrant, Adaptec, Inc. and certain listed
individuals.
10.21 -- Technology Cross License Agreement, dated as of November
25, 1998, between the Registrant and Adaptec, Inc.*+
10.22 -- Board Manufacturing and Transition Agreement, dated as of
November 25, 1998, between the Registrant and Adaptec,
Inc.
10.23 -- Integrated Circuit Agreement, dated March 1, 2000,
between the Registrant and Adaptec, Inc.*+
10.24 -- Hardware Agreement, dated June 18, 1999, between the
Registrant and nStor Corporation.*+
10.25 -- Distribution Agreement, dated March 10, 1999, between the
Registrant and Gates/Arrow Distributing, Inc.
10.26 -- Financial Consultant Agreement, dated January 12, 1999,
between the Registrant and Sentinel Consulting, LLC.
10.27 -- Forms of Founder Stock Purchase Agreement, dated June 16,
1998 and November 25, 1998, between the Registrant and
its founders.
10.28 -- Forms of Series A Preferred Stock Purchase Agreement,
dated various dates between November 24, 1998 and June
15, 1999, between the Registrant and purchasers of its
Series A preferred stock.
10.29 -- Forms of Series C Preferred Stock Purchase Agreement,
dated October 15, 1999, between the Registrant and
purchasers of its Series C preferred stock.
10.30 -- Form of Common Stock Purchase Agreement, dated various
dates from July 15, 1999 through February 14, 2000,
between the Registrant and purchasers of its common
stock.
10.31 -- Promissory Notes, dated various dates between January
1998 and August 1999, between the Registrant and each of
Grant Saviers, Woodcarvers Limited, LLC, Douglas
Lehrmann, Harvest Storage Technology Group LLC, Gary
Allison, William Childs, Michael Gluck, Brian Allison,
Jerry Walker, and Chaparral Systems, Inc.
10.32 -- Warrant Agreements, dated various dates between December
1998 and March 2000, between the Registrant and each of
Gary Allison, William Childs, Michael Gluck, Harvest
Storage Technology Group LLC, Adaptec, Inc., and Sentinel
Consulting, LLC.
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Davis, Graham & Stubbs, LLP (contained in
Exhibit 5.1).
24.1 -- Powers of Attorney (included on signature page).
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Portions of the agreement have been omitted pursuant to a confidential
treatment request.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes:
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-7
<PAGE> 103
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
- For purposes of determining any liability under the Securities, 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.
- For the purpose of determining any liability under the Securities, 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-8
<PAGE> 104
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 authorized, in the City of Longmont and the
State of Colorado on the 8th day of March, 2000.
CHAPARRAL NETWORK STORAGE, INC.,
a Delaware corporation
By: /s/ GARY L. ALLISON
----------------------------------
Gary L. Allison
Chairman of the Board and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary L. Allison, Michael J. Gluck, Jerry L.
Walker and Douglas J. Lehrmann, and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all exhibits and
schedules thereto, including any subsequent registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, together
with all schedules and exhibits thereto and other certificates, instruments,
agreements and other documents as may be necessary or appropriate in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GARY L. ALLISON Chairman of the Board and Chief March 8, 2000
- ----------------------------------------------------- Executive Officer (Principal
Gary L. Allison Executive Officer)
/s/ MICHAEL J. GLUCK President, Chief Operating March 8, 2000
- ----------------------------------------------------- Officer and Director
Michael J. Gluck
/s/ JERRY L. WALKER Executive Vice President for March 8, 2000
- ----------------------------------------------------- Engineering and Operations
Jerry L. Walker and Director
/s/ DOUGLAS J. LEHRMANN Vice President, Finance and March 8, 2000
- ----------------------------------------------------- Chief Financial Officer
Douglas J. Lehrmann (Chief Financial and
Accounting Officer)
/s/ F. GRANT SAVIERS Director March 8, 2000
- -----------------------------------------------------
F. Grant Saviers
</TABLE>
II-9
<PAGE> 105
EXHIBIT INDEX
CHAPARRAL NETWORK STORAGE, INC.
FORM S-1 REGISTRATION STATEMENT
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 -- Form of Amended and Restated Certificate of Incorporation
to be Filed Immediately Prior to the Offering.*
3.3 -- Bylaws of the Registrant.
3.4 -- Form of Bylaws to be In Effect Immediately Prior to the
Offering.*
4.1 -- Specimen Common Stock Certificate.*
5.1 -- Opinion of Davis, Graham & Stubbs LLP.
10.1 -- 1998 Stock Option Plan.
10.2 -- Form of 2000 Stock Incentive Plan to be Adopted
Immediately Prior to the Offering.*
10.3 -- Form of 2000 Employee Stock Purchase Plan to be Adopted
Immediately Prior to the Offering.*
10.4 -- Form of Executive Employment and Non-Compete Agreement,
between the Registrant and Gary L. Allison, Michael J.
Gluck and Jerry L. Walker.*
10.5 -- Form of Indemnification Agreement, between the Registrant
and each of its executive officers and directors.*
10.6 -- Investors' Rights Agreement, dated as of November 25,
1998, between the Registrant and holders of its Preferred
Stock.
10.7 -- First Amended Investors' Rights Agreement, dated as of
March 31, 1999, between the Registrant and holders of its
preferred stock.
10.8 -- Second Amended Investors' Rights Agreement, dated as of
August 13, 1999, between the Registrant and holders of
its preferred stock.
10.9 -- Third Amended Investors' Rights Agreement, dated as of
October 16, 1999, between the Registrant and holders of
its preferred stock.
10.10 -- Fourth Investors' Rights Agreement, dated as of March 1,
2000, between the Registrant and holders of its preferred
stock.
10.11 -- Credit and Security Agreement, dated as of July 5, 1999,
between the Registrant and Wells Fargo Business Credit,
Inc.
10.12 -- Collateral Account Agreement, dated as of July 5, 1999,
between the Registrant and Wells Fargo Business Credit,
Inc. and Norwest Bank Colorado, N.A.
10.13 -- Support Agreement, dated as of July 5, 1999, between
Douglas J. Lehrmann and the Registrant for the benefit of
Wells Fargo Business Credit, Inc.
10.14 -- Support Agreement, dated as of July 5, 1999, between Gary
L. Allison and the Registrant for the benefit of Wells
Fargo Business Credit, Inc.
10.15 -- Subordination Agreement, dated as of July 5, 1999,
between William R. Childs and Wells Fargo Business
Credit, Inc.
10.16 -- Loan Agreement, dated as of January 14, 2000, between the
Registrant and Norwest Bank Colorado N.A. -- Boulder.
10.17 -- Occupancy License Agreement, effective as of October 1,
1998, between the Registrant and Adaptec, Inc., as
amended by First Amendment to Occupancy License
Agreement, effective as of July 15, 1999.
</TABLE>
<PAGE> 106
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.18 -- Lease, dated as of September 1, 1999, between the
Registrant and BTC Development, LLC, as amended by
Addendum to Lease Agreement dated November 15, 1999.
10.19 -- Asset Transfer Agreement, dated as of November 25, 1998,
between the Registrant and Adaptec, Inc.
10.20 -- Contribution Agreement, dated as of November 25, 1998,
between the Registrant, Adaptec, Inc. and certain listed
individuals.
10.21 -- Technology Cross License Agreement, dated as of November
25, 1998, between the Registrant and Adaptec, Inc.*+
10.22 -- Board Manufacturing and Transition Agreement, dated as of
November 25, 1998, between the Registrant and Adaptec,
Inc.
10.23 -- Integrated Circuit Agreement, dated March 1, 2000,
between the Registrant and Adaptec, Inc.*+
10.24 -- Hardware Agreement, dated June 18, 1999, between the
Registrant and nStor Corporation.*+
10.25 -- Distribution Agreement, dated March 10, 1999, between the
Registrant and Gates/Arrow Distributing, Inc.
10.26 -- Financial Consultant Agreement, dated January 12, 1999,
between the Registrant and Sentinel Consulting, LLC.
10.27 -- Forms of Founder Stock Purchase Agreement, dated June 16,
1998 and November 25, 1998, between the Registrant and
its founders.
10.28 -- Forms of Series A Preferred Stock Purchase Agreement,
dated various dates between November 24, 1998 and June
15, 1999, between the Registrant and purchasers of its
Series A preferred stock.
10.29 -- Forms of Series C Preferred Stock Purchase Agreement,
dated October 15, 1999, between the Registrant and
purchasers of its Series C preferred stock.
10.30 -- Form of Common Stock Purchase Agreement, dated various
dates from July 15, 1999 through February 14, 2000,
between the Registrant and purchasers of its common
stock.
10.31 -- Promissory Notes, dated various dates between January
1998 and August 1999, between the Registrant and each of
Grant Saviers, Woodcarvers Limited, LLC, Douglas
Lehrmann, Harvest Storage Technology Group LLC, Gary
Allison, William Childs, Michael Gluck, Brian Allison,
Jerry Walker, and Chaparral Systems, Inc.
10.32 -- Warrant Agreements, dated various dates between December
1998 and March 2000, between the Registrant and each of
Gary Allison, William Childs, Michael Gluck, Harvest
Storage Technology Group LLC, Adaptec, Inc., and Sentinel
Consulting, LLC.
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Davis, Graham & Stubbs, LLP (contained in
Exhibit 5.1).
24.1 -- Powers of Attorney (included on signature page).
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Portions of the agreement have been omitted pursuant to a confidential
treatment request.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CHAPARRAL NETWORK STORAGE, INC,
(FORMERLY CHAPARRAL TECHNOLOGIES, INC.)
(ORIGINALLY INCORPORATED ON JANUARY 22, 1998)
Chaparral Network Storage, Inc, a Delaware corporation, hereby certifies
that the Amended and Restated Certificate of Incorporation of the corporation
attached hereto as Exhibit "A", which is incorporated herein by this reference,
and which restates, integrates and further amends the provisions of the
Certificate of Incorporation of this corporation as heretofore amended or
supplemented, has been duly adopted by the corporation's Board of Directors and
stockholders in accordance with Sections 242 and 245 of the Delaware General
Corporation Law, with the approval of the Corporation's stockholders having been
given by written consent without a meeting in accordance with Section 228 of the
Delaware General Corporation Law.
On the effective date of this Amended and Restated Certificate of
Incorporation of the corporation, every two shares of the corporation's common
stock, $.001 par value, outstanding immediately prior to such time shall,
without any action on the part of the respective holders thereof, be
reclassified into one share of common stock, $.001 par value.
IN WITNESS WHEREOF, said corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by its by duly authorized officer this
15th day of October, 1999.
CHAPARRAL NETWORK STORAGE, INC.
By: /s/ Gary L. Allison
-------------------------------------
Gary L. Allison, Chief Executive Officer
<PAGE> 2
EXHIBIT "A"
---------------------
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
-----------------------------
ARTICLE I
The name of the corporation is Chaparral Network Storage, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 1313 N. Market Street, City of Wilmington, County of New Castle. The
name of its registered agent at that address is The Company Corporation.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
The corporation is authorized to issue two classes of shares, designated
"Common Stock" and "Preferred Stock," both of which shall have $0.001 par value
per share. The number of shares of Common Stock authorized to be issued is
52,000,000 shares. The number of shares of Preferred Stock authorized to be
issued is 29,140,200 shares, 18,600,000 of which are designated as "Series A
Preferred Stock," 5,540,200 of which are designated as "Series B Preferred
Stock" and 5,000,000 shares of which are designated as "Series C Preferred
Stock."
ARTICLE V
The Board of Directors is authorized to make, adopt, amend, alter or repeal
the Bylaws of the corporation.
Election of directors need not be by written ballot unless the Bylaws of the
corporation shall so provide.
ARTICLE VI
The business and affairs of the corporation shall be managed by or under the
direction of the Board of Directors. In addition to the powers and authority
expressly conferred upon them by statute, by this Certificate of Incorporation
or by the Bylaws of the corporation, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the corporation.
1
<PAGE> 3
ARTICLE VII
To the fullest extent permitted by the Delaware General Corporation Law, no
director of the corporation shall be personally liable for monetary damages for
breach of fiduciary duty as a director. Without limiting the effect of the
preceding sentence, if the Delaware General Corporation Law is hereafter amended
to authorize the further elimination or limitation of the liability of a
director, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VII, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
ARTICLE VIII
The rights, preferences, privileges and restrictions granted to and imposed
on the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and the Common Stock are as follows:
1. DEFINITIONS. For purposes of this Article VIII, the following definitions
apply:
1.1 "BOARD" shall mean the Board of Directors of the Company.
1.2 "COMPANY" shall mean this corporation.
1.3 "COMMON STOCK" shall mean the Common Stock, $0.001 par value per
share, of the Company.
1.4 "COMMON STOCK DIVIDEND" shall mean a stock dividend declared and
paid on the Common Stock that is payable in shares of Common Stock.
1.5 "DISTRIBUTION" shall mean the transfer of cash or property by the
Company to one or more of its stockholders without consideration, whether by
dividend or otherwise (except a dividend in shares of Company's stock). A
Permitted Repurchase (defined below) is not a Distribution.
1.6 "DIVIDEND RATE" shall mean $0.008 per share per annum for the
Series A Preferred Stock, $0.009 per share per annum for the Series B Preferred
Stock and $0.0352 per share per annum for the Series C Preferred Stock.
1.7 "ORIGINAL ISSUE DATE" shall mean the date on which the first share
of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock, as the case may be, is issued by the Company.
2
<PAGE> 4
1.8 "ORIGINAL ISSUE PRICE" shall mean $0.10 per share for the Series A
Preferred Stock, $0.18 per share for the Series B Preferred Stock and $ 0.44 per
share for the Series C Preferred Stock.
1.9 "PERMITTED REPURCHASES" shall mean the repurchase by the Company of
shares of Common Stock held by employees, officers, directors, consultants,
independent contractors, advisors, or other persons performing services for the
Company or a subsidiary that are subject to restricted stock purchase agreements
or stock option exercise agreements under which the Company has the option to
repurchase such shares: (a) at cost, upon the occurrence of certain events, such
as the termination of employment or services; or (b) at any price pursuant to
the Company's exercise of a right of first refusal to repurchase such shares.
1.10 "PREFERRED STOCK" shall mean the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock.
1.11 "SERIES A PREFERRED STOCK" shall mean the Series A Preferred
Stock, $0.001 par value per share, of the Company.
1.12 "SERIES B PREFERRED STOCK" shall mean the Series B Preferred
Stock, $0.001 par value per share, of the Company.
1.13 "SERIES C PREFERRED STOCK" shall mean the Series C Preferred
Stock, $0.001 par value per share, of the Company.
1.14 "SUBSIDIARY" shall mean any corporation of which at least fifty
percent (50%) of the outstanding voting stock is at the time owned directly or
indirectly by the Company or by one or more of such subsidiary corporations.
2. DIVIDEND RIGHTS.
2.1 Dividend Preference. In each calendar year, the holders of the then
outstanding Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board, out of any funds and assets of the Company legally available therefor,
noncumulative dividends at the annual Dividend Rate for each such series of
Preferred Stock, prior and in preference to the payment of any dividends or
other Distribution on the Common Stock in such calendar year (other than a
Common Stock Dividend). No dividends (other than a Common Stock Dividend) shall
be paid, and no Distribution shall be made, with respect to the Common Stock
during any calendar year unless (i) dividends in the total amount of the annual
Dividend Rate for the Series A Preferred Stock shall have first been paid or
declared and set apart for payment to the holders of the Series A Preferred
Stock, (ii) dividends in the total amount of the annual Dividend Rate for the
Series B Preferred Stock, shall have first been paid or declared and set apart
for payment to the holders of the Series B Preferred Stock and (iii) dividends
in the total amount of the Dividend Rate for the Series C Preferred Stock shall
have first been paid or declared and set apart for payment to the holders of the
Series C Preferred Stock, respectively, during that calendar year; provided,
however, that this restriction shall not apply to Permitted Repurchases.
Payments of any dividends to the holders of
3
<PAGE> 5
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
shall be paid pro rata, on an equal priority, pari passu basis according to
their respective dividend preferences as set forth herein. Dividends on the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
shall not be mandatory or cumulative, and no rights or interest shall accrue to
the holders of the Series A Preferred Stock, Series B Preferred Stock or Series
C Preferred Stock by reason of the fact that the Company shall fail to declare
or pay dividends on the Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock in the amount of the respective annual Dividend Rate
for each such series or in any other amount in any calendar year or any fiscal
year of the Company, whether or not the earnings of the Company in any calendar
year or fiscal year were sufficient to pay such dividends in whole or in part.
2.2 Participation Rights. If, after dividends in the full preferential
amounts specified in this Section 2 for the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock have been paid or declared and set
apart in any calendar year of the Company, the Board shall declare additional
dividends out of funds legally available therefor in that calendar year, then
such additional dividends shall be declared pro rata on the Common Stock, the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
on a pari passu basis according to the number of shares of Common Stock held by
such holders, where each holder of shares of Series A Preferred Stock, Series B
Preferred Stock and/or Series C Preferred Stock is to be treated for this
purpose as holding the greatest whole number of shares of Common Stock then
issuable upon conversion of all shares of Series A Preferred Stock, Series B
Preferred Stock and/or Series C Preferred Stock held by such holder pursuant to
Section 6.
2.3 Non-Cash Dividends. Whenever a dividend or Distribution provided
for in this Section 2 shall be payable in property other than cash, the value of
such dividend or Distribution shall be deemed to be the fair market value of
such property as determined in good faith by the Board.
3. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the funds and
assets that may be legally distributed to the Company's stockholders (the
"AVAILABLE FUNDS AND ASSETS") shall be distributed to stockholders in the
following manner:
3.1 Liquidation Preferences. The holders of each share of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock then
outstanding shall be entitled to be paid, out of the Available Funds and Assets,
and prior and in preference to any payment or distribution (or any setting apart
of any payment or distribution) of any Available Funds and Assets on any shares
of Common Stock, an amount per share equal to the Original Issue Price for each
such series of Preferred Stock, respectively, plus all declared but unpaid
dividends thereon. If upon any liquidation, dissolution or winding up of the
Company the Available Funds and Assets shall be insufficient to permit the
payment to holders of the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock of their full preferential amounts described in this
subsection, then all the remaining Available Funds and Assets shall be
distributed among the holders of the then outstanding Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock pro rata, on an equal
priority, pari passu basis, according to their respective liquidation
preferences as set forth herein.
4
<PAGE> 6
3.2 Participation Rights. If there are any Available Funds and Assets
remaining after the payment or distribution (or the setting aside for payment or
distribution) to the holders of the Preferred Stock of their full preferential
amounts described above in this Section 3, then all such remaining Available
Funds and Assets shall be distributed among the holders of the then outstanding
Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock pro rata according to the number of shares of Common Stock held
by such holders, where, for this purpose, holders of shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock will be
deemed to hold (in lieu of their Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock, as the case may be) the greatest whole number
of shares of Common Stock then issuable upon conversion in full of such shares
of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock pursuant to Section 6.
3.3 Merger or Sale of Assets. Each of the following shall each be
deemed to be a liquidation, dissolution or winding up of the Company as those
terms are used in this Section 3: (a) consolidation or merger of the Company
with or into any other corporation or corporations in which the holders of the
Company's outstanding shares immediately before such consolidation or merger do
not, immediately after such consolidation or merger, retain stock representing a
majority of the voting power of the surviving corporation of such consolidation
or merger; or (b) a sale of all or substantially all of the assets of the
Company.
3.4 Non-Cash Consideration. If any assets of the Company distributed to
stockholders in connection with any liquidation, dissolution, or winding up of
the Company are other than cash, then the value of such assets shall be their
fair market value as determined by the Board, except that any securities to be
distributed to stockholders in a liquidation, dissolution, or winding up of the
Company shall be valued as follows:
(a) The method of valuation of securities not subject to investment
letter or other similar restrictions on free marketability shall be as follows:
(i) if the securities are then traded on a national securities
exchange or the Nasdaq National Market (or a similar national quotation system),
then the value shall be deemed to be the average of the closing prices of the
securities on such exchange or system over the 30-day period ending three (3)
days prior to the distribution;
(ii) if actively traded over-the-counter, then the value shall
be deemed to be the average of the closing bid prices over the 30-day period
ending three (3) days prior to the distribution; and
(iii) if there is no active public market, then the value shall
be the fair market value thereof, as determined in good faith by the Board of
Directors of the Company.
(b) The method of valuation of securities subject to investment letter
or other restrictions on free marketability shall be to make an appropriate
discount from the market value determined as above in subparagraphs (a)(i), (ii)
or (iii) of this subsection to reflect the approximate fair market value
thereof, as determined in good faith by the Board.
5
<PAGE> 7
4. REDEMPTION. The shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock are nonredeemable.
5. VOTING RIGHTS.
5.1 Common Stock. Each holder of shares of Common Stock shall be
entitled to one (1) vote for each share thereof held.
5.2 Preferred Stock. Each holder of shares of Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which such shares of Preferred Stock could be converted
pursuant to the provisions of Section 6 below at the record date for the
determination of the stockholders entitled to vote on such matters or, if no
such record date is established, the date such vote is taken or any written
consent of stockholders is solicited.
5.3 General. Subject to the foregoing provisions of this
Section 5, each holder of Preferred Stock shall have full voting rights and
powers equal to the voting rights and powers of the holders of Common Stock, and
shall be entitled to notice of any stockholders' meeting in accordance with the
Bylaws of the Company (as in effect at the time in question) and applicable law,
and shall be entitled to vote, together with the holders of Common Stock, with
respect to any question upon which holders of Common Stock have the right to
vote, except as may be otherwise provided by applicable law. Except as otherwise
expressly provided herein or as required by law, the holders of Preferred Stock
and the holders of Common Stock shall vote together and not as separate classes.
6. CONVERSION RIGHTS. The outstanding shares of Preferred Stock shall be
convertible into Common Stock as follows:
6.1 Optional Conversion.
(a) At the option of the holder thereof, each share of Preferred
Stock shall be convertible, at any time or from time to time prior to the close
of business on the business day before any date fixed for redemption of such
share, into fully paid and nonassessable shares of Common Stock as provided
herein.
(b) Each holder of Preferred Stock who elects to convert the same
into shares of Common Stock shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Company or any transfer agent for
the Preferred Stock or Common Stock, and shall give written notice to the
Company at such office that such holder elects to convert the same and shall
state therein the number of shares of Preferred Stock being converted. Thereupon
the Company shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to which
such holder is entitled upon such conversion. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the certificate or certificates representing the shares of
Preferred Stock to be converted, and the person entitled to receive the shares
of Common
6
<PAGE> 8
Stock issuable upon such conversion shall be treated for all purposes as the
record holder of such shares of Common Stock on such date.
6.2 Automatic Conversion.
(a) Each share of Preferred Stock shall automatically be converted
into fully paid and nonassessable shares of Common Stock, as provided herein:
(i) immediately prior to the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Company in which the aggregate public offering price
(before deduction of underwriters' discounts and commissions) equals or exceeds
$15,000,000 and the public offering price per share of which equals or exceeds
$2.20 per share before deduction of underwriters' discounts and commissions
(such price per share of Common Stock to be appropriately adjusted to reflect
Common Stock Events (as defined in subsection 6.4); or (ii) upon the Company's
receipt of the written consent of the holders of not less than two-thirds (2/3)
of the then outstanding shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock to the conversion of all then outstanding
Preferred Stock under this Section 6.
(b) Upon the occurrence of any event specified in subparagraph
6.2(a)(i) or (ii) above, the outstanding shares of Preferred Stock shall be
converted into Common Stock automatically without the need for any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company or its transfer agent;
provided, however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Preferred Stock are either delivered to
the Company or its transfer agent as provided below, or the holder notifies the
Company or its transfer agent that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such certificates. Upon
the occurrence of such automatic conversion of the Preferred Stock, the holders
of Preferred Stock shall surrender the certificates representing such shares at
the office of the Company or any transfer agent for the Preferred Stock or
Common Stock. Thereupon, there shall be issued and delivered to such holder
promptly at such office and in its name as shown on such surrendered certificate
or certificates, a certificate or certificates for the number of shares of
Common Stock into which the shares of Preferred Stock surrendered were
convertible on the date on which such automatic conversion occurred.
6.3 Conversion Price. Each share of Preferred Stock shall be
convertible in accordance with subsection 6.1 or subsection 6.2 above into the
number of shares of Common Stock which results from dividing the Original Issue
Price for such series of Preferred Stock by the conversion price for such series
of Preferred Stock that is in effect at the time of conversion (the "CONVERSION
PRICE"). The initial Conversion Price for the Series A Preferred Stock shall be
two (2) times the Original Issue Price for the Series A Preferred Stock, the
initial conversion price for the Series B Preferred Stock shall be two (2) times
the Original Issue Price of the Series B Preferred Stock and the initial
Conversion Price for the Series C Preferred Stock shall be two (2)
7
<PAGE> 9
times the Original Issue Price of the Series C Preferred Stock. The Conversion
Price of each series of Preferred Stock shall be subject to adjustment from time
to time as provided below.
6.4 Adjustment Upon Common Stock Event. Upon the happening of a Common
Stock Event (as hereinafter defined), the Conversion Price of the Series A
Preferred Stock, the Conversion Price of the Series B Preferred Stock and the
Conversion Price of the Series C Preferred Stock shall, simultaneously with the
happening of such Common Stock Event, be adjusted by multiplying the Conversion
Price of such series of Preferred Stock in effect immediately prior to such
Common Stock Event by a fraction, (a) the numerator of which shall be the number
of shares of Common Stock issued and outstanding immediately prior to such
Common Stock Event, and (b) the denominator of which shall be the number of
shares of Common Stock issued and outstanding immediately after such Common
Stock Event, and the product so obtained shall thereafter be the Conversion
Price for such series of Preferred Stock. The Conversion Price for a series of
Preferred Stock shall be readjusted in the same manner upon the happening of
each subsequent Common Stock Event. As used herein, the term "COMMON STOCK
EVENT" shall mean (a) the issue by the Company of additional shares of Common
Stock as a dividend or other distribution on outstanding Common Stock, (b) a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock, or (c) a combination of the outstanding shares of Common
Stock into a smaller number of shares of Common Stock.
6.5 Adjustments for Other Dividends and Distributions. If at any time
or from time to time after the Original Issue Date the Company pays a dividend
or makes another distribution to the holders of the Common Stock payable in
securities of the Company other than shares of Common Stock, then in each such
event provision shall be made so that the holders of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable upon conversion thereof, the amount of securities of the Company
which they would have received had their Preferred Stock been converted into
Common Stock on the date of such event (or such record date, as applicable) and
had they thereafter, during the period from the date of such event (or such
record date, as applicable) to and including the conversion date, retained such
securities receivable by them as aforesaid during such period, subject to all
other adjustments called for during such period under this Section 6 with
respect to the rights of the holders of the Preferred Stock or with respect to
such other securities by their terms.
6.6 Adjustment for Reclassification, Exchange and Substitution. If at
any time or from time to time after the Original Issue Date the Common Stock
issuable upon the conversion of the Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock is changed into the same or a different
number of shares of any class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than by a Common Stock Event or a stock
dividend, reorganization, merger, consolidation or sale of assets provided for
elsewhere in this Section 6), then in any such event each holder of Series A
Preferred Stock, Series B Preferred Stock or Series C
8
<PAGE> 10
Preferred Stock shall have the right thereafter to convert such stock into the
kind and amount of stock and other securities and property receivable upon such
recapitalization, reclassification or other change by holders of the number of
shares of Common Stock into which such shares of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock could have been converted
immediately prior to such recapitalization, reclassification or change, all
subject to further adjustment as provided herein or with respect to such other
securities or property by the terms thereof.
6.7 Sale of Shares Below Conversion Price.
(a) Adjustment Formula. If at any time or from time to time after an
Original Issue Date, the Company issues or sells, or is deemed by the provisions
of this subsection 6.7 to have issued or sold, Additional Shares of Common Stock
(as defined below), otherwise than in connection with a Common Stock Event as
provided in subsection 6.4, a dividend or distribution as provided in subsection
6.5 or a recapitalization, reclassification or other change as provided in
subsection 6.6, for an Effective Price (as defined below) that is less than the
Conversion Price for such a series of Preferred Stock in effect immediately
prior to such issue or sale, then, and in each such case, the Conversion Price
for such series of Preferred Stock shall be reduced, as of the close of business
on the date of such issue or sale, to the price obtained by multiplying such
Conversion Price by a fraction:
(i) The numerator of which shall be the sum of (A) the number of
Common Stock Equivalents Outstanding (as defined below) immediately prior to
such issue or sale of Additional Shares of Common Stock plus (B) the quotient
obtained by dividing the Aggregate Consideration Received (as defined below) by
the Company for the total number of Additional Shares of Common Stock so issued
or sold (or deemed so issued and sold) by the Conversion Price for such series
of Preferred Stock in effect immediately prior to such issue or sale; and
(ii) The denominator of which shall be the sum of (A) the number
of Common Stock Equivalents Outstanding immediately prior to such issue or sale
plus (B) the number of Additional Shares of Common Stock so issued or sold (or
deemed so issued and sold).
(b) Certain Definitions. For the purpose of making any adjustment
required under this subsection:
(i) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company, whether or not subsequently reacquired or
retired by the Company, other than: (A) shares of Common Stock issued or
issuable upon conversion of the Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock; (B) the initial issuance of shares of Series
A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock or (C)
a cumulative total (since November 25, 1998) of 5,000,000 shares of Common Stock
(and/or options, warrants or rights therefor) issued to employees, officers, or
directors of, or contractors, consultants or advisers to, the Company or any
Subsidiary pursuant to incentive agreements or plans approved by the Board of
Directors of the Company (calculated net of any repurchases of such shares by
the Company and net of any such expired or terminated options, warrants or
rights and proportionally adjusted to reflect any subsequent Common Stock
Event); (D) shares of the Company's Common Stock or Preferred Stock issued in
connection with any stock split or stock dividend; (E) securities offered by the
Company to the public pursuant to a
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registration Statement filed under the Securities Act of 1933, as amended; (F) a
cumulative total (since the Company's inception) of 125,000 shares of the
Company's Common Stock or Preferred Stock (and/or options or warrants thereof)
issued or issuable to parties providing the Company with equipment leases, real
property leases, loans, credit lines, guaranties of indebtedness, cash price
reductions or similar financing (proportionally adjusted to reflect any
subsequent Common Stock Event); or (G) securities issued pursuant to the
acquisition of another corporation or entity by the Company by consolidation,
merger, purchase of all or substantially all of the assets, or other
reorganization in which the Company acquires, in a single transaction or a
series of related transactions, all or substantially all of the assets of such
other corporation or entity or fifty (50%) or more of the voting power of such
other corporation or entity or fifty percent (50%) or more of the equity
ownership of such other entity.
(ii) The "Aggregate Consideration Received" by the Company for
any issue or sale (or deemed issue or sale) of securities shall (A) to the
extent it consists of cash, be computed at the gross amount of cash received by
the Company before deduction of any underwriting or similar commissions,
compensation or concessions paid or allowed by the Company in connection with
such issue or sale and without deduction of any expenses payable by the Company;
(B) to the extent it consists of property other than cash, be computed at the
fair value of that property as determined in good faith by the Board; and (C) if
Additional Shares of Common Stock, Convertible Securities or Rights or Options
to purchase either Additional Shares of Common Stock or Convertible Securities
are issued or sold together with other stock or securities or other assets of
the Company for a consideration which covers both, be computed as the portion of
the consideration so received that may be reasonably determined in good faith by
the Board to be allocable to such Additional Shares of Common Stock, Convertible
Securities or Rights or Options.
(iii) "Convertible Securities" shall mean any indebtedness or
shares of stock convertible into or exchangeable for Common Stock, including the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock.
(iv) "Common Stock Equivalents" shall mean Convertible
Securities and rights entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock without the payment of any
consideration by such holder for such additional shares of Common Stock or
Common Stock Equivalents.
(v) "Effective Price" of Additional Shares of Common Stock shall
mean the quotient determined by dividing the total number of Additional Shares
of Common Stock issued or sold into the Aggregate Consideration Received for the
issue of such Additional Shares of Common Stock.
(vi) "Options" shall mean any warrants or options to subscribe
for or purchase Common Stock or Convertible Securities.
(vii) "Rights" shall mean any right to subscribe for or purchase
Common Stock or Convertible Securities.
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(c) Deemed Issuances. For the purpose of making any adjustment to
the Conversion Price of the Preferred Stock required under this subsection 6.7,
if the Company issues or sells any Rights or Options or Convertible Securities
and if the Effective Price of the shares of Common Stock issuable upon exercise
of such Rights or Options and/or the conversion or exchange of Convertible
Securities (computed without reference to any additional or similar protective
or antidilution clauses) is less than the Conversion Price then in effect for a
series of Preferred Stock, then the Company shall be deemed to have issued, at
the time of the issuance of such Rights, Options or Convertible Securities, that
number of Additional Shares of Common Stock that is equal to the maximum number
of shares of Common Stock issuable upon exercise or conversion of such Rights,
Options or Convertible Securities upon their issuance and to have received, as
the Aggregate Consideration Received for the issuance of such shares, an amount
equal to the total amount of the consideration, if any, received by the Company
for the issuance of such Rights or Options or Convertible Securities, plus, in
the case of such Rights or Options, the minimum amounts of consideration, if
any, payable to the Company upon the exercise in full of such Rights or Options,
plus, in the case of Convertible Securities, the minimum amounts of
consideration, if any, payable to the Company (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities) upon the
conversion or exchange thereof; provided that:
(i) if the minimum amounts of such consideration cannot be
ascertained, but are a function of antidilution or similar protective clauses,
then the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses;
(ii) if the minimum amount of consideration payable to the
Company upon the exercise of Rights or Options or the conversion or exchange of
Convertible Securities is reduced over time or upon the occurrence or
non-occurrence of specified events other than by reason of antidilution or
similar protective adjustments, then the Effective Price shall be recalculated
using the figure to which such minimum amount of consideration is reduced; and
(iii) if the minimum amount of consideration payable to the
Company upon the exercise of such Rights or Options or the conversion or
exchange of Convertible Securities is subsequently increased, then the Effective
Price shall again be recalculated using the increased minimum amount of
consideration payable to the Company upon the exercise of such Rights or Options
or the conversion or exchange of such Convertible Securities.
No further adjustment of the Conversion Price, adjusted upon the issuance of
such Rights or Options or Convertible Securities, shall be made as a result of
the actual issuance of shares of Common Stock on the exercise of any such Rights
or Options or the conversion or exchange of any such Convertible Securities. If
any such Rights or Options or the conversion rights represented by any such
Convertible Securities shall expire without having been fully exercised, then
the Conversion Price as adjusted upon the issuance of such Rights or Options or
Convertible Securities shall be readjusted to the Conversion Price which would
have been in effect had an adjustment been made on the basis that the only
shares of Common Stock so issued were the shares of Common Stock, if any, that
were actually issued or sold on the exercise of such Rights
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or Options or rights of conversion or exchange of such Convertible Securities,
and such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for the granting of all
such Rights or Options, whether or not exercised, plus the consideration
received for issuing or selling all such Convertible Securities actually
converted or exchanged, plus the consideration, if any, actually received by the
Company (other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion or exchange of such Convertible
Securities, provided that such readjustment shall not apply to prior conversions
of Preferred Stock.
6.8 Certificate of Adjustment. In each case of an adjustment or
readjustment of the Conversion Price for a series of Preferred Stock, the
Company, at its expense, shall cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
the Preferred Stock at the holder's address as shown in the Company's books.
6.9 Fractional Shares. No fractional shares of Common Stock shall be
issued upon any conversion of Preferred Stock. In lieu of any fractional share
to which the holder would otherwise be entitled, the Company shall pay the
holder cash equal to the product of such fraction multiplied by the Common
Stock's fair market value as determined in good faith by the Board as of the
date of conversion.
6.10 Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
6.11 Notices. Any notice required by the provisions of this Section 6
to be given to the holders of shares of the Preferred Stock shall be deemed
given upon the earlier of actual receipt or deposit in the United States mail,
by certified or registered mail, return receipt requested, postage prepaid,
addressed to each holder of record at the address of such holder appearing on
the books of the Company.
6.12 No Impairment. The Company shall not avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Preferred Stock
against impairment.
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7. RESTRICTIONS AND LIMITATIONS.
7.1 Class Protective Provisions. So long as any shares of
Preferred Stock remain outstanding, the Company shall not, without the approval,
by vote or written consent, of the holders of a majority of the Preferred Stock
then outstanding, voting as a single class:
(a) amend its Certificate of Incorporation in any manner that would
alter or change any of the rights, preferences, privileges or restrictions of
the Preferred Stock;
(b) amend its Certificate of Incorporation or Bylaws in any other
manner that would adversely affect the rights, preferences and privileges of the
Preferred Stock;
(c) reclassify any outstanding shares of securities of the Company
into shares having rights, preferences or privileges senior to or on a parity
with the Preferred Stock; or
(d) authorize or issue any other stock having rights or preferences
senior to or on a parity with the Preferred Stock as to dividend rights or
liquidation preferences.
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EXHIBIT 3.3
BYLAWS
OF
CHAPARRAL NETWORK STORAGE, INC.
ARTICLE I
OFFICES AND AGENTS
1. Principle Office. The principal office of the Corporation may be
located within or without the Sate of Delaware, as designated by the Board of
Directors. The Corporation may have other offices and places of business at such
places within or without the State of Delaware as shall be determined by the
directors.
2. Registered Office. The registered office of the Corporation in the
State of Delaware is The Company Corporation, 1313 N. Market Street in the City
of Wilmington, County of New Castle. The address of the registered office of the
Corporation may be changed from time to time as provided by the General
Corporation Law of Delaware.
3. Registered Agent. The name of the Corporation's registered agent is
The Company Corporation, 1313 N. Market Street, Wilmington, Delaware 19801-1151.
Such registered agent may be changed from time to time as provided by the
General Corporation Law of Delaware.
ARTICLE II
SEAL
The corporate seal shall have inscribed thereon the name of the
Corporation and the words "Corporate Seal, Delaware".
ARTICLE III
STOCKHOLDERS MEETINGS
1. Place of Meeting. Meetings of stockholders shall be held at the
registered office of the Corporation in this state or at such place, either
within or without this state, as may be selected from time to time by the Board
of Directors.
2. Annual Meetings. The annual meeting of the stockholders shall be
held on the first Wednesday of April unless that day be a holiday, and if a
legal holiday, then on the next secular day, when they shall elect a Board of
Directors and transact such other business as may properly be brought before the
meeting. If the annual meeting for election of directors is not held on the date
designated therefor, the directors shall cause the meeting to be held as soon
thereafter as convenient.
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3. Election of Directors. Elections of the directors of the Corporation
shall be by written ballot.
4. Special Meetings. Special meetings of the stockholders may be called
at any time by the CEO, or the Board of Directors, or stockholders entitled to
cast at least one-fifth (1/5) of the votes which all stockholders are entitled
to cast at the particular meeting. At any time, upon written request of any
person or persons who have duly called a special meeting, it shall be the duty
of the Secretary to fix the date of the meeting, to be held not more than sixty
(60) days after receipt of the request, and to give due notice thereof. If the
Secretary shall neglect or refuse to fix the date of the meeting and give notice
thereof, the person or persons calling the meeting may do so.
Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all stockholders
entitled to vote are present and consent.
Written notice of special meeting of stockholders stating the time and
place and object thereof, shall be given to each stockholder entitled to vote
thereat at least ten (10) days before such meeting, unless a greater period of
notice is required by statute in a particular case.
5. Quorum. A majority of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding shares
entitled to vote is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting a s
originally noticed. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
6. 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
proxy, but no such proxy shall be voted or acted upon after three (3) years from
its date, unless the approved proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it stated that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself of an interest in the Corporation generally. All
proxies shall be filed with the Secretary of the meeting before being voted
upon.
7. Notice of Meetings. Whenever stockholders are required or permitted
to take any action at a meeting, a written notice of the meeting shall be given
which shall state 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.
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Unless otherwise provided by law, written notice of any meeting
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting.
8. Consent in Lieu of Meetings. Any action required to be taken at any
annual or special meeting of stockholders of a Corporation, or any action which
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, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. 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.
9. List of Stockholders. The officer who has charge of the stock ledger
of the Corporation shall prepare and make, at least ten (10) days before every
meeting of 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.
No share of stock upon which any installment is due and unpaid shall be voted at
any meeting. The list shall be open to the examination of any stockholder, for
any purpose germane tot he meeting, during ordinary business hours, for a period
of at least ten (10) days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the world time thereof, and may be inspected by any
stockholder who is present.
ARTICLE IV
BOARD OF DIRECTORS
1. Number, Qualifications and Term of Office. Except as otherwise
provided in the Certificate of Incorporation or the General Corporation Law of
Delaware, the business and affairs of the Corporation shall be managed under the
direction of a Board of Directors consisting of no less than three (3) members.
Each director shall be a natural person of the age of eighteen (18) years or
older, but does not need to be a resident of the State of Delaware or a
stockholder of the Corporation. The Board of Directors, by resolution, may
increase of decrease the number of directors from time to time. Each director
shall be elected at the appropriate annual meeting of stockholders, as
determined by the Certificate of Incorporation, and shall hold office for a term
of one (1) year and until his successor is elected and qualified or until his
earlier resignation or removal. No decrease in the number of directors shall
have the effect of shortening the term of any incumbent director.
2. Vacancies and Newly Created Directorships. 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 shall be filled solely by a majority of
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the directors then in office, although less than a quorum, or by a sole
remaining director. Any directors so chosen shall hold office until the next
annual stockholders meeting and until their successors shall be elected and
qualified. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
If at any time of filling any vacancy or newly created directorship,
the directors then in office shall constitute less than a majority of the whole
board, the Court of Chancery may, upon application of any stockholders or
stockholders holding at least ten percent (10%) of the total number of 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 Section 211 of the
General Corporation Law of Delaware.
Any director may resign at any time by giving written notice to the
CEO or to the secretary of the Corporation. Such resignation shall take effect
at the future time specified therein; and unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
Any vacancy occurring on the Board of Directors created by the resignation of a
director may be filled by the affirmative vote of a majority of directors then
in office, including those who have so resigned. The vote thereon shall take
effect when such resignation or resignations shall become effective. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office.
3. Compensation. Any director may be paid any one or more of the
following: his expenses, if any, of attendance at meetings; a fixed sum for
attendance at each meeting; 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. A director shall also be entitled to
receive options for the acquisition of shares of stock of the Corporation.
ACTION V
MEETINGS OF THE BOARD
1. Place of Meetings. The regular or special meetings of the Board of
Directors or any committee designated by the board may be held at the principal
office of the Corporation or at any other place within or without the State of
Delaware that a majority of the Board of Directors or any such committee, as the
case may be, may designate from time to time by resolution.
2. Regular Meetings. The Board of Directors shall meet each year
immediately after the annual meeting of the stockholders for the purpose of
electing officers and transacting such other business as may come before the
meeting. The Board of Directors or any committee designated by the board may
provide, by resolution, for the holding of additional regular meetings without
other notice than such resolution.
3. Special Meetings. Special meetings of the Board of Directors or any
committee designated by the board may be called at any time by the chairman of
the board, if any, by the
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CEO or by a majority of the members of the Board of Directors or any such
committee, as the case may be.
4. Notice of Meetings. Notice of the regular meetings of the Board of
Directors or any committee designated by the board need not be given. Except as
otherwise provided by these Bylaws or the laws of the State of Delaware, written
notice of each special meeting of the Board of Directors or any such committee
setting forth the time and the place of the meeting shall be given to each
director not less than two (2) days prior to the time fixed for the meeting.
Notice of special meetings may be either given personally, personally by
telephone, or by sending a copy of the notice through the United States mail or
facsimile, or by telegram, charges prepaid, to the address of each director
appearing on the books of the Corporation, If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail so addressed,
with postage prepaid thereon. If notice is given by facsimile, such notice shall
be deemed to be delivered upon transmission of the facsimile. If notice is given
by telegram, such notice shall be deemed to be delivered when the telegram is
delivered when the telegram is delivered to the telegraph operator. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Board of Directors need be specified in the notice or waiver of notice of
such meeting.
5. Waiver of Notice. A director may in writing waive notice of any
special meeting of the Board of Directors or any committee, either before, at,
or after the meeting; and his waiver shall be deemed the equivalent of giving
notice. Attendance of a director at a meeting shall constitute waiver of notice
of that meeting unless he attends for the express purpose of objecting to the
transaction of business because the meeting has not been lawfully called or
convened.
6. Quorum. At meeting of the Board of Directors or any committee
designated by the board a majority of the number of directors fixed by these
Bylaws or a majority of the members of any such committee, as the case may be,
shall be necessary to constitute a quorum for the transaction of business. If a
quorum is present, the act of the majority of directors in attendance shall be
the act of the Board of Directors or any such committee, as the case may be,
unless the act of a greater number is required by these Bylaws, the Certificate
of Incorporation or the General Corporation Law of Delaware. One or more
directors may participate in meetings of the Board of Directors as authorized by
Subparagraph 11 of the Article IV by conference telephone, while the remaining
director or directors are physically present at the meeting.
7. Presumption of Assent. A director who is present at a meeting of the
board or committee designated by the board when corporate action is taken is
deemed to have assented to the action taken unless: (i) he/she objects in
writing at the beginning of such meeting to the holding of the meeting or the
transacting of business at the meeting; (ii) he/she contemporaneously requests
that his or her dissent from the action taken be entered in the minutes of such
meeting; or (iii) he/she gives written notice of his or her dissent to the
presiding officer of such meeting before its adjournment or to the secretary of
the Corporation immediately after adjournment of such meeting. The right of
dissent as to a specific action taken in a meeting of a board or committee
thereof is not available to a director who votes in favor of such action.
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8. Reliance on Books of Account or Reports. Any member of the Board of
Directors or any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
records of the Corporation and upon such information, opinions, reports or
statements presented to the Corporation by any of its officers, or employees, or
committees of the Board of Directors, or by any other person as to matters the
members reasonably believes are within such other persons professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Corporation, or in relying in good faith upon other records of the Corporation.
9. Committees. The Board of Directors may, by a resolution passed by a
majority of the whole board designate one or more committees, each committee to
consist of one or more 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 present at
any meeting and not disqualified from voting, whether or not he/she 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 shall have and may exercise all of the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation and may authorize the seal of the Corporation to be affixed to all
papers which it may acquire. No such committee shall have the power or authority
of the Board of Directors to: (i) amend the Certificate of Incorporation; (ii)
adopt an agreement of merger or consolidation; (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; (v) amend the
Bylaws of the Corporation; (vi) or unless expressly provided for by resolution,
or in the Certificate of Incorporation, declare a dividend, authorize the
issuance of stock or to adopt a certificate of ownership and merger. To the
extent authorized by resolution or resolutions providing for the issuance of
shares of stock, adopted by the board, a committee may: (i) fix the designations
and any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the Corporation; or (ii) fix the number of shares of any series of
stock or authorize the increase or decrease of the shares of any series. If any
such delegation of the authority of the Board of Directors is made as provided
herein, all references to the Board of Directors contained in these Bylaws, the
Certificate of Incorporation, the General Corporation Law of Delaware or any
other applicable law or regulation relating to the authority so delegated shall
be deemed to refer to such committee.
10. Informal Action by Directors. Any action required or permitted to
be taken at a meeting of the Board of Directors or any committee thereof, may be
taken without a meeting if all the 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. Such consent shall
have the same force and effect as a unanimous vote of the directors and my be
stated as such in any articles or documents filed with the Secretary of State of
Delaware under the General Corporation Law of Delaware.
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11. Telephonic Meetings. Members of the Board of Directors or any
committee designated by the board may participate in meeting of such board or
committee by means of a conference telephone or similar communications equipment
by which all persons participating in the meeting can hear each other at the
same time. Participation in such meeting shall constitute presence in person at
the meeting.
ARTICLE VI
OFFICERS
1. General. The executive officers of the Corporation shall be chosen
by the directors and shall be a CEO, Secretary and Treasurer. The Board of
Directors may also choose a Chairman, President, one or more Vice Presidents and
such other officers as it shall deem necessary. Any number of offices may be
held by the same person.
2. Salaries. Salaries of all officers and agents of the Corporation
shall be fixed by the Board of Directors.
3. Term of Office. The officers of the Corporation shall hold office
for one year (unless the officer was also an employee of the Corporation and was
terminated from his or her employment from the Corporation) and until their
successors are chosen and have qualified. Any officer or agent elected or
appointed by the Board may be removed by the Board of Directors by a two-thirds
(2/3) vote whenever in its judgment the best interest of the Corporation will be
served thereby.
4. Chairman. The Chairman shall be the chief executive officer of the
Corporation; he/she shall preside at all meetings of the stockholders and
directors; he/she shall have general and active management of the business of
the Corporation, shall see that all orders and resolutions of the Board are
carried into effect, subject, however, to the right of the Directors to delegate
any specific powers, except such as may be by statute exclusively conferred on
the Chairman, to any other officer or officers of the Corporation. He/she shall
execute bonds, mortgages and other contracts requiring a seal, under the seal of
the Corporation. He/she shall be EX-OFFICIO a member of all committees, and
shall have the general power and duties of supervision and management usually
vested in the office of Chairman or President of a Corporation.
5. Secretary. The Secretary shall attend all sessions of the Board and
all meetings of stockholders and act as clerk thereof, and record all the votes
of the Corporation and the minutes of all its transactions in a book to be kept
for that purpose, and shall perform like duties for all committees of the Board
of Directors when required. He/she shall five, or cause to be given, notice of
all meetings of the stockholders and of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or CEO,
and under whose supervision he/she shall be. He/she shall keep in safe custody
the corporate seal of the Corporation, and when authorized by the Board, affix
the same to any instrument requiring it.
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6. Treasurer. The Treasurer shall have custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation, and shall keep the monkeys
of the Corporation in separate account to the credit of the Corporation. He/she
shall disburse the funds of the Corporation as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall render to the CEO and
directors, at the regular meetings of the Board, or whenever they may require
it, an account of all his transactions as Treasurer and of the financial
condition of the Corporation.
ARTICLE VII
VACANCIES
1. General. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise, shall be filled by the Board of
Directors. Vacancies and newly created directorships resulting from any increase
in the authorized number of directors may be filled by a majority of the
directors then in office, although not less than a quorum, or by a sole
remaining director. If at any time, by reason of death or resignation or other
case, 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 stockholder, may call a special meeting of stockholders in
accordance with the provisions of these Bylaws.
2. Resignations Effective at Future Date. When one or more directors
shall resign from the Board, effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective.
ARTICLE VIII
INDEMNIFICATION OF CERTAIN PERSONS
1. Indemnification. For purposes of Article VIII, a "Proper Person"
means any person (including the estate or personal representative of a director)
to the fullest extent permitted by Section 145 of the Delaware General
Corporation Law, 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, and whether formal or informal, by
reason of the fact that he/she is or was a director, officer, employee,
fiduciary or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, partner, trustee, employee, fiduciary or
agent of any foreign of domestic profit or nonprofit corporation or of any
partnership, joint venture, trust, profit or nonprofit unincorporated
association, limited liability company, or other enterprise or employee benefit
plan. The corporation shall indemnify any Proper Person against reasonably
incurred expenses (including attorneys' fees), judgments, penalties, fines
(including any excise tax assessed with respect to an employee benefit plan) and
amounts paid in settlement reasonably incurred by him in connection with such
action, suit or proceeding if it is determined by the groups set forth in
Section 4 of this Article that he/ she conducted himself in good faith and that
he/she reasonably believed (i) in the case of conduct in his official capacity
with the corporation, that his conduct was in the corporation's best interests,
or (ii) in all other cases (except criminal cases), that his
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conduct was at least not opposed to the corporation's best interests, or (iii)
in the case of any criminal proceeding, that he/she had no reasonable cause to
believe his conduct was unlawful. Official capacity means, when used with
respect to a director, the office of director and, when used with respect to any
other Proper Person, the office in a corporation held by the officer or the
employment, fiduciary or agency relationship undertaken by the employee,
fiduciary, or agent on behalf of the corporation. Official capacity does not
include service for any other domestic or foreign corporation or other person or
employee benefit plan. A director shall not be liable to the corporation or its
shareholders for any action he/she takes or omits to take as a director if, in
connection with such action or omission, he/she performs his duties in
compliance with this section.
A director's conduct with respect to an employee benefit plan for a
purpose the director reasonably believed to be in the interests of the
participants in or beneficiaries of the plan is conduct that satisfies the
requirement in the Section 1. A director's conduct with respect to an employee
benefit plan for a purpose that the director did not reasonably believe to be in
the interests of the participants in or beneficiaries of the plan shall be
deemed not to satisfy the requirement of this section that he/she conduct
himself in good faith.
No indemnification shall be made under this Article VIII to a Proper
Person with respect to any claim, issue or matter in connection with a
proceeding by or in the right of a corporation in which the Proper Person was
adjudged liable to the corporation or in connection with any proceeding charging
that the Proper Person derived an improper personal benefit, whether or not
involving action in an official capacity, in which he/she was adjudged liable on
the basis that he/she derived an improper personal benefit. Further,
indemnification under this section in connection with proceeding brought by or
in the right of the corporation shall be limited to reasonable expenses,
including attorneys' fees, incurred in connection with the proceeding.
2. Right to Indemnification. The corporation shall indemnify any Proper
Person who was wholly successful, on the merits or otherwise, in defense of any
action, suit or proceeding as to which he/she was entitled to indemnification
under Section 1 of this Article VIII against expenses (including attorneys'
fees) reasonably incurred by him in connection with the proceeding without the
necessity of any action by the corporation other than the determination in good
faith that the defense has been wholly successful.
3. Effect of Termination of Action. The termination of any action, suit
or proceeding by judgment, order settlement or conviction, or upon a plea of
nolo contendere or its equivalent shall not of itself create a presumption that
the person seeking indemnification did not meet the standards of conduct
described in Section 1 of this Article VIII. Entry of a judgment by consent as
part of a settlement shall not be deemed an adjudication of liability, as
described in Section 2 of this Article VIII.
4. Groups Authorized to Make Indemnification Determination. Except
where there is a right to indemnification as set forth in Sections 1 or 2 of
this Article VIII or where indemnification is ordered by a court in Section 5,
any indemnification shall be made by the corporation only as determined in the
specific case by a proper group that indemnification of the Proper Person is
permissible under the circumstances because he/she has met the applicable
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standards of conduct set forth in Section 1 of this Article. This determination
shall be made by the Board of Directors by a majority vote of those present at a
meeting who are not parties to the proceeding at which a quorum is present,
whish quorum shall consist of directors not parties to the proceeding
("Quorum"). If a Quorum cannot be obtained the determination shall be made by a
majority vote of a committee of the Board of two or more directors not parties
to the proceeding. If a Quorum of the Board of Directors cannot be obtained and
the committee cannot be established, or even if a Quorum is obtained or the
committee is designated and a majority of the directors constituting such Quorum
or committee so directs, the determination shall be made by (i) independent
legal counsel selected by a vote of the Board of Directors or the committee in
the manner specified in this Section 4 or, if a Quorum of the full Board of
Directors cannot be obtained and a committee cannot be established, by
independent legal counsel selected by a majority vote of the full Board
(*including directors who are parties to the action) or (ii) a vote of the
shareholders.
Authorization of indemnification and advance of expenses shall be made
in the same manner as the determination that indemnification or advance of
expenses is permissible except that, if the determination that indemnification
or advance of expenses is permissible is made by independent legal counsel,
authorization of indemnification and advance of expenses shall be made by the
body that selected such counsel.
5. Court-Ordered or Arbitrator-Ordered Indemnification. Any Proper
Person may apply for indemnification to the court conducting the proceeding or
to another court of competent jurisdiction or pursuant to Chaparral's
Arbitration Policy, for mandatory indemnification under Section 2 of this
Article, including indemnification for reasonable expenses incurred to obtain
court-ordered indemnification. If a court or arbitrator determines that the
Proper Person is entitled to indemnification under Section 2 of this Article
VIII, the court or arbitrator shall order indemnification, including the Proper
Persons' reasonable expenses incurred to obtain court-ordered or
arbitrator-ordered indemnification. If the court or arbitrator determines that
such Proper Person is fairly and reasonably entitled to indemnification in view
of all the relevant circumstances, whether or not he/she met the standards of
conduct set forth in Section 1 of this Article VIII or was adjudged liable in
the proceeding, the court or arbitrator may order such indemnification as the
court or arbitrator deems proper except that if the Proper Person has been
adjudged liable, indemnification shall be limited to reasonable expense incurred
in connection with the proceeding and reasonable expenses incurred to obtain
court-ordered or arbitrator-ordered indemnification.
6. Advance of Expenses. Reasonable expenses (including attorneys' fees)
incurred in defending an action, suit or proceeding as described in Section 1
may be paid by the corporation to any Proper Person in advance of the final
disposition of such action, suit or proceeding upon receipt of (i) a written
affirmation of such Proper Person's good faith belief that he/she has met the
standards of conduct prescribed by Section 1 of this Article VIII, (ii) a
written undertaking, executed personally or on the Proper Person's behalf, to
repay such advances if it is ultimately determined that he/she did not meet the
prescribed standards of conduct (the undertaking shall be an unlimited general
obligation of the Proper Person but need not be secured if the corporation
determines that the Proper Person has the financial ability to make repayment),
and (iii) a determination is made by the proper group (as described in Section 4
of
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Determination and authorization of payments shall be made in the same manner
specified in Section 4 of this Article VIII.
7. Additional Indemnification to Certain Persons Other Than Directors.
In addition to the indemnification provided to officers, employees, fiduciaries
or agents because of their status as Proper Persons under this Article, the
corporation may also indemnify and advance expenses to them if they are not
directors of the corporation to a greater extent than is provided in these
bylaws, if not inconsistent with public policy, provided that such
indemnification is approved by general or specific action of its board of
directors or shareholders, or by contract approved by the board of directors.
8. Witness Expenses. The sections of this Article VIII do not limit the
corporation's authority to pay or reimburse expenses incurred by a director in
connection with an appearance as a witness in proceeding at a time when he/she
has not been named as a defendant or respondent in the proceeding.
9. Report to Shareholders. Any indemnification of or advance of
expenses to a director in accordance with this Article VIII, if arising out of a
proceeding by or on behalf of the corporation, shall be reported in writing to
the shareholders with or before the notice of the next shareholders' meeting. If
the next shareholder action is taken without a meeting at the instigation of the
Board of Directors, such notice shall be given to the shareholders at or before
the time the first shareholder signs a writing consenting to such action.
ARTICLE IX
CORPORATE RECORDS
1. General. Any stockholder of record, in person or by attorney or
other agent, shall, upon written demand under oath stating the 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 reasonable related to such person's interest as a stockholder. In every
instance where an attorney or other agent shall be the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing which 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 this state or at its principal place
of business.
ARTICLE X
STOCK CERTIFICATES, DIVIDENDS, ETC.
1. General. The stock certificates of the Corporation shall be numbered
and registered in the share ledger and transfer books of the Corporation as they
are issued. They shall bear the corporate seal and shall be signed by the person
authorized to sign stock certificates.
2. Transfers. Transfers of shares shall be made on the books of the
Corporation upon surrender of the certificates therefor, endorsed by the person
named in the certificate or by
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attorney, lawfully constituted in writing. No transfer shall be made which is
inconsistent with law.
3. Lost Certificates. The Corporation may issue a new certificate of
stock in the place of any certificate theretofore signed 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 five the
Corporation a bond for a nominal fee 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.
4. Record Date. 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 the 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 sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
If no record date is fixed:
(a) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(b) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(d) 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.
5. Dividends. The Board of Directors may declare and pay dividends upon
the outstanding shares of the Corporation from time to time and to such extent
as they deem advisable, in the manner and upon the terms and conditions provided
by the statute and the Certificate of Incorporation.
6. Reserves. Before payment of any dividend there may be set aside out
of the net profits of the Corporation such sum or sums as the directors, from
time to time, in their absolute discretion, think proper as a reserve fund to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation, or for such other purpose as the
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directors shall think conducive to the interests of the Corporation, and the
directors may abolish any such reserve in the manner in which it was created.
ARTICLE XI
MISCELLANEOUS PROVISIONS
1. Checks. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers as the Board of Directors may form
time to time designate.
2. Fiscal Year. The fiscal year shall begin on the first day of April.
3. Notice. Whenever written notice is required to be given to any
person, it may be given to such person, either personally or by sending a copy
thereof through the mail or by facsimile, or by telegram, charges prepaid, to
his or her address appearing on the books of the Corporation, or supplied by him
or her to the Corporation for the purpose of notice. If the notice is sent by
mail or by telegram, it shall be deemed to have been given to the person
entitled thereto when deposited in the United States mail or with a telegraph
office for transmission to such person. If the notice is sent by facsimile, such
notice shall be deemed to have been given upon successful transmission of the
facsimile. Such notice shall specify the place, day and hour of the meeting and,
in the case of a special meeting of stockholders, the general nature of the
business to be transacted.
4. Waiver of Notice. Whenever any written notice is required by
statute, or by the Certificate of the Bylaws of this Corporation, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Except in the case of a special meeting of
stockholders, neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such meeting. Attendance of
a person either in person or by proxy, at any meeting shall constitute a waiver
of notice of such meeting, except where a person attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting was not lawfully called or convened.
5. Disallowed Compensation. Any payments made to an officer or employee
of the Corporation such as a salary, commission, bonus, interest, rent, travel
or entertainment expense incurred by him, which shall be disallowed in whole or
in part as a deductible expense by the Internal Revenue Service, shall be
reimbursed by such officer or employee to the Corporation to the full extent of
such disallowance. It shall be the duty of the directors, as a Board, to enforce
payment of each such amount disallowed. In lieu of payment by the officer or
employee, subject to the determination of the directors, proportionate amounts
may be withheld from his or her future compensation payments until the amount
owed to the Corporation has been recovered.
6. Resignations. Any director or other officer may resign at anytime,
such resignation to be in writing, and to take effect from the time of its
receipt by the Corporation, unless some time be fixed in the resignation and
then from that date. The acceptance of a resignation shall not be required to
make it effective.
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ARTICLE XII
ANNUAL STATEMENT
1. General. The CEO and Board of Directors shall present at each annual
meeting a full and complete statement of the business and affairs of the
Corporation for the preceding year. Such statement shall be prepared and
presented in whatever manner the Board of Directors shall deem advisable and
need not be verified by a certified public accountant.
ARTICLE XIII
AMENDMENTS
1. General. These Bylaws may be amended or repealed by the two-thirds
(2/3) vote of stockholders which all stockholders are entitled to cast thereon,
at any regular or special meeting of the stockholders, duly convened after
notice to the stockholders of that purpose.
/s/ M. Katherine Sills
------------------------------------
Secretary
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EXHIBIT 5.1
[DAVIS, GRAHAM & STUBBS LLP LETTERHEAD]
March 2, 2000
Chaparral Network Storage, Inc..
1951 South Fordham Street
Longmont, Colorado 80503
Re: Sale of _____ Shares of Common Stock on
Registration Statement on Form S-1
Registration No. 333-
Dear Ladies and Gentlemen:
We are counsel to Chaparral Network Storage, Inc.. (the "Company")
and are providing this opinion in connection with the registration by the
Company of ______ shares of Common Stock (the "Shares") described in the
Company's Registration Statement on Form S-1 Registration No. 333-______, as
filed with the Securities and Exchange Commission on March __, 2000 (the
"Registration Statement"). In such connection we have examined certain corporate
records and proceedings of the Company, including actions taken by the Company
in respect of the authorization and issuance of the Shares, and such other
matters as we deemed appropriate.
Based on the foregoing, we are of the opinion that the Shares have
been duly authorized and, when sold as contemplated in the Registration
Statement, will be legally issued, fully paid and non-assessable.
We hereby consent to the reference to this firm under the heading
"Legal Matters" in the Registration Statement, and in the Prospectus
constituting a part thereof, as the counsel who will pass upon the validity of
the Shares.
Very truly yours,
DAVIS, GRAHAM & STUBBS LLP
<PAGE> 1
EXHIBIT 10.1
[CHAPARRAL NETWORK STORAGE, INC. LOGO]
1998 STOCK OPTION PLAN
(Effective June 1, 1999)
1. Purpose.
(a) The purpose of the CHAPARRAL NETWORK STORAGE, INC. [formerly
Chaparral Technologies, Inc.] 1998 Stock Option Plan (the "Plan") is to
provide a means whereby selected eligible employees and officers and
directors of, and consultants to, CHAPARRAL NETWORK STORAGE, INC., a
Delaware Corporation (the "Company"), and its Affiliates, if any, as
defined below, may be given a favorable opportunity to acquire common
stock of the Company (the "Common Stock"), thereby encouraging such
persons to accept or continue a qualifying relationship with the
Company, increasing the interest of such persons in the Company's
welfare through participation in the growth and the value of the Common
Stock; and furnishing such persons with an incentive to improve
operations and increase profits of the Company. The terms "Affiliate"
or "Affiliates" as used in the Plan shall mean any parent corporation
or subsidiary corporation of the Company, as those terms are defined in
Sections 424(e) and (f) of the Internal Revenue Code of 1986, as
amended (the "Code).
(b) To accomplish the foregoing objectives, this Plan provides a
means whereby employees, directors, and consultants may receive options
to purchase Common Stock.
2. Stock Options. Stock options granted pursuant to the Plan may, at
the discretion of the Board of Directors of the Company, be granted either as an
Incentive Stock Option ("ISO") or a Non-statutory Stock Option ("NSO").
3. Administration. The Board of Directors (the "Board") whose authority
shall be plenary, shall administer the Plan, unless and until such time as the
Board delegates administration of the Plan pursuant to subsection 3(b) below.
(a) The Board, whose determinations shall be conclusive, shall have
the power, subject to and within the limits of the express provisions
of the Plan:
(i) To grant options pursuant to the Plan.
(ii) To determine from time to time which of the eligible
persons described in Section 5 below shall be granted options under
the Plan, the number of shares for which each option shall be
granted, the term of each granted option and the time or times
during the term of each option within which all or portions of each
option may be accelerated, if allowed under applicable law.
(iii) To construe and interpret the Plan and options granted
under it and to establish, amend, and revoke rules and regulations
for its administration. The Board, in the exercise of this power,
shall generally determine all questions of policy and expediency
that may arise and may correct any defect, omission of inconsistency
in the Plan or in any option agreement with respect to the Plan in a
manner to the extent it shall deem necessary or expedient to make
the Plan fully effective.
(iv) To grant options in exchange for cancellation of options
granted earlier at different exercise prices; provided, however,
nothing contained herein shall empower the Board to grant an ISO
under conditions or pursuant to terms that are inconsistent with the
requirements of subsection 4(b), below, or Section 422 of the Code.
(v) To prescribe the terms and provisions of each option granted
which need not be identical and the form of written instrument that
shall constitute the option agreement.
(vi) To amend the Plan as provided in Section 11, below.
(vii) Generally, to exercise such powers and to perform such
acts as are deemed necessary or expedient to promote the best
interests of the Company.
CONFIDENTIAL PAGE 1 OF 6
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(viii) To take appropriate action to cause any option granted
hereunder to cease to be an ISO, provided, however, no such action
may be taken by the Board without the written consent of the
affected optionee.
(b) The Board may, however, by resolution, delegate administration
of the Plan (including, without limitation, the Board's powers under
subsection 3(a) above) to a committee acting under the authority of the
Board. The Board shall have complete discretion to determine the
composition, structure, form, term and operation of any committee
established to administer the Plan. The Board at any time may revest in
the Board the administration of the Plan.
4. Shares Subject to Plan and to Option.
(a) Subject to the provisions of Section 10 below (relating to
adjustments upon changes in stock), the stock which may be sold
pursuant to options granted under the Plan shall not exceed in the
aggregate of twenty-eight million (28,000,000) shares of the Company's
authorized Common Stock and may be unissued shares, reacquired shares,
or shares bought on the market for the purpose of issuance under the
Plan. If any options granted under the Plan shall for any reason
terminate or expire without having been exercised in full, the stock
not purchased under such options shall be available again for the
purpose of the Plan.
(b) If the aggregate fair market value of stock with respect to
which ISOs are exercisable for the first time by an individual during
any calendar year exceeds the amount of the annual limitation provided
in Section 422(d) of the Code, the excess shall be deemed to be a grant
of an NSO to the extent of such excess.
5. Eligibility
(a) All employees of the Company and its Affiliates are eligible to
receive ISOs and only employees of the Company and its Affiliates may
be granted ISOs. Employees, directors and independent contractors shall
also be eligible for NSOs.
(b) No option issued under the Plan may be granted to a person who,
at the time such option would be granted, owns stock possessing more
than ten percent (10%) of the total combined voting power of all
classes of outstanding capital stock of the Company or its Affiliate
unless the option price is at least one hundred percent (100%) in the
case of an NSO, one hundred ten percent (110%) in the case of an ISO,
of the fair market value of the stock subject to the option and the ISO
option by its terms is not exercisable after five (5) years from the
date such option is granted. Any employee may hold more than one (1)
option at any time. For purposes of this subsection 5(b), in
determining stock ownership, an optionee shall be considered as owning
the voting capital stock owned, directly or indirectly, by or for his
brothers and sisters, spouse, ancestors and lineal descendants. Voting
capital stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be considered as being owned
proportionately by or for its shareholders, partners or beneficiaries,
as applicable. Common Stock with respect to which any such optionee
holds an option shall not be counted. Additionally, for purposes of
this subsection 5(b), outstanding capital stock shall include all
capital stock actually issued and outstanding immediately after the
grant of the option to the optionee. Outstanding capital stock shall
not include capital stock authorized for issue under outstanding
options held by the optionee or by any other person.
6. Terms of Options. Options granted pursuant to the Plan need not be
identical, but each option shall be granted within ten (10) years from the date
the Plan is adopted by the Board or approved by the shareholders, whichever is
earlier, shall specify the number of shares to which it pertains and shall be
subject to the following terms and conditions:
(a) The purchase price of each option shall be determined by the
administrator of the Plan at the time the option is granted, but shall
in no event, except as otherwise set forth in Section 5 above, be less
than eighty-five percent (85%) in the case of an NSO, or one hundred
percent (100%) in the case of an ISO, of the fair market value of the
stock subject to the option on the date the option is granted. For all
purposes of the Plan, the fair market value of the Common Stock shall
be, if the Stock is publicly traded, its closing bid price on NASDAQ or
the over-the-counter market, or if it is traded on another stock
exchange, the last price at which it is traded on the exchange. If the
stock is not publicly traded, the fair market value shall be such value
as is determined in good faith by the Board of Directors by taking into
CONFIDENTIAL PAGE 2 OF 6
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consideration the following factors: The Company's net worth,
prospective earning power and dividend-paying capacity, and other
relevant factors. The term "other relevant factors" includes the value
of any recent private placement; the goodwill of the business; the
economic outlook in the particular industry; the Company's position in
the industry and its management; the degree of control of the business
represented by the block of stock to be valued; and the values of
securities of corporations engaged in the same or similar lines of
business which are listed on a stock exchange. In addition to the
relevant factors described above, consideration shall also be given to
non-operating assets including proceeds of life insurance policies
payable to or for the benefit of the Company, to the extent such
non-operating assets have not been taken into account in the
determination of net worth, prospective earning power, and
dividend-earning capacity.
(b) Except as otherwise set forth in Section 5 above, the term of
any option shall not be greater than ten (10) years from the date it
was granted.
(c) An option by its terms shall not be transferable otherwise than
by will or the laws of descent and distribution and may be exercisable,
during the lifetime of the option holder, only by the individual to
whom the option is granted. Notwithstanding the above, if an employee
is determined to be incompetent by a court of proper jurisdiction, his
legal representative may exercise the option on his behalf.
(d) Options under the Plan may be exercised by a participant
regardless of whether he is employed by the Company or an Affiliate at
the time of the exercise.
(e) Upon termination of a participant's employment (defined as the
date the participant is no longer employed by either the Company or any
of its Affiliates), or upon termination of a directorship or of a
consulting agreement for a non-employee, his rights to exercise an
option then held by him shall be only as follows:
(i) If a participant's employment is terminated for any reason
other than death of the participant, he may, within not less than
three (3) months following such termination, or within such longer
period as the Board may fix, exercise the option to the extent such
option was exercisable by the participant on the date of termination
of his employment, or to the extent otherwise specified by the
Board, which may so specify at a time that is subsequent to the date
of the termination of his employment, provided, the date of exercise
is in no event after the expiration of the term of the option.
However, if the participant's employment is terminated due to
Disability (within the meaning of Section 22(e) of the Code) of the
participant, then paragraph 6(e) (ii) shall apply to such
participant by substituting twelve (12) months for three (3) months.
(ii) If a participant's employment is terminated by death, his
estate shall have the right for a period of not more than twelve
(12) months following the date of death, or for such longer period
as the Board may fix to exercise such option on the date of death,
or to the extent otherwise specified by the Board, which may so
specify, at a time that is subsequent to the date of death, provided
the actual date of exercise is in no event after the expiration of
the term of the option. A participant's estate shall mean his legal
representative or any person who acquires the right to exercise an
option by reason of the participant's death.
(f) Options may also contain such other provisions, which shall not
be inconsistent with any of the foregoing terms, as the Board shall
deem appropriate. No option, however, nor anything contained in the
Plan, shall confer upon any employee any right to continue in the
employ of the Company (or Affiliate) nor limit in any way the right of
the Company (or Affiliate) to terminate his employment at any time.
(g) In the event of a dissolution or liquidation of the Company, a
merger in which the Company is not the surviving corporation, a
transaction in which 100% of the then outstanding voting stock is sold
or otherwise transferred, or the sale of substantially all of the
assets of the Company, any or all outstanding options, shall,
notwithstanding any contrary terms of the grant, accelerate and become
exercisable in full at least ten days prior to (and shall expire on)
the consummation of such dissolution, liquidation, merger, sale of
stock or sale of assets on such conditions as the Board of Directors
shall determine unless the successor corporation assumes the
outstanding options or substitutes substantially equivalent options. In
the event the successor corporation assumes the outstanding options or
substitutes substantially equivalent options, the options of an
optionee who is terminated (other than for
CONFIDENTIAL PAGE 3 OF 6
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cause) or who resigns for good reason within twelve (12) months after a
change in control, shall, notwithstanding any contrary terms of the
grant, accelerate and become exercisable in full. The aggregate fair
market value (determined at the time an option is granted) of stock
with respect to ISOs which first become exercisable in the year of such
dissolution, liquidation, merger, sale of stock or sale of assets
cannot exceed $100,000. Any remaining accelerated ISOs shall be NSOs.
7. Payments and Loans Upon Exercise.
(a) The purchase price of stock sold pursuant to an option shall be
paid either in full in cash or by check at the time the option is
exercised or, to the extent permitted under the applicable provisions
of Delaware General Corporation Law, pursuant to any deferred payment
arrangement that the Board in its discretion may approve; provided,
however, that any interest to be paid by an optionee in connection with
any such deferred payment arrangement shall be charged interest at a
rate of six percent (6%).
(b) The Company may make loans or guarantee loans made by an
appropriate financial institution to individual optionees, including
officers, on such terms as may be approved by the Board for the purpose
of financing the exercise of options granted under the Plan and the
payment of any taxes that may be due by reason of such exercise.
(c) In addition, to the extent authorized by the Board, optionees
may make all or any portion of any payment due to the Company upon
exercise of an option by delivery of any property (including securities
of the Company) other than cash, so long as such property constitutes
valid consideration for the stock under applicable law.
(d) Where the Company has or will have a legal obligation to
withhold taxes relating to the exercise of any stock option, such
option may not be exercised, in whole or in part, unless such tax
obligation is first satisfied in a manner satisfactory to the Company.
8. Use of Proceeds from Stock. Proceeds from the sale of stock pursuant
to options granted under the Plan shall be used for general corporate purposes.
9. Stock Transfer Restrictions; Repurchase Provisions. Stock issued
pursuant to the exercise of options granted under the Plan shall be subject to
those stock transfer restrictions and/or repurchase provisions which shall be
set forth in a Restricted Stock Agreement in the form approved by the Board.
Each individual shall be required to execute such agreement prior to receiving
his shares.
10. Adjustments of the Changes in the Stock. Subject to the provisions
set forth in subsection 6(g) above, in the event the shares of Common Stock of
the Company, as presently constituted shall be changed into a different number
or kind of shares of stock or other securities of the Company or of another
corporation (whether by reason of merger, consolidation, recapitalization,
reclassification, split-up, combination of shares, or otherwise) or if the
number of shares of Common Stock of the Company shall be increased through the
payment of a stock dividend, then there shall be substituted for or added to
each share of Common Stock of the Company, theretofore appropriated or
thereafter subject or which may become subject to an option under the Plan, the
number and kind of shares of stock or other securities into which each
outstanding share of Common Stock of the Company shall be so changed, or to
which each such share shall be entitled, as the case may be. Outstanding options
shall also be amended as to the price and other terms if necessary to reflect
the foregoing events. In the event there shall be any other change in the number
or kind of the outstanding shares of Common Stock of the Company, or of any
stock or other securities into which such Common Stock shall have been changed,
then if the Board of Directors shall, in its sole discretion, determine that
such change equitably requires an adjustment in any option theretofore granted
or which may be granted under the Plan, such adjustment shall be made in
accordance with such determination. No right to purchase fractional shares shall
result from any adjustment in options pursuant to this Section 10. In case of
any such adjustment, the shares subject to the option shall be rounded down to
the nearest whole share. Notice of the any adjustment shall be given by the
Company to each holder of an option which shall have been so adjusted and such
adjustment (whether or not such notice is given) shall be effective and binding
for all purposes of the Plan.
11. Amendment of the Plan. The Board at any time and from time to time,
may amend the Plan, subject to the limitation, however that except as provided
in Section 10 (relating to adjustments upon changes in stock), no amendment
shall be effective, unless approved, within twelve (12) months before or after
the date of such amendment's adoption, by the vote or written consent of a
majority of the outstanding shares of the Company entitled to vote, where such
amendment will:
CONFIDENTIAL PAGE 4 OF 6
<PAGE> 5
(a) increase the share reserve;
(b) expand the class of persons who can receive ISOs; or
(c) comply with any applicable law, regulation, or rule.
It is expressly contemplated that the Board may amend the Plan in
any respect necessary to provide the Company's employees with the maximum
benefits provided or to be provided under Section 422 of the Code and the
regulations promulgated thereunder relating to employee incentive stock options,
and/or bring the plan or options granted under it into compliance therewith.
Rights and obligations under any option granted before any amendment
of the Plan shall not be altered or impaired by amendment of the Plan, except
with the consent, which may be obtained in any manner deemed by the Board to be
appropriate of the person to whom the option is granted.
12. Termination or Suspension of the Plan. The Board at any time may
suspend or terminate the Plan. The Plan, unless sooner terminated, shall
terminate at the end of ten (10) years from the date the Plan is adopted by the
Board or approved by the shareholders of the Company, whichever is earlier. An
option may not be granted under the Plan while the Plan is suspended or after it
is terminated.
Rights and obligations under any option granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
plan, except with the consent of the person to whom the option was granted,
which may be obtained in any manner that the Board deems appropriate.
13. Time of Granting Options. The date of the grant of an option
hereunder shall, for all purposes, be the date on which the Board (or committee
under authority of the Board) makes the determination granting such option.
14. Listing, Qualification or Approval of Stock; Approval of Options.
All options granted under the Plan are subject to the requirement that if at any
time the Board shall determine in its discretion that the listing or
qualification of the shares of stock subject thereto on any securities exchange
or under any applicable law, or the consent or approval by any governmental
regulatory body or the shareholders of the Company, is necessary or desirable as
a condition of or in connection with the issuance of shares under the option,
the option may not be exercised in whole or in part, unless such listing,
qualification, consent or approval shall have been effected or obtained free of
any condition not acceptable to the Board.
15. Binding Effect of Conditions. The conditions and stipulations
hereinabove contained or in any option granted pursuant to the Plan shall be and
constitute a covenant running with all of the shares of the Company owned by the
participant at any time, directly or indirectly whether the same have been
issued or not, and those shares of the Company owned by the participant shall
not be sold, assigned, or transferred by any person save and except in
accordance with the terms and conditions herein provided, and the participant
shall agree to use his best efforts to cause the officers of the Company to
refuse to record on the books of the Company any assignment or transfer made or
attempted to be made, except as provided in the Plan and to cause said officers
to refuse to cancel old certificates or to issue or deliver new certificates
therefor where the purchaser or assignee has acquired certificates of the stock
represented thereby, except strictly in accordance with the provisions of this
plan.
16. Effective Date of Plan. The Plan shall become effective as
determined by the Board but no options granted under it shall become exercisable
until the Plan has been approved by the vote or written consent of the holders
of a majority of the outstanding shares of the Company entitled to vote. If such
shareholder approval is not obtained within twelve (12) months before or after
the date of the Board's adoption of the Plan, then all options previously
granted under the Plan shall terminate, and no further options shall be granted
and no shares shall be issued. Subject to such limitation, the Board may grant
options under the Plan at any time after the effective date and before the date
fixed herein for termination of the Plan.
17. Gender. The use of any gender specific pronoun or similar term is
intended to be without legal significance as to gender.
18. Financial Reports. The Company shall provide financial and other
information regarding the Company pursuant to the provisions set forth in
Section 220 of the General Corporation Law of the State of Delaware.
CONFIDENTIAL PAGE 5 OF 6
<PAGE> 6
EXHIBIT A
CHAIRMAN & CEO
CHAPARRAL NETWORK STORAGE, INC.
1951 SOUTH FORDHAM STREET
LONGMONT, CO 80503
This will confirm my understanding with respect to the shares to be issued to me
by reason of my exercise this date of certain stock option rights granted to me
by CHAPARRAL NETWORK STORAGE, INC. for the purchase of _______ shares of Common
Stock (the Shares) as follows:
(a) I am acquiring the Shares for my own account for investment
with no present intention of dividing my interest with others
or of reselling or otherwise disposing of any of the Shares.
(b) The Shares are being issued without registration under the
Securities Act of 1933 (the "Act") in reliance upon the
private offering exemption contained in Section 4(2) of the
Act, and such reliance is based in part on the above
representation.
(c) The certificate for the shares of stock to be issued to me
will bear the following legend:
"The securities represented by this certificate have been
acquired pursuant to an investment representation on the part
of the holder hereof. They have not been registered under the
Securities Act of 1933 or any state securities laws and may
not be sold, pledged, hypothecated, donated or otherwise
transferred, unless the Corporation has satisfied itself or
has received a favorable option from its counsel, or has
received such other evidence as may be satisfactory to its
counsel that any contemplated transfer will not be in
violation of such laws."
(d) Since the Shares have not been registered under the Act, they
must be held indefinitely until an exemption from the
registration requirements of the Act is available or they are
subsequently registered, in which event the representation in
Paragraph (a) hereof shall terminate.
(e) CHAPARRAL NETWORK STORAGE, INC. is not obligated to comply
with the registration requirements of the Act or with the
requirements for an exemption under Regulation A under the Act
for my benefit.
- ---------------------------------- --------------------
Name Date
CONFIDENTIAL PAGE 6 OF 6
<PAGE> 1
EXHIBIT 10.6
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (this "AGREEMENT") is made and entered
into as of November 25, 1998 by and among Chaparral Technologies, Inc., a
Delaware corporation (the "COMPANY"), the individuals and entities listed on
Exhibit A attached hereto (the "INVESTORS"), and, for purposes of Section 1.3(b)
only, those stockholders of the Company listed on Exhibit B attached hereto (the
"STOCKHOLDERS").
A. The Investors have agreed to purchase from the Company, and the
Company has agreed to sell to the Investors, shares of the Company's Series A
Preferred Stock ("SERIES A STOCK") on the terms and conditions set forth in that
certain Series A Preferred Stock Purchase Agreement, dated July 10, 1998 by and
between the Company and certain of the Investors (the "PURCHASE AGREEMENT"),
and/or shares of the Company's Series B Preferred Stock ("SERIES B STOCK") on
the terms and conditions set forth in that certain Asset Acquisition Agreement
(the "ACQUISITION AGREEMENT"), dated of even date herewith by and between the
Company and certain of the Investors.
B. The Purchase Agreement and the Acquisition Agreement provide that
the Investors shall be granted certain information and registration rights and
rights of first refusal, and the Warrant provides that Grayson shall be granted
certain registration rights, all as more fully set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. INFORMATION RIGHTS.
1.1 Financial Information. The Company covenants and agrees
that, commencing on the date of this Agreement, for so long as any Investor
holds shares of Series A Stock issued under the Purchase Agreement and/or shares
of Series B Stock issued under the Acquisition Agreement and/or the equivalent
number (on an as-converted basis) of shares of Common Stock of the Company
("COMPANY STOCK") issued upon the conversion of such shares of Series A Stock or
Series B Stock ("CONVERSION STOCK") the Company will:
(a) Annual Reports. Furnish to such Investor, as soon
as practicable and in any event within 120 days after the end of each fiscal
year of the Company, a consolidated Balance Sheet as of the end of such fiscal
year, a consolidated Statement of Income and a consolidated Statement of Cash
Flows of the Company and its subsidiaries for such year, setting forth in each
case in comparative form the figures from the Company's previous fiscal year (if
any), all prepared in accordance with generally accepted accounting principles
and practices and audited by an independent certified public accounting firm;
and
(b) Quarterly Reports. Furnish to such Investor as
soon as practicable, and in any case within forty-five (45) days after the end
of each fiscal quarter of the Company (except the last quarter of the Company's
fiscal year), quarterly unaudited financial statements, including an unaudited
Balance Sheet, an unaudited Statement of Income and an unaudited Statement of
Cash Flows, together with a comparison to the Company's operating plan and
budget and statements of
<PAGE> 2
the Chief Financial Officer of the Company explaining any significant
differences in the statements from the Company's operating plan and budget for
the period and stating that such statements fairly present the consolidated
financial position and consolidated financial results of the Company for the
fiscal quarter covered.
Each Investor agrees to hold all information received pursuant to this Section
in confidence, and not to use or disclose any of such information to any third
party, except to the extent such information may be made publicly available by
the Company.
1.2 Inspection Rights. The Company shall permit each Investor
holding shares of Series A Stock and/or Series B Stock and/or the equivalent
number (on an as-converted basis) of shares of Conversion Stock, or any
combination thereof, at such Investor's expense, to visit and inspect the
Company's properties, to examine its books of account and records and to discuss
the Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by such Investor. Each Investor agrees to
hold all information received from such inspections in confidence, and not to
use or disclose any of such information to any third party, except to the extent
such information may be made publicly available by the Company.
1.3 Board Rights. The Company shall permit Adaptec to have one
(1) representative attend all meetings of the Company's Board of Directors in a
non-voting observer capacity and to receive any communications directed to
members of the Board of Directors in their capacity as such. The Investors agree
to hold all information received from such meetings in confidence, and not to
use or disclose any of such information to any third party, except to the extent
such information may be made publicly available by the Company.
1.4 Termination of Certain Rights. The Company's obligations
under Sections 1.1, 1.2 and 1.3 above will terminate upon the closing of the
Company's initial public offering of Common Stock pursuant to an effective
registration statement filed under the U.S. Securities Act of 1933, as amended
(the "SECURITIES ACT"), in which the gross proceeds raised for the Company's
account (calculated before deduction of underwriters' discounts and omissions)
exceeds $15,000,000 at a price greater than $1.10 per share of Common Stock
(such price to be proportionally adjusted to reflect stock splits, stock
dividends and the like).
2. REGISTRATION RIGHTS.
2.1 Definitions. For purposes of this Section 2:
(a) Registration. The terms "REGISTER,"
"REGISTRATION" and "REGISTERED" refer to a registration effected by preparing,
and filing a registration statement in compliance with the Securities Act, and
the declaration or ordering of effectiveness of such registration statement.
(b) Registrable Securities. The term "REGISTRABLE
SECURITIES" means: (i) all the shares of Common Stock of the Company issued or
issuable upon the conversion of any shares of Series A Stock that are now owned
or may hereafter be acquired by the Investors or the Investors' permitted
successors and assigns and (ii) any shares of Common Stock of the Company issued
as (or issuable upon the conversion or exercise of any warrant, right or other
security which
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<PAGE> 3
is issued as) a dividend or other distribution with respect to, or in exchange
for or in replacement of, all such shares of Common Stock described in clause
(i) of this subsection (b); excluding, in all cases, however, any Registrable
Securities sold by a person in a transaction in which rights under this Section
2 are not assigned in accordance with this Agreement or any Registrable
Securities sold to the public or sold pursuant to Rule 144 promulgated under the
Securities Act.
(c) Registrable Securities Then Outstanding. The
number of shares of "REGISTRABLE SECURITIES THEN OUTSTANDING" shall mean the
number of shares of Common Stock which are Registrable Securities and (i) are
then issued and outstanding or (ii) are then issuable pursuant to the exercise
or conversion of then outstanding and then exercisable options, warrants or
convertible securities.
(d) Holder. For purposes of this Section 2 and
Sections 3 and 4 hereof, the term "HOLDER" means any person owning of record
Registrable Securities that have not been sold to the public or pursuant to Rule
144 promulgated under the Securities Act or any assignee of record of such
Registrable Securities to whom rights under such Sections have been duly
assigned in accordance with this Agreement; provided, however, that for purposes
of this Agreement, a record holder of the Warrant or shares of Series A Stock or
Series B Stock convertible into such Registrable Securities shall be deemed to
be the Holder of such Registrable Securities; and provided, further, that the
Company shall in no event be obligated to register the Warrant or shares of
Series A Stock or Series B Stock, and that Holders of Registrable Securities
will not be required to convert the Warrant or their shares of Series A Stock or
Series B Stock into Common Stock in order to exercise the registration rights
granted hereunder, until immediately before the closing of the offering to which
the registration relates.
(e) Form S-3. The term "FORM S-3" means such form
under the Securities Act as is in effect on the date hereof or any successor
registration form under the Securities Act subsequently adopted by the SEC which
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
(f) SEC. The term "SEC" or "COMMISSION" means the
U.S. Securities and Exchange Commission.
2.2 Demand Registration.
(a) Request by Holders. If the Company shall receive
at any time after six (6) months after the effective date of the Company's
initial public offering of its securities pursuant to a registration filed under
the Securities Act, a written request from the Holders of at least two-thirds of
the Registrable Securities then outstanding that the Company file a registration
statement under the Securities Act covering the registration of Registrable
Securities pursuant to this Section 2.2, then the Company shall, within twenty
(20) days after the receipt of such written request, give written notice of such
request ("REQUEST NOTICE") to all Holders, and effect, as soon as practicable,
the registration under the Securities Act of all Registrable Securities which
Holders request to be registered and included in such registration by written
notice given by such Holders to the Company within twenty (20) days after
receipt of the Request Notice, subject only to the limitations of this Section
2; provided that the Registrable Securities requested by all Holders to be
-3-
<PAGE> 4
registered pursuant to such request must be at least twenty-five percent (25%)
of all Registrable Securities then outstanding.
(b) Underwriting. If the Holders initiating the
registration request under this Section 2.2 ("INITIATING HOLDERS") intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, then they shall so advise the Company as a part of their request
made pursuant to this Section 2.2 and the Company shall include such information
in the written notice referred to in subsection 2.2(a). In such event, the right
of any Holder to include his Registrable Securities in such registration shall
be conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 2.2, if the underwriter(s) advise(s) the Company
in writing that marketing factors require a limitation of the number of
securities to be underwritten then the Company shall so advise all Holders of
Registrable Securities that would otherwise be registered and underwritten
pursuant hereto, and the number of Registrable Securities that may be included
in the underwriting shall be reduced as required by the underwriter(s) and
allocated among the Holders of Registrable Securities on a pro rata basis
according to the number of Registrable Securities then outstanding held by each
Holder requesting registration (including the Initiating Holders); provided,
however, that the number of shares of Registrable Securities to be included in
such underwriting and registration shall not be reduced unless all other
securities of the Company are first entirely excluded from the underwriting and
registration. Any Registrable Securities excluded and withdrawn from such
underwriting shall be withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The
Company is obligated to effect only two (2) such registrations pursuant to this
Section 2.2.
(d) Deferral. Notwithstanding the foregoing, if the
Company shall furnish to Holders requesting the filing of a registration
statement pursuant to this Section 2.2, a certificate signed by the President or
Chief Executive Officer of the Company stating that in the good faith judgment
of the Board of Directors of the Company, it would be seriously detrimental to
the Company and its stockholders for such registration statement to be filed and
it is therefore essential to defer the filing of such registration statement,
then the Company shall have the right to defer such filing for a period of not
more than 120 days after receipt of the request of the Initiating Holders;
provided, however, that the Company may not utilize this right more than once in
any twelve (12) month period.
(e) Expenses. All expenses incurred in connection
with a registration pursuant to this Section 2.2, including without limitation
all registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders (but excluding
underwriters' discounts and commissions), shall be borne by the Company. Each
Holder participating in a registration pursuant to this Section 2.2 shall bear
such Holder's proportionate share (based on the total number of shares sold in
such registration other than for the account of the Company) of all discounts,
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<PAGE> 5
commissions or other amounts payable to underwriters or brokers in connection
with such offering. Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to this Section 2.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered, unless the Holders of a majority of the Registrable Securities then
outstanding are to forfeit their right to one (1) demand registration pursuant
to this Section 2.2 (in which case such right shall be forfeited by all Holders
of Registrable Securities); provided, further, however, that if at the time of
such withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company not known to the Holders at the
time of their request for such registration and have withdrawn their request for
registration with reasonable promptness after learning of such material adverse
change, then the Holders shall not be required to pay any of such expenses and
shall retain their rights pursuant to this Section 2.2.
2.3 Piggyback Registrations. The Company shall notify all
Holders of Registrable Securities in writing at least thirty (30) days prior to
filing any registration statement under the Securities Act for purposes of
effecting a public offering of securities of the Company (including, but not
limited to, registration statements relating to secondary offerings of
securities of the Company, but excluding registration statements relating to any
registration under Section 2.2 or Section 2.4 of this Agreement or to any
employee benefit plan or a corporate reorganization) and will afford each such
Holder an opportunity to include in such registration statement all or any part
of the Registrable Securities then held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by such Holder shall, within twenty (20) days after receipt of
the above-described notice from the Company, so notify the Company in writing,
and in such notice shall inform the Company of the number of Registrable
Securities such Holder wishes to include in such registration statement. If a
Holder decides not to include all of its Registrable Securities in any
registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
(a) Underwriting. If a registration statement under
which the Company gives notice under this Section 2.3 is for an underwritten
offering, then the Company shall so advise the Holders of Registrable
Securities. In such event, the right of any such Holder's Registrable Securities
to be included in a registration pursuant to this Section 2.3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the managing underwriter or underwriter(s) selected for
such underwriting. Notwithstanding any other provision of tills Agreement, if
the managing underwriter determine(s) in good faith that marketing factors
require a limitation of the number of shares to be underwritten, then the
managing underwriter(s) may exclude shares (including Registrable Securities)
from the registration and the underwriting, and the number of shares that may be
included in the registration and the underwriting shall be allocated, first, to
stockholders exercising any demand registration rights, second to the Company,
and third, to each of the Holders requesting inclusion of their Registrable
Securities in such registration statement on a pro rata basis based on the total
number of Registrable Securities then held by each such Holder; provided,
however, that the right of the
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<PAGE> 6
underwriters to exclude shares (including Registrable Securities) from the
registration and underwriting as described above shall be restricted so that:
(i) the number of Registrable Securities included in any such registration is
not reduced below twenty-five percent (25%) of the shares included in the
registration, except for a registration relating to the Company's initial public
offering or an offering solely by stockholders of the Company exercising demand
registration rights, from which all Registrable Securities may be excluded, and
(ii) all shares that are not Registrable Securities and are held by persons who
are employees or directors of the Company (or any subsidiary of the Company)
shall first be excluded from such registration and underwriting before any
Registrable Securities are so excluded. If any Holder disapproves of the terms
of any such underwriting, such Holder may elect to withdraw therefrom by written
notice to the Company and the underwriter, delivered at least twenty (20) days
prior to the effective date of the registration statement. Any Registrable
Securities excluded or withdrawn from such underwriting shall be excluded and
withdrawn from the registration. For any Holder that is a partnership or
corporation, the partners, retired partners and stockholders of such Holder, or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "Holder," and any pro rata reduction with respect to such "Holder" shall
be based upon the aggregate amount of shares carrying registration rights owned
by all entities and individuals included in such "Holder," as defined in this
sentence.
(b) Expenses. All expenses incurred in connection
with a registration pursuant to this Section 2.3 (excluding underwriters' and
brokers' discounts and commissions), including, without limitation all federal
and "blue sky" registration and qualification fees, printers' and accounting,
fees, fees and disbursements of counsel for the Company and reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company.
2.4 Form S-3 Registration. In case the Company shall receive
from any Holder or Holders of at least twenty-five percent (25%) of all
Registrable Securities then outstanding a written request or requests that the
Company effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, then the Company will:
(a) Notice. Promptly give written notice of the
proposed registration and the Holder's or Holders' request therefor, and any
related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) Registration. As soon as practicable, effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within twenty (20) days after receipt of such written
notice from the Company; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section 2.4:
(i) if Form S-3 is not available for such
offering;
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<PAGE> 7
(ii) if the Holders, together with the
holders of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) at an aggregate price to the public of less than $1,000,000;
(iii) if the Company shall furnish to the
Holders a certificate signed by the President or Chief Executive Officer of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement no more than once during any twelve month period for a period of not
more than 120 days after receipt of the request of the Holder or Holders under
this Section 2.4;
(iv) if the Company has, within the twelve
(12) month period preceding the date of such request, already effected two (2)
registrations on Form S-3 for the Holders pursuant to this Section 2.4; or
(v) in any particular jurisdiction in which
the Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Expenses. Subject to the foregoing, the Company
shall file a, Form S-3 registration statement covering the Registrable
Securities and other securities so requested to be registered pursuant to this
Section 2.4 as soon as practicable after receipt of the request or requests of
the Holders for such registration. The Company shall pay all expenses incurred
in connection with each registration requested pursuant to this Section 2.4,
(excluding underwriters' or brokers' discounts and commissions), including
without limitation all filing, registration and qualification, printers' and
accounting fees and the reasonable fees and disbursements of one counsel for the
selling Holder or Holders and counsel for the Company.
(d) Not Demand Registration. Form S-3 registrations
shall not be deemed to be demand registrations as described in Section 2.2
above.
2.5 Obligations of the Company. Whenever required to effect
the registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use reasonable,
diligent efforts to cause such registration statement to become effective, and,
upon the request of the Holders of a majority of tile Registrable Securities
registered thereunder, keep such registration statement effective for up to
ninety (90) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
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(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(d) Use reasonable, diligent 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 all underwriting agreement, in
usual and customary form, with the managing underwriter(s) of such offering.
Each Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale, 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 as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a
"comfort" letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
2.6 Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to Sections 2.2, 2.3
or 2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to timely effect
the registration of their Registrable Securities.
2.7 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 2.
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2.8 Indemnification. In the event any Registrable Securities
are included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) By the Company. To the extent permitted by law,
the Company will indemnify and hold harmless each Holder, the partners, officers
and directors of each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended, (the "1934 ACT"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively, "VIOLATIONS" and, individually, a "VIOLATION"):
(i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto;
(ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or
(iii) any violation or alleged violation
by the Company of the Securities Act, the 1934 Act, any federal or state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any federal or state securities law in connection with the
offering covered by such registration statement;
and the Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability or action; provided however, that the
indemnity agreement contained in this subsection 2.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by
law, each selling Holder will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the registration statement,
each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder within the meaning of the
Securities Act or the 1934 Act, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder, partner or
director, officer or controlling person of such other Holder may become subject
under the Securities Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
arise out
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of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other Holder, partner, officer, director or
controlling person of such other Holder in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 2.8(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder, which
consent shall not be unreasonably withheld; and provided further, that the total
amounts payable in indemnity by a Holder under this Section 2.8(b) in respect of
any Violation shall not exceed the net proceeds received by such Holder in the
registered offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified
party under this Section 2.8 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
2.8, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential conflict of interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.8, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 2.8.
(d) Defect Eliminated in Final Prospectus. The
foregoing indemnity agreements of the Company and Holders are subject to the
condition that, insofar as they relate to any Violation made in a preliminary
prospectus but eliminated or remedied in the amended prospectus on file with the
SEC at the time the registration statement in question becomes effective or the
amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (tile "FINAL
PROSPECTUS"), such indemnity agreement shall not inure to the benefit of any
person if a copy of the Final Prospectus was furnished to the indemnified party
and was not furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.
(e) Contribution. In order to provide for just and
equitable contribution to joint liability under the Securities Act in any case
in which either (i) any Holder exercising rights under this Agreement, or any
controlling person of any such Holder, makes a claim for indemnification
pursuant to this Section 2.8 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 2.8 provides for indemnification in such case, or
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<PAGE> 11
(ii) contribution under the Securities Act may be required on the part of any
such selling Holder or any such controlling person in circumstances for which
indemnification is provided under this Section 2.8; then, and in each such case,
the Company and such Holder will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion so that such Holder is responsible for the portion
represented by the percentage that the public offering price of its Registrable
Securities offered by and sold under the registration statement bears to the
public offering price of all securities offered by and sold under such
registration statement, and the Company and other selling Holders are
responsible for the remaining portion; provided, however, that, in any such
case, (A) no such Holder will be required to contribute any amount in excess of
the public offering price of all such Registrable Securities offered and sold by
such Holder pursuant to such registration statement; and (B) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) will be entitled to contribution from any person or entity
who was not guilty of such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and
Holders under this Section 2.8 shall survive the completion of any offering of
Registrable Securities in a registration statement, and otherwise.
2.9 "Market Stand-Off" Agreement. Each Holder hereby agrees
that it shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or other shares of stock of the Company then owned by
such Holder (other than to donees or partners of the Holder who agree to be
similarly bound) for up to one hundred eighty (180) days following the effective
date of a registration statement of the Company filed under the Securities Act;
provided, however, that:
(a) such agreement shall be applicable only to the
first such registration statement of the Company which covers securities to be
sold on its behalf to the public in an underwritten offering but not to
Registrable Securities sold pursuant to such registration statement; and
(b) all officers and directors of the Company then
holding Common Stock of the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company shall have the right to
place restrictive legends on the certificates representing the shares subject to
this Section and to impose stop transfer instructions with respect to the
Registrable Securities and such other shares of stock of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
2.10 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 Registrable 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:
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(a) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to the
general public;
(b) Use reasonable, diligent efforts to file with the
Commission in a timely manner all reports and other documents required of the
Company under the Securities Act and the 1934 Act (at any time after it has
become subject to such reporting requirements); and
(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 ninety (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 1934 Act (at any time
after it has become subject to the reporting requirements of the 1934 Act), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Holder to
sell any such securities without registration (at any time after the Company has
become subject to the reporting requirements of the 1934 Act).
2.11 Termination of the Company's Obligations. The Company
shall have no obligations pursuant to Sections 2.2 through 2.4 with respect to:
(a) any request or requests for registration made by any Holder on a date more
than five (5) years after the closing date of the Company's initial public
offering; or (b) any Registrable Securities proposed to be sold by a Holder in a
registration pursuant to Section 2.2, 2.3 or 2.4 if, in the opinion of counsel
to the Company, all such Registrable Securities proposed to be sold by a Holder
may be sold in a three-month period without registration under the Securities
Act pursuant to Rule 144 under the Securities Act.
2.12 Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the 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 include such securities in any registration filed under Section
2.2 hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included, or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in subsection
2.2(a), or within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 2.2.
3. PRE-EMPTIVE RIGHTS.
3.1 General. Each Holder (as defined in Section 2.1(d)) and
any party to whom such Holder's rights under this Section 3 have been duly
assigned in accordance with Section 4.1(b) (each such Holder or assignee being
hereinafter referred to as a "RIGHTS HOLDER") has the right of first refusal to
purchase such Rights Holder's Pro Rata Share (as defined below), of all (or any
part) of
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any "NEW SECURITIES" (as defined in Section 3.2) that the Company may from time
to time issue after the date of this Agreement. A Rights Holder's "PRO RATA
SHARE" for purposes of this right of first refusal is the ratio of (a) the
number of Registrable Securities as to which such Rights Holder is the Holder
(and/or is deemed to be the Holder under Section 2.1(d)), to (b) a number of
shares of Common Stock of the Company equal to the sum of (i) the total number
of shares of Common Stock of the Company then outstanding plus (ii) the total
number of shares of Common Stock of the Company into which all then outstanding
shares of Preferred Stock of the Company are then convertible.
3.2 New Securities. "NEW SECURITIES" shall mean any Common
Stock or Preferred Stock of the Company, whether now authorized or not, and
rights, options or warrants to purchase such Common Stock or Preferred Stock,
and securities of any type whatsoever that are, or may become, convertible or
exchangeable into such Common Stock or Preferred Stock; provided, however, that
the term "New Securities" does not include:
(a) up to 3,000,000 shares of the Company's Common
Stock (and/or options or warrants therefor) issued to employees, officers,
directors, contractors, advisors or consultants of the Company pursuant to
incentive agreements or plans approved by the Board of Directors of the Company;
(b) any shares of Series A Stock or Series B Stock
issued under the Purchase Agreement or the Acquisition Agreement, respectively,
as such agreements may be amended.
(c) any securities issuable upon conversion of or
with respect to any then outstanding shares of Series A Stock or Series B Stock
of the Company or Common Stock or other securities issuable upon conversion
thereof,
(d) any securities issuable upon exercise of any
options, warrants or rights to purchase any securities of the Company
outstanding on the date of this Agreement "WARRANT SECURITIES") and any
securities issuable upon the conversion of any Warrant Securities or upon the
exercise or conversion of any securities, if such securities were first offered
to the Rights Holders hereunder;
(e) shares of the Company's Common Stock or Preferred
Stock issued in connection with any stock split or stock dividend;
(f) securities offered by the Company to the public
pursuant to a registration statement filed under the Securities Act;
(g) up to 250,000 shares of the Company's Common
Stock or Preferred Stock (and/or options or warrants therefor) issued or
issuable to parties providing the Company with equipment leases, real property
leases, loans, credit lines, guaranties of indebtedness, cash price reductions
or similar financing such number of shares being subject to proportional
adjustment to reflect subdivisions, combinations and stock dividends affecting
the number of outstanding shares of such stock; or
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(h) securities issued pursuant to the acquisition of
another corporation or entity by the Company by consolidation, merger, purchase
of all or substantially all of the assets, or other reorganization in which the
Company acquires, in a single transaction or series of related transactions, all
or substantially all of the assets of such other corporation or entity or fifty
percent (50%) or more of the voting power of such other corporation or entity or
fifty percent (50%) or more of the equity ownership of such other entity.
3.3 Procedures. In the event that the Company proposes to
undertake an issuance of New Securities, it shall give to each Rights Holder
written notice of its intention to issue New Securities (the "NOTICE"),
describing the type of New Securities and the price and the general terms upon
which the Company proposes to issue such New Securities. Each Rights Holder
shall have ten (10) days from the date of mailing of any such Notice to agree in
writing to purchase such Rights Holder's Pro Rata Share of such New Securities
for the price and upon the general terms specified in the Notice by giving
written notice to the Company and stating therein the quantity of New Securities
to be purchased (not to exceed such Rights Holder's Pro Rata Share). If any
Rights Holder falls to so agree in writing within such ten (10) day period to
purchase such Rights Holder's full Pro Rata Share of an offering, of New
Securities (a "NONPURCHASING HOLDER"), then such Nonpurchasing Holder shall
forfeit the right hereunder to purchase that part of his Pro Rata Share of such
New Securities that he did not so agree to purchase and the Company shall
promptly give each Rights Holder who has timely agreed to purchase his 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
Rights 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 Shares of such offering on a
pro rata basis according to the relative Pro Rata Shares of the Purchasing
Rights Holders, at any time within five (5) days after receiving the
Overallotment Notice.
3.4 Failure to Exercise. In the event that the Rights Holders
fail to exercise in full the right of first refusal within such ten (10) plus
five (5) day period, then the Company shall have 120 days thereafter to sell the
New Securities with respect to which the Rights Holders' rights of first refusal
hereunder were not exercised, at a price and upon general terms not materially
more favorable to the purchasers thereof than specified in the Company's Notice
to the Rights Holders. In the event that the Company has not issued and sold the
New Securities within such 120-day period, then the Company shall not thereafter
issue or sell any New Securities without again first offering such New
Securities to the Rights Holders pursuant to this Section 3.
3.5 Termination. This right of first refusal shall terminate
(a) immediately before the closing of the first underwritten sale of Common
Stock of the Company to the public pursuant to a registration statement filed
with, and declared effective by, the SEC under the Securities Act, covering the
offer and sale of Common Stock to the public at an offering price of at least
$1.10 per share (such offering price being subject to proportional adjustment to
reflect subdivisions, combinations, stock dividends and similar transactions
affecting the number of outstanding shares of Common Stock) for an aggregate
gross public offering, price (calculated before deduction of underwriters'
discounts and commissions) of at least $15,000,000 or (b) upon (i) the
acquisition of all or substantially all the assets of the Company or (ii) an
acquisition of the Company by another
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<PAGE> 15
corporation or entity by consolidation, merger or other reorganization in which
the holders of the Company's outstanding voting stock immediately prior to such
transaction own, immediately after such transaction, securities representing
less than fifty percent (50%) or more of the voting power of the corporation or
other entity surviving such transaction.
4. ASSIGNMENT AND AMENDMENT.
4.1 Assignment. Notwithstanding anything herein to the
contrary:
(a) Information Rights. The rights of an Investor
under Section 1.1 or 1.2 or 1.4 hereof may be assigned only to a party who
acquires from an Investor (or an Investor's permitted assigns) at least 500,000
shares of Series A Stock issued under the Purchase Agreement and/or Series B
Stock issued under the Acquisition Agreement and/or all equivalent number (on an
as-converted basis) of Registrable Securities issued upon conversion thereof.
(b) Registration Rights; Refusal Rights. The
registration rights of a Holder under Section 2 hereof and the rights of first
refusal of a Rights Holder under Section 3 hereof may be assigned only to a
party who acquires at least 500,000 shares of Series A Stock issued under the
Purchase Agreement and/or Series B Stock issued under the Acquisition Agreement
and/or an equivalent number (on an as-converted basis) of Registrable Securities
issued upon conversion thereof; provided, however that no party may be assigned
any of the foregoing rights unless the Company is given written notice by the
assigning party at the time of such assignment stating the name and address of
the assignee and identifying the securities of the Company as to which the
rights in question are being assigned; and provided further that any such
assignee shall receive such assigned rights subject to all the terms and
conditions of this Agreement, including without limitation the provisions of
this Section 4.
4.2 Amendment of Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors (and/or any of their permitted
successors or assigns) holding shares of Series A Stock, Series B Stock and/or
Conversion Stock representing and/or convertible into a majority of all the
Investors' Shares (as defined below). As used herein, the term "INVESTORS'
SHARES" shall mean the shares of Common Stock then issuable upon conversion of
all then outstanding shares of Series A Stock issued under the Purchase
Agreement and all then outstanding, shares of Series B Stock issued under the
Acquisition Agreement plus all then outstanding shares of Conversion Stock that
were issued upon the conversion of any shares of Series A Stock issued under the
Purchase Agreement and shares of Series B Stock issued under the Acquisition
Agreement. Any amendment or waiver effected in accordance with this Section 4.2
shall be binding, upon each Investor, each Holder, each permitted successor or
assignee of such Investor or Holder and the Company.
5. GENERAL PROVISIONS.
5.1 Notices. Any notice, request or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if personally delivered or
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if deposited in the U.S. mail by registered or certified mail, return receipt
requested, postage prepaid, as follows:
(a) if to the Investors, at the addresses set forth
on Exhibit A.
(b) if to the Company, at 1951 S. Fordham Street,
Longmont, Colorado 90503.
(c) if to the Stockholders, at the addresses set
forth on Exhibit B.
Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively be
deemed to have been given when personally delivered or when deposited in the
mail in the manner set forth above.
5.2 Entire Agreement. This Agreement, together with all the
Exhibits hereto, constitutes and contains the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes any and
all prior negotiations, correspondence, agreements, understanding, duties or
obligations between the parties respecting the subject matter hereof
5.3 Governing Law. This Agreement shall be governed by and
construed exclusively in accordance with the internal laws of the State of
California as applied to agreements among California residents entered into and
to be performed entirely within California, excluding that body of law relating
to conflict of laws and choice of law.
5.4 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, then such provision(s) shall
be excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
5.5 Third Parties. Nothing in this Agreement, express or
implied, is intended to confer upon any person, other than the parties hereto
and their successors and assigns, any rights or remedies under or by reason of
this Agreement.
5.6 Successors And Assigns. Subject to the provisions of
Section 4.1, the provisions of this Agreement shall inure to the benefit of, and
shall be binding upon, the successors and permitted assigns of the parties
hereto.
5.7 Captions. The captions to sections of this Agreement have
been inserted for identification and reference purposes only and shall not be
used to construe or interpret this Agreement.
5.8 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed all original, but all of which
together shall constitute one and the same instrument.
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5.9 Costs And Attorneys' Fees. In the event that any action,
suit or other proceeding is instituted concerning or arising out of this
Agreement or any transaction contemplated hereunder, the prevailing party shall
recover all of such party's costs and attorneys' fees incurred in each such
action, suit or other proceeding, including any and all appeals or petitions
therefrom.
5.10 Adjustments for Stock Splits, Etc. Wherever in this
Agreement there is a reference to a specific number of shares of Common Stock or
Preferred Stock of the Company of any class or series, then, upon the occurrence
of any subdivision, combination or stock dividend of such class or series of
stock, the specific number of shares so referenced in this Agreement shall
automatically be proportionally adjusted to reflect the affect on the
outstanding shares of such class or series of stock by such subdivision,
combination or stock dividend.
5.11 Aggregation of Stock. All shares 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.
5.12 Prior Registration Rights Superseded. Grayson and the
Company hereby agree that the demand and piggy-back registration rights granted
to Grayson under Sections 2.2 and 2.3 hereof shall entirely replace and
supersede any and all registration rights granted by the Company to Grayson
under the Warrant, and the Company shall have no obligation under the Warrant to
register shares issuable upon conversion of the Warrant.
5.13 Arbitration. Any disputes between the Company, the
Investors, the Stockholders and/or Grayson with respect to this Agreement shall
be settled by binding, final arbitration in accordance with the commercial
arbitration rules of the American Arbitration Association then in effect (the
"AAA RULES"). Any arbitration proceeding shall be conducted in Santa Clara,
California. The following arbitration provisions shall govern over any
conflicting rules which may now or hereafter be contained in the AAA Rules. Any
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction over the subject matter thereof. The arbitrator shall have
the authority to grant any equitable and legal remedies that would be available.
(a) Any such arbitration shall be conducted before a
single arbitrator who shall be compensated for his or her services at a rate to
be determined by the parties or by the American Arbitration Association, but
based upon reasonable hourly or daily consulting rates for the arbitrator in the
event the parties are not able to agree upon his or her rate of compensation.
(b) The AAA Rules for the selection of the arbitrator
shall be followed.
(c) Each party to such arbitration shall each advance
an equal portion of the initial compensation to be paid to the arbitrator in any
such arbitration and an equal portion of the costs of transcripts and other
normal and regular expenses of the arbitration proceedings; provided, however,
that the arbitrator shall have the discretion to grant to the prevailing party
in any arbitration an award of attorneys' fees and costs, and all costs of
arbitration.
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<PAGE> 18
(d) The parties shall be entitled to conduct
discovery proceedings in accordance with the provisions of the Federal Rules of
Civil Procedure, subject to any limitation imposed by the arbitrator.
(e) For any claim submitted to arbitration, the
burden of proof shall be as it would be if the claim were litigated in a
judicial proceedings.
(f) Upon the conclusion of any arbitration proceeding
hereunder, the arbitrator shall render findings of fact and conclusions of law
and a written opinion setting forth the basis and reasons for any decision
reached by him or her and shall deliver such documents to each party to this
Agreement along with a signed copy of the award.
(g) The arbitrator chosen in accordance with these
provisions shall not have the power to alter, amend or otherwise affect the
terms of these arbitration provisions or the provisions of this Agreement.
(h) The parties acknowledge that, except as
specifically provided in this Agreement, no other action need be taken by either
party before proceeding directly in accordance with the provisions of this
Section.
(i) The arbitration provisions set forth in this
Section 5.13 are intended by the parties to be exclusive for all purposes and
applicable to each and every controversy, dispute and/or claim in any manner
arising out of or relating to this Agreement, the meaning, application and/or
interpretation of this Agreement, any breach hereof and/or any voluntary or
involuntary termination of this Agreement with or without cause, including,
without limitation, any such controversy, dispute and/or claim which, if pursued
through any state or federal court or administrative agency, would arise at law,
in equity and/or pursuant to statutory, regulatory and/or common law rules,
regardless of whether any such dispute, controversy and/or claim would arise in
and/or from contract, tort or any other legal and/or equitable theory or basis.
The prevailing party in any action instituted pursuant to this Section 5.13(i),
or in any appeal from any arbitration conducted pursuant to this Section 5.13,
shall be entitled to recover from the other party its reasonable attorneys' fees
and other expenses incurred in such litigation.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have executed this Investors'
Rights Agreement as of the date first above written.
THE COMPANY: THE INVESTORS:
Chaparral Technologies, Inc., Adaptec, Inc.,
a Delaware corporation a Delaware corporation
Name: Gary L. Allison Name: Lawrence Boucher
---------------------------------- -----------------------------
By: /s/ Gary L. Allison By: /s/ Lawrence Boucher
------------------------------------ -------------------------------
Title: Chairman of the Board and Title: Chairman of the Board
Chief Executive Officer ----------------------------
---------------------------------
----------------------------------
William R. Childs
/s/ Gary L. Allison
----------------------------------
Gary L. Allison
----------------------------------
----------------------------------
THE STOCKHOLDERS:
/s/ Gary L. Allison /s/ Michael J. Gluck
- --------------------------------------- ----------------------------------
Gary L. Allison Michael J. Gluck
/s/ Jerry L. Walker
- --------------------------------------- ----------------------------------
Jerry L. Walker
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
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<PAGE> 1
EXHIBIT 10.7
FIRST AMENDED INVESTORS' RIGHTS AGREEMENT
This First Amended Investors' Rights Agreement (this "AGREEMENT") is
made and entered into as of March 31, 1999 by and among Chaparral Network
Storage, Inc. (formerly Chaparral Technologies Inc.), a Delaware corporation
(the "COMPANY"), the individuals and entities listed on Exhibit A attached
hereto (the "INITIAL INVESTORS"), and the individuals is listed on Exhibit B
attached hereto (the "NEW INVESTORS" and together with the Initial Investors,
the "INVESTORS").
A. The Initial Investors are party to that certain Investors' Rights
Agreement dated as of November 25, 1998 (the "ORIGINAL AGREEMENT").
B. The New Investors have agreed to purchase from the Company, and the
Company has agreed to sell to the New Investors, shares of the Company's Series
A Preferred Stock on the terms and conditions set forth in that certain Series A
Preferred Stock Purchase Agreement, dated March 25 August 13, 1999 by and
between the Company and each New Investors (the "PURCHASE AGREEMENT").
C. It is a condition to the New Investors' obligations to enter into
the Purchase Agreement that this Agreement be executed by the parties hereto.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. INFORMATION RIGHTS.
1.1 Financial Information. The Company covenants and agrees
that, commencing on the date of this Agreement, for so long as any Investor
holds shares of Series A Stock issued under the Purchase Agreement and/or shares
of Series B Stock issued under the Acquisition Agreement and/or the equivalent
number (on an as-converted basis) of shares of Common Stock of the Company
("COMMON STOCK") issued upon the conversion of such shares of Series A Stock or
Series B Stock ("CONVERSION STOCK") the Company will:
(a) Annual Reports. Furnish to such Investor, as soon
as practicable and in any event within 120 days after the end of each fiscal
year of the Company, a consolidated Balance Sheet as of the end of such fiscal
year, a consolidated Statement of Income and a consolidated Statement of Cash
Flows of the Company and its subsidiaries for such year, setting forth in each
case in comparative form the figures from the Company's previous fiscal year (if
any), all prepared in accordance with generally accepted accounting principles
and practices and audited by an independent certified public accounting firm;
and
(b) Quarterly Reports. Furnish to such Investor as
soon as practicable, and in any case within forty-five (45) days after the end
of each fiscal quarter of the Company (except the last quarter of the Company's
fiscal year), quarterly unaudited financial statements,
<PAGE> 2
including an unaudited Balance Sheet, an unaudited Statement of Income and an
unaudited Statement of Cash Flows, together with a comparison to the Company's
operating plan and budget and statements of the Chief Financial Officer of the
Company explaining any significant differences in the statements from the
Company's operating plan and budget for the period and stating that such
statements fairly present the consolidated financial position and consolidated
financial results of the Company for the fiscal quarter covered.
Each Investor agrees to hold all information received pursuant to this Section
in confidence, and not to use or disclose any of such information to any third
party, except to the extent such information may be made publicly available by
the Company.
1.2 Inspection Rights. The Company shall permit each Investor
holding shares of Series A Stock and/or Series B Stock and/or the equivalent
number (on an as-converted basis) of shares of Conversion Stock, or any
combination thereof, at such Investor's expense, to visit and inspect the
Company's properties, to examine its books of account and records and to discuss
the Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by such Investor. Each Investor agrees to
hold all information received from such inspections in confidence, and not to
use or disclose any of such information to any third party, except to the extent
such information may be made publicly available by the Company.
1.3 Board Rights. The Company shall permit Adaptec to have one
(1) representative attend all meetings of the Company's Board of Directors in a
non-voting observer capacity and to receive any communications directed to
members of the Board of Directors in their capacity as such. The Investors agree
to hold all information received from such meetings in confidence, and not to
use or disclose any of such information to any third party, except to the extent
such information may be made publicly available by the Company.
1.4 Termination of Certain Rights. The Company's obligations
under Sections 1.1, 1.2 and 1.3 above will terminate upon the closing of the
Company's initial public offering of Common Stock pursuant to an effective
registration statement filed under the U.S. Securities Act of 1933, as amended
(the "SECURITIES ACT"), in which the gross proceeds raised for the Company's
account (calculated before deduction of underwriters' discounts and omissions)
exceeds $15,000,000 at a price greater than $1.10 per share of Common Stock
(such price to be proportionally adjusted to reflect stock splits, stock
dividends and the like).
2. REGISTRATION RIGHTS.
2.1 Definitions. For purposes of this Section 2:
(a) Registration. The terms "REGISTER,"
"REGISTRATION" and "REGISTERED" and refer to a registration effected by
preparing and filing a registration statement in compliance with the Securities
Act, and the declaration or ordering of effectiveness of such registration
statement.
(b) Registrable Securities. The term "REGISTRABLE
SECURITIES" means: (i) all the shares of Common Stock of the Company issued or
issuable upon the conversion of any
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<PAGE> 3
shares of Series A Stock or Series B Stock that are now owned or may hereafter
be acquired by the Investors or the Investors' permitted successors and assigns
and (ii) any shares of Common Stock of the Company issued as (or issuable upon
the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, all such shares of Common Stock described in clause (i) of
this subsection (b); excluding in all cases, however, any Registrable Securities
sold by a person in a transaction in which rights under this Section 2 are not
assigned in accordance with this Agreement or any Registrable Securities sold to
the public or sold pursuant to Rule 144 promulgated under the Securities Act.
(c) Registrable Securities Then Outstanding. The
number of shares of "REGISTRABLE SECURITIES THEN OUTSTANDING" shall mean the
number of shares of Common Stock which are Registrable Securities and (i) are
then issued and outstanding or (ii) are then issuable pursuant to the exercise
or conversion of then outstanding and then exercisable options, warrants or
convertible securities.
(d) Holder. For purposes of this Section 2 and
Sections 3 and 4 hereof, the term "HOLDER" means any person owning of record
Registrable Securities that have not been sold to the public or pursuant to Rule
144 promulgated under the Securities Act or any assignee of record of such
Registrable Securities to whom rights under such Sections have been duly
assigned in accordance with this Agreement; provided, however, that for purposes
of this Agreement, a record holder of the Warrant or shares of Series A Stock or
Series B Stock convertible into such Registrable Securities shall be deemed to
be the Holder of such Registrable Securities; and provided, further, that the
Company shall in no event be obligated to register the Warrant or shares of
Series A Stock or Series B Stock, and that Holders of Registrable Securities
will not be required to convert the Warrant or their shares of Series A Stock or
Series B Stock into Common Stock in order to exercise the registration rights
granted hereunder, until immediately before the closing of the offering to which
the registration relates.
(e) Form S-3. The term "FORM S-3" means such form
under the Securities Act as is in effect on the date hereof or any successor
registration form under the Securities Act subsequently adopted by the SEC which
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
(f) SEC. The term "SEC" or "COMMISSION" means the
U.S. Securities and Exchange Commission.
(g) Series A Stock. The term "SERIES A STOCK" shall
mean the Company's Series A Preferred Stock, par value $0.001 per share.
(h) Series B Stock. The term "SERIES B STOCK" shall
mean the Company's Series B Preferred Stock, par value $0.001 per share.
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<PAGE> 4
2.2 Demand Registration.
(a) Request by Holders. If the Company shall receive
at any time after six (6) months after the effective date of the Company's
initial public offering of its securities pursuant to a registration filed under
the Securities Act, a written request from the Holders of at least two-thirds of
the Registrable Securities then outstanding that the Company file a registration
statement under the Securities Act covering the registration of Registrable
Securities pursuant to this Section 2.2, then the Company shall, within twenty
(20) days after the receipt of such written request, give written notice of such
request ("REQUEST NOTICE") to all Holders, and effect, as soon as practicable,
the registration under the Securities Act of all Registrable Securities which
Holders request to be registered and included in such registration by written
notice given by such Holders to the Company within twenty (20) days after
receipt of the Request Notice, subject only to the limitations of this Section
2; provided that the Registrable Securities requested by all Holders to be
registered pursuant to such request must be at least twenty-five percent (25%)
of all Registrable Securities then outstanding.
(b) Underwriting. If the Holders initiating the
registration request under this Section 2.2 ("INITIATING HOLDERS") intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, then they shall so advise the Company as a part of their request
made pursuant to this Section 2.2 and the Company shall include such information
in the written notice referred to in subsection 2.2(a). In such event, the right
of any Holder to include his Registrable Securities in such registration shall
be conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 2.2, if the underwriter(s) advise(s) the Company
in writing that marketing factors require a limitation of the number of
securities to be underwritten then the Company shall so advise all Holders of
Registrable Securities that would otherwise be registered and underwritten
pursuant hereto, and the number of Registrable Securities that may be included
in the underwriting shall be reduced as required by the underwriter(s) and
allocated among the Holders of Registrable Securities on a pro rata basis
according to the number of Registrable Securities then outstanding held by each
Holder requesting registration (including the Initiating Holders); provided,
however, that the number of shares of Registrable Securities to be included in
such underwriting and registration shall not be reduced unless all other
securities of the Company are first entirely excluded from the underwriting and
registration. Any Registrable Securities excluded and withdrawn from such
underwriting shall be withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The
Company is obligated to effect only two (2) such registrations pursuant to this
Section 2.2.
(d) Deferral. Notwithstanding the foregoing, if the
Company shall furnish to Holders requesting the filing of a registration
statement pursuant to this Section 2.2, a
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<PAGE> 5
certificate signed by the President or Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement, then the Company shall have the
right to defer such filing for a period of not more than 120 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve (12) month period.
(e) Expenses. All expenses incurred in connection
with a registration pursuant to this Section 2.2, including without limitation
all registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders (but excluding
underwriters' discounts and commissions), shall be borne by the Company. Each
Holder participating in a registration pursuant to this Section 2.2 shall bear
such Holder's proportionate share (based on the total number of shares sold in
such registration other than for the account of the Company) of all discounts,
commissions or other amounts payable to underwriters or brokers in connection
with such offering. Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to this Section 2.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered, unless the Holders of a majority of the Registrable Securities then
outstanding agree to forfeit their right to one (1) demand registration pursuant
to this Section 2.2 (in which case such right shall be forfeited by all Holders
of Registrable Securities); provided, further, however, that if at the time of
such withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company not known to the Holders at the
time of their request for such registration and have withdrawn their request for
registration with reasonable promptness after learning of such material adverse
change, then the Holders shall not be required to pay any of such expenses and
shall retain their rights pursuant to this Section 2.2.
2.3 Piggyback Registrations. The Company shall notify all
Holders of Registrable Securities in writing at least thirty (30) days prior to
filing any registration statement under the Securities Act for purposes of
effecting a public offering of securities of the Company (including, but not
limited to, registration statements relating to secondary offerings of
securities of the Company, but excluding registration statements relating to any
registration under Section 2.2 or Section 2.4 of this Agreement or to any
employee benefit plan or a corporate reorganization) and will afford each such
Holder an opportunity to include in such registration statement all or any part
of the Registrable Securities then held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by such Holder shall, within twenty (20) days after receipt of
the above-described notice from the Company, so notify the Company in writing,
and in such notice shall inform the Company of the number of Registrable
Securities such Holder wishes to include in such registration statement. If a
Holder decides not to include all of its Registrable Securities in any
registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or
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<PAGE> 6
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(a) Underwriting. If a registration statement under
which the Company gives notice under this Section 2.3 is for an underwritten
offering, then the Company shall so advise the Holders of Registrable
Securities. In such event, the right of any such Holder's Registrable Securities
to be included in a registration pursuant to this Section 2.3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the managing underwriter or underwriter(s) selected for
such underwriting. Notwithstanding any other provision of this Agreement, if the
managing underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to
stockholders exercising any demand registration rights, second to the Company,
and third, to each of the Holders requesting inclusion of their Registrable
Securities in such registration statement on a pro rata basis based on the total
number of Registrable Securities then held by each such Holder; provided
however, that the right of the underwriters to exclude shares (including
Registrable Securities) from the registration and underwriting as described
above shall be restricted so that: (i) the number of Registrable Securities
included in any such registration is not reduced below twenty-five percent (25%)
of the shares included in the registration, except for a registration relating
to the Company's initial public offering or an offering solely by stockholders
of the Company exercising demand registration rights, from which all Registrable
Securities may be excluded, and (ii) all shares that are not Registrable
Securities and are held by persons who are employees or directors of the Company
(or any subsidiary of the Company) shall first be excluded from such
registration and underwriting before any Registrable Securities are so excluded.
If any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least twenty (20) days prior to the effective date of
the registration statement. Any Registrable Securities excluded or withdrawn
from such underwriting shall be excluded and withdrawn from the registration.
For any Holder that is a partnership or corporation, the partners, retired
partners and stockholders of such Holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "Holder," and any pro rata
reduction with respect to such "Holder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "Holder," as defined in this sentence.
(b) Expenses. All expenses incurred in connection
with a registration pursuant to this Section 2.3 (excluding underwriters' and
brokers' discounts and commissions), including, without limitation all federal
and "blue sky" registration and qualification fees, printers' and accounting
fees, fees and disbursements of counsel for the Company and reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company.
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<PAGE> 7
2.4 Form S-3 Registration. In case the Company shall receive
from any Holder or Holders of at least twenty-five percent (25%) of all
Registrable Securities then outstanding a written request or requests that the
Company effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, then the Company will:
(a) Notice. Promptly give written notice of the
proposed registration and the Holder's or Holders' request therefor, and any
related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) Registration. As soon as practicable, effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within twenty (20) days after receipt of such written
notice from the Company; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section 2.4:
(i) if Form S-3 is not available for such
offering;
(ii) if the Holders, together with the
holders of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) at an aggregate price to the public of less than $1,000,000;
(iii) if the Company shall furnish to the
Holders a certificate signed by the President or Chief Executive Officer of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement no more than once during any twelve month period for a period of not
more than 120 days after receipt of the request of the Holder or Holders under
this Section 2.4;
(iv) if the Company has, within the twelve
(12) month period preceding the date of such request, already effected two (2)
registrations on Form S-3 for the Holders pursuant to this Section 2.4; or
(v) in any particular jurisdiction in which
the Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Expenses. Subject to the foregoing, the Company
shall file a Form S-3 registration statement covering the Registrable Securities
and other securities so requested to be registered pursuant to this Section 2.4
as soon as practicable after receipt of the request or requests of the Holders
for such registration. The Company shall pay all expenses
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<PAGE> 8
incurred in connection with each registration requested pursuant to this Section
2.4, (excluding underwriters' or brokers' discounts and commissions), including
without limitation all filing, registration and qualification, printers' and
accounting fees and the reasonable fees and disbursements of one counsel for the
selling Holder or Holders and counsel for the Company.
(d) Not Demand Registration. Form S-3 registrations
shall not be deemed to be demand registrations as described in Section 2.2
above.
2.5 Obligations of the Company. Whenever required to effect
the registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use reasonable,
diligent 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
ninety (90) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(d) Use reasonable, diligent efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. 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.
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(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale, 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 as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a
"comfort" letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
2.6 Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to Sections 2.2, 2.3
or 2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to timely effect
the registration of their Registrable Securities.
2.7 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 2.
2.8 Indemnification. In the event any Registrable Securities
are included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) By the Company. To the extent permitted by law,
the Company will indemnify and hold harmless each Holder, the partners, officers
and directors of each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended, (the "1934 ACT"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the l934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively, "VIOLATIONS" and, individually, a "VIOLATION"):
(i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto;
(ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or
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(iii) any violation or alleged violation by
the Company of the Securities Act, the 1934 Act, any federal or state securities
law or any rule or regulation promulgated under the Securities Act, the 1934 Act
or any federal or state securities law in connection with the offering covered
by such registration statement; and the Company will reimburse each such Holder,
partner, officer or director, underwriter or controlling person for any legal or
other expenses reasonably incurred by them, as incurred, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided however, that the indemnity agreement contained in this subsection
2.8(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Holder, partner,
officer, director, underwriter or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by
law, each selling Holder will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the registration statement,
each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder within the meaning of the
Securities Act or the 1934 Act, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder, partner or
director, officer or controlling person of such other Holder may become subject
under the Securities Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for use
in connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
2.8(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; and provided
further, that the total amounts payable in indemnity by a Holder under this
Section 2.8(b) in respect of any Violation shall not exceed the net proceeds
received by such Holder in the registered offering out of which such Violation
arises.
(c) Notice. Promptly after receipt by an indemnified
party under this Section 2.8 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
2.8, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to
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<PAGE> 11
the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential conflict of interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.8, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 2.8.
(d) Defect Eliminated in Final Prospectus. The
foregoing indemnity agreements of the Company and Holders are subject to the
condition that, insofar as they relate to any Violation made in a preliminary
prospectus but eliminated or remedied in the amended prospectus on file with the
SEC at the time the registration statement in question becomes effective or the
amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "FINAL
PROSPECTUS"), such indemnity agreement shall not inure to the benefit of any
person if a copy of the Final Prospectus was furnished to the indemnified party
and was not furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.
(e) Contribution. In order to provide for just and
equitable contribution to joint liability under the Securities Act in any case
in which either (i) any Holder exercising rights under this Agreement, or any
controlling person of any such Holder, makes a claim for indemnification
pursuant to this Section 2.8 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 2.8 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling Holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 2.8; then, and in each such case, the Company and
such Holder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that such Holder is responsible for the portion represented
by the percentage that the public offering price of its Registrable Securities
offered by and sold under the registration statement bears to the public
offering price of all securities offered by and sold under such registration
statement, and the Company and other selling Holders are responsible for the
remaining portion; provided, however, that, in any such case, (A) no such Holder
will be required to contribute any amount in excess of the public offering price
of all such Registrable Securities offered and sold by such Holder pursuant to
such registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
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<PAGE> 12
(f) Survival. The obligations of the Company and
Holders under this Section 2.8 shall survive the completion of any offering of
Registrable Securities in a registration statement, and otherwise.
2.9 "Market Stand-Off" Agreement. Each Holder hereby agrees
that it shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or other shares of stock of the Company then owned by
such Holder (other than to donees or partners of the Holder who agree to be
similarly bound) for up to one hundred eighty (180) days following the effective
date of a registration statement of the Company filed under the Securities Act;
provided, however, that:
(a) such agreement shall be applicable only to the
first such registration statement of the Company which covers securities to be
sold on its behalf to the public in an underwritten offering but not to
Registrable Securities sold pursuant to such registration statement; and
(b) all officers and directors of the Company then
holding Common Stock of the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company shall have the right to
place restrictive legends on the certificates representing the shares subject to
this Section and to impose stop transfer instructions with respect to the
Registrable Securities and such other shares of stock of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
2.10 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 Registrable 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:
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to the
general public;
(b) Use reasonable, diligent efforts to file with the
Commission in a timely manner all reports and other documents required of the
Company under the Securities Act and the 1934 Act (at any time after it has
become subject to such reporting requirements); and
(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 ninety (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 1934 Act (at any time
after it has become subject to the reporting requirements of the 1934 Act), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company as a
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<PAGE> 13
Holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing a Holder to sell any such securities without
registration (at any time after the Company has become subject to the reporting
requirements of the 1934 Act).
2.11 Termination of the Company's Obligations. The Company
shall have no obligations pursuant to Sections 2.2 through 2.4 with respect to
any request or requests for registration made by any Holder on a date more than
five (5) years after the closing date of the Company's initial public offering.
Notwithstanding anything to the contrary contained in Section 2.2 or 2.4, if any
Holder is eligible to sell Registrable Securities pursuant Rule 144(k) or any
successor provision under the Securities Act (an "Excluded Holder"), the
Registrable Securities of such Excluded Holder shall be disregarded in
determining the requisite percentage of Registrable Securities that are required
to initiate a registration pursuant to Section 2.2 or 2.4 (i.e., a registration
under Section 2.2 must be initiated by persons holding at least two-thirds of
the Registrable Securities held by all Holders who are not Excluded Holders and
a registration under Section 2.4 must be initiated by persons holding at least
25% of the Registrable Securities held by all Holders who are not Excluded
Holders). After a registration has been requested pursuant to Section 2.2 or
2.4, as the case may be, by the requisite percentage of shares held by Holders
who are not Excluded Holders, all Holders (including Excluded Holders) shall be
entitled to include their Registrable Securities in such registration subject to
the terms and conditions of this Agreement.
2.12 Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the 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 include such securities in any registration filed under Section
2.2 hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included, or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in subsection
2.2(a), or within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 2.2.
3. PRE-EMPTIVE RIGHTS.
3.1 General. Each Holder (as defined in Section 2.1(d)) and
any party to whom such Holder's rights under this Section 3 have been duly
assigned in accordance with Section 4.1(b) (each such Holder or assignee being
hereinafter referred to as a "RIGHTS HOLDER") has the right of first refusal to
purchase such Rights Holder's Pro Rata Share (as defined below), of all (or any
part) of any "New Securities" (as defined in Section 3.2) that the Company may
from time to time issue after the date of this Agreement. A Rights Holder's "PRO
RATA SHARE" for purposes of this right of first refusal is the ratio of (a) the
number of Registrable Securities as to which such Rights Holder is the Holder
(and/or is deemed to be the Holder under Section 2.1(d)), to (b) a number of
shares of Common Stock of the Company equal to the sum of (i) the total number
of shares of Common Stock of the Company then outstanding plus (ii) the total
number of
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<PAGE> 14
shares of Common Stock of the Company into which all then outstanding shares of
Preferred Stock of the Company are then convertible.
3.2 New Securities. "NEW SECURITIES" shall mean any Common
Stock or Preferred Stock of the Company, whether now authorized or not, and
rights, options or warrants to purchase such Common Stock or Preferred Stock,
and securities of any type whatsoever that are, or may become, convertible or
exchangeable into such Common Stock or Preferred Stock; provided, however, that
the term "New Securities" does not include:
(a) up to 3,500,000 shares of the Company's Common
Stock (and/or options or warrants therefor) issued to employees, officers,
directors, contractors, advisors or consultants of the Company pursuant to
incentive agreements or plans approved by the Board of Directors of the Company;
(b) any shares of Series A Stock issued under the
Purchase Agreement, as such agreement may be amended.
(c) any securities issuable upon conversion of or
with respect to any then outstanding shares of Series A Stock or Series B Stock
of the Company or Common Stock or other securities issuable upon conversion
thereof;
(d) any securities issuable upon exercise of any
options, warrants or rights to purchase any securities of the Company
outstanding on the date of this Agreement ("WARRANT SECURITIES") and any
securities issuable upon the conversion of any Warrant Securities or upon the
exercise or conversion of any securities, if such securities were first offered
to the Rights Holders hereunder;
(e) shares of the Company's Common Stock or Preferred
Stock issued in connection with any stock split or stock dividend;
(f) securities offered by the Company to the public
pursuant to a registration statement filed under the Securities Act;
(g) up to 250,000 shares of the Company's Common
Stock or Preferred Stock (and/or options or warrants therefor) issued or
issuable to parties providing the Company with equipment leases, real property
leases, loans, credit lines, guaranties of indebtedness, cash price reductions
or similar financing such number of shares being subject to proportional
adjustment to reflect subdivisions, combinations and stock dividends affecting
the number of outstanding shares of such stock; or
(h) securities issued pursuant to the acquisition of
another corporation or entity by the Company by consolidation, merger, purchase
of all or substantially all of the assets, or other reorganization in which the
Company acquires, in a single transaction or series of related transactions, all
or substantially all of the assets of such other corporation or entity or fifty
percent (50%) or more of the voting power of such other corporation or entity or
fifty percent (50%) or more of the equity ownership of such other entity.
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<PAGE> 15
3.3 Procedures. In the event that the Company proposes to
undertake an issuance of New Securities, it shall give to each Rights Holder
written notice of its intention to issue New Securities (the "NOTICE"),
describing the type of New Securities and the price and the general terms upon
which the Company proposes to issue such New Securities. Each Rights Holder
shall have ten (10) days from the date of mailing of any such Notice to agree in
writing to purchase such Rights Holder's Pro Rata Share of such New Securities
for the price and upon the general terms specified in the Notice by giving
written notice to the Company and stating therein the quantity of New Securities
to be purchased (not to exceed such Rights Holder's Pro Rata Share). If any
Rights Holder fails to so agree in writing within such ten (10) day period to
purchase such Rights Holder's full Pro Rata Share of an offering of New
Securities (a "NONPURCHASING HOLDER"), then such Nonpurchasing Holder shall
forfeit the right hereunder to purchase that part of his Pro Rata Share of such
New Securities that he did not so agree to purchase and the Company shall
promptly give each Rights Holder who has timely agreed to purchase his 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
Rights 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 Shares of such offering on a
pro rata basis according to the relative Pro Rata Shares of the Purchasing
Rights Holders, at any time within five (5) days after receiving the
Overallotment Notice.
3.4 Failure to Exercise. In the event that the Rights Holders
fail to exercise in full the right of first refusal within such ten (10) plus
five (5) day period, then the Company shall have 120 days thereafter to sell the
New Securities with respect to which the Rights Holders' rights of first refusal
hereunder were not exercised, at a price and upon general terms not materially
more favorable to the purchasers thereof than specified in the Company's Notice
to the Rights Holders. In the event that the Company has not issued and sold the
New Securities within such 120-day period, then the Company shall not thereafter
issue or sell any New Securities without again first offering such New
Securities to the Rights Holders pursuant to this Section 3.
3.5 Termination. This right of first refusal shall terminate
(a) immediately before the closing of the first underwritten sale of Common
Stock of the Company to the public pursuant to a registration statement filed
with, and declared effective by, the SEC under the Securities Act, covering the
offer and sale of Common Stock to the public at an offering price of at least
$1.10 per share (such offering price being subject to proportional adjustment to
reflect subdivisions, combinations, stock dividends and similar transactions
affecting the number of outstanding shares of Common Stock) for an aggregate
gross public offering price (calculated before deduction of underwriters'
discounts and commissions) of at least $15,000,000 or (b) upon (i) the
acquisition of all or substantially all the assets of the Company or (ii) an
acquisition of the Company by another corporation or entity by consolidation,
merger or other reorganization in which the holders of the Company's outstanding
voting stock immediately prior to such transaction own, immediately after such
transaction, securities representing less than fifty percent (50%) or more of
the voting power of the corporation or other entity surviving such transaction.
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<PAGE> 16
4. ASSIGNMENT AND AMENDMENT.
4.1 Assignment. Notwithstanding anything herein to the
contrary:
(a) Information Rights. The rights of an Investor
under Section 1.1 or 1.2 or 1.4 hereof may be assigned only to a party who
acquires from an Investor (or an Investor's permitted assigns) at least 500,000
shares of Series A Stock and/or Series B Stock subject to this Agreement and/or
an equivalent number (on an as-converted basis) of Registrable Securities issued
upon conversion thereof.
(b) Registration Rights; Refusal Rights. The
registration rights of a Holder under Section 2 hereof and the rights of first
refusal of a Rights Holder under Section 3 hereof may be assigned only to a
party who acquires at least 500,000 shares of Series A Stock and/or Series B
Stock subject to this Agreement and/or an equivalent number (on an as-converted
basis) of Registrable Securities issued upon conversion thereof; provided,
however that no party may be assigned any of the foregoing rights unless the
Company is given written notice by the assigning party at the time of such
assignment stating the name and address of the assignee and identifying the
securities of the Company as to which the rights in question are being assigned;
and provided further that any such assignee shall receive such assigned rights
subject to all the terms and conditions of this Agreement, including without
limitation the provisions of this Section 4.
4.2 Amendment of Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors (and/or any of their permitted
successors or assigns) holding shares of Series A Stock, Series B Stock and/or
Conversion Stock representing and/or convertible into a majority of all the
Investors' Shares (as defined below). As used herein, the term "INVESTORS'
SHARES" shall mean the shares of Common Stock then issuable upon conversion of
all then outstanding shares of Series A Stock issued and Series B Stock subject
to this Agreement plus all then outstanding shares of Conversion Stock that were
issued upon the conversion of any shares of Series A Stock and shares of Series
B Stock subject to this Agreement. Any amendment or waiver effected in
accordance with this Section 4.2 shall be binding upon each Investor, each
Holder, each permitted successor or assignee of such Investor or Holder and the
Company.
5. GENERAL PROVISIONS.
5.1 Notices. Any notice, request or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if personally delivered or if deposited in the U.S. mail by
registered or certified mail, return receipt requested, postage prepaid, as
follows:
(a) if to the Investors, at the addresses set forth
on Exhibit A or Exhibit B, as applicable.
(b) if to the Company, at 1951 S. Fordham Street,
Longmont, Colorado 90503.
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<PAGE> 17
Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively be
deemed to have been given when personally delivered or when deposited in the
mail in the manner set forth above.
5.2 Entire Agreement. This Agreement, together with all the
Exhibits hereto, constitutes and contains the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes any and
all prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.
5.3 Governing Law. This Agreement shall be governed by and
construed exclusively in accordance with the internal laws of the State of
California as applied to agreements among California residents entered into and
to be performed entirely within California, excluding that body of law relating
to conflict of laws and choice of law.
5.4 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, then such provision(s) shall
be excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
5.5 Third Parties. Nothing in this Agreement, express or
implied, is intended to confer upon any person, other than the parties hereto
and their successors and assigns, any rights or remedies under or by reason of
this Agreement.
5.6 Successors And Assigns. Subject to the provisions of
Section 4.1, the provisions of this Agreement shall inure to the benefit of, and
shall be binding upon, the successors and permitted assigns of the parties
hereto.
5.7 Captions. The captions to sections of this Agreement have
been inserted for identification and reference purposes only and shall not be
used to construe or interpret this Agreement.
5.8 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.9 Costs And Attorneys' Fees. In the event that any action,
suit or other proceeding is instituted concerning or arising out of this
Agreement or any transaction contemplated hereunder, the prevailing party shall
recover all of such party's costs and attorneys' fees incurred in each such
action, suit or other proceeding, including any and all appeals or petitions
therefrom.
5.10 Adjustments for Stock Splits, Etc. Wherever in this
Agreement there is a reference to a specific number of shares of Common Stock or
Preferred Stock of the Company of any class or series, then, upon the occurrence
of any subdivision, combination or stock dividend of such class or series of
stock, the specific number of shares so referenced in this Agreement
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<PAGE> 18
shall automatically be proportionally adjusted to reflect the affect on the
outstanding shares of such class or series of stock by such subdivision,
combination or stock dividend.
5.11 Aggregation of Stock. All shares 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.
5.12 Arbitration Any disputes between the Company and the
Investors with respect to this Agreement shall be settled by binding, final
arbitration in accordance with the commercial arbitration rules of the American
Arbitration Association then in effect (the "AAA Rules"). Any arbitration
proceeding shall be conducted in Denver, CO. The following arbitration
provisions shall govern over any conflicting rules which may now or hereafter be
contained in the AAA Rules. Any judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction over the subject
matter thereof. The arbitrator shall have the authority to grant any equitable
and legal remedies that would be available.
(a) Any such arbitration shall be conducted before a single
arbitrator who shall be compensated for his or her services at a rate to be
determined by the parties or by the American Arbitration Association, but based
upon reasonable hourly or daily consulting rates for the arbitrator in the event
the parties are not able to agree upon his or her rate of compensation.
(b) The AAA Rules for the selection of the arbitrator shall be
followed.
(c) Each party to such arbitration shall each advance an equal
portion of the initial compensation to be paid to the arbitrator in any such
arbitration and an equal portion of the costs of transcripts and other normal
and regular expenses of the arbitration proceedings; provided, however, that the
arbitrator shall have the discretion to grant to the prevailing party in any
arbitration an award of attorneys' fees and costs, and all costs of arbitration.
(d) The parties shall be entitled to conduct discovery
proceedings in accordance with the provisions of the Federal Rules of Civil
Procedure, subject to any limitation imposed by the arbitrator.
(e) For any claim submitted to arbitration, the burden of
proof shall be as it would be if the claim were litigated in a judicial
proceedings.
(f) Upon the conclusion of any arbitration proceeding
hereunder, the arbitrator shall render findings of fact and conclusions of law
and a written opinion setting forth the basis and reasons for any decision
reached by him or her and shall deliver such documents to each party to this
Agreement along with a signed copy of the award.
(g) The arbitrator chosen in accordance with these provisions
shall not have the power to alter, amend or otherwise affect the terms of these
arbitration provisions or the provisions of this Agreement.
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<PAGE> 19
(h) The parties acknowledge that, except as specifically
provided in this Agreement, no other action need be taken by either party before
proceeding directly in accordance with the provisions of this Section.
(i) The arbitration provisions set forth in this Section 5.12
are intended by the parties to be exclusive for all purposes and applicable to
each and every controversy, dispute and/or claim in any manner arising out of or
relating to this Agreement, the meaning, application and/or interpretation of
this Agreement, any breach hereof and/or any voluntary or involuntary
termination of this Agreement with or without cause, including, without
limitation, any such controversy, dispute and/or claim which, if pursued through
any state or federal court or administrative agency, would arise at law, in
equity and/or pursuant to statutory, regulatory and/or common law rules,
regardless of whether any such dispute, controversy and/or claim would arise in
and/or from contract, tort or any other legal and/or equitable theory or basis.
The prevailing party in any action instituted pursuant to this Section 5.13(i),
or in any appeal from any arbitration conducted pursuant to this Section 5.13,
shall be entitled to recover from the other party its reasonable attorneys' fees
and other expenses incurred in such litigation.
5.13 Effectiveness; Termination of the Original Agreement This
Agreement shall become effective upon the later to occur of (a) its execution by
(i) holders of at least a majority of the Registrable Securities as defined in
the Original Agreement, (ii) the Company and (iii) the new Investors and (b) the
first closing of the sale of the Series A Preferred under the Purchase
Agreement. Upon effectiveness of this Agreement, the Original Agreement shall be
terminated and shall be of no further force or effect.
IN WITNESS WHEREOF, the parties hereto have executed this Investors'
Rights Agreement as of the date first above written.
THE COMPANY:
Chaparral Network Storage, Inc.,
a Delaware corporation
By:
--------------------------------
Name:
Title:
THE INITIAL INVESTORS:
Adaptec, Inc.,
a Delaware corporation
By:
--------------------------------
Name:
Title:
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<PAGE> 20
Chaparral Systems, Inc.
By:
--------------------------------
Name:
Title:
-----------------------------------
William R. Childs
-----------------------------------
Haim Brill
-----------------------------------
Grant Saviers
-----------------------------------
Robert Graham
Harvest Storage Technology Partners
LLC a Delaware limited liability
company
By:
--------------------------------
Name:
Title:
Woodcarvers LLC
a Delaware limited liability
company
By:
--------------------------------
Name:
Title:
-----------------------------------
Sam Coleman
-----------------------------------
Frank Bigelow
The Linde Company
By:
--------------------------------
Name:
Title
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<PAGE> 21
THE NEW INVESTORS:
-----------------------------------
[Name]
Woodcarvers LLC
a Delaware limited liability
company
By:
--------------------------------
Name:
Title:
-----------------------------------
Sam Coleman
-----------------------------------
[Name]
-----------------------------------
[Name]
-----------------------------------
[Name]
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<PAGE> 1
EXHIBIT 10.8
SECOND AMENDED INVESTORS' RIGHTS AGREEMENT
This Second Amended Investors' Rights Agreement (this "AGREEMENT") is
made and entered into as of August 13, 1999 by and among Chaparral Network
Storage, Inc. (formerly Chaparral Technologies Inc.), a Delaware corporation
(the "COMPANY"), the individuals and entities listed on Exhibit A attached
hereto (the "CURRENT INVESTORS"), and the entities listed on Exhibit B attached
hereto (the "NEW INVESTORS" and together with the Current Investors, the
"INVESTORS").
A. The Current Investors are party to that certain First Amended
Investors' Rights Agreement dated as of March 31, 1999 (the "FIRST AMENDED
AGREEMENT").
B. The New Investors have agreed to purchase from the Company, and the
Company has agreed to sell to the New Investors, shares of the Company's Series
C Preferred Stock on the terms and conditions set forth in that certain Series C
Preferred Stock Purchase Agreement, dated August 13, 1999 by and between the
Company and each New Investor (the "PURCHASE AGREEMENT").
C. It is a condition to the New Investors' obligations to enter into
the Purchase Agreement that this Agreement be executed by the parties hereto.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. INFORMATION RIGHTS.
1.1 Financial Information. The Company covenants and agrees
that, commencing on the date of this Agreement, for so long as any Investor
holds shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock and/or shares of Common Stock of the Company ("COMMON STOCK")
issued upon the conversion of such shares of Series A Preferred Stock or Series
B Preferred Stock or Series C Preferred Stock ("CONVERSION STOCK") the Company
will:
(a) Annual Reports. Furnish to such Investor,
as soon as practicable and in any event within 120 days after the end of each
fiscal year of the Company, a consolidated Balance Sheet as of the end of such
fiscal year, a consolidated Statement of Income and a consolidated Statement of
Cash Flows of the Company and its subsidiaries for such year, setting forth in
each case in comparative form the figures from the Company's previous fiscal
year (if any), all prepared in accordance with generally accepted accounting
principles and practices and audited by an independent certified public
accounting firm; and
(b) Quarterly Reports. Furnish to such Investor
as soon as practicable, and in any case within forty-five (45) days after the
end of each fiscal quarter of the Company (except the last quarter of the
Company's fiscal year), quarterly unaudited financial statements,
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including an unaudited Balance Sheet, an unaudited Statement of Income and an
unaudited Statement of Cash Flows, together with a comparison to the Company's
operating plan and budget and statements of the Chief Financial Officer of the
Company explaining any significant differences in the statements from the
Company's operating plan and budget for the period and stating that such
statements fairly present the consolidated financial position and consolidated
financial results of the Company for the fiscal quarter covered.
Each Investor agrees to hold all information received pursuant to this Section
in confidence, and not to use or disclose any of such information to any third
party, except to the extent such information may be made publicly available by
the Company.
1.2 Inspection Rights. The Company shall permit each Investor
holding shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock and/or shares of Conversion Stock, or any combination thereof,
at such Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by such Investor. Each Investor agrees to hold all information
received from such inspections in confidence, and not to use or disclose any of
such information to any third party, except to the extent such information may
be made publicly available by the Company.
1.3 Board Rights. The Company shall permit Adaptec to have one
(1) representative attend all meetings of the Company's Board of Directors in a
non-voting observer capacity and to receive any communications directed to
members of the Board of Directors in their capacity as such. The Investors agree
to hold all information received from such meetings in confidence, and not to
use or disclose any of such information to any third party, except to the extent
such information may be made publicly available by the Company.
1.4 Termination of Certain Rights. The Company's obligations
under Sections 1.1, 1.2 and 1.3 above will terminate upon the closing of the
Company's initial public offering of Common Stock pursuant to an effective
registration statement filed under the U.S. Securities Act of 1933, as amended
(the "SECURITIES ACT"), in which the gross proceeds raised for the Company's
account (calculated before deduction of underwriters' discounts and omissions)
exceeds $15,000,000 at a price greater than $1.10 per share of Common Stock
(such price to be proportionally adjusted to reflect stock splits, stock
dividends and the like).
2. REGISTRATION RIGHTS.
2.1 Definitions. For purposes of this Section 2:
(a) Registration. The terms "REGISTER,"
"REGISTRATION" and "REGISTERED" and refer to a registration effected by
preparing and filing a registration statement in compliance with the Securities
Act, and the declaration or ordering of effectiveness of such registration
statement.
(b) Registrable Securities. The term "REGISTRABLE
SECURITIES" means: (i) all the shares of Common Stock of the Company issued or
issuable upon the conversion of any
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shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock that are now owned or may hereafter be acquired by the Investors
or the Investors' permitted successors and assigns and (ii) any shares of Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, all such
shares of Common Stock described in clause (i) of this subsection (b); excluding
in all cases, however, any Registrable Securities sold by a person in a
transaction in which rights under this Section 2 are not assigned in accordance
with this Agreement or any Registrable Securities sold to the public or sold
pursuant to Rule 144 promulgated under the Securities Act.
(c) Registrable Securities Then Outstanding. The
number of shares of "REGISTRABLE SECURITIES THEN OUTSTANDING" shall mean the
number of shares of Common Stock which are Registrable Securities and (i) are
then issued and outstanding or (ii) are then issuable pursuant to the exercise
or conversion of then outstanding and then exercisable options, warrants or
convertible securities.
(d) Holder. For purposes of this Section 2 and
Sections 3 and 4 hereof, the term "HOLDER" means any person owning of record
Registrable Securities that have not been sold to the public or pursuant to Rule
144 promulgated under the Securities Act or any assignee of record of such
Registrable Securities to whom rights under such Sections have been duly
assigned in accordance with this Agreement; provided, however, that for purposes
of this Agreement, a record holder of the Warrant or shares of Series A Stock,
Series B Stock or Series C Stock convertible into such Registrable Securities
shall be deemed to be the Holder of such Registrable Securities; and provided,
further, that the Company shall in no event be obligated to register the Warrant
or shares of Series A Stock, Series B Stock, or Series C Stock and that Holders
of Registrable Securities will not be required to convert the Warrant or their
shares of Series A Stock, Series B Stock or Series C Stock into Common Stock in
order to exercise the registration rights granted hereunder, until immediately
before the closing of the offering to which the registration relates.
(e) Form S-3. The term "FORM S-3" means such form
under the Securities Act as is in effect on the date hereof or any successor
registration form under the Securities Act subsequently adopted by the SEC which
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
(f) SEC. The term "SEC" or "COMMISSION" means the
U.S. Securities and Exchange Commission.
(g) Series A Stock. The term "SERIES A STOCK" shall
mean the Company's Series A Preferred Stock, par value $0.001 per share.
(h) Series B Stock. The term "SERIES B STOCK" shall
mean the Company's Series B Preferred Stock, par value $0.001 per share.
(i) Series C Stock. The term "SERIES C STOCK" shall
mean the Company's Series C Preferred Stock, par value $0.001 per share.
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2.2 Demand Registration.
(a) Request by Holders. If the Company shall receive
at any time after six (6) months after the effective date of the Company's
initial public offering of its securities pursuant to a registration filed under
the Securities Act, a written request from the Holders of at least two-thirds of
the Registrable Securities then outstanding that the Company file a registration
statement under the Securities Act covering the registration of Registrable
Securities pursuant to this Section 2.2, then the Company shall, within twenty
(20) days after the receipt of such written request, give written notice of such
request ("Request Notice") to all Holders, and effect, as soon as practicable,
the registration under the Securities Act of all Registrable Securities which
Holders request to be registered and included in such registration by written
notice given by such Holders to the Company within twenty (20) days after
receipt of the Request Notice, subject only to the limitations of this Section
2; provided that the Registrable Securities requested by all Holders to be
registered pursuant to such request must be at least twenty-five percent (25%)
of all Registrable Securities then outstanding.
(b) Underwriting. If the Holders initiating the
registration request under this Section 2.2 ("INITIATING HOLDERS") intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, then they shall so advise the Company as a part of their request
made pursuant to this Section 2.2 and the Company shall include such information
in the written notice referred to in subsection 2.2(a). In such event, the right
of any Holder to include his Registrable Securities in such registration shall
be conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 2.2, if the underwriter(s) advise(s) the Company
in writing that marketing factors require a limitation of the number of
securities to be underwritten then the Company shall so advise all Holders of
Registrable Securities that would otherwise be registered and underwritten
pursuant hereto, and the number of Registrable Securities that may be included
in the underwriting shall be reduced as required by the underwriter(s) and
allocated among the Holders of Registrable Securities on a pro rata basis
according to the number of Registrable Securities then outstanding held by each
Holder requesting registration (including the Initiating Holders); provided,
however, that the number of shares of Registrable Securities to be included in
such underwriting and registration shall not be reduced unless all other
securities of the Company are first entirely excluded from the underwriting and
registration. Any Registrable Securities excluded and withdrawn from such
underwriting shall be withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The
Company is obligated to effect only two (2) such registrations pursuant to this
Section 2.2.
(d) Deferral. Notwithstanding the foregoing, if the
Company shall furnish to Holders requesting the filing of a registration
statement pursuant to this Section 2.2, a certificate signed by the President or
Chief Executive Officer of the Company stating that in the
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good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, then the Company shall have the right to defer such
filing for a period of not more than one hundred twenty (120) days after receipt
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve (12) month period.
(e) Expenses. All expenses incurred in connection
with a registration pursuant to this Section 2.2, including without limitation
all registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders (but excluding
underwriters' discounts and commissions), shall be borne by the Company. Each
Holder participating in a registration pursuant to this Section 2.2 shall bear
such Holder's proportionate share (based on the total number of shares sold in
such registration other than for the account of the Company) of all discounts,
commissions or other amounts payable to underwriters or brokers in connection
with such offering. Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to this Section 2.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered, unless the Holders of a majority of the Registrable Securities then
outstanding agree to forfeit their right to one (1) demand registration pursuant
to this Section 2.2 (in which case such right shall be forfeited by all Holders
of Registrable Securities); provided, further, however, that if at the time of
such withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company not known to the Holders at the
time of their request for such registration and have withdrawn their request for
registration with reasonable promptness after learning of such material adverse
change, then the Holders shall not be required to pay any of such expenses and
shall retain their rights pursuant to this Section 2.2.
2.3 Piggyback Registrations. The Company shall notify all
Holders of Registrable Securities in writing at least thirty (30) days prior to
filing any registration statement under the Securities Act for purposes of
effecting a public offering of securities of the Company (including, but not
limited to, registration statements relating to secondary offerings of
securities of the Company, but excluding registration statements relating to any
registration under Section 2.2 or Section 2.4 of this Agreement or to any
employee benefit plan or a corporate reorganization) and will afford each such
Holder an opportunity to include in such registration statement all or any part
of the Registrable Securities then held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by such Holder shall, within twenty (20) days after receipt of
the above-described notice from the Company, so notify the Company in writing,
and in such notice shall inform the Company of the number of Registrable
Securities such Holder wishes to include in such registration statement. If a
Holder decides not to include all of its Registrable Securities in any
registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
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(a) Underwriting. If a registration statement under
which the Company gives notice under this Section 2.3 is for an underwritten
offering, then the Company shall so advise the Holders of Registrable
Securities. In such event, the right of any such Holder's Registrable Securities
to be included in a registration pursuant to this Section 2.3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the managing underwriter or underwriter(s) selected for
such underwriting. Notwithstanding any other provision of this Agreement, if the
managing underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to
stockholders exercising any demand registration rights, second to the Company,
and third, to each of the Holders requesting inclusion of their Registrable
Securities in such registration statement on a pro rata basis based on the total
number of Registrable Securities then held by each such Holder; provided
however, that the right of the underwriters to exclude shares (including
Registrable Securities) from the registration and underwriting as described
above shall be restricted so that: (i) the number of Registrable Securities
included in any such registration is not reduced below twenty-five percent (25%)
of the shares included in the registration, except for a registration relating
to the Company's initial public offering or an offering solely by stockholders
of the Company exercising demand registration rights, from which all Registrable
Securities may be excluded, and (ii) all shares that are not Registrable
Securities and are held by persons who are employees or directors of the Company
(or any subsidiary of the Company) shall first be excluded from such
registration and underwriting before any Registrable Securities are so excluded.
If any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least twenty (20) days prior to the effective date of
the registration statement. Any Registrable Securities excluded or withdrawn
from such underwriting shall be excluded and withdrawn from the registration.
For any Holder that is a partnership or corporation, the partners, retired
partners and stockholders of such Holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "Holder," and any pro rata
reduction with respect to such "Holder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "Holder," as defined in this sentence.
(b) Expenses. All expenses incurred in connection
with a registration pursuant to this Section 2.3 (excluding underwriters' and
brokers' discounts and commissions), including, without limitation all federal
and "blue sky" registration and qualification fees, printers' and accounting
fees, fees and disbursements of counsel for the Company and reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company.
2.4 Form S-3 Registration. In case the Company shall receive
from any Holder or Holders of at least twenty-five percent (25%) of all
Registrable Securities then outstanding a written request or requests that the
Company effect a registration on Form S-3 and any related
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qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, then the Company will:
(a) Notice. Promptly give written notice of the
proposed registration and the Holder's or Holders' request therefor, and any
related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) Registration. As soon as practicable, effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within twenty (20) days after receipt of such written
notice from the Company; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section 2.4:
(i) if Form S-3 is not available for
such offering;
(ii) if the Holders, together with the
holders of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) at an aggregate price to the public of less than $1,000,000;
(iii) if the Company shall furnish to the
Holders a certificate signed by the President or Chief Executive Officer of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement no more than once during any twelve month period for a period of not
more than 120 days after receipt of the request of the Holder or Holders under
this Section 2.4;
(iv) if the Company has, within the
twelve (12) month period preceding the date of such request, already effected
two (2) registrations on Form S-3 for the Holders pursuant to this Section 2.4;
or
(v) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
(c) Expenses. Subject to the foregoing, the Company
shall file a Form S-3 registration statement covering the Registrable Securities
and other securities so requested to be registered pursuant to this Section 2.4
as soon as practicable after receipt of the request or requests of the Holders
for such registration. The Company shall pay all expenses incurred in connection
with each registration requested pursuant to this Section 2.4, (excluding
underwriters' or brokers' discounts and commissions), including without
limitation all filing,
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registration and qualification, printers' and accounting fees and the reasonable
fees and disbursements of one counsel for the selling Holder or Holders and
counsel for the Company.
(d) Not Demand Registration. Form S-3 registrations
shall not be deemed to be demand registrations as described in Section 2.2
above.
2.5 Obligations of the Company. Whenever required to
effect the registration of any Registrable Securities under this Agreement, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use reasonable,
diligent 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
ninety (90) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(d) Use reasonable, diligent efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. 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.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities
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are not being sold through underwriters, on the date that the registration
statement with respect to such securities becomes effective, (i) an opinion,
dated as of such date, of the counsel representing the Company for the purposes
of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering and reasonably satisfactory to a
majority in interest of the Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities and (ii) a "comfort" letter dated as of such date, from the
independent certified public accountants of the Company, in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering and reasonably satisfactory to a
majority in interest of the Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities.
2.6 Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to Sections 2.2, 2.3
or 2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to timely effect
the registration of their Registrable Securities.
2.7 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 2.
2.8 Indemnification. In the event any Registrable Securities
are included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) By the Company. To the extent permitted by law,
the Company will indemnify and hold harmless each Holder, the partners, officers
and directors of each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended, (the "1934 ACT"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the l934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively, "VIOLATIONS" and, individually, a "VIOLATION"):
(i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto;
(ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or
(iii) any violation or alleged violation
by the Company of the Securities Act, the 1934 Act, any federal or state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any federal or state securities law in connection with the
offering covered by such registration statement; and the Company will
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reimburse each such Holder, partner, officer or director, underwriter or
controlling person for any legal or other expenses reasonably incurred by them,
as incurred, in connection with investigating or defending any such loss, claim,
damage, liability or action; provided however, that the indemnity agreement
contained in this subsection 2.8(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by
law, each selling Holder will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the registration statement,
each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder within the meaning of the
Securities Act or the 1934 Act, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder, partner or
director, officer or controlling person of such other Holder may become subject
under the Securities Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for use
in connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
2.8(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; and provided
further, that the total amounts payable in indemnity by a Holder under this
Section 2.8(b) in respect of any Violation shall not exceed the net proceeds
received by such Holder in the registered offering out of which such Violation
arises.
(c) Notice. Promptly after receipt by an indemnified
party under this Section 2.8 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
2.8, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential
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conflict of interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 2.8, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 2.8.
(d) Defect Eliminated in Final Prospectus. The
foregoing indemnity agreements of the Company and Holders are subject to the
condition that, insofar as they relate to any Violation made in a preliminary
prospectus but eliminated or remedied in the amended prospectus on file with the
SEC at the time the registration statement in question becomes effective or the
amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "FINAL
PROSPECTUS"), such indemnity agreement shall not inure to the benefit of any
person if a copy of the Final Prospectus was furnished to the indemnified party
and was not furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.
(e) Contribution. In order to provide for just and
equitable contribution to joint liability under the Securities Act in any case
in which either (i) any Holder exercising rights under this Agreement, or any
controlling person of any such Holder, makes a claim for indemnification
pursuant to this Section 2.8 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 2.8 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling Holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 2.8; then, and in each such case, the Company and
such Holder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that such Holder is responsible for the portion represented
by the percentage that the public offering price of its Registrable Securities
offered by and sold under the registration statement bears to the public
offering price of all securities offered by and sold under such registration
statement, and the Company and other selling Holders are responsible for the
remaining portion; provided, however, that, in any such case, (A) no such Holder
will be required to contribute any amount in excess of the public offering price
of all such Registrable Securities offered and sold by such Holder pursuant to
such registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and
Holders under this Section 2.8 shall survive the completion of any offering of
Registrable Securities in a registration statement, and otherwise.
2.9 "Market Stand-Off" Agreement. Each Holder hereby agrees
that it shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell
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or otherwise transfer or dispose of any Registrable Securities or other shares
of stock of the Company then owned by such Holder (other than to donees or
partners of the Holder who agree to be similarly bound) for up to one hundred
eighty (180) days following the effective date of a registration statement of
the Company filed under the Securities Act; provided, however, that:
(a) such agreement shall be applicable only to the
first such registration statement of the Company which covers securities to be
sold on its behalf to the public in an underwritten offering but not to
Registrable Securities sold pursuant to such registration statement; and
(b) all officers and directors of the Company then
holding Common Stock of the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company shall have the right to
place restrictive legends on the certificates representing the shares subject to
this Section and to impose stop transfer instructions with respect to the
Registrable Securities and such other shares of stock of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
2.10 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 Registrable 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:
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to the
general public;
(b) Use reasonable, diligent efforts to file with the
Commission in a timely manner all reports and other documents required of the
Company under the Securities Act and the 1934 Act (at any time after it has
become subject to such reporting requirements); and
(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 ninety (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 1934 Act (at any time
after it has become subject to the reporting requirements of the 1934 Act), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Holder to
sell any such securities without registration (at any time after the Company has
become subject to the reporting requirements of the 1934 Act).
2.11 Termination of the Company's Obligations. The Company
shall have no obligations pursuant to Sections 2.2 through 2.4 with respect to
any request or requests for
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<PAGE> 13
registration made by any Holder on a date more than five (5) years after the
closing date of the Company's initial public offering. Notwithstanding anything
to the contrary contained in Section 2.2 or 2.4, if any Holder is eligible to
sell Registrable Securities pursuant Rule 144(k) or any successor provision
under the Securities Act (an "Excluded Holder"), the Registrable Securities of
such Excluded Holder shall be disregarded in determining the requisite
percentage of Registrable Securities that are required to initiate a
registration pursuant to Section 2.2 or 2.4 (i.e., a registration under Section
2.2 must be initiated by persons holding at least two-thirds of the Registrable
Securities held by all Holders who are not Excluded Holders and a registration
under Section 2.4 must be initiated by persons holding at least 25% of the
Registrable Securities held by all Holders who are not Excluded Holders). After
a registration has been requested pursuant to Section 2.2 or 2.4, as the case
may be, by the requisite percentage of shares held by Holders who are not
Excluded Holders, all Holders (including Excluded Holders) shall be entitled to
include their Registrable Securities in such registration subject to the terms
and conditions of this Agreement.
2.12 Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the 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 include such securities in any registration filed under Section
2.2 hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included, or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in subsection
2.2(a), or within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 2.2.
3. PRE-EMPTIVE RIGHTS.
3.1 General. Each Holder (as defined in Section 2.1(d)) and
any party to whom such Holder's rights under this Section 3 have been duly
assigned in accordance with Section 4.1(b) (each such Holder or assignee being
hereinafter referred to as a "RIGHTS HOLDER") has the right of first refusal to
purchase such Rights Holder's Pro Rata Share (as defined below), of all (or any
part) of any "New Securities" (as defined in Section 3.2) that the Company may
from time to time issue after the date of this Agreement. A Rights Holder's "PRO
RATA SHARE" for purposes of this right of first refusal is the ratio of (a) the
number of Registrable Securities as to which such Rights Holder is the Holder
(and/or is deemed to be the Holder under Section 2.1(d)), to (b) a number of
shares of Common Stock of the Company equal to the sum of (i) the total number
of shares of Common Stock of the Company then outstanding plus (ii) the total
number of shares of Common Stock of the Company into which all then outstanding
shares of Preferred Stock of the Company are then convertible.
3.2 New Securities. "NEW SECURITIES" shall mean any Common
Stock or Preferred Stock of the Company, whether now authorized or not, and
rights, options or warrants to purchase such Common Stock or Preferred Stock,
and securities of any type whatsoever that
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<PAGE> 14
are, or may become, convertible or exchangeable into such Common Stock or
Preferred Stock; provided, however, that the term "New Securities" does not
include:
(a) up to 3,500,000 shares of the Company's Common
Stock (and/or options or warrants therefor) issued to employees, officers,
directors, contractors, advisors or consultants of the Company pursuant to
incentive agreements or plans approved by the Board of Directors of the Company;
(b) any shares of Series C Stock issued under the
Purchase Agreement, as such agreement may be amended.
(c) any securities issuable upon conversion of or
with respect to any then outstanding shares of Series A Stock, Series B Stock or
Series C Stock of the Company or Common Stock or other securities issuable upon
conversion thereof;
(d) any securities issuable upon exercise of any
options, warrants or rights to purchase any securities of the Company
outstanding on the date of this Agreement ("WARRANT SECURITIES") and any
securities issuable upon the conversion of any Warrant Securities or upon the
exercise or conversion of any securities, if such securities were first offered
to the Rights Holders hereunder;
(e) shares of the Company's Common Stock or Preferred
Stock issued in connection with any stock split or stock dividend;
(f) securities offered by the Company to the public
pursuant to a registration statement filed under the Securities Act;
(g) up to 250,000 shares of the Company's Common
Stock or Preferred Stock (and/or options or warrants therefor) issued or
issuable to parties providing the Company with equipment leases, real property
leases, loans, credit lines, guaranties of indebtedness, cash price reductions
or similar financing such number of shares being subject to proportional
adjustment to reflect subdivisions, combinations and stock dividends affecting
the number of outstanding shares of such stock; or
(h) securities issued pursuant to the acquisition of
another corporation or entity by the Company by consolidation, merger, purchase
of all or substantially all of the assets, or other reorganization in which the
Company acquires, in a single transaction or series of related transactions, all
or substantially all of the assets of such other corporation or entity or fifty
percent (50%) or more of the voting power of such other corporation or entity or
fifty percent (50%) or more of the equity ownership of such other entity.
3.3 Procedures. In the event that the Company proposes to
undertake an issuance of New Securities, it shall give to each Rights Holder
written notice of its intention to issue New Securities (the "NOTICE"),
describing the type of New Securities and the price and the general terms upon
which the Company proposes to issue such New Securities. Each Rights Holder
shall have ten (10) days from the date of mailing of any such Notice to agree in
writing to purchase such Rights Holder's Pro Rata Share of such New Securities
for the price and upon the
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<PAGE> 15
general terms specified in the Notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased (not to
exceed such Rights Holder's Pro Rata Share). If any Rights Holder fails to so
agree in writing within such ten (10) day period to purchase such Rights
Holder's full Pro Rata Share of an offering of New Securities (a "NONPURCHASING
HOLDER"), then such Nonpurchasing Holder shall forfeit the right hereunder to
purchase that part of his Pro Rata Share of such New Securities that he did not
so agree to purchase and the Company shall promptly give each Rights Holder who
has timely agreed to purchase his 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 Rights 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 Shares of such offering on a pro rata basis according to the relative
Pro Rata Shares of the Purchasing Rights Holders, at any time within five (5)
days after receiving the Overallotment Notice.
3.4 Failure to Exercise. In the event that the Rights Holders
fail to exercise in full the right of first refusal within such ten (10) plus
five (5) day period, then the Company shall have 120 days thereafter to sell the
New Securities with respect to which the Rights Holders' rights of first refusal
hereunder were not exercised, at a price and upon general terms not materially
more favorable to the purchasers thereof than specified in the Company's Notice
to the Rights Holders. In the event that the Company has not issued and sold the
New Securities within such 120-day period, then the Company shall not thereafter
issue or sell any New Securities without again first offering such New
Securities to the Rights Holders pursuant to this Section 3.
3.5 Termination. This right of first refusal shall terminate
(a) immediately before the closing of the first underwritten sale of Common
Stock of the Company to the public pursuant to a registration statement filed
with, and declared effective by, the SEC under the Securities Act, covering the
offer and sale of Common Stock to the public at an offering price of at least
$1.10 per share (such offering price being subject to proportional adjustment to
reflect subdivisions, combinations, stock dividends and similar transactions
affecting the number of outstanding shares of Common Stock) for an aggregate
gross public offering price (calculated before deduction of underwriters'
discounts and commissions) of at least $15,000,000 or (b) upon (i) the
acquisition of all or substantially all the assets of the Company or (ii) an
acquisition of the Company by another corporation or entity by consolidation,
merger or other reorganization in which the holders of the Company's outstanding
voting stock immediately prior to such transaction own, immediately after such
transaction, securities representing less than fifty percent (50%) or more of
the voting power of the corporation or other entity surviving such transaction.
4. ASSIGNMENT AND AMENDMENT.
4.1 Assignment. Notwithstanding anything herein to the
contrary:
(a) Information Rights. The rights of an Investor
under Section 1.1 or 1.2 or 1.4 hereof may be assigned only to (i) a party who
acquires from an Investor (or an Investor's permitted assigns) at least 500,000
shares of Series A Stock, Series B Stock or Series C Stock subject to this
Agreement and/or an equivalent number (on an as-converted basis) of
15
<PAGE> 16
Registrable Securities issued upon conversion thereof or (ii) a partner, member
or stockholder of an Investor who acquires at least 100,000 shares of Series A
Stock, Series B Stock, or Series C Stock subject to this Agreement and/or an
equivalent number (on an as-converted basis) of Registrable Securities issued
upon conversion.
(b) Registration Rights; Refusal Rights. The
registration rights of a Holder under Section 2 hereof and the rights of first
refusal of a Rights Holder under Section 3 hereof may be assigned only to (i) a
party who acquires at least 500,000 shares of Series A Stock, Series B Stock or
Series C Stock subject to this Agreement and/or an equivalent number (on an
as-converted basis) of Registrable Securities issued upon conversion thereof or
(ii) any partner, member or shareholder of an Investor or permitted transferee
thereof; provided, however that no party may be assigned any of the foregoing
rights unless the Company is given written notice by the assigning party at the
time of such assignment stating the name and address of the assignee and
identifying the securities of the Company as to which the rights in question are
being assigned; and provided further that any such assignee shall receive such
assigned rights subject to all the terms and conditions of this Agreement,
including without limitation the provisions of this Section 4.
4.2 Amendment of Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors (and/or any of their permitted
successors or assigns) holding shares of Series A Stock, Series B Stock, Series
C Stock and/or Conversion Stock representing and/or convertible into a majority
of all the Investors' Shares (as defined below). As used herein, the term
"INVESTORS' SHARES" shall mean the shares of Common Stock then issuable upon
conversion of all then outstanding shares of Series A Stock, Series B Stock and
Series C Stock subject to this Agreement plus all then outstanding shares of
Conversion Stock that were issued upon the conversion of any shares of Series A
Stock, Series B Stock or Series C Stock subject to this Agreement. Any amendment
or waiver effected in accordance with this Section 4.2 shall be binding upon
each Investor, each Holder, each permitted successor or assignee of such
Investor or Holder and the Company.
5. GENERAL PROVISIONS.
5.1 Notices. Any notice, request or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if personally delivered or if deposited in the U.S. mail by
registered or certified mail, return receipt requested, postage prepaid, as
follows:
(a) if to the Investors, at the addresses set forth
on Exhibit A or Exhibit B, as applicable.
(b) if to the Company, at 1951 S. Fordham Street,
Longmont, Colorado 90503.
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Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively be
deemed to have been given when personally delivered or when deposited in the
mail in the manner set forth above.
5.2 Entire Agreement. This Agreement, together with all the
Exhibits hereto, constitutes and contains the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes any and
all prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.
5.3 Governing Law. This Agreement shall be governed by and
construed exclusively in accordance with the internal laws of the State of
Colorado as applied to agreements among Colorado residents entered into and to
be performed entirely within Colorado, excluding that body of law relating to
conflict of laws and choice of law.
5.4 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, then such provision(s) shall
be excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
5.5 Third Parties. Nothing in this Agreement, express or
implied, is intended to confer upon any person, other than the parties hereto
and their successors and assigns, any rights or remedies under or by reason of
this Agreement.
5.6 Successors And Assigns. Subject to the provisions of
Section 4.1, the provisions of this Agreement shall inure to the benefit of, and
shall be binding upon, the successors and permitted assigns of the parties
hereto.
5.7 Captions. The captions to sections of this Agreement have
been inserted for identification and reference purposes only and shall not be
used to construe or interpret this Agreement.
5.8 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.9 Costs And Attorneys' Fees. In the event that any action,
suit or other proceeding is instituted concerning or arising out of this
Agreement or any transaction contemplated hereunder, the prevailing party shall
recover all of such party's costs and attorneys' fees incurred in each such
action, suit or other proceeding, including any and all appeals or petitions
therefrom.
5.10 Adjustments for Stock Splits, Etc. Wherever in this
Agreement there is a reference to a specific number of shares of Common Stock or
Preferred Stock of the Company of any class or series, then, upon the occurrence
of any subdivision, combination or stock dividend of such class or series of
stock, the specific number of shares so referenced in this Agreement shall
automatically be proportionally adjusted to reflect the affect on the
outstanding shares of such class or series of stock by such subdivision,
combination or stock dividend.
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<PAGE> 18
5.11 Aggregation of Stock. All shares 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.
5.12 Arbitration Any disputes between the Company and the
Investors with respect to this Agreement shall be settled by binding, final
arbitration in accordance with the commercial arbitration rules of the American
Arbitration Association then in effect (the "AAA Rules"). Any arbitration
proceeding shall be conducted in Denver, CO. The following arbitration
provisions shall govern over any conflicting rules which may now or hereafter be
contained in the AAA Rules. Any judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction over the subject
matter thereof. The arbitrator shall have the authority to grant any equitable
and legal remedies that would be available.
(a) Any such arbitration shall be conducted before a single
arbitrator who shall be compensated for his or her services at a rate to be
determined by the parties or by the American Arbitration Association, but based
upon reasonable hourly or daily consulting rates for the arbitrator in the event
the parties are not able to agree upon his or her rate of compensation.
(b) The AAA Rules for the selection of the arbitrator shall be
followed.
(c) Each party to such arbitration shall each advance an equal
portion of the initial compensation to be paid to the arbitrator in any such
arbitration and an equal portion of the costs of transcripts and other normal
and regular expenses of the arbitration proceedings; provided, however, that the
arbitrator shall have the discretion to grant to the prevailing party in any
arbitration an award of attorneys' fees and costs, and all costs of arbitration.
(d) The parties shall be entitled to conduct discovery
proceedings in accordance with the provisions of the Federal Rules of Civil
Procedure, subject to any limitation imposed by the arbitrator.
(e) For any claim submitted to arbitration, the burden of
proof shall be as it would be if the claim were litigated in a judicial
proceedings.
(f) Upon the conclusion of any arbitration proceeding
hereunder, the arbitrator shall render findings of fact and conclusions of law
and a written opinion setting forth the basis and reasons for any decision
reached by him or her and shall deliver such documents to each party to this
Agreement along with a signed copy of the award.
(g) The arbitrator chosen in accordance with these provisions
shall not have the power to alter, amend or otherwise affect the terms of these
arbitration provisions or the provisions of this Agreement.
(h) The parties acknowledge that, except as specifically
provided in this Agreement, no other action need be taken by either party before
proceeding directly in accordance with the provisions of this Section.
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(i) The arbitration provisions set forth in this Section 5.12
are intended by the parties to be exclusive for all purposes and applicable to
each and every controversy, dispute and/or claim in any manner arising out of or
relating to this Agreement, the meaning, application and/or interpretation of
this Agreement, any breach hereof and/or any voluntary or involuntary
termination of this Agreement with or without cause, including, without
limitation, any such controversy, dispute and/or claim which, if pursued through
any state or federal court or administrative agency, would arise at law, in
equity and/or pursuant to statutory, regulatory and/or common law rules,
regardless of whether any such dispute, controversy and/or claim would arise in
and/or from contract, tort or any other legal and/or equitable theory or basis.
The prevailing party in any action instituted pursuant to this Section 5.13(i),
or in any appeal from any arbitration conducted pursuant to this Section 5.13,
shall be entitled to recover from the other party its reasonable attorneys' fees
and other expenses incurred in such litigation.
5.13 Effectiveness; Termination of the Original Agreement This
Agreement shall become effective upon the later to occur of (a) its execution by
(i) holders of at least a majority of the Registrable Securities as defined in
the First Amended Agreement, (ii) the Company and (iii) the New Investor and (b)
the first closing of the sale of the Series C Preferred Stock under the Purchase
Agreement. Upon effectiveness of this Agreement, the First Amended Agreement
shall be terminated and shall be of no further force or effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE COMPANY:
Chaparral Network Storage, Inc.,
a Delaware corporation
By: /s/ Gary L. Allison
-----------------------------------
Name: Gary L. Allison
Title: Chief Executive Officer
THE CURRENT INVESTORS:
Adaptec, Inc.,
a Delaware corporation
By:
-----------------------------------
Name:
Title:
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<PAGE> 20
Chaparral Systems, Inc.
By: /s/ Gary L. Allison
-----------------------------------
Name: Gary L. Allison
Title: Chief Executive Officer
--------------------------------------
William R. Childs
--------------------------------------
Haim Brill
/s/ Grant Saviers
--------------------------------------
Grant Saviers
/s/ Robert Graham
--------------------------------------
Robert Graham
Harvest Storage Technology Partners LLC
a Delaware limited liability company
By: /s/ Robert Harvey
-----------------------------------
Name: Robert Harvey
Title: Manager
Woodcarvers LLC
a Delaware limited liability company
By: /s/ Robert Harvey
-----------------------------------
Name: Robert Harvey
Title: Manager
/s/ Sam Coleman
--------------------------------------
Sam Coleman
/s/ Frank Bigelow
--------------------------------------
Frank Bigelow
The Linde Company
By: /s/ Ian Linde
-----------------------------------
Name: Ian Linde
Title: Partner
20
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THE NEW INVESTORS:
Ohio Valley Venture Fund L.P.
OSF Ltd, its general partner
By: /s/ Karl Elderkin
-----------------------------------
Name: Karl Elderkin
Title: President
Woodcarvers LLC
a Delaware limited liability company
By: /s/ Robert Harvey
-----------------------------------
Name: Robert Harvey
Title:
/s/ Sam Coleman
--------------------------------------
Sam Coleman
21
<PAGE> 1
EXHIBIT 10.9
THIRD AMENDED INVESTORS' RIGHTS AGREEMENT
This Third Amended Investors' Rights Agreement (this "AGREEMENT") is made
and entered into as of October 16, 1999 by and among Chaparral Network Storage,
Inc., a Delaware corporation (the "COMPANY"), and the individuals and entities
listed on Exhibit A attached hereto (the "INVESTORS").
A. Certain of the Investors are party to that certain First Amended
Investors' Rights Agreement dated as of March 31, 1999 (the "FIRST AMENDED
AGREEMENT") and that certain Second Amended Investors' Rights Agreement dated as
of August 13, 1999 (the "SECOND AMENDED AGREEMENT").
B. The Company has sold to certain other of the Investors (the "NEW
INVESTORS") shares of the Company's Series A Preferred Stock and/or Series C
Preferred Stock on the terms and conditions set forth in purchase agreements
between the Company and each New Investor (the "PURCHASE AGREEMENTS").
C. It is a condition to the New Investors' obligations to enter into the
Purchase Agreements that this Agreement be executed by the parties hereto.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. INFORMATION RIGHTS.
1.1 Financial Information. The Company covenants and agrees that,
commencing on the date of this Agreement, for so long as any Investor holds
shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock and/or shares of Common Stock of the Company ("COMMON
STOCK") issued upon the conversion of such shares of Series A Preferred
Stock or Series B Preferred Stock or Series C Preferred Stock ("CONVERSION
STOCK") the Company will:
(a) Annual Reports. Furnish to such Investor, as soon as practicable
and in any event within 120 days after the end of each fiscal year of
the Company, a consolidated Balance Sheet as of the end of such fiscal
year, a consolidated Statement of Income and a consolidated Statement of
Cash Flows of the Company and its subsidiaries for such year, setting
forth in each case in comparative form the figures from the Company's
previous fiscal year (if any), all prepared in accordance with generally
accepted accounting principles and practices and audited by an
independent certified public accounting firm; and
(b) Quarterly Reports. Furnish to such Investor as soon as
practicable, and in any case within forty-five (45) days after the end
of each fiscal quarter of the Company (except the last quarter of the
Company's fiscal year), quarterly unaudited financial statements,
including an unaudited Balance Sheet, an unaudited Statement of Income
and an unaudited Statement of Cash Flows, together with a comparison to
the Company's operating plan and budget and statements of the Chief
Financial Officer of the Company explaining any significant differences
in the statements from the Company's operating plan and budget for the
period and stating that such statements fairly present the consolidated
financial position and consolidated financial results of the Company for
the fiscal quarter covered.
Each Investor agrees to hold all information received pursuant to
this Section in confidence, and not to use or disclose any of such
information to any third party, except to the extent such information may
be made publicly available by the Company.
1.2 Inspection Rights. The Company shall permit each Investor holding
shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock and/or shares of Conversion Stock, or any combination
thereof, at such Investor's expense, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by such Investor. Each Investor agrees
to hold all information received from such inspections in confidence, and
not to use or disclose any of such information to any third party, except
to the extent such information may be made publicly available by the
Company.
1.3 Board Rights. The Company shall permit Adaptec to have one (1)
representative attend all meetings of the Company's Board of Directors in a
non-voting observer capacity and to receive any communications directed to
members of the Board of Directors in their capacity as such. The Investors
agree to hold all information received from such meetings in confidence,
and not to use or disclose any of such information to any third party,
except to the extent such information may be made publicly available by the
Company.
1.4 Termination of Certain Rights. The Company's obligations under
Sections 1.1, 1.2 and 1.3 above will terminate upon the closing of the
Company's initial public offering of Common Stock pursuant to an
CONFIDENTIAL Page 1 of 14
<PAGE> 2
effective registration statement filed under the U.S. Securities Act of
1933, as amended (the "SECURITIES ACT"), in which the gross proceeds raised
for the Company's account (calculated before deduction of underwriters'
discounts and omissions) exceeds $15,000,000 at a price greater than $2.20
per share of Common Stock (such price to be proportionally adjusted to
reflect stock splits, stock dividends and the like).
2. REGISTRATION RIGHTS.
2.1 Definitions. For purposes of this Section 2:
(a) Registration. The terms "REGISTER," "REGISTRATION" and
"REGISTERED" and refer to a registration effected by preparing and
filing a registration statement in compliance with the Securities Act,
and the declaration or ordering of effectiveness of such registration
statement.
(b) Registrable Securities. The term "REGISTRABLE SECURITIES" means:
(i) all the shares of Common Stock of the Company issued or issuable
upon the conversion of any shares of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock that are now owned or may
hereafter be acquired by the Investors or the Investors' permitted
successors and assigns and (ii) any shares of Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of,
all such shares of Common Stock described in clause (i) of this
subsection (b); excluding in all cases, however, any Registrable
Securities sold by a person in a transaction in which rights under this
Section 2 are not assigned in accordance with this Agreement or any
Registrable Securities sold to the public or sold pursuant to Rule 144
promulgated under the Securities Act.
(c) Registrable Securities Then Outstanding. The number of shares of
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall mean the number of
shares of Common Stock which are Registrable Securities and (i) are then
issued and outstanding or (ii) are then issuable pursuant to the
exercise or conversion of then outstanding and then exercisable options,
warrants or convertible securities.
(d) Holder. For purposes of this Section 2 and Sections 3 and 4
hereof, the term "HOLDER" means any person owning of record Registrable
Securities that have not been sold to the public or pursuant to Rule 144
promulgated under the Securities Act or any assignee of record of such
Registrable Securities to whom rights under such Sections have been duly
assigned in accordance with this Agreement; provided, however, that for
purposes of this Agreement, a record holder of the Warrant or shares of
Series A Stock, Series B Stock or Series C Stock convertible into such
Registrable Securities shall be deemed to be the Holder of such
Registrable Securities; and provided, further, that the Company shall in
no event be obligated to register the Warrant or shares of Series A
Stock, Series B Stock, or Series C Stock and that Holders of Registrable
Securities will not be required to convert the Warrant or their shares
of Series A Stock, Series B Stock or Series C Stock into Common Stock in
order to exercise the registration rights granted hereunder, until
immediately before the closing of the offering to which the registration
relates.
(e) Form S-3. The term "FORM S-3" means such form under the
Securities Act as is in effect on the date hereof or any successor
registration form under the Securities Act subsequently adopted by the
SEC which permits inclusion or incorporation of substantial information
by reference to other documents filed by the Company with the SEC.
(f) SEC. The term "SEC" or "COMMISSION" means the U.S. Securities
and Exchange Commission.
(g) Series A Stock. The term "SERIES A STOCK" shall mean the
Company's Series A Preferred Stock, par value $0.001 per share.
(h) Series B Stock. The term "SERIES B STOCK" shall mean the
Company's Series B Preferred Stock, par value $0.001 per share.
(i) Series C Stock. The term "SERIES C STOCK" shall mean the
Company's Series C Preferred Stock, par value $0.001 per share.
2.2 Demand Registration.
(a) Request by Holders. If the Company shall receive at any time
after six (6) months after the effective date of the Company's initial
public offering of its securities pursuant to a registration filed under
the Securities Act, a written request from the Holders of at least
two-thirds of the Registrable Securities then outstanding that the
Company file a registration statement under the Securities Act covering
the registration of Registrable Securities pursuant to this Section 2.2,
then the
CONFIDENTIAL Page 2 of 14
<PAGE> 3
Company shall, within twenty (20) days after the receipt of such written
request, give written notice of such request ("REQUEST NOTICE") to all
Holders, and effect, as soon as practicable, the registration under the
Securities Act of all Registrable Securities which Holders request to be
registered and included in such registration by written notice given by
such Holders to the Company within twenty (20) days after receipt of the
Request Notice, subject only to the limitations of this Section 2;
provided that the Registrable Securities requested by all Holders to be
registered pursuant to such request must be at least twenty-five percent
(25%) of all Registrable Securities then outstanding.
(b) Underwriting. If the Holders initiating the registration request
under this Section 2.2 ("INITIATING HOLDERS") intend to distribute the
Registrable Securities covered by their request by means of an
underwriting, then they shall so advise the Company as a part of their
request made pursuant to this Section 2.2 and the Company shall include
such information in the written notice referred to in subsection 2.2(a).
In such event, the right of any Holder to include his Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such
Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into
an underwriting agreement in customary form with the managing
underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 2.2, if the
underwriter(s) advise(s) the Company in writing that marketing factors
require a limitation of the number of securities to be underwritten then
the Company shall so advise all Holders of Registrable Securities that
would otherwise be registered and underwritten pursuant hereto, and the
number of Registrable Securities that may be included in the
underwriting shall be reduced as required by the underwriter(s) and
allocated among the Holders of Registrable Securities on a pro rata
basis according to the number of Registrable Securities then outstanding
held by each Holder requesting registration (including the Initiating
Holders); provided, however, that the number of shares of Registrable
Securities to be included in such underwriting and registration shall
not be reduced unless all other securities of the Company are first
entirely excluded from the underwriting and registration. Any
Registrable Securities excluded and withdrawn from such underwriting
shall be withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The Company is obligated
to effect only two (2) such registrations pursuant to this Section 2.2.
(d) Deferral. Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting the filing of a registration statement
pursuant to this Section 2.2, a certificate signed by the President or
Chief Executive Officer of the Company stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration
statement to be filed and it is therefore essential to defer the filing
of such registration statement, then the Company shall have the right to
defer such filing for a period of not more than one hundred twenty (120)
days after receipt of the request of the Initiating Holders; provided,
however, that the Company may not utilize this right more than once in
any twelve (12) month period.
(e) Expenses. All expenses incurred in connection with a
registration pursuant to this Section 2.2, including without limitation
all registration and qualification fees, printers' and accounting fees,
fees and disbursements of counsel for the Company, and the reasonable
fees and disbursements of one counsel for the selling Holders (but
excluding underwriters' discounts and commissions), shall be borne by
the Company. Each Holder participating in a registration pursuant to
this Section 2.2 shall bear such Holder's proportionate share (based on
the total number of shares sold in such registration other than for the
account of the Company) of all discounts, commissions or other amounts
payable to underwriters or brokers in connection with such offering.
Notwithstanding the foregoing, the Company shall not be required to pay
for any expenses of any registration proceeding
CONFIDENTIAL Page 3 of 14
<PAGE> 4
begun pursuant to this Section 2.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of
the Registrable Securities to be registered, unless the Holders of a
majority of the Registrable Securities then outstanding agree to forfeit
their right to one (1) demand registration pursuant to this Section 2.2
(in which case such right shall be forfeited by all Holders of
Registrable Securities); provided, further, however, that if at the time
of such withdrawal, the Holders have learned of a material adverse
change in the condition, business, or prospects of the Company not known
to the Holders at the time of their request for such registration and
have withdrawn their request for registration with reasonable promptness
after learning of such material adverse change, then the Holders shall
not be required to pay any of such expenses and shall retain their
rights pursuant to this Section 2.2.
2.3 Piggyback Registrations. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to filing
any registration statement under the Securities Act for purposes of
effecting a public offering of securities of the Company (including, but
not limited to, registration statements relating to secondary offerings of
securities of the Company, but excluding registration statements relating
to any registration under Section 2.2 or Section 2.4 of this Agreement or
to any employee benefit plan or a corporate reorganization) and will afford
each such Holder an opportunity to include in such registration statement
all or any part of the Registrable Securities then held by such Holder.
Each Holder desiring to include in any such registration statement all or
any part of the Registrable Securities held by such Holder shall, within
twenty (20) days after receipt of the above-described notice from the
Company, so notify the Company in writing, and in such notice shall inform
the Company of the number of Registrable Securities such Holder wishes to
include in such registration statement. If a Holder decides not to include
all of its Registrable Securities in any registration statement thereafter
filed by the Company, such Holder shall nevertheless continue to have the
right to include any Registrable Securities in any subsequent registration
statement or registration statements as may be filed by the Company with
respect to offerings of its securities, all upon the terms and conditions
set forth herein.
(a) Underwriting. If a registration statement under which the
Company gives notice under this Section 2.3 is for an underwritten
offering, then the Company shall so advise the Holders of Registrable
Securities. In such event, the right of any such Holder's Registrable
Securities to be included in a registration pursuant to this Section 2.3
shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing
to distribute their Registrable Securities through such underwriting
shall enter into an underwriting agreement in customary form with the
managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities)
from the registration and the underwriting, and the number of shares
that may be included in the registration and the underwriting shall be
allocated, first, to stockholders exercising any demand registration
rights, second to the Company, and third, to each of the Holders
requesting inclusion of their Registrable Securities in such
registration statement on a pro rata basis based on the total number of
Registrable Securities then held by each such Holder; provided however,
that the right of the underwriters to exclude shares (including
Registrable Securities) from the registration and underwriting as
described above shall be restricted so that: (i) the number of
Registrable Securities included in any such registration is not reduced
below twenty-five percent (25%) of the shares included in the
registration, except for a registration relating to the Company's
initial public offering or an offering solely by stockholders of the
Company exercising demand registration rights, from which all
Registrable Securities may be excluded, and (ii) all shares that are not
Registrable Securities and are held by persons who are employees or
directors of the Company (or any subsidiary of the Company) shall first
be excluded from such registration and underwriting before any
Registrable Securities are so excluded. If any Holder disapproves of the
terms of any such underwriting, such Holder may elect to withdraw
therefrom by written notice to the Company and the underwriter,
delivered at least twenty (20) days prior to the effective date of the
registration statement. Any Registrable Securities excluded or withdrawn
from such underwriting shall be excluded and withdrawn from the
registration. For any Holder that is a partnership or corporation, the
partners, retired partners and stockholders of such Holder, or the
estates and family members of any such partners and retired partners and
any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "Holder," and any pro rata reduction with respect
to such "Holder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals
included in such "Holder," as defined in this sentence.
CONFIDENTIAL Page 4 of 14
<PAGE> 5
(b) Expenses. All expenses incurred in connection with a
registration pursuant to this Section 2.3 (excluding underwriters' and
brokers' discounts and commissions), including, without limitation all
federal and "blue sky" registration and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company
and reasonable fees and disbursements of one counsel for the selling
Holders shall be borne by the Company.
2.4 Form S-3 Registration. In case the Company shall receive from any
Holder or Holders of at least twenty-five percent (25%) of all Registrable
Securities then outstanding a written request or requests that the Company
effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities
owned by such Holder or Holders, then the Company will:
(a) Notice. Promptly give written notice of the proposed
registration and the Holder's or Holders' request therefor, and any
related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) Registration. As soon as practicable, effect such registration
and all such qualifications and compliances as may be so requested and
as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given within twenty (20)
days after receipt of such written notice from the Company; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.4:
(i) if Form S-3 is not available for such offering;
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public of less than
$1,000,000;
(iii) if the Company shall furnish to the Holders a certificate
signed by the President or Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and
its stockholders for such Form S-3 Registration to be effected at
such time, in which event the Company shall have the right to defer
the filing of the Form S-3 registration statement no more than once
during any twelve month period for a period of not more than 120
days after receipt of the request of the Holder or Holders under
this Section 2.4;
(iv) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two (2)
registrations on Form S-3 for the Holders pursuant to this Section
2.4; or
(v) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent
to service of process in effecting such registration, qualification
or compliance.
(c) Expenses. Subject to the foregoing, the Company shall file a
Form S-3 registration statement covering the Registrable Securities and
other securities so requested to be registered pursuant to this Section
2.4 as soon as practicable after receipt of the request or requests of
the Holders for such registration. The Company shall pay all expenses
incurred in connection with each registration requested pursuant to this
Section 2.4, (excluding underwriters' or brokers' discounts and
commissions), including without limitation all filing, registration and
qualification, printers' and accounting fees and the reasonable fees and
disbursements of one counsel for the selling Holder or Holders and
counsel for the Company.
(d) Not Demand Registration. Form S-3 registrations shall not be
deemed to be demand registrations as described in Section 2.2 above.
2.5 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities under this Agreement, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use reasonable, diligent
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 ninety (90) days.
CONFIDENTIAL Page 5 of 14
<PAGE> 6
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with
such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements
of the Securities Act, and such other documents as they may reasonably
request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(d) Use reasonable, diligent efforts to register and qualify the
securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to
do business or to file a general consent to service of process in any
such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. 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.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities, on the date that such Registrable Securities are
delivered to the underwriters for sale, 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 as
of such date, of the counsel representing the Company for the purposes
of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) a "comfort"
letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering and reasonably satisfactory to a majority
in interest of the Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
2.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2.2, 2.3
or 2.4 that the selling Holders shall furnish to the Company such
information regarding themselves, the Registrable Securities held by them,
and the intended method of disposition of such securities as shall be
required to timely effect the registration of their Registrable Securities.
2.7 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration
as the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.8 Indemnification. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) By the Company. To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers and
directors of each Holder, any underwriter (as defined in the Securities
Act) for such Holder and each person, if any, who controls such Holder
or underwriter within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended, (the "1934 ACT"), against
any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Securities Act, the l934 Act or other
federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations
(collectively, "VIOLATIONS" and, individually, a "VIOLATION"):
CONFIDENTIAL Page 6 of 14
<PAGE> 7
(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto;
(ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make
the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the
Securities Act, the 1934 Act, any federal or state securities law or
any rule or regulation promulgated under the Securities Act, the
1934 Act or any federal or state securities law in connection with
the offering covered by such registration statement; and the Company
will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses
reasonably incurred by them, as incurred, in connection with
investigating or defending any such loss, claim, damage, liability
or action; provided however, that the indemnity agreement contained
in this subsection 2.8(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if
such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director,
underwriter or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder
selling securities under such registration statement or any of such
other Holder's partners, directors or officers or any person who
controls such Holder within the meaning of the Securities Act or the
1934 Act, against any losses, claims, damages or liabilities (joint or
several) to which the Company or any such director, officer, controlling
person, underwriter or other such Holder, partner or director, officer
or controlling person of such other Holder may become subject under the
Securities Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by
such Holder expressly for use in connection with such registration; and
each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling
person, underwriter or other Holder, partner, officer, director or
controlling person of such other Holder in connection with investigating
or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this
subsection 2.8(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall not be
unreasonably withheld; and provided further, that the total amounts
payable in indemnity by a Holder under this Section 2.8(b) in respect of
any Violation shall not exceed the net proceeds received by such Holder
in the registered offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party under
this Section 2.8 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this
Section 2.8, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential conflict of interests between such indemnified party
and any other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying
party of any liability to the indemnified party under this Section 2.8,
but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 2.8.
CONFIDENTIAL Page 7 of 14
<PAGE> 8
(d) Defect Eliminated in Final Prospectus. The foregoing indemnity
agreements of the Company and Holders are subject to the condition that,
insofar as they relate to any Violation made in a preliminary prospectus
but eliminated or remedied in the amended prospectus on file with the
SEC at the time the registration statement in question becomes effective
or the amended prospectus filed with the SEC pursuant to SEC Rule 424(b)
(the "FINAL PROSPECTUS"), such indemnity agreement shall not inure to
the benefit of any person if a copy of the Final Prospectus was
furnished to the indemnified party and was not furnished to the person
asserting the loss, liability, claim or damage at or prior to the time
such action is required by the Securities Act.
(e) Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in
which either (i) any Holder exercising rights under this Agreement, or
any controlling person of any such Holder, makes a claim for
indemnification pursuant to this Section 2.8 but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 2.8
provides for indemnification in such case, or (ii) contribution under
the Securities Act may be required on the part of any such selling
Holder or any such controlling person in circumstances for which
indemnification is provided under this Section 2.8; then, and in each
such case, the Company and such Holder will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that such Holder
is responsible for the portion represented by the percentage that the
public offering price of its Registrable Securities offered by and sold
under the registration statement bears to the public offering price of
all securities offered by and sold under such registration statement,
and the Company and other selling Holders are responsible for the
remaining portion; provided, however, that, in any such case, (A) no
such Holder will be required to contribute any amount in excess of the
public offering price of all such Registrable Securities offered and
sold by such Holder pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(f) Survival. The obligations of the Company and Holders under this
Section 2.8 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
2.9 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or other shares of stock of the Company then owned
by such Holder (other than to donees or partners of the Holder who agree to
be similarly bound) for up to one hundred eighty (180) days following the
effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers securities to be sold
on its behalf to the public in an underwritten offering but not to
Registrable Securities sold pursuant to such registration statement; and
(b) all officers and directors of the Company then holding Common
Stock of the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company shall have the
right to place restrictive legends on the certificates representing the
shares subject to this Section and to impose stop transfer instructions
with respect to the Registrable Securities and such other shares of stock
of each Holder (and the shares or securities of every other person subject
to the foregoing restriction) until the end of such period.
2.10 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 Registrable 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:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all
times after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to
the general public;
(b) Use reasonable, diligent efforts to file with the Commission in
a timely manner all reports and other documents required of the Company
under the Securities Act and the 1934 Act (at any time after it has
become subject to such reporting requirements); and
CONFIDENTIAL Page 8 of 14
<PAGE> 9
(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 ninety (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
1934 Act (at any time after it has become subject to the reporting
requirements of the 1934 Act), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of
the Company as a Holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing a Holder to sell any such
securities without registration (at any time after the Company has
become subject to the reporting requirements of the 1934 Act).
2.11 Termination of the Company's Obligations. The Company shall have no
obligations pursuant to Sections 2.2 through 2.4 with respect to any
request or requests for registration made by any Holder on a date more than
five (5) years after the closing date of the Company's initial public
offering. Notwithstanding anything to the contrary contained in Section 2.2
or 2.4, if any Holder is eligible to sell Registrable Securities pursuant
Rule 144(k) or any successor provision under the Securities Act (an
"Excluded Holder"), the Registrable Securities of such Excluded Holder
shall be disregarded in determining the requisite percentage of Registrable
Securities that are required to initiate a registration pursuant to Section
2.2 or 2.4 (i.e., a registration under Section 2.2 must be initiated by
persons holding at least two-thirds of the Registrable Securities held by
all Holders who are not Excluded Holders and a registration under Section
2.4 must be initiated by persons holding at least 25% of the Registrable
Securities held by all Holders who are not Excluded Holders). After a
registration has been requested pursuant to Section 2.2 or 2.4, as the case
may be, by the requisite percentage of shares held by Holders who are not
Excluded Holders, all Holders (including Excluded Holders) shall be
entitled to include their Registrable Securities in such registration
subject to the terms and conditions of this Agreement.
2.12 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the 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 include such securities in any registration filed
under Section 2.2 hereof, unless under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of his securities will
not reduce the amount of the Registrable Securities of the Holders which is
included, or (b) to make a demand registration which could result in such
registration statement being declared effective prior to the earlier of
either of the dates set forth in subsection 2.2(a), or within one hundred
twenty (120) days of the effective date of any registration effected
pursuant to Section 2.2.
3. PRE-EMPTIVE RIGHTS.
3.1 General. Each Holder (as defined in Section 2.1(d)) and any party to
whom such Holder's rights under this Section 3 have been duly assigned in
accordance with Section 4.1(b) (each such Holder or assignee being
hereinafter referred to as a "RIGHTS HOLDER") has the right of first
refusal to purchase such Rights Holder's Pro Rata Share (as defined below),
of all (or any part) of any "New Securities" (as defined in Section 3.2)
that the Company may from time to time issue after the date of this
Agreement. A Rights Holder's "PRO RATA SHARE" for purposes of this right of
first refusal is the ratio of (a) the number of Registrable Securities as
to which such Rights Holder is the Holder (and/or is deemed to be the
Holder under Section 2.1(d)), to (b) a number of shares of Common Stock of
the Company equal to the sum of (i) the total number of shares of Common
Stock of the Company then outstanding plus (ii) the total number of shares
of Common Stock of the Company into which all then outstanding shares of
Preferred Stock of the Company are then convertible.
3.2 New Securities. "NEW SECURITIES" shall mean any Common Stock or
Preferred Stock of the Company, whether now authorized or not, and rights,
options or warrants to purchase such Common Stock or Preferred Stock, and
securities of any type whatsoever that are, or may become, convertible or
exchangeable into such Common Stock or Preferred Stock; provided, however,
that the term "New Securities" does not include:
(a) up to 5,000,000 shares of the Company's Common Stock (and/or
options or warrants therefor) issued to employees, officers, directors,
contractors, advisors or consultants of the Company pursuant to
incentive agreements or plans approved by the Board of Directors of the
Company;
(b) any shares of Series A Stock, Series B Preferred Stock or
Series C Preferred Stock set forth in Exhibit A hereto (the "ISSUED
PREFERRED STOCK");
(c) any securities issuable upon conversion of or with respect to
any then outstanding shares of Series A Stock, Series B Stock or Series
C Stock of the Company or Common Stock or other securities issuable upon
conversion thereof;
CONFIDENTIAL Page 9 of 14
<PAGE> 10
(d) any securities issuable upon exercise of any options, warrants
or rights to purchase any securities of the Company outstanding on the
date of this Agreement ("WARRANT SECURITIES") and any securities
issuable upon the conversion of any Warrant Securities or upon the
exercise or conversion of any securities, if such securities were first
offered to the Rights Holders hereunder;
(e) shares of the Company's Common Stock or Preferred Stock issued
in connection with any stock split or stock dividend;
(f) securities offered by the Company to the public pursuant to a
registration statement filed under the Securities Act;
(g) up to 125,000 shares of the Company's Common Stock or Preferred
Stock (and/or options or warrants therefor) issued or issuable to
parties providing the Company with equipment leases, real property
leases, loans, credit lines, guaranties of indebtedness, cash price
reductions or similar financing such number of shares being subject to
proportional adjustment to reflect subdivisions, combinations and stock
dividends affecting the number of outstanding shares of such stock; or
(h) securities issued pursuant to the acquisition of another
corporation or entity by the Company by consolidation, merger, purchase
of all or substantially all of the assets, or other reorganization in
which the Company acquires, in a single transaction or series of related
transactions, all or substantially all of the assets of such other
corporation or entity or fifty percent (50%) or more of the voting power
of such other corporation or entity or fifty percent (50%) or more of
the equity ownership of such other entity.
3.3 Procedures. In the event that the Company proposes to undertake an
issuance of New Securities, it shall give to each Rights Holder written
notice of its intention to issue New Securities (the "NOTICE"), describing
the type of New Securities and the price and the general terms upon which
the Company proposes to issue such New Securities. Each Rights Holder shall
have ten (10) days from the date of mailing of any such Notice to agree in
writing to purchase such Rights Holder's Pro Rata Share of such New
Securities for the price and upon the general terms specified in the Notice
by giving written notice to the Company and stating therein the quantity of
New Securities to be purchased (not to exceed such Rights Holder's Pro Rata
Share). If any Rights Holder fails to so agree in writing within such ten
(10) day period to purchase such Rights Holder's full Pro Rata Share of an
offering of New Securities (a "NONPURCHASING HOLDER"), then such
Nonpurchasing Holder shall forfeit the right hereunder to purchase that
part of his Pro Rata Share of such New Securities that he did not so agree
to purchase and the Company shall promptly give each Rights Holder who has
timely agreed to purchase his 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 Rights 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 Shares of such offering on a
pro rata basis according to the relative Pro Rata Shares of the Purchasing
Rights Holders, at any time within five (5) days after receiving the
Overallotment Notice.
3.4 Failure to Exercise. In the event that the Rights Holders fail to
exercise in full the right of first refusal within such ten (10) plus five
(5) day period, then the Company shall have 120 days thereafter to sell the
New Securities with respect to which the Rights Holders' rights of first
refusal hereunder were not exercised, at a price and upon general terms not
materially more favorable to the purchasers thereof than specified in the
Company's Notice to the Rights Holders. In the event that the Company has
not issued and sold the New Securities within such 120-day period, then the
Company shall not thereafter issue or sell any New Securities without again
first offering such New Securities to the Rights Holders pursuant to this
Section 3.
3.5 Termination. This right of first refusal shall terminate (a)
immediately before the closing of the first underwritten sale of Common
Stock of the Company to the public pursuant to a registration statement
filed with, and declared effective by, the SEC under the Securities Act,
covering the offer and sale of Common Stock to the public at an offering
price of at least $2.20 per share (such offering price being subject to
proportional adjustment to reflect subdivisions, combinations, stock
dividends and similar transactions affecting the number of outstanding
shares of Common Stock) for an aggregate gross public offering price
(calculated before deduction of underwriters' discounts and commissions) of
at least $15,000,000 or (b) upon (i) the acquisition of all or
substantially all the assets of the Company or (ii) an acquisition of the
Company by another corporation or
CONFIDENTIAL Page 10 of 14
<PAGE> 11
entity by consolidation, merger or other reorganization in which the
holders of the Company's outstanding voting stock immediately prior to such
transaction own, immediately after such transaction, securities
representing less than fifty percent (50%) or more of the voting power of
the corporation or other entity surviving such transaction.
3.6 Waiver. Each Rights Holder hereby confirms its waiver of any right
of first refusal it may have had to purchase such Rights Holder's Pro Rata
Share of the Issued Preferred Stock.
4. ASSIGNMENT AND AMENDMENT.
4.1 Assignment. Notwithstanding anything herein to the contrary:
(a) Information Rights. The rights of an Investor under Section 1.1
or 1.2 or 1.4 hereof may be assigned only to (i) a party who acquires
from an Investor (or an Investor's permitted assigns) at least 500,000
shares of Series A Stock, Series B Stock or Series C Stock subject to
this Agreement and/or 250,000 shares (on an as-converted basis) of
Registrable Securities issued upon conversion thereof or (ii) a partner,
member or stockholder of an Investor who acquires at least 100,000
shares of Series A Stock, Series B Stock, or Series C Stock subject to
this Agreement and/or 50,000 shares (on an as-converted basis) of
Registrable Securities issued upon conversion.
(b) Registration Rights; Refusal Rights. The registration rights of
a Holder under Section 2 hereof and the rights of first refusal of a
Rights Holder under Section 3 hereof may be assigned only to (i) a party
who acquires at least 500,000 shares of Series A Stock, Series B Stock
or Series C Stock subject to this Agreement and/or 250,000 shares (on an
as-converted basis) of Registrable Securities issued upon conversion
thereof or (ii) any partner, member or shareholder of an Investor or
permitted transferee thereof; provided, however that no party may be
assigned any of the foregoing rights unless the Company is given written
notice by the assigning party at the time of such assignment stating the
name and address of the assignee and identifying the securities of the
Company as to which the rights in question are being assigned; and
provided further that any such assignee shall receive such assigned
rights subject to all the terms and conditions of this Agreement,
including without limitation the provisions of this Section 4.
4.2 Amendment of Rights. Any provision of this Agreement may be amended
and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with
the written consent of the Company and Investors (and/or any of their
permitted successors or assigns) holding shares of Series A Stock, Series B
Stock, Series C Stock and/or Conversion Stock representing and/or
convertible into a majority of all the Investors' Shares (as defined
below). As used herein, the term "INVESTORS' SHARES" shall mean the shares
of Common Stock then issuable upon conversion of all then outstanding
shares of Series A Stock, Series B Stock and Series C Stock subject to this
Agreement plus all then outstanding shares of Conversion Stock that were
issued upon the conversion of any shares of Series A Stock, Series B Stock
or Series C Stock subject to this Agreement. Any amendment or waiver
effected in accordance with this Section 4.2 shall be binding upon each
Investor, each Holder, each permitted successor or assignee of such
Investor or Holder and the Company.
5. GENERAL PROVISIONS.
5.1 Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered or if deposited in the U.S. mail by
registered or certified mail, return receipt requested, postage prepaid, as
follows:
(a) if to the Investors, at the addresses set forth on Exhibit A.
(b) if to the Company, at 1951 S. Fordham Street, Longmont, Colorado
90503.
Any party hereto (and such party's permitted assigns) may by notice so
given change its address for future notices hereunder. Notice shall
conclusively be deemed to have been given when personally delivered or when
deposited in the mail in the manner set forth above.
5.2 Entire Agreement. This Agreement, together with all the Exhibits
hereto, constitutes and contains the entire agreement and understanding of
the parties with respect to the subject matter hereof and supersedes any
and all prior negotiations, correspondence, agreements, understandings,
duties or obligations between the parties respecting the subject matter
hereof.
5.3 Governing Law. This Agreement shall be governed by and construed
exclusively in accordance with the internal laws of the State of Colorado
as applied to agreements among Colorado residents entered into and to be
performed entirely within Colorado, excluding that body of law relating to
conflict of laws and choice of law.
CONFIDENTIAL Page 11 of 14
<PAGE> 12
5.4 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, then such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be
enforceable in accordance with its terms.
5.5 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
5.6 Successors And Assigns. Subject to the provisions of Section 4.1,
the provisions of this Agreement shall inure to the benefit of, and shall
be binding upon, the successors and permitted assigns of the parties
hereto.
5.7 Captions. The captions to sections of this Agreement have been
inserted for identification and reference purposes only and shall not be
used to construe or interpret this Agreement.
5.8 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
5.9 Costs And Attorneys' Fees. In the event that any action, suit or
other proceeding is instituted concerning or arising out of this Agreement
or any transaction contemplated hereunder, the prevailing party shall
recover all of such party's costs and attorneys' fees incurred in each such
action, suit or other proceeding, including any and all appeals or
petitions therefrom.
5.10 Adjustments for Stock Splits, Etc. Wherever in this Agreement there
is a reference to a specific number of shares of Common Stock or Preferred
Stock of the Company of any class or series, then, upon the occurrence of
any subdivision, combination or stock dividend of such class or series of
stock, the specific number of shares so referenced in this Agreement shall
automatically be proportionally adjusted to reflect the affect on the
outstanding shares of such class or series of stock by such subdivision,
combination or stock dividend.
5.11 Aggregation of Stock. All shares 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.
5.12 Arbitration Any disputes between the Company and the Investors with
respect to this Agreement shall be settled by binding, final arbitration in
accordance with the commercial arbitration rules of the American
Arbitration Association then in effect (the "AAA Rules"). Any arbitration
proceeding shall be conducted in Denver, CO. The following arbitration
provisions shall govern over any conflicting rules which may now or
hereafter be contained in the AAA Rules. Any judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
over the subject matter thereof. The arbitrator shall have the authority to
grant any equitable and legal remedies that would be available.
(a) Any such arbitration shall be conducted before a single
arbitrator who shall be compensated for his or her services at a rate to
be determined by the parties or by the American Arbitration Association,
but based upon reasonable hourly or daily consulting rates for the
arbitrator in the event the parties are not able to agree upon his or
her rate of compensation.
(b) The AAA Rules for the selection of the arbitrator shall be
followed.
(c) Each party to such arbitration shall each advance an equal
portion of the initial compensation to be paid to the arbitrator in any
such arbitration and an equal portion of the costs of transcripts and
other normal and regular expenses of the arbitration proceedings;
provided, however, that the arbitrator shall have the discretion to
grant to the prevailing party in any arbitration an award of attorneys'
fees and costs, and all costs of arbitration.
(d) The parties shall be entitled to conduct discovery proceedings
in accordance with the provisions of the Federal Rules of Civil
Procedure, subject to any limitation imposed by the arbitrator.
(e) For any claim submitted to arbitration, the burden of proof
shall be as it would be if the claim were litigated in a judicial
proceedings.
(f) Upon the conclusion of any arbitration proceeding hereunder,
the arbitrator shall render findings of fact and conclusions of law and
a written opinion setting forth the basis and reasons for any decision
reached by him or her and shall deliver such documents to each party to
this Agreement along with a signed copy of the award.
CONFIDENTIAL Page 12 of 14
<PAGE> 13
(g) The arbitrator chosen in accordance with these provisions shall
not have the power to alter, amend or otherwise affect the terms of
these arbitration provisions or the provisions of this Agreement.
(h) The parties acknowledge that, except as specifically provided
in this Agreement, no other action need be taken by either party before
proceeding directly in accordance with the provisions of this Section.
(i) The arbitration provisions set forth in this Section 5.12 are
intended by the parties to be exclusive for all purposes and applicable
to each and every controversy, dispute and/or claim in any manner
arising out of or relating to this Agreement, the meaning, application
and/or interpretation of this Agreement, any breach hereof and/or any
voluntary or involuntary termination of this Agreement with or without
cause, including, without limitation, any such controversy, dispute
and/or claim which, if pursued through any state or federal court or
administrative agency, would arise at law, in equity and/or pursuant to
statutory, regulatory and/or common law rules, regardless of whether any
such dispute, controversy and/or claim would arise in and/or from
contract, tort or any other legal and/or equitable theory or basis. The
prevailing party in any action instituted pursuant to this Section
5.13(i), or in any appeal from any arbitration conducted pursuant to
this Section 5.13, shall be entitled to recover from the other party its
reasonable attorneys' fees and other expenses incurred in such
litigation.
5.13 Effectiveness; Termination of the Original Agreement This Agreement
shall become effective upon its execution by (a) holders of at least a
majority of the Registrable Securities as defined in the Second Amended
Agreement, (b) the Company and (c) the New Investors. Upon effectiveness of
this Agreement, the First Amended Agreement and the Second Amended
Agreement shall be terminated and shall be of no further force or effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE COMPANY:
CHAPARRAL NETWORK STORAGE, INC.,
a Delaware corporation
/s/ Gary L. Allison
-----------------------------------------
Gary L. Allison, Chairman & CEO
THE INVESTORS:
Adaptec, Inc.,
a Delaware corporation
By: /s/ Robert Kraiss
--------------------------------------
Name
Title:
/s/ Gary L. Allison
-----------------------------------------
Gary L. Allison
/s/ William R. Childs
-----------------------------------------
William R. Childs
/s/ Haim Brill
-----------------------------------------
Haim Brill
/s/ F. Grant Saviers
-----------------------------------------
F. Grant Saviers
/s/ Robert Graham
-----------------------------------------
Robert Graham
CONFIDENTIAL Page 13 of 14
<PAGE> 14
Harvest Storage Technology Partners LLC,
a Delaware limited liability company
By: /s/ Robert Harvey
--------------------------------------
Name Robert Harvey
Title: Manager
Woodcarvers LLC,
a Delaware limited liability company
By: /s/ Robert Harvey
--------------------------------------
Name Robert Harvey
Title: Manager
/s/ Sam Coleman
-----------------------------------------
Sam Coleman
/s/ Frank Bigelow
-----------------------------------------
Frank Bigelow
The Linde Company
By: /s/ Ian Linde
--------------------------------------
Name Ian Linde
Title: Partner
Ohio Valley Venture Fund L.P.
OSF Ltd, its general partner
By: /s/ Karl Elderkin
--------------------------------------
Name:Karl Elderkin
Title: President
-----------------------------------------
Jeff Jensen
CONFIDENTIAL Page 14 of 14
<PAGE> 1
EXHIBIT 10.10
FOURTH AMENDED INVESTORS' RIGHTS AGREEMENT
This Fourth Amended Investors' Rights Agreement (this "AGREEMENT") is
made and entered into as of March 1, 2000, by and among Chaparral Network
Storage, Inc., a Delaware corporation (the "COMPANY"), and the individuals and
entities listed on Exhibit A attached hereto (the "INVESTORS").
A. The Investors are party to that certain First Amended Investors'
Rights Agreement dated as of March 31, 1999 (the "FIRST AMENDED AGREEMENT") that
certain Second Amended Investors' Rights Agreement dated as of August 13, 1999
(the "SECOND AMENDED AGREEMENT") and that certain Third Amended Investors'
Rights Agreement dated as of October 16, 1999 (the "THIRD AMENDED AGREEMENT").
B. The Investors desire to amend the Third Amended Agreement in certain
respects.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. INFORMATION RIGHTS.
1.1 Financial Information. The Company covenants and agrees
that, commencing on the date of this Agreement, for so long as any
Investor holds shares of Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock and/or shares of Common Stock of the
Company ("COMMON Stock") issued upon the conversion of such shares of
Series A Preferred Stock or Series B Preferred Stock or Series C
Preferred Stock ("CONVERSION STOCK") the Company will:
(a) Annual Reports. Furnish to such Investor, as soon
as practicable and in any event within 120 days after the end
of each fiscal year of the Company, a consolidated Balance
Sheet as of the end of such fiscal year, a consolidated
Statement of Income and a consolidated Statement of Cash Flows
of the Company and its subsidiaries for such year, setting
forth in each case in comparative form the figures from the
Company's previous fiscal year (if any), all prepared in
accordance with generally accepted accounting principles and
practices and audited by an independent certified public
accounting firm; and
(b) Quarterly Reports. Furnish to such Investor as
soon as practicable, and in any case within forty-five (45)
days after the end of each fiscal quarter of the Company
(except the last quarter of the Company's fiscal year),
quarterly unaudited financial statements, including an
unaudited Balance Sheet, an unaudited Statement of Income and
an unaudited Statement of Cash Flows, together with a
comparison to the Company's operating plan and budget and
statements of the Chief Financial Officer of the Company
explaining any significant differences in the statements from
the Company's operating plan and budget for the period and
stating that such statements fairly present the consolidated
financial position and consolidated financial results of the
Company for the fiscal quarter covered.
Each Investor agrees to hold all information received
pursuant to this Section in confidence, and not to use or disclose any
of such information to any third party, except to the extent such
information may be made publicly available by the Company.
1.2 Inspection Rights. The Company shall permit each Investor
holding shares of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock and/or shares of Conversion Stock, or any
combination thereof, at such Investor's expense, to visit and inspect
the Company's properties, to examine its books of account and records
and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by such
Investor. Each Investor agrees to hold all information received from
such inspections in confidence, and not to use or disclose any of such
information to any third party, except to the extent such information
may be made publicly available by the Company.
1.3 Board Rights. The Company shall permit Adaptec to have one
(1) representative attend all meetings of the Company's Board of
Directors in a non-voting observer capacity and to receive any
communications directed to members of the Board of Directors in their
capacity as such. The Investors agree to hold all information received
from such meetings in confidence, and not to use or disclose any of
such information to any third party, except to the extent such
information may be made publicly available by the Company.
1.4 Termination of Certain Rights. The Company's obligations
under Sections 1.1, 1.2 and 1.3 above will terminate upon the closing
of the Company's initial public offering of Common Stock pursuant to an
effective registration statement filed under the U.S. Securities Act of
1933, as amended (the "SECURITIES ACT"), in which the gross proceeds
raised for the Company's account (calculated before deduction of
underwriters'
CONFIDENTIAL Page 1 of 14
<PAGE> 2
discounts and omissions) exceeds $15,000,000 at a price greater than
$2.20 per share of Common Stock (such price to be proportionally
adjusted to reflect stock splits, stock dividends and the like).
2. REGISTRATION RIGHTS.
2.1 Definitions. For purposes of this Section 2:
(a) Registration. The terms "REGISTER,"
"REGISTRATION" and "REGISTERED" and refer to a registration
effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement.
(b) Registrable Securities. The term "REGISTRABLE
SECURITIES" means: (i) all the shares of Common Stock of the
Company issued or issuable upon the conversion of any shares
of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock that are now owned or may hereafter
be acquired by the Investors or the Investors' permitted
successors and assigns and (ii) any shares of Common Stock of
the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of, all such shares of
Common Stock described in clause (i) of this subsection (b);
excluding in all cases, however, any Registrable Securities
sold by a person in a transaction in which rights under this
Section 2 are not assigned in accordance with this Agreement
or any Registrable Securities sold to the public or sold
pursuant to Rule 144 promulgated under the Securities Act.
(c) Registrable Securities Then Outstanding. The
number of shares of "REGISTRABLE SECURITIES THEN OUTSTANDING"
shall mean the number of shares of Common Stock which are
Registrable Securities and (i) are then issued and outstanding
or (ii) are then issuable pursuant to the exercise or
conversion of then outstanding and then exercisable options,
warrants or convertible securities.
(d) Holder. For purposes of this Section 2 and
Sections 3 and 4 hereof, the term "HOLDER" means any person
owning of record Registrable Securities that have not been
sold to the public or pursuant to Rule 144 promulgated under
the Securities Act or any assignee of record of such
Registrable Securities to whom rights under such Sections have
been duly assigned in accordance with this Agreement;
provided, however, that for purposes of this Agreement, a
record holder of the Warrant or shares of Series A Stock,
Series B Stock or Series C Stock convertible into such
Registrable Securities shall be deemed to be the Holder of
such Registrable Securities; and provided, further, that the
Company shall in no event be obligated to register the Warrant
or shares of Series A Stock, Series B Stock, or Series C Stock
and that Holders of Registrable Securities will not be
required to convert the Warrant or their shares of Series A
Stock, Series B Stock or Series C Stock into Common Stock in
order to exercise the registration rights granted hereunder,
until immediately before the closing of the offering to which
the registration relates.
(e) Form S-3. The term "FORM S-3" means such form
under the Securities Act as is in effect on the date hereof or
any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(f) SEC. The term "SEC" or "COMMISSION" means the
U.S. Securities and Exchange Commission.
(g) Series A Stock. The term "SERIES A STOCK" shall
mean the Company's Series A Preferred Stock, par value $0.001
per share.
(h) Series B Stock. The term "SERIES B STOCK" shall
mean the Company's Series B Preferred Stock, par value $0.001
per share.
(i) Series C Stock. The term "SERIES C STOCK" shall
mean the Company's Series C Preferred Stock, par value $0.001
per share.
2.2 Demand Registration.
(a) Request by Holders. If the Company shall receive
at any time after six (6) months after the effective date of
the Company's initial public offering of its securities
pursuant to a registration filed under the Securities Act, a
written request from the Holders of at least two-thirds of the
Registrable Securities then outstanding that the Company file
a registration statement under the Securities Act covering the
registration of Registrable Securities pursuant to this
Section 2.2, then the Company shall, within twenty (20) days
after the receipt of such written request, give written notice
of
CONFIDENTIAL Page 2 of 14
<PAGE> 3
such request ("REQUEST NOTICE") to all Holders, and effect, as
soon as practicable, the registration under the Securities Act
of all Registrable Securities which Holders request to be
registered and included in such registration by written notice
given by such Holders to the Company within twenty (20) days
after receipt of the Request Notice, subject only to the
limitations of this Section 2; provided that the Registrable
Securities requested by all Holders to be registered pursuant
to such request must be at least twenty-five percent (25%) of
all Registrable Securities then outstanding.
(b) Underwriting. If the Holders initiating the
registration request under this Section 2.2 ("INITIATING
HOLDERS") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, then
they shall so advise the Company as a part of their request
made pursuant to this Section 2.2 and the Company shall
include such information in the written notice referred to in
subsection 2.2(a). In such event, the right of any Holder to
include his Registrable Securities in such registration shall
be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and
such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such
underwriting shall enter into an underwriting agreement in
customary form with the managing underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding
any other provision of this Section 2.2, if the underwriter(s)
advise(s) the Company in writing that marketing factors
require a limitation of the number of securities to be
underwritten then the Company shall so advise all Holders of
Registrable Securities that would otherwise be registered and
underwritten pursuant hereto, and the number of Registrable
Securities that may be included in the underwriting shall be
reduced as required by the underwriter(s) and allocated among
the Holders of Registrable Securities on a pro rata basis
according to the number of Registrable Securities then
outstanding held by each Holder requesting registration
(including the Initiating Holders); provided, however, that
the number of shares of Registrable Securities to be included
in such underwriting and registration shall not be reduced
unless all other securities of the Company are first entirely
excluded from the underwriting and registration. Any
Registrable Securities excluded and withdrawn from such
underwriting shall be withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The
Company is obligated to effect only two (2) such registrations
pursuant to this Section 2.2.
(d) Deferral. Notwithstanding the foregoing, if the
Company shall furnish to Holders requesting the filing of a
registration statement pursuant to this Section 2.2, a
certificate signed by the President or Chief Executive Officer
of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such
registration statement to be filed and it is therefore
essential to defer the filing of such registration statement,
then the Company shall have the right to defer such filing for
a period of not more than one hundred twenty (120) days after
receipt of the request of the Initiating Holders; provided,
however, that the Company may not utilize this right more than
once in any twelve (12) month period.
(e) Expenses. All expenses incurred in connection
with a registration pursuant to this Section 2.2, including
without limitation all registration and qualification fees,
printers' and accounting fees, fees and disbursements of
counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders (but
excluding underwriters' discounts and commissions), shall be
borne by the Company. Each Holder participating in a
registration pursuant to this Section 2.2 shall bear such
Holder's proportionate share (based on the total number of
shares sold in such registration other than for the account of
the Company) of all discounts, commissions or other amounts
payable to underwriters or brokers in connection with such
offering. Notwithstanding the foregoing, the Company shall not
be required to pay for any expenses of any registration
proceeding begun pursuant to this Section 2.2 if the
registration request is subsequently withdrawn at the request
of the Holders of a majority of the Registrable Securities to
be registered, unless the Holders of a majority of the
Registrable Securities then outstanding agree to forfeit their
right to one (1) demand registration pursuant to this Section
2.2 (in which case such right shall be forfeited by all
Holders of Registrable Securities); provided, further,
however, that if at the time of such withdrawal, the Holders
have learned of a material adverse change in the condition,
business, or prospects of the Company not known to the Holders
at the time of their request for such registration and have
withdrawn their request for registration with reasonable
promptness after learning of such material adverse change,
then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to this
Section 2.2.
CONFIDENTIAL Page 3 of 14
<PAGE> 4
2.3 Piggyback Registrations. The Company shall notify all
Holders of Registrable Securities in writing at least thirty (30) days
prior to filing any registration statement under the Securities Act for
purposes of effecting a public offering of securities of the Company
(including, but not limited to, registration statements relating to
secondary offerings of securities of the Company, but excluding
registration statements relating to any registration under Section 2.2
or Section 2.4 of this Agreement or to any employee benefit plan or a
corporate reorganization) and will afford each such Holder an
opportunity to include in such registration statement all or any part
of the Registrable Securities then held by such Holder. Each Holder
desiring to include in any such registration statement all or any part
of the Registrable Securities held by such Holder shall, within twenty
(20) days after receipt of the above-described notice from the Company,
so notify the Company in writing, and in such notice shall inform the
Company of the number of Registrable Securities such Holder wishes to
include in such registration statement. If a Holder decides not to
include all of its Registrable Securities in any registration statement
thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent registration statement or registration statements as may be
filed by the Company with respect to offerings of its securities, all
upon the terms and conditions set forth herein.
(a) Underwriting. If a registration statement under
which the Company gives notice under this Section 2.3 is for
an underwritten offering, then the Company shall so advise the
Holders of Registrable Securities. In such event, the right of
any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 2.3 shall be conditioned
upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders
proposing to distribute their Registrable Securities through
such underwriting shall enter into an underwriting agreement
in customary form with the managing underwriter or
underwriter(s) selected for such underwriting. Notwithstanding
any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors
require a limitation of the number of shares to be
underwritten, then the managing underwriter(s) may exclude
shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares
that may be included in the registration and the underwriting
shall be allocated, first, to stockholders exercising any
demand registration rights, second to the Company, and third,
to each of the Holders requesting inclusion of their
Registrable Securities in such registration statement on a pro
rata basis based on the total number of Registrable Securities
then held by each such Holder; provided however, that the
right of the underwriters to exclude shares (including
Registrable Securities) from the registration and underwriting
as described above shall be restricted so that: (i) the number
of Registrable Securities included in any such registration is
not reduced below twenty-five percent (25%) of the shares
included in the registration, except for a registration
relating to the Company's initial public offering or an
offering solely by stockholders of the Company exercising
demand registration rights, from which all Registrable
Securities may be excluded, and (ii) all shares that are not
Registrable Securities and are held by persons who are
employees or directors of the Company (or any subsidiary of
the Company) shall first be excluded from such registration
and underwriting before any Registrable Securities are so
excluded. If any Holder disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by
written notice to the Company and the underwriter, delivered
at least twenty (20) days prior to the effective date of the
registration statement. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and
withdrawn from the registration. For any Holder that is a
partnership or corporation, the partners, retired partners and
stockholders of such Holder, or the estates and family members
of any such partners and retired partners and any trusts for
the benefit of any of the foregoing persons shall be deemed to
be a single "Holder," and any pro rata reduction with respect
to such "Holder" shall be based upon the aggregate amount of
shares carrying registration rights owned by all entities and
individuals included in such "Holder," as defined in this
sentence.
(b) Expenses. All expenses incurred in connection
with a registration pursuant to this Section 2.3 (excluding
underwriters' and brokers' discounts and commissions),
including, without limitation all federal and "blue sky"
registration and qualification fees, printers' and accounting
fees, fees and disbursements of counsel for the Company and
reasonable fees and disbursements of one counsel for the
selling Holders shall be borne by the Company.
2.4 Form S-3 Registration. In case the Company shall receive
from any Holder or Holders of at least twenty-five percent (25%) of all
Registrable Securities then outstanding a written request or requests
that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, then the
Company will:
CONFIDENTIAL Page 4 of 14
<PAGE> 5
(a) Notice. Promptly give written notice of the
proposed registration and the Holder's or Holders' request
therefor, and any related qualification or compliance, to all
other Holders of Registrable Securities; and
(b) Registration. As soon as practicable, effect such
registration and all such qualifications and compliances as
may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such
request as are specified in a written request given within
twenty (20) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or
compliance pursuant to this Section 2.4:
(i) if Form S-3 is not available for such
offering;
(ii) if the Holders, together with the
holders of any other securities of the Company
entitled to inclusion in such registration, propose
to sell Registrable Securities and such other
securities (if any) at an aggregate price to the
public of less than $1,000,000;
(iii) if the Company shall furnish to the
Holders a certificate signed by the President or
Chief Executive Officer of the Company stating that
in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to
the Company and its stockholders for such Form S-3
Registration to be effected at such time, in which
event the Company shall have the right to defer the
filing of the Form S-3 registration statement no more
than once during any twelve month period for a period
of not more than 120 days after receipt of the
request of the Holder or Holders under this Section
2.4;
(iv) if the Company has, within the twelve
(12) month period preceding the date of such request,
already effected two (2) registrations on Form S-3
for the Holders pursuant to this Section 2.4; or
(v) in any particular jurisdiction in which
the Company would be required to qualify to do
business or to execute a general consent to service
of process in effecting such registration,
qualification or compliance.
(c) Expenses. Subject to the foregoing, the Company
shall file a Form S-3 registration statement covering the
Registrable Securities and other securities so requested to be
registered pursuant to this Section 2.4 as soon as practicable
after receipt of the request or requests of the Holders for
such registration. The Company shall pay all expenses incurred
in connection with each registration requested pursuant to
this Section 2.4, (excluding underwriters' or brokers'
discounts and commissions), including without limitation all
filing, registration and qualification, printers' and
accounting fees and the reasonable fees and disbursements of
one counsel for the selling Holder or Holders and counsel for
the Company.
(d) Not Demand Registration. Form S-3 registrations
shall not be deemed to be demand registrations as described in
Section 2.2 above.
2.5 Obligations of the Company. Whenever required to effect
the registration of any Registrable Securities under this Agreement,
the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use
reasonable, diligent 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 ninety (90) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus
used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by
such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other
documents as they may reasonably request in order to
facilitate the disposition of the Registrable Securities owned
by them that are included in such registration.
(d) Use reasonable, diligent 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
CONFIDENTIAL Page 5 of 14
<PAGE> 6
therewith or as a condition thereto to qualify to do business
or to file a general consent to service of process in any such
states or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing
underwriter(s) of such offering. 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.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such
Registrable Securities are delivered to the underwriters for
sale, 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 as of such date, of the counsel representing the Company
for the purposes of such registration, in form and substance
as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in
interest of the Holders requesting registration, addressed to
the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a "comfort"
letter dated as of such date, from the independent certified
public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants
to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
2.6 Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to Sections
2.2, 2.3 or 2.4 that the selling Holders shall furnish to the Company
such information regarding themselves, the Registrable Securities held
by them, and the intended method of disposition of such securities as
shall be required to timely effect the registration of their
Registrable Securities.
2.7 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with
respect to the interpretation or implementation of this Section 2.
2.8 Indemnification. In the event any Registrable Securities
are included in a registration statement under Sections 2.2, 2.3 or
2.4:
(a) By the Company. To the extent permitted by law,
the Company will indemnify and hold harmless each Holder, the
partners, officers and directors of each Holder, any
underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended, (the "1934 ACT"),
against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities
Act, the l934 Act or other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively,
"VIOLATIONS" and, individually, a "VIOLATION"):
(i) any untrue statement or alleged untrue
statement of a material fact contained in such
registration statement, including any preliminary
prospectus or final prospectus contained therein or
any amendments or supplements thereto;
(ii) the omission or alleged omission to
state therein a material fact required to be stated
therein, or necessary to make the statements therein
not misleading, or
(iii) any violation or alleged violation by
the Company of the Securities Act, the 1934 Act, any
federal or state securities law or any rule or
regulation promulgated under the Securities Act, the
1934 Act or any federal or state securities law in
connection with the offering covered by such
registration statement; and the Company will
reimburse each such Holder, partner, officer or
director, underwriter or controlling person for any
legal or other expenses reasonably incurred by them,
as incurred, in connection with investigating or
defending any such loss, claim, damage, liability or
action; provided however, that the indemnity
agreement contained in this subsection 2.8(a) shall
not apply to amounts paid in
CONFIDENTIAL Page 6 of 14
<PAGE> 7
settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the
consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim,
damage, liability or action to the extent that it
arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with
written information furnished expressly for use in
connection with such registration by such Holder,
partner, officer, director, underwriter or
controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by
law, each selling Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act,
any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's
partners, directors or officers or any person who controls
such Holder within the meaning of the Securities Act or the
1934 Act, against any losses, claims, damages or liabilities
(joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder,
partner or director, officer or controlling person of such
other Holder may become subject under the Securities Act, the
1934 Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each
case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use
in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred
by the Company or any such director, officer, controlling
person, underwriter or other Holder, partner, officer,
director or controlling person of such other Holder in
connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that
the indemnity agreement contained in this subsection 2.8(b)
shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent
shall not be unreasonably withheld; and provided further, that
the total amounts payable in indemnity by a Holder under this
Section 2.8(b) in respect of any Violation shall not exceed
the net proceeds received by such Holder in the registered
offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified
party under this Section 2.8 of notice of the commencement of
any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 2.8,
deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that
an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential conflict of
interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if
prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the
indemnified party under this Section 2.8, but the omission so
to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 2.8.
(d) Defect Eliminated in Final Prospectus. The
foregoing indemnity agreements of the Company and Holders are
subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or
remedied in the amended prospectus on file with the SEC at the
time the registration statement in question becomes effective
or the amended prospectus filed with the SEC pursuant to SEC
Rule 424(b) (the "FINAL PROSPECTUS"), such indemnity agreement
shall not inure to the benefit of any person if a copy of the
Final Prospectus was furnished to the indemnified party and
was not furnished to the person asserting the loss, liability,
claim or damage at or prior to the time such action is
required by the Securities Act.
(e) Contribution. In order to provide for just and
equitable contribution to joint liability under the Securities
Act in any case in which either (i) any Holder exercising
rights under this Agreement, or any controlling person of any
such Holder, makes a claim for indemnification pursuant to
this Section 2.8 but it is judicially determined (by the entry
of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification
may not be enforced in such case notwithstanding the fact that
this Section 2.8 provides for indemnification in such case, or
(ii) contribution under the Securities Act may be required
CONFIDENTIAL Page 7 of 14
<PAGE> 8
on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided
under this Section 2.8; then, and in each such case, the
Company and such Holder will contribute to the aggregate
losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so
that such Holder is responsible for the portion represented by
the percentage that the public offering price of its
Registrable Securities offered by and sold under the
registration statement bears to the public offering price of
all securities offered by and sold under such registration
statement, and the Company and other selling Holders are
responsible for the remaining portion; provided, however,
that, in any such case, (A) no such Holder will be required to
contribute any amount in excess of the public offering price
of all such Registrable Securities offered and sold by such
Holder pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and
Holders under this Section 2.8 shall survive the completion of
any offering of Registrable Securities in a registration
statement, and otherwise.
2.9 "Market Stand-Off" Agreement. Each Holder hereby agrees
that it shall not, to the extent requested by the Company or an
underwriter of securities of the Company, sell or otherwise transfer or
dispose of any Registrable Securities or other shares of stock of the
Company then owned by such Holder (other than to donees or partners of
the Holder who agree to be similarly bound) for up to one hundred
eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act; provided,
however, that:
(a) such agreement shall be applicable only to the
first such registration statement of the Company which covers
securities to be sold on its behalf to the public in an
underwritten offering but not to Registrable Securities sold
pursuant to such registration statement; and
(b) all officers and directors of the Company then
holding Common Stock of the Company enter into similar
agreements.
In order to enforce the foregoing covenant, the Company shall
have the right to place restrictive legends on the certificates
representing the shares subject to this Section and to impose stop
transfer instructions with respect to the Registrable Securities and
such other shares of stock of each Holder (and the shares or securities
of every other person subject to the foregoing restriction) until the
end of such period.
2.10 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 Registrable 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:
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the
Securities Act, at all times after the effective date of the
first registration under the Securities Act filed by the
Company for an offering of its securities to the general
public;
(b) Use reasonable, diligent efforts to file with the
Commission in a timely manner all reports and other documents
required of the Company under the Securities Act and the 1934
Act (at any time after it has become subject to such reporting
requirements); and
(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
ninety (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 1934 Act (at any time after it has become subject
to the reporting requirements of the 1934 Act), a copy of the
most recent annual or quarterly report of the Company, and
such other reports and documents of the Company as a Holder
may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any
such securities without registration (at any time after the
Company has become subject to the reporting requirements of
the 1934 Act).
2.11 Termination of the Company's Obligations. The Company
shall have no obligations pursuant to Sections 2.2 through 2.4 with
respect to any request or requests for registration made by any Holder
on a date more than five (5) years after the closing date of the
Company's initial public offering. Notwithstanding anything to the
contrary contained in Section 2.2 or 2.4, if any Holder is eligible to
sell Registrable Securities pursuant Rule 144(k) or any successor
provision under the Securities Act (an "Excluded Holder"), the
CONFIDENTIAL Page 8 of 14
<PAGE> 9
Registrable Securities of such Excluded Holder shall be disregarded in
determining the requisite percentage of Registrable Securities that are
required to initiate a registration pursuant to Section 2.2 or 2.4
(i.e., a registration under Section 2.2 must be initiated by persons
holding at least two-thirds of the Registrable Securities held by all
Holders who are not Excluded Holders and a registration under Section
2.4 must be initiated by persons holding at least 25% of the
Registrable Securities held by all Holders who are not Excluded
Holders). After a registration has been requested pursuant to Section
2.2 or 2.4, as the case may be, by the requisite percentage of shares
held by Holders who are not Excluded Holders, all Holders (including
Excluded Holders) shall be entitled to include their Registrable
Securities in such registration subject to the terms and conditions of
this Agreement.
2.12 Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the
prior written consent of the Holders of a majority of the 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 include such securities
in any registration filed under Section 2.2 hereof, unless under the
terms of such agreement, such holder or prospective holder may include
such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included, or (b) to make
a demand registration which could result in such registration statement
being declared effective prior to the earlier of either of the dates
set forth in subsection 2.2(a), or within one hundred twenty (120) days
of the effective date of any registration effected pursuant to Section
2.2.
3. PRE-EMPTIVE RIGHTS.
3.1 General. Each Holder (as defined in Section 2.1(d)) and
any party to whom such Holder's rights under this Section 3 have been
duly assigned in accordance with Section 4.1(b) (each such Holder or
assignee being hereinafter referred to as a "RIGHTS HOLDER") has the
right of first refusal to purchase such Rights Holder's Pro Rata Share
(as defined below), of all (or any part) of any "New Securities" (as
defined in Section 3.2) that the Company may from time to time issue
after the date of this Agreement. A Rights Holder's "PRO RATA SHARE"
for purposes of this right of first refusal is the ratio of (a) the
number of Registrable Securities as to which such Rights Holder is the
Holder (and/or is deemed to be the Holder under Section 2.1(d)), to (b)
a number of shares of Common Stock of the Company equal to the sum of
(i) the total number of shares of Common Stock of the Company then
outstanding plus (ii) the total number of shares of Common Stock of the
Company into which all then outstanding shares of Preferred Stock of
the Company are then convertible.
3.2 New Securities. "NEW SECURITIES" shall mean any Common
Stock or Preferred Stock of the Company, whether now authorized or not,
and rights, options or warrants to purchase such Common Stock or
Preferred Stock, and securities of any type whatsoever that are, or may
become, convertible or exchangeable into such Common Stock or Preferred
Stock; provided, however, that the term "New Securities" does not
include:
(a) up to 8,000,000 shares of the Company's Common Stock
(and/or options or warrants therefor) issued to employees,
officers, directors, contractors, advisors or consultants of
the Company pursuant to incentive agreements or plans approved
by the Board of Directors of the Company;
(b) any shares of Series A Stock, Series B Preferred Stock
or Series C Preferred Stock set forth in Exhibit A hereto (the
"ISSUED PREFERRED STOCK");
(c) any securities issuable upon conversion of or with
respect to any then outstanding shares of Series A Stock,
Series B Stock or Series C Stock of the Company or Common
Stock or other securities issuable upon conversion thereof;
(d) any securities issuable upon exercise of any options,
warrants or rights to purchase any securities of the Company
outstanding on the date of this Agreement ("WARRANT
SECURITIES") and any securities issuable upon the conversion
of any Warrant Securities or upon the exercise or conversion
of any securities, if such securities were first offered to
the Rights Holders hereunder;
(e) shares of the Company's Common Stock or Preferred
Stock issued in connection with any stock split or stock
dividend;
(f) securities offered by the Company to the public
pursuant to a registration statement filed under the
Securities Act;
(g) up to 125,000 shares of the Company's Common Stock or
Preferred Stock (and/or options or warrants therefor) issued
or issuable to parties providing the Company with equipment
leases, real property leases, loans, credit lines, guaranties
of indebtedness, cash price reductions or similar financing
such number of shares being subject to proportional adjustment
to reflect
CONFIDENTIAL Page 9 of 14
<PAGE> 10
subdivisions, combinations and stock dividends affecting the
number of outstanding shares of such stock;
(h) securities issued pursuant to the acquisition of
another corporation or entity by the Company by consolidation,
merger, purchase of all or substantially all of the assets, or
other reorganization in which the Company acquires, in a
single transaction or series of related transactions, all or
substantially all of the assets of such other corporation or
entity or fifty percent (50%) or more of the voting power of
such other corporation or entity or fifty percent (50%) or
more of the equity ownership of such other entity; or
(i) up to 3,000,000 shares of the Company's Common Stock
(and/or options or warrants therefor) issued or issuable in
connection with strategic alliances or partnering arrangements
approved by the Board of Directors of the Company.
3.3 Procedures. In the event that the Company proposes to
undertake an issuance of New Securities, it shall give to each Rights
Holder written notice of its intention to issue New Securities (the
"NOTICE"), describing the type of New Securities and the price and the
general terms upon which the Company proposes to issue such New
Securities. Each Rights Holder shall have ten (10) days from the date
of mailing of any such Notice to agree in writing to purchase such
Rights Holder's Pro Rata Share of such New Securities for the price and
upon the general terms specified in the Notice by giving written notice
to the Company and stating therein the quantity of New Securities to be
purchased (not to exceed such Rights Holder's Pro Rata Share). If any
Rights Holder fails to so agree in writing within such ten (10) day
period to purchase such Rights Holder's full Pro Rata Share of an
offering of New Securities (a "NONPURCHASING HOLDER"), then such
Nonpurchasing Holder shall forfeit the right hereunder to purchase that
part of his Pro Rata Share of such New Securities that he did not so
agree to purchase and the Company shall promptly give each Rights
Holder who has timely agreed to purchase his 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 Rights 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 Shares of such offering on a pro rata basis
according to the relative Pro Rata Shares of the Purchasing Rights
Holders, at any time within five (5) days after receiving the
Overallotment Notice.
3.4 Failure to Exercise. In the event that the Rights Holders
fail to exercise in full the right of first refusal within such ten
(10) plus five (5) day period, then the Company shall have 120 days
thereafter to sell the New Securities with respect to which the Rights
Holders' rights of first refusal hereunder were not exercised, at a
price and upon general terms not materially more favorable to the
purchasers thereof than specified in the Company's Notice to the Rights
Holders. In the event that the Company has not issued and sold the New
Securities within such 120-day period, then the Company shall not
thereafter issue or sell any New Securities without again first
offering such New Securities to the Rights Holders pursuant to this
Section 3.
3.5 Termination. This right of first refusal shall terminate
(a) immediately before the closing of the first underwritten sale of
Common Stock of the Company to the public pursuant to a registration
statement filed with, and declared effective by, the SEC under the
Securities Act, covering the offer and sale of Common Stock to the
public at an offering price of at least $2.20 per share (such offering
price being subject to proportional adjustment to reflect subdivisions,
combinations, stock dividends and similar transactions affecting the
number of outstanding shares of Common Stock) for an aggregate gross
public offering price (calculated before deduction of underwriters'
discounts and commissions) of at least $15,000,000 or (b) upon (i) the
acquisition of all or substantially all the assets of the Company or
(ii) an acquisition of the Company by another corporation or entity by
consolidation, merger or other reorganization in which the holders of
the Company's outstanding voting stock immediately prior to such
transaction own, immediately after such transaction, securities
representing less than fifty percent (50%) or more of the voting power
of the corporation or other entity surviving such transaction.
3.6 Waiver. Each Rights Holder hereby confirms its waiver of
any right of first refusal it may have had to purchase such Rights
Holder's Pro Rata Share of the Issued Preferred Stock.
4. ASSIGNMENT AND AMENDMENT.
4.1 Assignment. Notwithstanding anything herein to the
contrary:
(a) Information Rights. The rights of an Investor
under Section 1.1 or 1.2 or 1.4 hereof may be assigned only to
(i) a party who acquires from an Investor (or an Investor's
permitted assigns) at least 200,000 shares of Series A Stock,
Series B Stock or Series C Stock subject to this Agreement
and/or 100,000 shares (on an as-converted basis) of
Registrable Securities issued upon conversion
CONFIDENTIAL Page 10 of 14
<PAGE> 11
thereof or (ii) a partner, member or stockholder of an
Investor who acquires at least 100,000 shares of Series A
Stock, Series B Stock, or Series C Stock subject to this
Agreement and/or 50,000 shares (on an as-converted basis) of
Registrable Securities issued upon conversion.
(b) Registration Rights; Refusal Rights. The
registration rights of a Holder under Section 2 hereof and the
rights of first refusal of a Rights Holder under Section 3
hereof may be assigned only to (i) a party who acquires at
least 200,000 shares of Series A Stock, Series B Stock or
Series C Stock subject to this Agreement and/or 100,000 shares
(on an as-converted basis) of Registrable Securities issued
upon conversion thereof or (ii) any partner, member or
shareholder of an Investor or permitted transferee thereof;
provided, however that no party may be assigned any of the
foregoing rights unless the Company is given written notice by
the assigning party at the time of such assignment stating the
name and address of the assignee and identifying the
securities of the Company as to which the rights in question
are being assigned; and provided further that any such
assignee shall receive such assigned rights subject to all the
terms and conditions of this Agreement, including without
limitation the provisions of this Section 4.
4.2 Amendment of Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally
or in a particular instance and either retroactively or prospectively),
only with the written consent of the Company and Investors (and/or any
of their permitted successors or assigns) holding shares of Series A
Stock, Series B Stock, Series C Stock and/or Conversion Stock
representing and/or convertible into a majority of all the Investors'
Shares (as defined below). As used herein, the term "INVESTORS' SHARES"
shall mean the shares of Common Stock then issuable upon conversion of
all then outstanding shares of Series A Stock, Series B Stock and
Series C Stock subject to this Agreement plus all then outstanding
shares of Conversion Stock that were issued upon the conversion of any
shares of Series A Stock, Series B Stock or Series C Stock subject to
this Agreement. Any amendment or waiver effected in accordance with
this Section 4.2 shall be binding upon each Investor, each Holder, each
permitted successor or assignee of such Investor or Holder and the
Company.
5. GENERAL PROVISIONS.
5.1 Notices. Any notice, request or other communication
required or permitted hereunder shall be in writing and shall be deemed
to have been duly given if personally delivered or if deposited in the
U.S. mail by registered or certified mail, return receipt requested,
postage prepaid, as follows:
(a) if to the Investors, at the addresses set forth on
Exhibit A.
(b) if to the Company, at 1951 S. Fordham Street, Longmont,
Colorado 90503.
Any party hereto (and such party's permitted assigns) may by
notice so given change its address for future notices hereunder. Notice
shall conclusively be deemed to have been given when personally
delivered or when deposited in the mail in the manner set forth above.
5.2 Entire Agreement. This Agreement, together with all the
Exhibits hereto, constitutes and contains the entire agreement and
understanding of the parties with respect to the subject matter hereof
and supersedes any and all prior negotiations, correspondence,
agreements, understandings, duties or obligations between the parties
respecting the subject matter hereof.
5.3 Governing Law. This Agreement shall be governed by and
construed exclusively in accordance with the internal laws of the State
of Colorado as applied to agreements among Colorado residents entered
into and to be performed entirely within Colorado, excluding that body
of law relating to conflict of laws and choice of law.
5.4 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, then such
provision(s) shall be excluded from this Agreement and the balance of
this Agreement shall be interpreted as if such provision(s) were so
excluded and shall be enforceable in accordance with its terms.
5.5 Third Parties. Nothing in this Agreement, express or
implied, is intended to confer upon any person, other than the parties
hereto and their successors and assigns, any rights or remedies under
or by reason of this Agreement.
5.6 Successors And Assigns. Subject to the provisions of
Section 4.1, the provisions of this Agreement shall inure to the
benefit of, and shall be binding upon, the successors and permitted
assigns of the parties hereto.
5.7 Captions. The captions to sections of this Agreement have
been inserted for identification and reference purposes only and shall
not be used to construe or interpret this Agreement.
CONFIDENTIAL Page 11 of 14
<PAGE> 12
5.8 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
5.9 Costs And Attorneys' Fees. In the event that any action,
suit or other proceeding is instituted concerning or arising out of
this Agreement or any transaction contemplated hereunder, the
prevailing party shall recover all of such party's costs and attorneys'
fees incurred in each such action, suit or other proceeding, including
any and all appeals or petitions therefrom.
5.10 Adjustments for Stock Splits, Etc. Wherever in this
Agreement there is a reference to a specific number of shares of Common
Stock or Preferred Stock of the Company of any class or series, then,
upon the occurrence of any subdivision, combination or stock dividend
of such class or series of stock, the specific number of shares so
referenced in this Agreement shall automatically be proportionally
adjusted to reflect the affect on the outstanding shares of such class
or series of stock by such subdivision, combination or stock dividend.
5.11 Aggregation of Stock. All shares 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.
5.12 Arbitration Any disputes between the Company and the
Investors with respect to this Agreement shall be settled by binding,
final arbitration in accordance with the commercial arbitration rules
of the American Arbitration Association then in effect (the "AAA
Rules"). Any arbitration proceeding shall be conducted in Denver, CO.
The following arbitration provisions shall govern over any conflicting
rules which may now or hereafter be contained in the AAA Rules. Any
judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction over the subject matter thereof. The
arbitrator shall have the authority to grant any equitable and legal
remedies that would be available.
(a) Any such arbitration shall be conducted before a
single arbitrator who shall be compensated for his or her
services at a rate to be determined by the parties or by the
American Arbitration Association, but based upon reasonable
hourly or daily consulting rates for the arbitrator in the
event the parties are not able to agree upon his or her rate
of compensation.
(b) The AAA Rules for the selection of the arbitrator
shall be followed.
(c) Each party to such arbitration shall each advance an
equal portion of the initial compensation to be paid to the
arbitrator in any such arbitration and an equal portion of the
costs of transcripts and other normal and regular expenses of
the arbitration proceedings; provided, however, that the
arbitrator shall have the discretion to grant to the
prevailing party in any arbitration an award of attorneys'
fees and costs, and all costs of arbitration.
(d) The parties shall be entitled to conduct discovery
proceedings in accordance with the provisions of the Federal
Rules of Civil Procedure, subject to any limitation imposed by
the arbitrator.
(e) For any claim submitted to arbitration, the burden of
proof shall be as it would be if the claim were litigated in a
judicial proceedings.
(f) Upon the conclusion of any arbitration proceeding
hereunder, the arbitrator shall render findings of fact and
conclusions of law and a written opinion setting forth the
basis and reasons for any decision reached by him or her and
shall deliver such documents to each party to this Agreement
along with a signed copy of the award.
(g) The arbitrator chosen in accordance with these
provisions shall not have the power to alter, amend or
otherwise affect the terms of these arbitration provisions or
the provisions of this Agreement.
(h) The parties acknowledge that, except as specifically
provided in this Agreement, no other action need be taken by
either party before proceeding directly in accordance with the
provisions of this Section.
(i) The arbitration provisions set forth in this Section
5.12 are intended by the parties to be exclusive for all
purposes and applicable to each and every controversy, dispute
and/or claim in any manner arising out of or relating to this
Agreement, the meaning, application and/or interpretation of
this Agreement, any breach hereof and/or any voluntary or
involuntary termination of this Agreement with or without
cause, including, without limitation, any such controversy,
dispute and/or claim which, if pursued through any state or
federal court or administrative agency, would arise at law, in
equity and/or pursuant to statutory, regulatory and/or common
law rules, regardless of whether any such dispute, controversy
and/or claim would arise in and/or from contract, tort or any
other legal and/or equitable theory or basis. The prevailing
party in any action instituted pursuant to this Section
5.13(i),
CONFIDENTIAL Page 12 of 14
<PAGE> 13
or in any appeal from any arbitration conducted pursuant to
this Section 5.13, shall be entitled to recover from the other
party its reasonable attorneys' fees and other expenses
incurred in such litigation.
5.13 Effectiveness; Termination of the Original Agreement This
Agreement shall become effective upon its execution by (a) holders of
at least a majority of the Registrable Securities as defined in the
Third Amended Agreement, and (b) the Company. Upon effectiveness of
this Agreement, the Third Amended Agreement shall be terminated and
shall be of no further force or effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
THE COMPANY:
CHAPARRAL NETWORK STORAGE, INC.,
a Delaware corporation
/s/ Gary L. Allison
----------------------------------------
Gary L. Allison, Chairman & CEO
THE INVESTORS:
Adaptec, Inc.,
a Delaware corporation
By: /s/ J. Peter Campagna
-------------------------------------
Name: J. Peter Campagna
Title: Vice President and Treasurer
/s/ Gary L. Allison
----------------------------------------
Gary L. Allison
/s/ William R. Childs
----------------------------------------
William R. Childs
/s/ Haim Brill
----------------------------------------
Haim Brill
/s/ F. Grant Saviers
----------------------------------------
F. Grant Saviers
/s/ Robert Graham
----------------------------------------
Robert Graham
Harvest Storage Technology Group LLC,
a Delaware limited liability company
By: /s/ Robert Harvey
-------------------------------------
Name: Robert Harvey
Title: Manager
Woodcarvers LLC,
a Delaware limited liability company
By: /s/ Robert Harvey
-------------------------------------
Name: Robert Harvey
Title: Manager
/s/ Sam Coleman
----------------------------------------
Sam Coleman
CONFIDENTIAL Page 13 of 14
<PAGE> 14
/s/ Frank Bigelow
----------------------------------------
Frank Bigelow: Trustee
The Linde Company
By: /s/ Ian R. Linde
-------------------------------------
Name: Ian R. Linde
Title: Partner
Ohio Valley Venture Fund L.P.
OSF Ltd, its general partner
By: /s/ Karl Elderkin
-------------------------------------
Name: Karl Elderkin
Title: President
/s/ Jeff Jensen
----------------------------------------
Jeff Jensen
CONFIDENTIAL Page 14 of 14
<PAGE> 1
EXHIBIT 10.11
CREDIT AND SECURITY AGREEMENT
Dated as of July 5, 1999
CHAPARRAL NETWORK STORAGE, INC., a Delaware corporation formerly known
as Chaparral Technologies, Inc. (the "Borrower"), and WELLS FARGO BUSINESS
CREDIT, INC., a Minnesota corporation (the "Lender"), hereby agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as such term
is defined in the UCC, including without limitation the aggregate unpaid
obligations of customers and other account debtors to the Borrower arising out
of the sale or lease of goods or rendition of services by the Borrower on an
open account or deferred payment basis.
"Advance" has the meaning given in Section 2.1.
"Advance Rate" means 80%; provided, however, that Lender may,
in its sole discretion, from time to time upon not less than five (5) days prior
notice to Borrower, reduce the Advance Rate to the extent that Lender determines
in good faith that: (A) the dilution with respect to the Accounts for any period
(based on the ratio of (1) the aggregate amount of reductions in Accounts other
than as a result of payments in cash to (2) the aggregate amount of total sales)
has increased in excess of 5% or may be reasonably anticipated to increase in
any material respect above historical levels, or (B) the general
creditworthiness of account debtors has declined. In determining whether to
reduce the Advance Rate, Lender may consider events, conditions, contingencies
or risks which are also considered in determining Eligible Accounts.
"Affiliate" or "Affiliates" means any Person controlled by,
controlling or under common control with the Borrower, including (without
limitation) any Subsidiary of the Borrower. For purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement, as
amended, supplemented or restated from time to time.
<PAGE> 2
"Availability" means the difference of (i) the Borrowing Base
and (ii) the outstanding, principal balance of the Note.
"Banking Day" means a day other than a Saturday, Sunday or
other day on which banks are generally not open for business in Minneapolis,
Minnesota and Denver, Colorado.
"Book Net Worth" means the aggregate of the common and
preferred stockholders' equity in the Borrower, determined in accordance with
GAAP.
"Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's sole
discretion, the Advance Rate multiplied by Eligible Accounts.
"Capital" means the sum of Book Net Worth and Subordinated
Debt.
"Capital Expenditures" for a period means any expenditure of
money for the lease, purchase or other acquisition of any capital asset, or for
the lease of any other asset whether payable currently or in the future, and
whether or not capitalized on the Borrower's balance sheet.
"Collateral" means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, Investment Property, all sums on deposit in
any Collateral Account, and any items in any Lockbox; together with (i) all
substitutions and replacements for and products of any of the foregoing; (ii)
proceeds of any and all of the foregoing; (iii) in the case of all tangible
goods, all accessions; (iv) all accessories, attachments, parts, equipment and
repairs now or hereafter attached or affixed to or used in connection with any
tangible goods and (v) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such goods.
"Collateral Account" has the meaning given in the Collateral
Account Agreement.
"Collateral Account Agreement" means the Collateral Account
Agreement of even date herewith by and among the Borrower, Norwest Bank Colorado
and the Lender.
"Commitment" means the Lender's commitment to make Advances to
or for the Borrower's account pursuant to Article II.
"Copyright Security Agreement" means the Copyright Security
Agreement by the Borrower in favor of the Lender of even date herewith.
"Credit Facility" means the credit facility being made
available to the Borrower by the Lender pursuant to Article II.
-2-
<PAGE> 3
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the
first day of any month during which a Default or Event of Default has occurred
and ending on the date the Lender notifies the Borrower in writing that such
Default or Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to three percent
(3%) over the Floating Rate, which rate shall change when and as the Floating
Rate changes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Eligible Accounts" means all unpaid Accounts, net of any
credits, except the following shall not in any event be deemed Eligible
Accounts:
(i) That portion of Accounts unpaid 90 days or more after the
invoice date;
(ii) That portion of Accounts that is (a) disputed or (b)
subject to a claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable, by the Borrower to
the customer;
(iv) Accounts owed by any unit of government, whether foreign
or domestic (provided, however, that there shall be included in Eligible
Accounts that portion of Accounts owed by such units of government for which the
Borrower has provided evidence satisfactory to the Lender that (A) the Lender
has a first priority perfected security interest and (B) such Accounts may be
enforced by the Lender directly against such unit of government under all
applicable laws);
(v) Accounts owed by an account debtor located outside the
United States which are not (A) backed by a bank letter of credit naming the
Lender as beneficiary or assigned to the Lender, in the Lender's possession and
acceptable to the Lender in all respects, in its sole discretion, or (B) covered
by a foreign receivables insurance policy acceptable to the Lender in its sole
discretion;
(vi) Accounts owed by an account debtor that is insolvent, the
subject of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, Subsidiary, Affiliate,
officer or employee of the Borrower;
-3-
<PAGE> 4
(viii) Accounts not subject to a duly perfected security
interest in the Lender's favor or which are subject to any lien, security
interest or claim in favor of any Person other than the Lender including without
limitation any payment or performance bond;
(ix) That portion of Accounts that has been restructured,
extended, amended or modified;
(x) That portion of Accounts that constitutes advertising,
finance charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if 15% or more of the total amount due under Accounts from
such debtor is ineligible under clauses (i), (ii)(a) or (ix) above;
(xii) That portion of the aggregate Accounts of a single
customer that exceeds 15% of all Accounts of the Borrower, except for the
customers listed below, for which such limit shall be the amount shown opposite
such customer; and
<TABLE>
<S> <C>
nStor Technologies, Inc. $500,000
CONSAN, Inc. $150,000
Bell Micro Products, Inc. $150,000
ATL Products, Inc. $100,000 but not more than 20% of
all Accounts of the Borrower
</TABLE>
(xiii) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
"Environmental Laws" has the meaning specified in Section
5.12.
"Equipment" means all of the Borrower's equipment, as such
term is defined in the UCC, whether now owned or hereafter acquired, including
but not limited to all present and future machinery, vehicles, furniture,
fixtures, manufacturing equipment, shop equipment, office and recordkeeping
equipment, parts, tools, supplies, and including specifically (without
limitation) the goods described in any equipment schedule or list herewith or
hereafter furnished to the Lender by the Borrower.
"Event of Default" has the meaning specified in Section 8.1.
"Floating Rate" means an annual rate equal to the sum of the
Prime Rate plus the Interest Rate Margin, which annual rate shall change when
and as the Prime Rate changes.
"Funding Date" has the meaning given in Section 2.1.
-4-
<PAGE> 5
"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the financial
statements described in Section 5.5.
"General Intangibles" means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned or hereafter
acquired, including (without limitation) all present and future patents, patent
applications, copyrights, trademarks, trade names, trade secrets, customer or
supplier lists and contracts, manuals, operating instructions, permits,
franchises, the right to use the Borrower's name, and the goodwill of the
Borrower's business.
"Hazardous Substance" has the meaning given in Section 5.12.
"Interest Rate Margin" means one and one-half percent (1.5%);
provided, however, that if no Default Period then exists and if the Borrower's
audited financial statements for its fiscal year ending March 31, 2000
demonstrate that its Net Income exceeded $2,000,000 during such fiscal year, the
Interest Rate Margin shall be reduced to one percent (1.0%), effective on the
first day of the month following the month during which the Lender receives such
financial statements; and provided further that if after such reduction an Event
of Default shall occur, Interest Rate Margin shall, at the Lender's option and
upon written notice to the Borrower, increase to one and one-half percent
(1.5%).
"Inventory" means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or materials,
whether acquired, held or furnished for sale, for lease or under service
contracts or for manufacture or processing, and wherever located.
"Investment Property" means all of the Borrower's investment
property, as such term is defined in the UCC, whether now owned or hereafter
acquired, including but not limited to all securities, security entitlements,
securities accounts, commodity contracts, commodity accounts, stocks, bonds,
mutual fund shares, money market shares and U.S. Government securities.
"Loan Documents" means this Agreement, the Notes and the
Security Documents.
"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox Agreement by and among
the Borrower, Norwest Bank Colorado and the Lender, of even date herewith.
"Maturity Date" means July 31, 2002.
"Maximum Line" means $3,000,000, unless said amount is reduced
pursuant to Section 2.6, in which event it means the amount to which said amount
is reduced.
"Minimum Interest Charge" has the meaning given in Section
2.2(b).
-5-
<PAGE> 6
"Net Income" means fiscal year-to-date after-tax net income
from continuing operations, as determined in accordance with GAAP.
"Norwest Bank Colorado" means Norwest Bank Colorado, National
Association.
"Note" means the Borrower's revolving promissory note, payable
to the order of the Lender in substantially the form of Exhibit A hereto and any
note or notes issued in substitution therefor, as the same may hereafter be
amended, supplemented or restated from time to time.
"Obligations" means the Notes and each and every other debt,
liability and obligation of every type and description which the Borrower may
now or at any time hereafter owe to the Lender, whether such debt, liability or
obligation now exists or is hereafter created or incurred, whether it arises in
a transaction involving the Lender alone or in a transaction involving other
creditors of the Borrower, and whether it is direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or sole, joint, several or joint and several, and including
specifically, but not limited to, all indebtedness of the Borrower arising under
this Agreement, the Notes or any other loan or credit agreement or guaranty
between the Borrower and the Lender, whether now in effect or hereafter entered
into.
"Patent Security Agreement" means the Patent Security
Agreement by the Borrower in favor of the Lender of even date herewith.
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan" means an employee benefit plan or other plan maintained
for the Borrower's employees and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession, including (without limitation) the
premises described in Exhibit C attached hereto.
"Prepayment Penalty" means three percent (3%) on or prior to
July 31, 2000, two percent (2%) on or after August 1, 2000 and on or prior to
July 31, 2001, and one percent (1%) on or after August 1, 2001.
"Prime Rate" means the rate of interest publicly announced
from time to time by Wells Fargo Bank, N.A.-San Francisco as its "prime rate"
or, if such bank ceases to announce a rate so designated, any similar successor
rate designated by the Lender.
-6-
<PAGE> 7
"Receivables" means each and every right of the Borrower to
the payment of money, whether such right to payment now exists or hereafter
arises, whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of services, out of a
loan, out of the overpayment of taxes or other liabilities, or otherwise arises
under any contract or agreement, whether such right to payment is created,
generated or earned by the Borrower or by some other person who subsequently
transfers such person's interest to the Borrower, whether such right to payment
is or is not already earned by performance, and howsoever such right to payment
may be evidenced, together with all other rights and interests (including all
liens and security interests) which the Borrower may at any time have by law or
agreement against any account debtor or other obligor obligated to make any such
payment or against any property of such account debtor or other obligor, all
including but not limited to all present and future accounts, contract rights,
loans and obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles.
"Reportable Event" shall have the meaning assigned to that
term in Title IV of ERISA.
"Security Documents" means this Agreement, the Collateral
Account Agreement, the Lockbox Agreement, the Patent Security Agreement, the
Copyright Security Agreement and any other document delivered to the Lender from
time to time to secure the Obligations, as the same may hereafter be amended,
supplemented or restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
"Subordinated Debt" means Debt that is subject to a
Subordination Agreement.
"Subordination Agreement" means the Subordination Agreement of
even date herewith, executed by William R. Childs in the Lender's favor and
acknowledged by the Borrower, and any other subordination agreement accepted by
the Lender from time to time, as the same may hereafter be amended, supplemented
or restated from time to time.
"Subsidiary" means any corporation of which more than 50% of
the outstanding shares of capital stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of such
corporation, irrespective of whether or not at the time stock of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency, is at the time directly or indirectly owned by the Borrower, by
the Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"Termination Date" means the earliest of (i) the Maturity
Date, (ii) the date the Borrower terminates the Credit Facility, or (iii) the
date the Lender demands payment of the Obligations after an Event of Default
pursuant to Section 8.2.
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"UCC" means the Uniform Commercial Code as in effect from time
to time in the state designated in Section 9.13 as the state whose laws shall
govern this Agreement, or in any other state whose laws are held to govern this
Agreement or any portion hereof.
"Year 2000 Compliance" means that all material software,
hardware, firmware, equipment, goods or systems utilized by or material to the
business operations or financial condition of Borrower will properly perform
date-sensitive functions before, during and after the year 2000.
Section 1.2 Cross References. All references in this Agreement to
Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
Amount and Terms of the Credit Facility
Section 2.1 Advances. The Lender agrees, on the terms and subject to
the conditions herein set forth, to make advances to the Borrower from time to
time from the date all of the conditions set forth in Section 4.1 are satisfied
or waived in writing by the Lender (the "Funding Date") to the Termination Date
(the "Advances"). The Lender shall have no obligation to make an Advance if,
after giving effect to such requested Advance, the sum of the outstanding and
unpaid Advances would exceed the Borrowing Base. The Borrower's obligation to
pay the Advances shall be evidenced by the Note and shall be secured by the
Collateral as provided in Article III. Within the limits set forth in this
Section 2.1, the Borrower may borrow, prepay pursuant to Section 2.6 and
reborrow. The Borrower agrees to comply with the following procedures in
requesting Advances under this Section 2.1:
(a) The Borrower shall make each request for an Advance to the
Lender before 11:00 a.m. (Denver time) of the day of the requested Advance.
Requests may be made in writing or by telephone, specifying the date of the
requested Advance and the amount thereof. Each request shall be by (i) any
officer of the Borrower; or (ii) any person designated as the Borrower's agent
by any officer of the Borrower in a writing delivered to the Lender; or (iii)
any person whom the Lender reasonably believes to be an officer of the Borrower
or such a designated agent.
(b) Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall disburse the proceeds of the requested Advance by
crediting the same to the Borrower's demand deposit account maintained with
Norwest Bank Colorado unless the Lender and the Borrower shall agree in writing
to another manner of disbursement. Upon the Lender's request, the Borrower shall
promptly confirm each telephonic request for an Advance by executing and
delivering an appropriate confirmation certificate to the Lender. The Borrower
shall repay all Advances even if the Lender does not receive such confirmation
and even if the person requesting an Advance was not in fact authorized to do
so. Any request for an Advance, whether written or telephonic, shall be deemed
to be a representation by the Borrower that the conditions set forth in Section
4.2 have been satisfied as of the time of the request.
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Section 2.2 Interest; Minimum Interest Charge; Default Interest; Usury.
(a) INTEREST. Except as set forth in Sections 2.2(c) and
2.2(e), the outstanding principal balance of the Note shall bear interest at the
Floating Rate. Interest accruing on the Note shall be due and payable in arrears
on the first day of each month.
(b) MINIMUM INTEREST CHARGE. Notwithstanding the interest
payable pursuant to Section 2.2(a), the Borrower shall pay to the Lender
interest of not less than $15,000 per calendar quarter (the "Minimum Interest
Charge") during the term of this Agreement, and the Borrower shall pay any
deficiency between the Minimum Interest Charge and the amount of interest
otherwise calculated under Sections 2.2(a) and 2.2(c) in arrears in the manner
provided in Section 2.4. The Minimum Interest Charge for each period of less
than a full calendar quarter shall be prorated for the number of days during
such quarter that this Agreement is in effect.
(c) DEFAULT INTEREST RATE. At any time during any Default
Period, in the Lender's sole discretion and without waiving any of its other
rights and remedies, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate, effective for any periods designated by
the Lender from time to time during that Default Period.
(d) PARTICIPATIONS. If any Person shall acquire a
participation in the Advances under this Agreement, the Borrower shall be
obligated to the Lender to pay the full amount of all interest calculated under
this Agreement, along with all other fees, charges and other amounts due under
this Agreement, regardless if such Person elects to accept interest with respect
to its participation at a lower rate than the Floating Rate, or otherwise elects
to accept less than its prorata share of such fees, charges and other amounts
due under this Agreement.
(e) USURY. In any event no rate change shall be put into
effect which would result in a rate greater than the highest rate permitted by
law. Notwithstanding anything to the contrary contained in any Loan Document,
all agreements which either now are or which shall become agreements between the
Borrower and the Lender are hereby limited so that in no contingency or event
whatsoever shall the total liability for payments in the nature of interest,
additional interest and other charges exceed the applicable limits imposed by
any applicable usury laws. If any payments in the nature of interest, additional
interest and other charges made under any Loan Document are held to be in excess
of the limits imposed by any applicable usury laws, it is agreed that any such
amount held to be in excess shall be considered payment of principal hereunder,
and the indebtedness evidenced hereby shall be reduced by such amount so that
the total liability for payments in the nature of interest, additional interest
and other charges shall not exceed the applicable limits imposed by any
applicable usury laws, in compliance with the desires of the Borrower and the
Lender. This provision shall never be superseded or waived and shall control
every other provision of the Loan Documents and all agreements between the
Borrower and the Lender, or their successors and assigns.
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Section 2.3 Fees.
(a) ORIGINATION FEE. The Borrower hereby agrees to pay the
Lender a fully earned and non-refundable origination fee of $30,000, due and
payable upon the execution of this Agreement. The Lender acknowledges receipt of
$9,000 toward payment of this fee and the fees, costs and expenses described in
Sections 2.3(c) and 9.6.
(b) UNUSED LINE FEE. For the purposes of this Section 2.3(b),
"Unused Amount" means the Maximum Line reduced by outstanding Advances. The
Borrower agrees to pay to the Lender an unused line fee at the rate of
one-quarter of one percent (0.25%) per annum on the average daily Unused Amount
from the date of this Agreement to and including the Termination Date, due and
payable monthly in arrears on the first day of the month and on the Termination
Date.
(c) AUDIT FEES. The Borrower hereby agrees to pay the Lender,
on demand, audit fees in connection with any audits or inspections conducted by
the Lender of any Collateral or the Borrower's operations or business at the
rates established from time to time by the Lender as its audit fees (which fees
are currently $70 per hour per auditor), together with all actual out-of-pocket
costs and expenses incurred in conducting any such audit or inspection.
Section 2.4 Computation of Interest and Fees; When Interest Due and
Payable. Interest accruing on the outstanding principal balance of the Advances
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days. Interest shall be
payable in arrears on the first day of each month and on the Termination Date.
Section 2.5 Capital Adequacy. If any Related Lender determines at any
time that its Return has been reduced as a result of any Rule Change, such
Related Lender may require the Borrower to pay it the amount necessary to
restore its Return to what it would have been had there been no Rule Change,
upon not less than fifteen days written notice to Borrower, which notice must be
received by Borrower not less than 180 days after the effective date of the
applicable Rule Change. For purposes of this Section 2.5:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital adequacy, or the
interpretation or administration thereof by any governmental or regulatory
authority, central bank or comparable agency, whether or not having the force of
law, that applies to any Related Lender. Such rules include rules requiring
financial institutions to maintain total capital in amounts based upon
percentages of outstanding loans, binding loan commitments and letters of
credit.
(b) "Return", for any period, means the return as determined
by such Related Lender on the Advances based upon its total capital requirements
and a reasonable attribution formula that takes account of the Capital Adequacy
Rules then in effect. Return may be calculated for each calendar quarter and for
the shorter period between the end of a calendar quarter and the date of
termination in whole of this Agreement.
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(c) "Rule Change" means any change in any Capital Adequacy
Rule occurring after the date of this Agreement, but the term does not include
any changes in applicable requirements that at the date of this Agreement are
scheduled to take place under the existing Capital Adequacy Rules or any
increases in the capital that any Related Lender is required to maintain to the
extent that the increases are required due to a regulatory authority's
assessment of the financial condition of such Related Lender.
(d) "Related Lender" includes (but is not limited to) the
Lender, any parent corporation of the Lender and any assignee of any interest of
the Lender hereunder and any participant in the loans made hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.5, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
Section 2.6 Voluntary Prepayment; Reduction of the Maximum Line;
Termination of the Credit Facility by the Borrower. Except as otherwise provided
herein, the Borrower may prepay the Advances in whole at any time or in part
from time to time. The Borrower may terminate the Credit Facility in whole (but
not in part) at any time and, subject to payment and performance of all the
Borrower's obligations to the Lender, may obtain any release or termination of
the Security Interest to which the Borrower is otherwise entitled by law by (i)
giving at least 30 days' prior written notice to the Lender of the Borrower's
intention to terminate this Agreement; and (ii) paying the Lender a prepayment
fee equal to the product of the Prepayment Penalty and the Maximum Line if the
Borrower terminates this Agreement effective as of any date other than the
Maturity Date, unless the Credit Facility is refinanced with the proceeds of a
loan from an Affiliate of the Lender or is refinanced within 90 days of a
request by any Related Lender for compensation under Section 2.5. The Borrower
may decrease the Maximum Line at any time by (i) giving at least 30 days' prior
written notice to the Lender of the Borrower's intention to decrease the Maximum
Line, which notice shall set forth the exact amount of the reduction; (ii)
prepaying all Advances in excess of the decreased amount of the Maximum Line
(taking into effect such reduction); and (iii) paying the Lender a prepayment
fee equal to the product of the Prepayment Penalty and the amount by which the
Maximum Line is decreased. Any reduction in the Maximum Line must be in an
amount not less than $100,000 or an integral multiple thereof. If the Borrower
reduces the Maximum Line to zero, all Obligations shall be immediately due and
payable. Borrower acknowledges and agrees that Lender shall not release any
Security Interest in the Collateral unless and until Borrower has paid and
performed all of Borrower's obligations to Lender and this Agreement has been
terminated.
Section 2.7 Mandatory Prepayment. Without notice or demand, if the
outstanding principal balance of the Advances shall at any time exceed the
Borrowing Base, the Borrower shall immediately prepay the Advances to the extent
necessary to eliminate such excess. Any payment received by the Lender under
this Section 2.7 or under Section 2.6 may be applied to the
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Obligations, in such order and in such amounts as the Lender, in its discretion,
may from time to time determine.
Section 2.8 Payment. All payments to the Lender shall be made in
immediately available funds and shall be applied to the Obligations one Banking
Day after receipt by the Lender. The Lender may hold all payments not
constituting immediately available funds for three (3) days (consisting of two
Banking Days for collection and one Banking Day for processing) before applying
them to the Obligations. Notwithstanding anything in Section 2.1, the Borrower
hereby authorizes the Lender, in its discretion at any time or from time to time
without the Borrower's request and even if the conditions set forth in Section
4.2 would not be satisfied, to make an Advance in an amount equal to the portion
of the Obligations from time to time due and payable.
Section 2.9 Payment on Non-Banking Days. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
Section 2.10 Use of Proceeds. The Borrower shall use the proceeds of
Advances for ordinary working capital purposes and to lease or purchase capital
assets.
Section 2.11 Liability Records. The Lender may maintain from time to
time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct until the Borrower establishes
the contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within 60 days after
receipt.
ARTICLE III
Security Interest; Occupancy; Setoff
Section 3.1 Grant of Security Interest. The Borrower hereby pledges,
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of the Obligations.
Section 3.2 Notification of Account Debtors and Other Obligors. The
Lender may at any time during a Default Period notify any account debtor or
other person obligated to pay the amount due that such right to payment has been
assigned or transferred to the Lender for security and shall be paid directly to
the Lender. The Borrower will join in giving such notice if the Lender so
requests. At any time after the Borrower or the Lender gives such notice to an
account debtor or other obligor, the Lender may, but need not, in the Lender's
name or in the Borrower's name, (a) demand, sue for, collect or receive any
money or property at any time payable or receivable on account of, or securing,
any such right to payment, or grant any extension to, make any compromise or
settlement with or otherwise agree to waive, modify, amend or change the
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obligations (including collateral obligations) of any such account debtor or
other obligor; and (b) as the Borrower's agent and attorney-in-fact, notify the
United States Postal Service to change the address for delivery of the
Borrower's mail to any address designated by the Lender, otherwise intercept the
Borrower's mail, and receive, open and dispose of the Borrower's mail, applying
all Collateral as permitted under this Agreement and holding all other mail for
the Borrower's account or forwarding such mail to the Borrower's last known
address.
Section 3.3 Assignment of Insurance. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether or not a Default Period then exists, the Lender may
(but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Section 3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of the Premises at any time during a Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of
goods that are Collateral and for other purposes that the Lender may in good
faith deem to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Commitment, (ii) final sale or disposition of
all goods constituting Collateral and delivery of all such goods to purchasers,
and (iii) the termination of all Default Periods giving rise to such right.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of any of
the Premises; provided, however, that if the Lender does pay or account for any
rent or other compensation for the possession, occupancy or use of any of the
Premises, the Borrower shall reimburse the Lender promptly for the full amount
thereof. In addition, the Borrower will pay, or reimburse the Lender for, all
taxes, fees, duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery, existence,
recordation, performance or enforcement of this Agreement or the provisions of
this Section 3.4.
Section 3.5 License. Without limiting the generality of the Patent
Security Agreement or Copyright Security Agreement, the Borrower hereby grants
to the Lender a non-exclusive, worldwide and royalty-free license to use or
otherwise exploit all trademarks, franchises, trade
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names, copyrights and patents of the Borrower for the purpose of selling,
leasing or otherwise disposing of any or all Collateral during any Default
Period.
Section 3.6 Financing Statement. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
Chaparral Network Storage, Inc.
1951 S. Fordham Street
Longmont, Colorado 80503
Federal Tax Identification No. 84-1451038
Name and address of Secured Party:
Wells Fargo Business Credit, Inc.
1740 Broadway
Denver, Colorado 80274-8625
Federal Tax Identification No. 41-1237652
Section 3.7 Setoff. The Borrower agrees that the Lender may at any time
or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall have
the right to appropriate or setoff any deposit or other liability then owed by
such Person to the Borrower, whether or not due, and apply the same to the
payment of said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating interest.
ARTICLE IV
Conditions of Lending
Section 4.1 Conditions Precedent to the Initial Advance. The Lender's
obligation to make the initial Advance hereunder shall be subject to the
condition precedent that the Lender shall have received all of the following,
each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Note, properly executed by the Borrower.
(c) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease.
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(d) The Collateral Account Agreement, properly executed by the
Borrower and Norwest Bank Colorado.
(e) The Lockbox Agreement, properly executed by the Borrower
and Norwest Bank Colorado.
(f) The Patent Security Agreement, properly executed by the
Borrower.
(g) The Copyright Security Agreement, properly executed by the
Borrower.
(h) A Subordination Agreement, properly executed by William R.
Childs and acknowledged by the Borrower.
(i) A certificate of an officer of each Borrower confirming,
in his capacity as an officer of the Borrower, the representations and
warranties set forth in Article V.
(j) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in effect
against the Borrower, (ii) no financing statements or assignments of patents,
trademarks or copyrights have been filed and remain in effect against the
Borrower except those financing statements and assignments of patents,
trademarks or copyrights relating to Permitted Liens or to liens held by Persons
who have agreed in writing that upon receipt of proceeds of the Advances, they
will deliver UCC releases and/or terminations and releases of such assignments
of patents, trademarks or copyrights satisfactory to the Lender, and (iii) the
Lender has duly filed all financing statements necessary to perfect the Security
Interest, to the extent the Security Interest is capable of being perfected by
filing.
(k) A certificate of the Borrower's Secretary or Assistant
Secretary certifying as to (i) the resolutions of the Borrower's directors and,
if required, shareholders, authorizing the execution, delivery and performance
of the Loan Documents, (ii) the Borrower's certificate of incorporation and
bylaws, and (iii) the signatures of the Borrower's officers or agents authorized
to execute and deliver the Loan Documents and other instruments, agreements and
certificates, including Advance requests, on the Borrower's behalf.
(l) A current certificate issued by the Secretary of State of
Delaware, certifying that the Borrower is in compliance with all applicable
organizational requirements of the State of Delaware.
(m) Evidence that the Borrower is duly licensed or qualified
to transact business in Colorado and all other jurisdictions where the character
of the property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary.
(n) Audited financial statement for Borrower's fiscal year
ending March 31, 1999.
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(o) A separate support agreement in favor of the Lender,
properly executed by each of Gary Allison and Doug Lehrmann, each in his
personal capacity.
(p) An opinion of counsel to the Borrower, addressed to the
Lender.
(q) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in the Lender's
favor and with all liability insurance naming the Lender as an additional
insured.
(r) Payment of the fees and commissions due through the date
of the initial Advance under Section 2.3 and expenses incurred by the Lender
through such date and required to be paid by the Borrower under Section 9.6,
including all legal expenses incurred through the date of this Agreement.
(s) Evidence that the Borrower will have at least $200,000 in
Availability following the initial Advance, which shall be in excess of the
amount sufficient to pay all of the Borrower's trade payables that are more than
60 days past due.
(t) Such other documents as the Lender in its reasonable
discretion may require.
Section 4.2 Conditions Precedent to All Advances. The Lender's
obligation to make each Advance shall be subject to the further conditions
precedent that on such date:
(a) the representations and warranties contained in Article V
are correct on and as of the date of such Advance as though made on and as of
such date, except to the extent that such representations and warranties relate
solely to an earlier date; and
(b) no event has occurred and is continuing, or would result
from such Advance which constitutes a Default or an Event of Default.
ARTICLE V
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Corporate Existence and Power; Name; Chief Executive
Office; Inventory and Equipment Locations; Tax Identification Number. The
Borrower is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Delaware and is duly licensed or qualified to
transact business in Colorado and all other jurisdictions where the character of
the property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary. The Borrower has all requisite
power and authority, corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, the Loan Documents. During its existence, the Borrower has done business
solely under the names set forth in Schedule 5.1 hereto and such
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other names as the Borrower shall notify the Lender in writing not less than 30
days prior to the use of such names. The Borrower's chief executive office and
principal place of business is located at the address set forth in Schedule 5.1
hereto, and all of the Borrower's records relating to its business or the
Collateral are kept at that location. All Inventory and Equipment is located at
that location or at one of the other locations set forth in Schedule 5.1 hereto,
or at such other locations as the Borrower shall notify the Lender in writing
not less than 30 days prior to the use of such other locations. The Borrower's
tax identification number is correctly set forth in Section 3.6 hereto.
Section 5.2 Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect that is applicable to the
Borrower or of the Borrower's articles of incorporation or bylaws and that is
material to the Borrower's business; (iv) result in a breach of or constitute a
default under any indenture or loan or credit agreement or any other material
agreement, lease or instrument to which the Borrower is a party or by which it
or its properties may be bound or affected; or (v) result in, or require, the
creation or imposition of any mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance of any nature (other than the Security
Interest) upon or with respect to any of the properties now owned or hereafter
acquired by the Borrower.
Section 5.3 Legal Agreements. This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms except as enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights and except to the
extent that availability of specific performance or injunctive relief is subject
to the discretion of the court before which any proceeding therefor may be
brought.
Section 5.4 Subsidiaries. Except as set forth in Schedule 5.4 hereto,
the Borrower has no Subsidiaries.
Section 5.5 Financial Condition; No Adverse Change. The Borrower has
heretofore furnished to the Lender its unaudited financial statement for its
fiscal year ended March 31, 1999 which statement fairly presents the Borrower's
financial condition on this date thereof and the results of its operations and
cash flows for the periods then ended and were prepared in accordance with
generally accepted accounting principles. Since the date of the most recent
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<PAGE> 18
financial statements, there has been no material adverse change in the
Borrower's business, properties or condition (financial or otherwise).
Section 5.6 Litigation. There are no actions, suits or proceedings
pending or, to the Borrower's knowledge, threatened against or affecting the
Borrower or any of its Affiliates or the properties of the Borrower or any of
its Affiliates before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to the Borrower or any of its Affiliates, would have a material
adverse effect on the financial condition, properties or operations of the
Borrower or any of its Affiliates.
Section 5.7 Regulation U. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock.
Section 5.8 Taxes. The Borrower and its Affiliates have paid or
remitted or caused to be paid or remitted to the proper authorities when due all
federal, state and local taxes required to be paid or remitted by each of them
or, to the extent that any taxes are being contested in good faith, adequate
reserves have been established therefore in accordance with GAAP. The Borrower
and its Affiliates have filed all federal, state and local tax returns which to
the knowledge of the officers of the Borrower or any Affiliate, as the case may
be, are required to be filed, and the Borrower and its Affiliates have paid or
caused to be paid to the respective taxing authorities all taxes as shown on
said returns or on any assessment received by any of them to the extent such
taxes have become due.
Section 5.9 Titles and Liens. The Borrower has good and marketable
title to all Collateral described in the collateral reports provided to the
Lender and all other Collateral, properties and assets reflected in the latest
financial statements referred to in Section 5.5 and all proceeds thereof, free
and clear of all mortgages, security interests, liens and encumbrances, except
for (i) provision of existing building and zoning laws; (ii) liens for current
taxes not yet due; and (iii) Permitted Liens. No financing statement naming the
Borrower as debtor is on file in any office except to perfect only Permitted
Liens.
Section 5.10 Plans. Except as disclosed to the Lender in writing prior
to the date hereof, neither the Borrower nor any of its Affiliates maintains or
has maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in full compliance with
any of the requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the
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<PAGE> 19
Department of Labor or any participant in connection with any Plan (other than
accrued benefits which or which may become payable to participants or
beneficiaries of any such Plan).
Section 5.11 Default. The Borrower is in compliance with all provisions
of all agreements, instruments, decrees and orders to which it is a party or by
which it or its property is bound or affected, the breach or default of which
could reasonably be expected to have a material adverse effect on the Borrower's
financial condition, properties or operations.
Section 5.12 Environmental Matters.
(a) Definitions. As used in this Agreement, the following
terms shall have the following meanings:
(i) "Environmental Law" means any federal, state,
local or other governmental statute, regulation, law or
ordinance dealing with the protection of human health and the
environment.
(ii) "Hazardous Substances" means pollutants,
contaminants, hazardous substances, hazardous wastes,
petroleum and fractions thereof, and all other chemicals,
wastes, substances and materials listed in, regulated by or
identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present
in, on or under the Premises any Hazardous Substances in such form or quantity
as to create any liability or obligation for either the Borrower or the Lender
under common law of any jurisdiction or under any Environmental Law, and no
Hazardous Substances have ever been stored, buried, spilled, leaked, discharged,
emitted or released in, on or under the Premises in such a way as to create any
such liability.
(c) To the Borrower's best knowledge, the Borrower has not
disposed of Hazardous Substances in such a manner as to create any liability
under any Environmental Law.
(d) There are not and there never have been any requests,
claims, notices, investigations, demands, administrative proceedings, hearings
or litigation, relating in any way to the Borrower or, to the Borrower's best
knowledge, to the Premises, alleging liability under, violation of, or
noncompliance with any Environmental Law or any license, permit or other
authorization issued pursuant thereto. To the Borrower's best knowledge, no such
matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's
businesses are and have in the past always been conducted in accordance in all
material respects with all Environmental Laws and all licenses, permits and
other authorizations required pursuant to any Environmental Law and necessary
for the lawful and efficient operation of such businesses are in the Borrower's
possession and are in full force and effect. No permit required under any
Environmental Law is scheduled to expire within 12 months and to the Borrower's
best
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<PAGE> 20
knowledge there is no threat that any such permit will be withdrawn, terminated,
limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not and
never have been listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System or any
similar federal, state or local list, schedule, log, inventory or database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other similar documents
describing or relating in any way to the Borrower's businesses, and all such
documents known to the Borrower relating in any way to the Premises.
Section 5.13 Submissions to Lender. All financial and other information
provided to the Lender by or on behalf of the Borrower in connection with the
Borrower's request for the credit facilities contemplated hereby is true and
correct in all material respects and, as to projections, valuations or proforma
financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results.
Section 5.14 Financing Statements. The Borrower has provided to the
Lender signed financing statements, which, when filed, will be sufficient to
perfect the Security Interest and the other security interests created by the
Security Documents to the extent that the Security Interest can be perfected by
the filing of financing statements. When such financing statements are filed in
the offices noted therein, the Lender will have a valid and perfected security
interest in all Collateral and all other collateral described in the Security
Documents which is capable of being perfected by filing financing statements.
None of the Collateral or other collateral covered by the Security Documents is
or will become a fixture on real estate, unless a sufficient fixture filing is
in effect with respect thereto.
Section 5.15 Rights to Payment. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation except as enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights and except to the
extent that availability of specific performance or injunctive relief is subject
to the discretion of the court before which any proceeding therefor may be
brought.
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<PAGE> 21
ARTICLE VI
Borrower's Affirmative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrower will deliver, or cause
to be delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days
after the end of each fiscal year of the Borrower, the Borrower's audited
financial statements with the unqualified opinion of independent certified
public accountants selected by the Borrower and reasonably acceptable to the
Lender, which annual financial statements shall include the Borrower's balance
sheet as at the end of such fiscal year and the related statements of the
Borrower's income, retained earnings and cash flows for the fiscal year then
ended, prepared, if the Lender so requests, on a consolidating and consolidated
basis to include any Affiliates, all in reasonable detail and prepared in
accordance with GAAP, together with (i) copies of all management letters
prepared by such accountants; (ii) a report signed by such accountants stating
that in making the investigations necessary for said opinion they obtained no
knowledge, except as specifically stated, of any Default or Event of Default
hereunder and all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in compliance with the
requirements set forth in Sections 6.12, 6.13, and 7.10; and (iii) a certificate
of the Borrower's chief financial officer stating that such financial statements
have been prepared in accordance with GAAP and whether or not such officer has
knowledge of the occurrence of any Default or Event of Default hereunder and, if
so, stating in reasonable detail the facts with respect thereto;
(b) as soon as available and in any event within 20 days after
the end of each month, an unaudited/internal balance sheet and statements of
income and retained earnings of the Borrower as at the end of and for such month
and for the year to date period then ended, prepared, if the Lender so requests,
on a consolidating and consolidated basis to include any Affiliates, in
reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, all prepared in accordance
with GAAP, subject to year-end audit adjustments; and accompanied by a
certificate of the Borrower's chief financial officer, substantially in the form
of Exhibit B hereto stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit adjustments, (ii)
whether or not such officer has knowledge of the occurrence of any Default or
Event of Default hereunder not theretofore reported and remedied and, if so,
stating in reasonable detail the facts with respect thereto, and (iii) all
relevant facts in reasonable detail to evidence, and the computations as to,
whether or not the Borrower is in compliance with the requirements set forth in
Sections 6.12, 6.13, and 7.10;
(c) within 15 days after the end of each month or more
frequently if the Lender so requires, agings of the Borrower's accounts
receivable and its accounts payable, and a
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<PAGE> 22
calculation of the Borrower's Eligible Accounts as at the end of such month or
shorter time period;
(d) weekly or more frequently if the Lender so requires,
copies of invoices, shipping documents, and delivery receipts for goods sold in
excess of $100,000, reporting of sales, credit memoranda, and a reconciliation
to Borrower's accounts receivable aging;
(e) at least 30 days before the beginning of each fiscal year
of the Borrower, the projected balance sheets and income statements for each
month of such year, each in reasonable detail, representing the Borrower's good
faith projections and certified by the Borrower's chief financial officer as
being the most accurate projections available and identical to the projections
used by the Borrower for internal planning purposes, together with such
supporting schedules and information as the Lender may in its discretion
require;
(f) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any governmental or
regulatory agency affecting the Borrower of the type described in Section 5.12
or which seek a monetary recovery against the Borrower in excess of $25,000;
(g) as promptly as practicable (but in any event not later
than five business days) after an officer of the Borrower obtains knowledge of
the occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default hereunder,
notice of such occurrence, together with a detailed statement by a responsible
officer of the Borrower of the steps being taken by the Borrower to cure the
effect of such breach, default or event;
(h) as soon as possible and in any event within 30 days after
the Borrower knows or has reason to know that any Reportable Event with respect
to any Plan has occurred, the statement of the Borrower's chief financial
officer setting forth details as to such Reportable Event and the action which
the Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event to the Pension Benefit Guaranty Corporation;
(i) as soon as possible, and in any event within 10 days after
the Borrower fails to make any quarterly contribution required with respect to
any Plan under Section 412(m) of the Internal Revenue Code of 1986, as amended,
the statement of the Borrower's chief financial officer setting forth details as
to such failure and the action which the Borrower proposes to take with respect
thereto, together with a copy of any notice of such failure required to be
provided to the Pension Benefit Guaranty Corporation;
(j) promptly upon knowledge thereof, notice of (i) any
disputes or claims by the Borrower's customers exceeding $50,000 individually or
$125,000 in the aggregate during any fiscal year; (ii) credit memos not
disclosed pursuant to Section 6.1(d); (iii) any goods returned to or recovered
by the Borrower involving an amount in controversy or claim amount in excess of
$10,000 individually or in excess of $50,000 for a single customer during any
fiscal year; and (iv) any change in the persons constituting the Borrower's
officers and directors;
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<PAGE> 23
(k) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the Security
Documents or of any substantial adverse change in any Collateral or such other
collateral or the prospect of payment thereof;
(l) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent to
its stockholders;
(m) promptly after the sending or filing thereof, copies of
all regular and periodic reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
(n) promptly upon filing, copies of the state and federal tax
returns and all schedules thereto of the Borrower;
(o) as soon as possible, and in any event by not later than 15
days after filing with the Internal Revenue Service, copies of the state and
federal tax returns and all schedules thereto of the Borrower;
(p) within five days of any change in Borrower's continued
coverage by accounts receivable credit insurance, including the account debtors
covered by such insurance, notice of such change;
(q) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which could
reasonably be expected to materially and adversely affect the Borrower's
business or its financial condition; and
(r) from time to time, with reasonable promptness, deposit
records, equipment schedules, and such other material, reports, records or
information as the Lender may request.
Section 6.2 Books and Records; Inspection and Examination. The Borrower
will keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower's business and financial condition and
such other matters as the Lender may from time to time reasonably request in
which true and complete entries will be made in accordance with GAAP and, upon
the Lender's request, will permit any officer, employee, attorney or accountant
for the Lender to audit, review, make extracts from or copy any and all
corporate and financial books and records of the Borrower at all times during
ordinary business hours, to send and discuss with account debtors and other
obligors requests for verification of amounts owed to the Borrower, and to
discuss the Borrower's affairs with any of its directors, officers, employees or
agents. The Borrower will permit the Lender, or its employees, accountants,
attorneys or agents, to examine and inspect any Collateral, other collateral
covered by the Security Documents or any other property of the Borrower at any
time during ordinary business hours.
Section 6.3 Account Verification. The Lender may at any time and from
time to time send or require the Borrower to send requests for verification of
accounts or notices of
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<PAGE> 24
assignment to account debtors and other obligors. The Lender may also at any
time and from time to time telephone account debtors and other obligors to
verify accounts.
Section 6.4 Compliance with Laws.
(a) Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would materially
and adversely affect its business or its financial condition and (ii) use and
keep the Collateral, and require that others use and keep the Collateral, only
for lawful purposes, without violation of any federal, state or local law,
statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable Environmental Laws
and obtain and comply with all permits, licenses and similar approvals required
by any Environmental Laws, and will not generate, use, transport, treat, store
or dispose of any Hazardous Substances in such a manner as to create any
liability or obligation under the common law of any jurisdiction or any
Environmental Law.
Section 6.5 Payment of Taxes and Other Claims. The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, upon any properties belonging
to it (including, without limitation, the Collateral) or upon or against the
creation, perfection or continuance of the Security Interest, prior to the date
on which penalties attach thereto, (b) all federal, state and local taxes
required to be paid or remitted by it, and (c) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien or charge
upon any properties of the Borrower; provided, that the Borrower shall not be
required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.
Section 6.6 Maintenance of Properties.
(a) The Borrower will keep and maintain the Collateral, the
other collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition, repair and
working order (normal wear and tear excepted) and will from time to time replace
or repair any worn, defective or broken parts; provided, however, that nothing
in this Section 6.6 shall prevent the Borrower from discontinuing the operation
and maintenance of any of its properties if such discontinuance is desirable in
the conduct of the Borrower's business and not disadvantageous in any material
respect to the Lender.
(b) The Borrower will defend the Collateral against all claims
or demands of all persons (other than the Lender) claiming the Collateral or any
interest therein.
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security interests,
liens and encumbrances except Permitted Liens.
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<PAGE> 25
Section 6.7 Insurance. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
reasonably required by the Lender, but in all events in such amounts and against
such risks as is usually carried by companies engaged in similar business and
owning similar properties in the same general areas in which the Borrower
operates. Without limiting the generality of the foregoing, the Borrower will at
all times maintain business interruption insurance including coverage for force
majeure and keep all tangible Collateral insured against risks of fire
(including so-called extended coverage), theft, collision (for Collateral
consisting of motor vehicles) and such other risks and in such amounts as the
Lender may reasonably request, with any loss payable to the Lender to the extent
of its interest, and all policies of such insurance shall contain a lender's
loss payable endorsement for the Lender's benefit acceptable to the Lender. All
policies of liability insurance required hereunder shall name the Lender as an
additional insured. The Lender agrees that the insurance policies presently held
by the Borrower, in the types and amounts set forth on Schedule 6.7 hereto, are
reasonable based on the Lender's knowledge of the Borrower's current business.
Section 6.8 Preservation of Existence. The Borrower will preserve and
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
Section 6.9 Delivery of Instruments, Etc. Upon request by the Lender,
the Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
Section 6.10 Collateral Account.
(a) If, notwithstanding the instructions to debtors to make
payments to the Lockbox, the Borrower receives any payments on Receivables, the
Borrower shall deposit such payments into the Collateral Account. Until so
deposited, the Borrower shall hold all such payments in trust for and as the
property of the Lender and shall not commingle such payments with any of its
other funds or property.
(b) Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by the Borrower, except after
full payment and discharge of all Obligations.
(c) All deposits in the Collateral Account shall constitute
proceeds of Collateral and shall not constitute payment of the Obligations.
After allowing two Banking Days for collection of items deposited in the
Collateral Account, the Borrower authorizes the Lender to transmit deposited
funds in the amount of the deposit to the payment of the Obligations, in any
order or manner of application satisfactory to the Lender (and deposits shall be
applied to the Obligations after allowing one additional Business Day for
processing), by transferring such funds to the Lender's general account
maintained with Norwest Bank Minnesota, N.A., ABA #091000019, Account No.
635-5010053.
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<PAGE> 26
(d) All items deposited in the Collateral Account shall be
subject to final payment. If any such item is returned uncollected, the Borrower
will promptly pay the Lender, or, for items deposited in the Collateral Account,
the bank maintaining such account, the amount of that item, or such bank at its
discretion may charge any uncollected item to the Borrower's commercial account
or other account. The Borrower shall be liable as an endorser on all items
deposited in the Collateral Account, whether or not in fact endorsed by the
Borrower.
Section 6.11 Performance by the Lender. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives the Borrower written notice thereof
(or in the case of the agreements contained in Sections 6.5, 6.7 and 6.10,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Borrower (or, at the Lender's option, in
the Lender's name) and may, but need not, take any and all other actions which
the Lender may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of
security interests, liens or encumbrances, the performance of obligations owed
to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the Lender's performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the Lender's delegate, acting alone, as the Borrower's attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of the Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower under this Section 6.12.
Section 6.12 Minimum Capital. The Borrower will maintain, as of each
date described below, its Capital at an amount not less than the amount set
forth opposite such date:
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<PAGE> 27
<TABLE>
<CAPTION>
Date Minimum Capital
---- ---------------
<S> <C>
April 30, 1999 $ 250,000
May 31, 1999 $ (75,000)
June 30, 1999 $ 350,000
July 31, 1999 $ 150,000
August 31, 1999 $ 125,000
September 30, 1999 $ 350,000
October 31, 1999 $ 600,000
November 30, 1999 $1,025,000
December 31, 1999 $1,350,000
January 31, 2000 $1,800,000
February 28, 2000 $2,275,000
March 31, 2000 and thereafter $2,750,000
</TABLE>
On or before March 31, 2000, the Borrower and the Lender shall work in good
faith to agree on new covenant levels for Minimum Capital for periods after such
date, but if the Borrower and the Lender do not agree, the Lender may, but is
not obligated to, designate the required Minimum Capital for the last day of
each month after March 31, 2000, which amounts shall be equal to the sum of (a)
$250,000 multiplied by the number of months such day is past March 31, 2000 (for
example, December 31, 2000 is nine months past March 31, 2000; thus the amount
calculated under this clause (a) for December 31, 2000 is $2,250,000) plus (b)
the greater of (1) the Borrower's actual Capital as of March 31, 2000 or (2)
$2,750,000. The failure by the Borrower to maintain the designated amounts shall
constitute an Event of Default.
Section 6.13 Minimum Net Income. The Borrower will achieve as of each
date described below, fiscal year-to-date Net Income of not less than the amount
set forth opposite such date:
<TABLE>
<CAPTION>
Date Minimum Capital
---- ---------------
<S> <C>
June 30, 1999 $(1,200,000)
September 30, 1999 $(1,200,000)
December 31, 1999 $ (200,000)
March 31, 2000 $ 1,200,000
</TABLE>
On or before March 31, 2000, the Borrower and the Lender shall work in good
faith to agree on new covenant levels for Net Income for periods after such
date, but if the Borrower and the Lender do not agree, the Lender may, but is
not obligated to, designate the required fiscal year-to-date Net Income for each
quarter after March 31, 2000, which amounts shall be equal to, for each quarter
ending June 30, $750,000; for each quarter ending September 30, $1,500,000; for
each quarter ending December 31, $2,250,000; and for each quarter ending March
31, $3,000,000. The failure by the Borrower to maintain the designated amounts
shall constitute an Event of Default.
Section 6.14 Mandatory Additional Financing. At any time that either
(a) average Availability for any 90-day period is less than or equal to $200,000
or (b) Availability is less than
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$25,000 for each of ten consecutive Banking Days, within 30 days of a written
request by the Lender, the Borrower shall obtain at Lender's request additional
Subordinated Debt or additional equity financing in an amount such that after
payment of all of the Borrower's trade payables that are 60 days or more past
due, Availability equals or exceeds $200,000.
ARTICLE VII
Negative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
Section 7.1 Liens. The Borrower will not create, incur or suffer to
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; excluding, however , from the operation of the
foregoing, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents, covenants,
restrictions, rights, easements and minor irregularities in title which do not
materially interfere with the Borrower's business or operations as presently
conducted;
(b) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed in Schedule
7.1 hereto, securing indebtedness permitted under Section 7.2;
(c) the Security Interest and liens and security interests
created by the Security Documents;
(d) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower not exceeding the lesser
of cost or fair market value thereof and so long as no Default Period is then in
existence and none would exist immediately after such acquisition;
(e) landlords', mortgagees', and lessors' liens in respect of
rent not in default, to the extent landlord/mortgagee waivers shall have been
delivered to the Lender or liens in respect of pledges or deposits under
worker's compensation, unemployment insurance, social security laws, or similar
legislation (other than ERISA) or in connection with appeal and similar bonds
incidental to litigation; mechanics', laborers', and materialmen's and similar
liens, if the obligations secured by such liens are not then delinquent; and
statutory obligations incidental to the conduct of its business and that do not
in the aggregate materially detract from the value of its property or materially
impair the use thereof in the operation of its business;
(f) judgment liens that shall not have been in existence for a
period longer than 15 days after the creation thereof or, if a stay of execution
shall have been obtained, for a period longer than 15 days after the expiration
of such stay; and
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<PAGE> 29
(g) easements, rights of way restrictions and other similar
charges or encumbrances relating to real property and not interfering in a
material way with the ordinary conduct of its business.
Section 7.2 Indebtedness. The Borrower will not incur, create, assume
or permit to exist any indebtedness or liability on account of deposits or
advances or any indebtedness for borrowed money or letters of credit issued on
the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Schedule 7.2 hereto, and replacements and refinancings
thereof;
(c) indebtedness relating to liens permitted in accordance
with Section 7.1;
(d) Subordinated Debt that may be required under Section 6.15,
and
(e) indebtedness in respect of current liabilities, other than
for borrowed money, of the Borrower incurred in the ordinary course of business
and of a type and magnitude consistent with past practices.
Section 7.3 Guaranties. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower
for deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in existence on
the date hereof and listed in Schedule 7.2 hereto.
Section 7.4 Investments and Subsidiaries.
(a) The Borrower will not purchase or hold beneficially any
stock or other securities or evidences of indebtedness of, make or permit to
exist any loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including specifically but without limitation
any partnership or joint venture, except:
(i) investments in direct obligations of the United
States of America or any agency or instrumentality thereof
whose obligations constitute full faith and credit obligations
of the United States of America having a maturity of one year
or less, commercial paper issued by U. S. corporations rated
"A-1" or "A-2" by
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Standard & Poors Corporation or "P-1" or "P-2" by Moody's
Investors Service or certificates of deposit or bankers'
acceptances having a maturity of one year or less issued by
members of the Federal Reserve System having deposits in
excess of $100,000,000 (which certificates of deposit or
bankers' acceptances are fully insured by the Federal Deposit
Insurance Corporation), or money market funds having a rating
of at least AAA;
(ii) mutual funds that invest primarily in
investments described in 7.4(a)(i);
(iii) travel advances or loans to the Borrower's
officers and employees not exceeding at any one time an
aggregate of $15,000; and
(iv) advances in the form of progress payments,
prepaid rent, or security deposits, the sum of which shall not
exceed at any one time an aggregate of $100,000.
(b) The Borrower will not create or permit to exist any
Subsidiary, other than any Subsidiary in existence on the date hereof and listed
in Schedule 5.4.
Section 7.5 Dividends. The Borrower will not declare or pay any
dividends (other than dividends payable solely in stock of the Borrower) on any
class of its stock or make any payment on account of the purchase, redemption or
other retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly.
Section 7.6 Sale or Transfer of Assets; Suspension of Business
Operations. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
Section 7.7 Consolidation and Merger; Asset Acquisitions. The Borrower
will not consolidate with or merge into any Person, or permit any other Person
to merge into it, or acquire (in a transaction analogous in purpose or effect to
a consolidation or merger) all or substantially all the assets of any other
Person.
Section 7.8 Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
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Section 7.9 Restrictions on Nature of Business. The Borrower will not
engage in any line of business materially different from that presently engaged
in by the Borrower and will not purchase, lease or otherwise acquire assets not
related to its business.
Section 7.10 Capital Expenditures. The Borrower will not incur or
contract to incur Capital Expenditures of more than $450,000 in the aggregate
for fiscal year ending March 31, 2000. On or before March 31, 2000, the Borrower
and the Lender shall work in good faith to agree on new covenant levels for
Capital Expenditures for periods after such date, but if the Borrower and the
Lender do not agree, the Lender may, but is not obligated to, designate the
required maximum Capital Expenditures for each fiscal year after March 31, 2000,
which amounts shall be equal to the lesser of (a) the Borrower's actual Capital
Expenditures for the previous fiscal year or (b) $450,000. The failure by the
Borrower to maintain the designated amounts shall constitute an Event of
Default.
Section 7.11 Accounting. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year.
Section 7.12 Discounts, Etc. The Borrower will not, after notice from
the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold, or at any time (whether before or
after notice from the Lender) modify, amend, subordinate, cancel or terminate
the obligation of any account debtor or other obligor of the Borrower.
Section 7.13 Defined Benefit Pension Plans. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
Section 7.14 Other Defaults. The Borrower will not permit any breach,
default or event of default to occur and the applicable period of grace, if any,
to expire, under any note, loan agreement, indenture, lease, mortgage, contract
for deed, security agreement or other contractual obligation binding upon the
Borrower.
Section 7.15 Place of Business; Name. The Borrower will not without at
least 30 days' written notice to Lender and execution by the appropriate parties
of such documents as the Lender may in its sole discretion require, which
documents may include, but shall not be limited to, financing statements or
amendments to existing financing statements, landlord's disclaimers and
mortgagee's disclaimers, all of which shall be acceptable to the Lender in its
sole discretion, transfer its chief executive office or principal place of
business, or move, relocate, close or sell any business location or change its
name. The Borrower will not permit any tangible Collateral or any records
pertaining to the Collateral to be located in any state or area in which, in the
event of such location, a financing statement covering such Collateral would be
required to be, but has not in fact been, filed in order to perfect the Security
Interest.
Section 7.16 Organizational Documents; S Corporation Status. The
Borrower will not amend its certificate of incorporation, articles of
incorporation or bylaws (but consent for such
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amendment shall not be unreasonably withheld). The Borrower will not become an S
Corporation within the meaning of the Internal Revenue Code of 1986, as amended.
Section 7.17 Salaries. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation.
ARTICLE VIII
Events of Default, Rights and Remedies
Section 8.1 Events of Default. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of the Obligations within five
Banking Days after receipt of notice that such amounts are owing;
(b) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement within five
Banking Days after receipt of notice that such amounts are owing;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement;
(d) The Borrower shall be or become insolvent, or admit in
writing its or his inability to pay its or his debts as they mature, or make an
assignment for the benefit of creditors; or the Borrower shall apply for or
consent to the appointment of any receiver, trustee, or similar officer for it
or him or for all or any substantial part of its or his property; or such
receiver, trustee or similar officer shall be appointed without the application
or consent of the Borrower, as the case may be; or the Borrower shall institute
(by petition, application, answer, consent or otherwise) any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt, dissolution,
liquidation or similar proceeding relating to it or him under the laws of any
jurisdiction; or any such proceeding shall be instituted (by petition,
application or otherwise) against the Borrower; or any judgment, writ, warrant
of attachment or execution or similar process shall be issued or levied against
a substantial part of the property of the Borrower;
(e) A petition shall be filed by or against the Borrower under
the United States Bankruptcy Code naming the Borrower as debtor;
(f) Any representation or warranty made by the Borrower in
this Agreement, or by the Borrower (or any of its officers) in any agreement,
certificate, instrument or financial statement or other statement contemplated
by or made or delivered pursuant to or in connection with this Agreement shall
prove to have been incorrect in any material respect when deemed to be
effective;
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(g) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of $100,000 and the
continuance of such judgment, decree or order unsatisfied and in effect for any
period of 30 consecutive days without a stay of execution;
(h) A material default under any bond, debenture, note or
other evidence of indebtedness of the Borrower owed to any Person other than the
Lender, or under any indenture or other instrument under which any such evidence
of indebtedness has been issued or by which it is governed, or under any lease
of any of the Premises, and the expiration of the applicable period of grace, if
any, specified in such evidence of indebtedness, indenture, other instrument or
lease;
(i) Any Reportable Event, which the Lender determines in good
faith could reasonably be expected to constitute grounds for the termination of
any Plan or for the appointment by the appropriate United States District Court
of a trustee to administer any Plan, shall have occurred and be continuing 30
days after written notice to such effect shall have been given to the Borrower
by the Lender; or a trustee shall have been appointed by an appropriate United
States District Court to administer any Plan; or the Pension Benefit Guaranty
Corporation shall have instituted proceedings to terminate any Plan or to
appoint a trustee to administer any Plan; or the Borrower shall have filed for a
distress termination of any Plan under Title IV of ERISA; or the Borrower shall
have failed to make any quarterly contribution required with respect to any Plan
under Section 412(m) of the Internal Revenue Code of 1986, as amended, which the
Lender determines in good faith may by itself, or in combination with any such
failures that the Lender may determine are likely to occur in the future, result
in the imposition of a lien on the Borrower's assets in favor of the Plan;
(j) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of trust,
assignment or other instrument or agreement securing any obligations of the
Borrower hereunder or under any note, which default is not cured or waived
within any applicable grace period therefor;
(k) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without the
Lender's prior written consent;
(l) The Borrower shall fail to pay, withhold, collect or remit
any tax or tax deficiency when assessed or due (other than any tax deficiency
which is being contested in good faith and by proper proceedings and for which
it shall have set aside on its books adequate reserves therefor) or notice of
any state or federal tax liens shall be filed or issued and not released or
otherwise terminated within ten days of such filing or issuance;
(m) Default in the payment of any amount owed by the Borrower
to the Lender other than any indebtedness arising hereunder, which default is
not cured or waived within any applicable grace period therefor;
(n) The Borrower shall take or participate in any action which
would be prohibited under the provisions of any Subordination Agreement or make
any payment on the
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Subordinated Indebtedness (as defined in the Subordination Agreement) that any
Person was not entitled to receive under the provisions of the Subordination
Agreement;
(o) Any event or circumstance with respect to the Borrower
shall occur such that the Lender shall believe in good faith that the prospect
of payment of all or any part of the Obligations or the performance by the
Borrower under the Loan Documents is impaired or any material adverse change in
the business or financial condition of the Borrower shall occur;
(p) There shall occur any breach, default or event of default
by or attributable to any Affiliate under any agreement between such Affiliate
and the Lender;
(q) The Lender shall determine that the Borrower has failed to
achieve Year 2000 Compliance on or before September 30, 1999;
(r) Any person who has executed a support agreement in
connection with the Credit Facility shall die, become mentally or physically
incapacitated, or cease to be employed by the Borrower; provided, however, that
such occurrence shall not constitute an Event of Default if within 60 days of
such occurrence (i) the Borrower employs a replacement acceptable to the Lender
in its reasonable discretion and (ii) such replacement executes a support
agreement substantially in the form of the agreement executed by the person so
replaced;
(s) Michael Gluck shall cease to be the President and Chief
Operating Officer of the Borrower, or Gary Allison shall cease to be the
Chairman and Chief Executive Officer of the Borrower, or Jerry Walker shall
cease to be the Executive Vice President/Engineering of the Borrower, or Doug
Lehrmann shall cease to be the Vice President/Finance of the Borrower, or any
replacement for any such person shall cease to hold his or her position with the
Borrower; provided, however, that no such occurrence shall constitute an Event
of Default if within 60 days of such occurrence the Borrower employs a
replacement acceptable to the Lender in its reasonable discretion.
Section 8.2 Rights and Remedies. During any Default Period, the Lender
may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the
Commitment to be terminated, whereupon the same shall forthwith terminate;
(b) the Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations shall
become and be forthwith due and payable, without presentment, notice of
dishonor, protest or further notice of any kind, all of which the Borrower
hereby expressly waives;
(c) the Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the Borrower to
the payment of the Obligations;
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(d) the Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC, including,
without limitation, the right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process (without a
prior hearing or notice thereof, which the Borrower hereby expressly waives) and
the right to sell, lease or otherwise dispose of any or all of the Collateral,
and, in connection therewith, the Borrower will on demand assemble the
Collateral and make it available to the Lender at a place to be designated by
the Lender which is reasonably convenient to both parties;
(e) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(f) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
Section 8.3 Certain Notices. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.3) at least ten calendar days before
the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
Section 9.1 No Waiver; Cumulative Remedies. No failure or delay by the
Lender in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
Section 9.2 Amendments, Etc. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 9.3 Addresses for Notices, Etc. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail,
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(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed or telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below:
If to the Borrower:
Chaparral Network Storage, Inc.
1951 S. Fordham Street
Longmont, Colorado 80503
Telecopier: (303) 684-3201
Attention: Douglas Lehrmann
If to the Lender:
Wells Fargo Business Credit, Inc.
1740 Broadway
Denver, Colorado 80274-8625
Telecopier: (303) 863-4904
Attention: Tim Ulrich
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender.
Section 9.4 Further Documents. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
Section 9.5 Collateral. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
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<PAGE> 37
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
Section 9.6 Costs and Expenses. The Borrower agrees to pay on demand
all costs and expenses, including (without limitation) reasonable attorneys'
fees, incurred by the Lender in connection with the Obligations, this Agreement,
the Loan Documents, and any other document or agreement related hereto or
thereto, and the transactions contemplated hereby, including without limitation
all such costs, expenses and reasonable fees incurred in connection with the
negotiation, preparation, execution, amendment, administration, performance,
collection and enforcement of the Obligations and all such documents and
agreements and the creation, perfection, protection, satisfaction, foreclosure
or enforcement of the Security Interest.
Section 9.7 Indemnity. In addition to the payment of expenses pursuant
to Section 9.6, the Borrower agrees to indemnify, defend and hold harmless the
Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following (collectively,
"Indemnified Liabilities"):
(a) any and all transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the execution and
delivery of the Loan Documents or the making of the Advances;
(b) any claims, loss or damage to which any Indemnitee may be
subjected if any representation or warranty contained in Section 5.12 proves to
be incorrect in any respect or as a result of any violation of the covenant
contained in Section 6.4(b); and
(c) any and all other liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of
counsel) in connection with the foregoing and any other investigative,
administrative or judicial proceedings, whether or not such Indemnitee shall be
designated a party thereto, which may be imposed on, incurred by or asserted
against any such Indemnitee, in any manner related to or arising out of or in
connection with the making of the Advances and the Loan Documents or the use or
intended use of the proceeds of the Advances, provided that the Borrower, shall
not have any obligation to any Indemnitee hereunder with respect to Indemnified
Liabilities caused by or resulting from the willful misconduct or gross
negligence of such Indemnitee or the breach by such Indemnitee of this Agreement
or any other loan document.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold
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<PAGE> 38
harmless may be held to be unenforceable because it violates any law or public
policy, the Borrower shall nevertheless make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. The Borrower's obligation under this Section
9.7 shall survive the termination of this Agreement and the discharge of the
Borrower's other obligations hereunder.
Section 9.8 Participants. The Lender and its participants, if any, are
not partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the Lender's participants, successors or assigns.
Section 9.9 Execution in Counterparts. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.10 Binding Effect; Assignment; Complete Agreement; Exchanging
Information. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender, WFC Holdings Corporation, and all direct and indirect
subsidiaries of WFC Holdings Corporation, may exchange any and all information
they may have in their possession regarding the Borrower and its Affiliates, and
the Borrower waives any right of confidentiality it may have with respect to
such exchange of such information.
Section 9.11 Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.12 Headings. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 9.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.
The Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Colorado. This
Agreement shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Colorado. The parties hereto
hereby (i) consent to the personal jurisdiction of the state and federal courts
located in the State of Colorado in connection with any controversy related to
this Agreement; (ii) waive any argument that venue in any such forum is not
convenient, (iii) agree that any litigation initiated by the Lender or the
Borrower in connection with this Agreement or the other Loan
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<PAGE> 39
Documents shall be venued in either the District Court for the City and County
of Denver, Colorado, or the United States District Court, District of Colorado;
and (iv) agree that a final judgment in any such suit, action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS
AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
WELLS FARGO BUSINESS CREDIT, INC. CHAPARRAL NETWORK STORAGE, INC.
By /s/ Tim Ulrich By /s/ Douglas J. Lehrmann
-------------------------------- ----------------------------------
Tim Ulrich, Vice President Its Vice President, Finance
-------------------------------
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<PAGE> 1
EXHIBIT 10.12
COLLATERAL ACCOUNT AGREEMENT
July 5, 1999
TO: Wells Fargo Business Credit, Inc.
1740 Broadway
Denver, Colorado 80274-8625
Re: Account No. 182-8109832 opened under the name "Wells Fargo Business Credit,
Inc. -- Collateral Account for Chaparral Network Storage, Inc." maintained
by Norwest Bank Colorado, National Association (the "Bank")
Ladies and Gentlemen:
Chaparral Network Storage, Inc., a Delaware corporation, formerly known
as Chaparral Technologies, Inc., (the "Borrower"), and the Bank are writing to
confirm that they have agreed as follows:
1. The Borrower will deposit in the referenced Account (the "Collateral
Account") all collections of receivables and other cash proceeds of the
collateral security granted to Wells Fargo Business Credit, Inc., a Minnesota
corporation (the "Lender").
2. The Collateral Account will be operated and maintained exclusively
for the Lender's benefit. Amounts deposited in the Collateral Account shall not
bear interest and shall not be subject to withdrawal by the Borrower, except
after full payment and discharge of all the Borrower's obligations to the Lender
and termination of all related credit facilities. The Borrower shall have no
right to make or countermand withdrawals from the Collateral Account.
3. The Borrower hereby pledges to and grants the Lender a security
interest in all funds on deposit in the Collateral Account from time to time and
all proceeds thereof, to secure payment of all of the Borrower's obligations to
the Lender whether now existing or hereafter arising.
4. After allowing two days for collection of items deposited in the
Collateral Account, the Bank is authorized and agrees to transmit deposited
funds in the amount of the deposit to Norwest Bank Minnesota, National
Association, A.B.A. 091000019, for the Lender's account, account No. 6355010053,
which will then be applied to the obligations of Borrower to Lender one
additional day after receipt.
5. If any item deposited in the Collateral Account is returned unpaid,
the Bank will so notify the Lender and the Borrower.
6. The Borrower hereby grants the Bank the right to charge general
checking account No. 182-8109816 maintained by the Borrower with the Bank for
any item deposited in the Collateral Account which is returned unpaid. The Bank,
however, shall have no right to charge or offset amounts in the Collateral
Account for items returned unpaid. Without limiting the generality
<PAGE> 2
of the foregoing, the Bank hereby waives any right of setoff it may have with
respect to the Collateral Account.
7. By accepting this Agreement, the Lender agrees to indemnify and
reimburse the Bank, within ten (10) days after demand, for any item deposited in
the Collateral Account which is returned unpaid and for which the Borrower does
not indemnify the Bank provided that the Bank shall notify the Lender within
five business days of the day the Bank learns that any item shall be or has been
returned unpaid (whichever occurs first).
8. The Borrower may not terminate this Agreement without obtaining the
Lender's prior written consent. The Bank may not terminate this Agreement
without 60 days' prior written notice to the Lender. The Lender may terminate
this Agreement at any time, with or without cause.
9. This Agreement shall be enforceable against the Borrower and the
Bank by the Lender and the Lender's participants, successors and assigns. The
Borrower and the Bank waive notice of the Lender's acceptance hereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-2-
<PAGE> 3
10. This Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which counterparts, taken together, shall constitute but one and the same
instrument. This Agreement shall be governed by and construed in accordance with
the substantive laws (other than conflict laws) of the State of Colorado. Each
party consents to the personal jurisdiction of the state and federal courts
located in the State of Colorado in connection with any controversy related to
this Agreement waives any argument that venue in any such forum is not
convenient, and agrees that any litigation initiated by any of them in
connection with this Agreement shall be venued in either the District Court for
the City and County of Denver, Colorado, or the United States District Court,
District of Colorado. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION
OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
NORWEST BANK COLORADO, N.A. CHAPARRAL NETWORK STORAGE, INC.
By: /s/ Illegible By: /s/ Douglas J. Lehrmann
------------------------------ ------------------------------
Its Vice President Its Vice President, Finance
--------------------------- ---------------------------
Accepted:
WELLS FARGO BUSINESS CREDIT, INC.
By: /s/ Tim Ulrich
------------------------------
Its Vice President
-3-
<PAGE> 1
EXHIBIT 10.13
SUPPORT AGREEMENT
This Agreement, dated as of July 5, 1999, is made by Douglas Lehrmann
(the "Officer"), and CHAPARRAL NETWORK STORAGE, INC., formerly known as
Chaparral Technologies, Inc., a Delaware corporation (the "Borrower"), for the
benefit of WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the
"Lender").
Recitals
The Lender and Borrower have entered into a Credit and Security
Agreement (together with all amendments, supplements and restatements, the
"Credit Agreement") dated as of July 5, 1999, pursuant to which the Lender has
agreed to make revolving advances and extend other financial accommodations to
or for the benefit of the Borrower.
The Officer is the duly elected, qualified and acting Vice
President/Finance of the Borrower and is fully familiar with all of the
Borrower's business and financial affairs.
To induce the Lender to make advances and extend other financial
accommodations to or for the account of the Borrower under the Credit Agreement
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Officer, the Borrower and the Lender agree as
follows:
1. Definitions. Capitalized terms used in this Agreement which are not
defined in this Agreement have the meanings given to them in the Credit
Agreement.
2. Officer to Dispose of Collateral. The Officer and the Borrower agree
that if (i) the Lender comes into possession of any or all of the tangible
Collateral or is collecting the Borrower's Accounts or otherwise disposing of
Collateral because an Event of Default has occurred, and (ii) the Lender has
given notice of an acceleration of all of the Obligations:
(a) if the Officer is still employed by the Borrower, the
Borrower will, upon the Lender's request, cause the Officer so long as
he is employed by the Borrower, to exert his best efforts and devote
all of his regular working hours to obtain sales of the Collateral at
the best commercially obtainable prices and terms and to collect the
Accounts at their full face value to the extent commercially
reasonable; and
(b) if the Officer ceases to be employed by the Borrower or
has ceased to be employed by the Borrower, at the Lender's option and
upon the Lender's request, the Officer shall assist the Lender as the
Lender's independent contractor, for a period not to exceed 150 days,
for the sole purpose of disposing of the Collateral and collecting the
Accounts, or assisting the Lender in disposing of the Collateral and
collecting the Accounts. During the period of such employment the
Officer shall exert his best efforts and devote all of his regular
<PAGE> 2
working hours to obtain sales of the Collateral at the best
commercially obtainable prices and terms and to collect the Accounts at
their full face value.
3. Lender's Right to Terminate Officer's Employment. The Lender shall
have the right to terminate the Officer's employment or other assistance
described in Paragraph 2 hereof at any time on 30 days' notice, for any cause or
without cause.
4. Officer's Compensation. The Officer's sole compensation for any
employment or assistance rendered pursuant to Paragraph 2(b) hereof shall be a
weekly salary paid at 115% of the average salary (on a weekly basis) paid to
such person by the Borrower in the twelve (12) months immediately preceding the
commencement of such employment or activities. Such compensation shall be
prorated for partial weeks of service.
5. Officer Shall Not Bind Lender. In connection with such employment,
the Officer shall not have any authority to bind the Lender, except such
specific authority as the Lender may grant in writing.
6. Lender's Remedies Against Officer; Liquidated Damages. Until
termination pursuant to Paragraph 9, if the Officer fails to comply with the
provisions of Paragraph 2 hereof, unless such failure occurs as a result of
death or mental or physical incapacity, the Officer shall pay the Lender
$50,000, as liquidated damages, but not as a penalty, because of the difficulty
of proving actual damages for the breach of promises of the type contained
herein. Such liquidated damages shall be immediately due and payable upon the
Officer's failure to comply with the provisions of Paragraph 2 above. In
addition, the Officer shall be liable for the Lender's costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred in enforcing
the liquidated damages provision. In any event, however, the Officer shall not
be liable for more than the Lender's actual damages (excluding consequential and
punitive damages), plus the Lender's costs of enforcement of this Agreement.
7. Officer Remains Liable for Fraud and Misrepresentation.
Notwithstanding paragraph 9 hereof, the Officer shall hold the Lender harmless
for any actual loss, cost, expense, claim and damage (including any reasonable
attorney fees but excluding consequential and punitive damages) arising out of
fraud or misrepresentation made by the Borrower or its agents with respect to
the Collateral or the Borrower's financial statements while the Officer is
employed by the Borrower or the Lender. This paragraph 7 shall remain in full
force and effect so long as any Obligations remain outstanding or until
otherwise agreed by an amendment to this Agreement signed by the Lender, the
Borrower and the Officer.
8. Borrower to Find Replacement for Officer. If the Officer dies,
becomes mentally or physically incapacitated, or ceases to be employed by the
Borrower, the Borrower shall obtain a replacement for the Officer and the
Borrower shall use its best efforts to cause such replacement to execute a
support agreement substantially in the form of this Agreement.
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<PAGE> 3
9. Termination of Officer's Obligations. This Agreement shall remain in
full force and effect until
(a) the Credit Agreement is no longer outstanding and all
Obligations have been paid in full; or
(b) except as set forth in Paragraph 7 hereof, the Officer
shall have ceased to be employed by the Borrower for more than thirty
(30) business days before the occurrence of the events described in
clauses (i) and (ii) of Paragraph 2 hereof, and shall have given notice
of such cessation of employment to the Lender at least thirty (30)
business days before the occurrence of such events.
10. Miscellaneous. The provisions of this Agreement are declared to be
severable. If any provision of this Agreement shall be held to be invalid,
illegal or unenforceable, such invalidity, illegality or unenforceability shall
not affect any other provisions of this Agreement. The Officer and the Borrower
waive notice of the Lender's acceptance hereof.
11. Governing Law; Waiver of Jury Trial. This Agreement shall be
governed by and construed in accordance with the substantive laws (other than
conflict laws) of the State of Minnesota. THE PARTIES WAIVE ANY RIGHT OF TRIAL
BY JURY IN ANY CLAIM, COUNTERCLAIM, ACTION OR PROCEEDING BASED ON OR PERTAINING
TO THIS AGREEMENT.
IN WITNESS WHEREOF, the Officer and the Borrower have executed this
Agreement as of the date first written above.
CHAPARRAL NETWORK STORAGE, INC.
/s/ Douglas J. Lehrmann By: /s/ Douglas J. Lehrmann
- ---------------------------------- --------------------------------
Douglas J. Lehrmann
Accepted:
WELLS FARGO BUSINESS CREDIT, INC.
By: /s/ Tim Ulrich
-------------------------------
Tim Ulrich, Vice President
-3-
<PAGE> 1
EXHIBIT 10.14
SUPPORT AGREEMENT
This Agreement, dated as of July 5th, 1999, is made by Gary Allison
(the "Officer"), and CHAPARRAL NETWORK STORAGE, INC., formerly known as
Chaparral Technologies, Inc., a Delaware corporation (the "Borrower"), for the
benefit of WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the
"Lender").
Recitals
The Lender and Borrower have entered into a Credit and Security
Agreement (together with all amendments, supplements and restatements, the
"Credit Agreement") dated as of July 5, 1999, pursuant to which the Lender has
agreed to make revolving advances and extend other financial accommodations to
or for the benefit of the Borrower.
The Officer is the duly elected, qualified and acting Chairman and
Chief Executive Officer of the Borrower and is fully familiar with all of the
Borrower's business and financial affairs.
To induce the Lender to make advances and extend other financial
accommodations to or for the account of the Borrower under the Credit Agreement
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Officer, the Borrower and the Lender agree as
follows:
1. Definitions. Capitalized terms used in this Agreement which are not
defined in this Agreement have the meanings given to them in the Credit
Agreement.
2. Officer to Dispose of Collateral. The Officer and the Borrower agree
that if (i) the Lender comes into possession of any or all of the tangible
Collateral or is collecting the Borrower's Accounts or otherwise disposing of
Collateral because an Event of Default has occurred; and (ii) the Lender has
given notice of an acceleration of all of the Obligations;
(a) if the Officer is still employed by the Borrower, the Borrower
will, upon the Lender's request, cause the Officer so long as he is
employed by the Borrower, to exert his best efforts and devote all of his
regular working hours to obtain sales of the Collateral at the best
commercially obtainable prices and terms and to collect the Accounts at
their full face value to the extent commercially reasonable; and
(b) if the Officer ceases to be employed by the Borrower or has ceased
to be employed by the Borrower, at the Lender's option and upon the
Lender's request, the Officer shall assist the Lender as the Lender's
independent contractor, for a period not to exceed 150 days, for the sole
purpose of disposing of the Collateral and collecting the Accounts, or
assisting the Lender in disposing of the Collateral and collecting the
Accounts. During the period of such employment the Officer shall exert his
best efforts and devote all of his regular working hours to obtain sales of
the Collateral at the best commercially obtainable prices and terms and to
collect the Accounts at their full face value.
<PAGE> 2
3. Lender's Right to Terminate Officer's Employment. The Lender shall
have the right to terminate the Officer's employment or other assistance
described in Paragraph 2 hereof at any time on 30 days' notice, for any cause or
without cause.
4. Officer's Compensation. The Officer's sole compensation for any
employment or assistance rendered pursuant to Paragraph 2(b) hereof shall be a
weekly salary paid at 115% of the average salary (on a weekly basis) paid to
such person by the Borrower in the twelve (12) months immediately preceding the
commencement of such employment or activities. Such compensation shall be
prorated for partial weeks of service.
5. Officer Shall Not Bind Lender. In connection with such employment,
the Officer shall not have any authority to bind the Lender, except such
specific authority as the Lender may grant in writing.
6. Lender's Remedies Against Officer, Liquidated Damages. Until
termination pursuant to Paragraph 9, if the Officer fails to comply with the
provisions of Paragraph 2 hereof, unless such failure occurs as a result of
death or mental or physical incapacity, the Officer shall pay the Lender
$50,000, as liquidated damages, but not as a penalty, because of the difficulty
of proving actual damages for the breach of promises of the type contained
herein. Such liquidated damages shall be immediately due and payable upon the
Officer's failure to comply with the provisions of Paragraph 2 above. In
addition, the Officer shall be liable for the Lender's costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred in enforcing
the liquidated damages provision. In any event, however, the Officer shall not
be liable for more than the Lender's actual damages (excluding consequential and
punitive damages), plus the Lender's costs of enforcement of this Agreement.
7. Officer Remains Liable for Fraud and Misrepresentation.
Notwithstanding paragraph 9 hereof, the Officer shall hold the Lender harmless
for any actual loss, cost, expense, claim and damage (including any reasonable
attorney fees but excluding consequential and punitive damages) arising out of
fraud or misrepresentation made by the Borrower or its agents with respect to
the Collateral or the Borrower's financial statements while the Officer is
employed by the Borrower or the Lender. This paragraph 7 shall remain in full
force and effect so long as any Obligations remain outstanding or until
otherwise agreed by an amendment to this Agreement signed by the Lender, the
Borrower and the Officer.
8. Borrower to Find Replacement for Officer. If the Officer dies,
becomes mentally or physically incapacitated, or ceases to be employed by the
Borrower, the Borrower shall obtain a replacement for the Officer and the
Borrower shall use its best efforts to cause such replacement to execute a
support agreement substantially in the form of this Agreement.
9. Termination of Officer's Obligations. This Agreement shall remain in
full force and effect until:
(a) the Credit Agreement is no longer outstanding and all Obligations
have been paid in full; or
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<PAGE> 3
(b) except as set forth in Paragraph 7 hereof, the Officer shall have
ceased to be employed by the Borrower for more than thirty (30) business
days before the occurrence of the events described in clauses (i) and (ii)
of Paragraph 2 hereof, and shall have given notice of such cessation of
employment to the Lender at least thirty (30) business days before the
occurrence of such events.
10. Miscellaneous. The provisions of this Agreement are declared to be
severable. If any provision of this Agreement shall be held to be invalid,
illegal or unenforceable, such invalidity, illegality or unenforceability shall
not affect any other provisions of this Agreement. The Officer and the Borrower
waive notice of the Lender's acceptance hereof.
11. Governing Law; Waiver of Jury Trial. This Agreement shall be
governed by and construed in accordance with the substantive laws (other than
conflict laws) of the State of Minnesota. THE PARTIES WAIVE ANY RIGHT TO TRIAL
BY JURY IN ANY CLAIM, COUNTERCLAIM, ACTION OR PROCEEDING BASED ON OR PERTAINING
TO THIS AGREEMENT.
IN WITNESS WHEREOF, the Officer and the Borrower have executed this
Agreement as of the date first written above.
CHAPARRAL NETWORK STORAGE, INC.
/s/ Gary Allison
- ----------------------------------
Gary Allison By: /s/ Douglas J. Lehrmann
--------------------------------
Its Vice President, Finance
------------------------------
Accepted:
WELLS FARGO BUSINESS CREDIT, INC.
By: /s/ Tim Ulrich
-------------------------------
Tim Ulrich, Vice President
-3-
<PAGE> 1
EXHIBIT 10.15
SUBORDINATION AGREEMENT
This Agreement, dated as of July 5, 1999, is made by William R. Childs
(the "Subordinated Creditor"), for the benefit of Wells Fargo Business Credit,
Inc., a Minnesota corporation (the "Lender").
Chaparral Network Storage, Inc., formerly known as Chaparral
Technologies, Inc., a Delaware corporation (the "Borrower"), is now or hereafter
may be indebted to the Lender on account of loans or the other extensions of
credit or financial accommodations from the Lender to the Borrower, or to any
other person under the guaranty or endorsement of the Borrower.
The Subordinated Creditor has made or may make loans or grant other
financial accommodations to the Borrower.
As a condition to making any loan or extension of credit to the
Borrower, the Lender has required that the Subordinated Creditor subordinate the
payment of the Subordinated Creditor's loans and other financial accommodations
to the payment of any and all indebtedness of the Borrower to the Lender.
Assisting the Borrower in obtaining credit accommodations from the Lender and
subordinating his interests pursuant to the terms of this Agreement are in the
Subordinated Creditor's best interest.
ACCORDINGLY, in consideration of the loans and other financial
accommodations that have been made and may hereafter be made by the Lender for
the benefit of the Borrower, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Subordinated
Creditor hereby agrees as follows:
1. Definitions. As used herein, the following terms have the meanings
set forth below:
"Availability" has the meaning given in the Credit Agreement.
"Borrower Default" means a Default or Event of Default as defined in
any agreement or instrument evidencing, governing, or issued in connection
with Lender Indebtedness, including, but not limited to, the Credit
Agreement, or any default under or breach of any such agreement or
instrument.
"Cash Flow" means the Borrower's fiscal year-to-date Net Income plus
depreciation and amortization, plus other non-cash items including (without
limitation) any deferred interest, less the sum of (a) Current Maturities
of Long Term Debt and (b) unfinanced Capital Expenditures. Capitalized
terms used in this definition and not defined in this Agreement shall have
the meaning given in the Credit Agreement.
"Credit Agreement" means the Credit and Security Agreement dated as of
July 5, 1999, by and between the Borrower and the Lender, as the same may
hereafter be amended, supplemented or restated from time to time.
<PAGE> 2
"Current Maturities of Long Term Debt" as of a given date means the
amount of the Borrower's long-term debt and capitalized leases which became
due during the fiscal year-to-date period ending on the designated date.
"Lender Indebtedness" means each and every debt, liability and
obligation of every type and description which the Borrower may now or at
any time hereafter owe to the Lender, whether such debt, liability or
obligation now exists or is hereafter created or incurred, and whether it
is or may be direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or joint,
several or joint and several, all interest thereon, all renewals,
extensions and modifications thereof and any notes issued in whole or
partial substitution therefor.
"Subordinated Indebtedness" means all obligations arising under the
Subordinated Note and each and every other debt, liability and obligation
of every type and description which the Borrower may now or at any time
hereafter owe to the Subordinated Creditor, whether such debt, liability or
obligation now exists or is hereafter created or incurred, and whether it
is or may be direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or joint,
several or joint and several.
"Subordinated Note" means, collectively, all of the following: the
Borrower's Promissory Note, dated as of January 27, 1999, in the original
principal amount of $50,000, the Borrower's Promissory Note, dated as of
March 1, 1999, in the original principal amount of $400,000, the Borrower's
Promissory Note, dated as of March 18, 1999, in the original principal
amount of $200,000, the Borrower's Promissory Note, dated as of April 1,
1999, in the original principal amount of $200,000, and the Borrower's
Promissory Note, dated as of April 14, 1999, in the original principal
amount of $200,000, each payable to the Subordinated Creditor, and any
other Promissory Note issued in the future by the Borrower payable to the
Subordinated Creditor, provided such Promissory Note contains the legend
set forth in Exhibit A hereto, together with all renewals, extensions and
modifications thereof and any note or notes issued in substitution
therefor.
2. Subordination. The payment of all of the Subordinated Indebtedness
is hereby expressly subordinated to the extent and in the manner hereinafter set
forth to the payment in full of the Lender Indebtedness; and regardless of any
priority otherwise available to the Subordinated Creditor by law or by
agreement, the Lender shall hold a first security interest in all collateral
securing payment of the Lender Indebtedness (the "Collateral"), and any security
interest claimed therein (including any proceeds thereof) by the Subordinated
Creditor shall be and remain fully subordinate for all purposes to the security
interest of the Lender therein for all purposes whatsoever.
3. Principal Payments. Until all of the Lender Indebtedness has been
paid in full, the Subordinated Creditor shall not, without the Lender's prior
written consent, demand, receive or accept any principal payment, from the
Borrower in respect of the Subordinated Indebtedness, or exercise any right of
or permit any setoff in respect of the Subordinated Indebtedness, except that
the
-2-
<PAGE> 3
Subordinated Creditor may accept payments of principal under the Subordinated
Note within 30 days of the end of each fiscal quarter, so long as (a) no
Borrower Default has occurred and is continuing or will occur as a result of or
immediately following any such payment, (b) average Availability for the 90-day
period prior to such payment is greater than $200,000, (c) Availability after
such payment will be greater than $200,000, (d) the sum of such payment and all
prior payments to Subordinated Creditor and all of the Borrower's other
subordinated creditors during the fiscal year in which such payment is proposed
to be made will not exceed 70% of the Borrower's fiscal year-to-date Cash Flow,
and (e) the date of the proposed payment is on January 1, 2000 or thereafter.
4. Interest Payments. Without the Lender's prior written consent, the
Subordinated Creditor shall not demand, receive or accept any interest payment
from the Borrower in respect of the Subordinated Indebtedness so long as any
Borrower Default exists or if a Borrower Default will occur as a result of or
immediately following such interest payment.
5. Receipt of Prohibited Payments. If the Subordinated Creditor
receives any payment on the Subordinated Indebtedness that the Subordinated
Creditor is not entitled to receive under the provisions of this Agreement, the
Subordinated Creditor will hold the amount so received in trust for the Lender
and will forthwith turn over such payment to the Lender in the form received
(except for the endorsement of the Subordinated Creditor where necessary) for
application to then-existing Lender Indebtedness (whether or not due), in such
manner of application as the Lender may deem appropriate. If the Subordinated
Creditor exercises any right of setoff which the Subordinated Creditor is not
permitted to exercise under the provisions of this Agreement, the Subordinated
Creditor will promptly pay over to the Lender, in immediately available funds,
an amount equal to the amount of the claims or obligations offset. If the
Subordinated Creditor fails to make any endorsement required under this
Agreement, the Lender, or any of its officers or employees or agents on behalf
of the Lender, is hereby irrevocably appointed as the attorney-in-fact (which
appointment is coupled with an interest) for the Subordinated Creditor to make
such endorsement in the Subordinated Creditor's name.
6. Action on Subordinated Debt. The Subordinated Creditor will not
commence any action or proceeding against the Borrower to recover all or any
part of the Subordinated Indebtedness, or join with any creditor (unless the
Lender shall so join) in bringing any proceeding against the Borrower under any
bankruptcy, reorganization, readjustment of debt, arrangement of debt
receivership, liquidation or insolvency law or statute of the federal or any
state government, or take possession of, sell, or dispose of any Collateral, or
exercise or enforce any right or remedy available to the Subordinated Creditor
with respect to any such Collateral, unless and until the Lender Indebtedness
has been paid in full.
7. Action Concerning Collateral.
(a) Notwithstanding any security interest now held or hereafter
acquired by the Subordinated Creditor, the Lender may take possession of,
sell, dispose of, and otherwise deal with all or any part of the
Collateral, and may enforce any right or remedy available to it with
respect to the Collateral, all without notice to or consent of the
Subordinated Creditor except as specifically required by applicable law.
-3-
<PAGE> 4
(b) In addition, and without limiting the generality of the foregoing,
if a Borrower Default has occurred and is continuing and the Borrower
intends to sell any Collateral to an unrelated third party outside the
ordinary course of business, the Subordinated Creditor shall, upon the
Lender's request, execute and deliver to such purchaser such instruments as
may reasonably be necessary to terminate and release any security interest
or lien the Subordinated Creditor has in the Collateral to be sold.
(c) The Lender shall have no duty to preserve, protect, care for,
insure, take possession of, collect, dispose of, or otherwise realize upon
any of the Collateral, and in no event shall the Lender be deemed the
Subordinated Creditor's agent with respect to the Collateral. All proceeds
received by the Lender with respect to any Collateral may be applied,
first, to pay or reimburse the Lender for all costs and expenses (including
reasonable attorneys' fees) incurred by the Lender in connection with the
collection of such proceeds, and, second, to any indebtedness secured by
the Lender's security interest in that Collateral in any order that it may
choose.
8. Bankruptcy and Insolvency. In the event of any receivership,
insolvency, bankruptcy, assignment for the benefit of creditors, reorganization
or arrangement with creditors, whether or not pursuant to bankruptcy law, the
sale of all or substantially all of the assets of the Borrower, dissolution,
liquidation or any other marshaling of the assets or liabilities of the
Borrower, the Subordinated Creditor will file all claims, proofs of claim or
other instruments of similar character necessary to enforce the obligations of
the Borrower in respect of the Subordinated Indebtedness and will hold in trust
for the Lender and promptly pay over to the Lender in the form received (except
for the endorsement of the Subordinated Creditor where necessary) for
application to the then-existing Lender Indebtedness, any and all moneys,
dividends or other assets received in any such proceedings on account of the
Subordinated Indebtedness, unless and until the Lender Indebtedness has been
paid in full. If the Subordinated Creditor shall fail to take any such action,
the Lender, as attorney-in-fact for the Subordinated Creditor, may take such
action on the Subordinated Creditor's behalf. The Subordinated Creditor hereby
irrevocably appoints the Lender, or any of its officers or employees on behalf
of the Lender, as the attorney-in-fact for the Subordinated Creditor (which
appointment is coupled with an interest) with the power but not the duty to
demand, sue for, collect and receive any and all such moneys, dividends or other
assets and give acquittance therefor and to file any claim, proof of claim or
other instrument of similar character, to vote claims comprising Subordinated
Indebtedness to accept or reject any plan of partial or complete liquidation,
reorganization, arrangement, composition or extension and to take such other
action in the Lender's own name or in the name of the Subordinated Creditor as
the Lender may deem necessary or advisable for the enforcement of the agreements
contained herein; and the Subordinated Creditor will execute and deliver to the
Lender such other and further powers-of-attorney or instruments as the Lender
may request in order to accomplish the foregoing.
9. Restrictive Legend; Transfer of Subordinated Indebtedness. The
Subordinated Creditor will cause the Subordinated Note and all other notes,
bonds, debentures or other instruments evidencing the Subordinated Indebtedness
or any part thereof to contain a specific statement thereon to the effect that
the indebtedness thereby evidenced is subject to the provisions of this
Agreement,
-4-
<PAGE> 5
and the Subordinated Creditor will mark its books conspicuously to evidence the
subordination effected hereby. Attached hereto is a true and correct copy of the
Subordinated Note bearing such legend. At the request of the Lender, the
Subordinated Creditor shall deposit with the Lender the Subordinated Note and
all of the other notes, bonds, debentures or other instruments evidencing the
Subordinated Indebtedness, which notes, bonds, debentures or other instruments
may be held by the Lender so long as any Lender Indebtedness remains
outstanding. The Subordinated Creditor is the lawful holder of the Subordinated
Note and has not transferred any interest therein to any other person. Without
the prior written consent of the Lender, the Subordinated Creditor will not
assign, transfer or pledge to any other person any of the Subordinated
Indebtedness or agree to a discharge or forgiveness of the same so long as there
remains outstanding any of the Lender Indebtedness.
10. Continuing Effect. This Agreement shall constitute a continuing
agreement of subordination, and the Lender may, without notice to or consent by
the Subordinated Creditor, modify any term of the Lender Indebtedness in
reliance upon this Agreement. Without limiting the generality of the foregoing,
the Lender may, at any time and from time to time, either before or after
receipt of any such notice of revocation, without the consent of or notice to
the Subordinated Creditor and without incurring responsibility to the
Subordinated Creditor or impairing or releasing any of the Lender's rights or
any of the Subordinated Creditor's obligations hereunder:
(a) change the interest rate or change the amount of payment or extend
the time for payment or renew or otherwise alter the terms of any Lender
Indebtedness or any instrument evidencing the same in any manner;
(b) sell, exchange, release or otherwise deal with any property at any
time securing payment of the Lender Indebtedness or any part thereof;
(c) release anyone liable in any manner for the payment or collection
of the Lender Indebtedness or any part thereof,
(d) exercise or refrain from exercising any right against the Borrower
or any other person (including the Subordinated Creditor); and
(e) apply any sums received by the Lender, by whomsoever paid and
however realized, to the Lender Indebtedness in such manner as the Lender
shall deem appropriate.
11. No Commitment. None of the provisions of this Agreement shall be
deemed or construed to constitute or imply any commitment or obligation on the
part of the Lender to make any future loans or other extensions of credit or
financial accommodations to the Borrower.
12. Notice. All notices and other communications hereunder shall be in
writing and shall be (i) personally delivered, (ii) transmitted by registered
mail, postage prepaid, or (iii) transmitted by telecopy, in each case addressed
to the party to whom notice is being given at its address as set forth below:
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If to the Lender:
Wells Fargo Business Credit, Inc.
1740 Broadway
Denver, Colorado 80274-8625
Telecopier: (303) 863-4904
Attention: Tim Ulrich
If to the Subordinated Creditor:
Chaparral Network Storage, Inc.
1951 South Fordham
Longmont, Colorado 80503
Attention: Douglas Lehrmann
Telecopier: (303) 684-3201
or at such other address as may hereafter be designated in writing by that
party. All such notices or other communications shall be deemed to have been
given on (i) the date received if delivered personally, (ii) the date of posting
if delivered by mail, or (iii) the date of transmission if delivered by
telecopy.
13. Conflict in Agreements. If the subordination provisions of any
instrument evidencing Subordinated Indebtedness conflict with the terms of this
Agreement, the terms of this Agreement shall govern the relationship between the
Lender and the Subordinated Creditor.
14. No Waiver. No waiver shall be deemed to be made by the Lender of
any of its rights hereunder unless the same shall be in writing signed on behalf
of the Lender, and each such waiver, if any, shall be a waiver only with respect
to the specific matter or matters to which the waiver relates and shall in no
way impair the rights of the Lender or the obligations of the Subordinated
Creditor to the Lender in any other respect at any time.
15. Binding Effect, Acceptance. This Agreement shall be binding upon
the Subordinated Creditor and the Subordinated Creditor's heirs, legal
representatives, successors and assigns and shall inure to the benefit of the
Lender and its participants, successors and assigns irrespective of whether this
or any similar agreement is executed by any other Subordinated Creditor of the
Borrower. Notice of acceptance by the Lender of this Agreement or of reliance by
the Lender upon this Agreement is hereby waived by the Subordinated Creditor.
16. Miscellaneous. The paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
17. Governing Law; Consent to Jurisdiction and Venue; Waiver of Jury
Trial. This Agreement shall be governed by and construed in accordance with the
substantive laws (other than
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conflict laws) of the State of Colorado. Each party consents to the personal
jurisdiction of the state and federal courts located in the State of Colorado in
connection with any controversy related to this Agreement, waives any argument
that venue in any such forum is not convenient, and agrees that any litigation
initiated by any of them in connection with this Agreement shall be venued in
either the District Court for the City and County of Denver, or the United
States District Court, District of Colorado. THE PARTIES WAIVE ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS
ACKNOWLEDGMENT.
IN WITNESS WHEREOF, the Subordinated Creditor has executed this
Agreement as of the date and year first above-written.
/s/ William R. Childs
--------------------------------------
William R. Childs
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<PAGE> 8
Acknowledgment by Borrower
The undersigned, being the Borrower referred to in the foregoing
Agreement, hereby (i) acknowledges receipt of a copy thereof, (ii) agrees to all
of the terms and provisions thereof, (iii) agrees to and with the Lender that it
shall make no payment on the Subordinated Indebtedness that the Subordinated
Creditor would not be entitled to receive under the provisions of the Agreement,
(iv) agrees that any such payment will constitute a default under the Lender
Indebtedness, and (v) agrees to mark its books conspicuously to evidence the
subordination of the Subordinated Indebtedness effected hereby.
CHAPARRAL NETWORK STORAGE, INC.
By /s/ Douglas J. Lehrmann
------------------------------------
Its Vice President, Finance
---------------------------------
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<PAGE> 1
EXHIBIT 10.16
LOAN AGREEMENT
THIS AGREEMENT, dated as of January 14, 2000, is between Chaparral Network
Storage, Inc. (the "Company"), 1951 S. Fordham Street, Longmont, Colorado 80503
(address), and Norwest Bank Colorado N.A. - Boulder (the "Bank"), 1242 Pearl
Street, P.O. Box 227, Boulder, Colorado.
ARTICLE I
DEFINITIONS
SECTION 1.1 The terms defined in this Article shall have the meanings
specified for all purposes of this Agreement.
(a) "Borrowing Base" shall mean an amount equal to the sum of the
following:
(1) 90% of the Company's U.S. Treasury or U.S. Agency investments with
a maturity of 1 year or less held in a Norwest Investment Services, Inc. account
and pledged to the Bank; plus
(2) 80% of the Company's investment grade commercial paper investments
with a maturity of 1 year or less held in a Norwest Investment Services, Inc.
account and pledged to the Bank.
(b) "Commitment Expiration Date" shall mean August 31, 2000.
(c) "Consolidated Debt to Worth Ratio" shall mean the ratio of
(i) the aggregate debt of the Company, determined in accordance
with generally accepted accounting principles, less any debt formally
subordinated by a creditor to the indebtedness of the Company to the Bank,
to
(ii) the Company's net equity, determined in accordance with
generally accepted accounting principles, less any notes due from
stockholders, plus any debt formally subordinated by a creditor to the
indebtedness of the Company to the Bank. Debt to trade creditors that
subordinate their lien positions to the Bank, if any, shall not be deemed
subordinated debt for purposes of the foregoing calculation.
(d) "Investment Grade Marketable Securities" shall mean U.S. Government and
U.S. Agency issued debt instruments and investment grade commercial paper, all
with maturities of one year or less. Money market funds backed solely by the
same investment instruments shall also qualify under this definition.
(e) "Equity Equivalent Investments" shall mean cash provided to the Company
either by the purchase of common or preferred stock or by the making of Loans to
the Company that are formally subordinated to the indebtedness of the Company to
the Bank.
<PAGE> 2
(f) "ERISA" shall mean the Employment Retirement Income Security Act of
1974, as amended.
(g) "Event of Default" shall mean any of the events listed in Section 5.1
below.
(h) "Loan" or "Loans" shall mean all advances that the Bank agrees to make
or issue hereunder.
ARTICLE II
THE COMMITMENT
SECTION 2.1 The Bank agrees, on the terms herein set forth, to make Loans
to the Company under a Revolving Line of Credit in an aggregate amount not
exceeding the lesser of the Borrowing Base or $3,000,000.00. The Loans may be in
the form of cash advances as requested by the Company on or before the
Commitment Expiration Date, when said Loans, together with interest thereon,
shall be due and payable. The amount available for Loans at any time shall be
the lesser of $3,000,000.00 or the Borrowing Base, minus the aggregate principal
amount of all outstanding cash advances, minus the aggregate face amount of all
outstanding Letters of Credit. If any time the aggregate balance outstanding on
the Loans exceeds the Borrowing Base, the excess shall become immediately due
and payable and shall be paid to the Bank within five business days after
written notice to the Company.
SECTION 2.2 The Loan shall be evidenced by a Promissory Note in the maximum
principal amount of $3,000,000.00, payable to the order of the Bank on or before
August 31, 2000.
SECTION 2.3 The Loans shall bear interest at a rate equal to the Norwest
Bank Colorado National Association Prime Rate (the "Prime Rate") as in effect
from time to time, which rate shall change, without notice, whenever the Prime
Rate changes, to and including maturity. Overdue principal and (to the extent
legally enforceable) overdue interest, whether caused by acceleration of
maturity or otherwise, shall bear interest at a rate four percentage points
above the rate in effect at the time such principal or interest becomes due.
Interest shall be payable monthly in arrears on the last day of each month,
beginning January 31, 2000.
SECTION 2.4 The Company shall have the right to repay the Loans in part or
in whole at any time without penalty; however, prepayment in full must be
accompanied by payment of all accrued interest then due.
SECTION 2.5 All payments made by the Company on account of principal and of
interest shall be made in immediately available funds to the Bank.
SECTION 2.6 The Bank's commitment to make the initial and all subsequent
Loans hereunder shall be subject to the following conditions:
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(a) Prior to the initial Loan, payment by the Company of a 1/4% ($7,500.00)
loan commitment fee.
(b) As of the dates of the initial and any subsequent Loans, all
representations and warranties of the Company contained herein shall be true and
no Event of Default shall have occurred and be continuing.
ARTICLE III
REPRESENTATION AND WARRANTIES
The company represents and warrants to the Bank as follows:
SECTION 3.1 The Company is duly organized, validly existing, and in good
standing under the laws of the State of Colorado, and is duly qualified to do
business wherever necessary to carry on its present operations.
SECTION 3.2 The making and performance of this Agreement is within the
Company's corporate powers; has been duly authorized by all necessary corporate
action; does not require any stockholder consent; does not require the approval
of any federal or state regulatory authority; does not contravene any law,
regulation or agreement to which the Company is a party or by which it or its
assets may be bound; and will not conflict with any provision of the articles of
incorporation, bylaws or other governing documents of the Company.
SECTION 3.3 This Agreement is the legal, valid and binding obligation of
the Company, enforceable in accordance with its terms.
SECTION 3.4 There is no pending or threatened action or proceedings before
any court or administrative agency which may materially adversely affect the
Company's financial condition or operations.
SECTION 3.5 The Company has good and marketable title to all of its
properties or assets (except leased assets), and none of such properties or
assets included in the Borrowing Base are subject to any mortgage, pledge, loan
security interest, encumbrance or any other security agreement or arrangement of
any type whatsoever except the security interests, liens and encumbrances
permitted by this Agreement.
SECTION 3.6 To the best of the Company's knowledge and information no
material claim for taxes, whether federal, state or local, are presently being
assessed against the Company with respect to any past due taxes, nor are there
any tax disputes being litigated or determined by governmental proceedings at
the present time that have not been reflected in the financial statements of the
Company previously furnished to the Bank.
SECTION 3.7 The Company or property of the Company is not currently the
subject of any threatened or ongoing litigation, judgment, decree, order,
citation, compliant, or notice of violation relating to or arising out of
environmental laws or issues. For purposes of this Agreement,
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<PAGE> 4
Contamination and Contaminated shall mean the presence of solid or hazardous
wastes, hazardous substances, pollutants or contaminants, petroleum, toxic or
hazardous constituents, or similar materials, as such terms are defined under
any federal, state, or local statute, whether currently or subsequently enacted,
or under common law.
ARTICLE IV
COVENANTS OF THE BORROWER
SECTION 4.1 So long as the Company may borrow hereunder and until payment
in full of the Note and performance of all other obligations of the Company, the
Company shall:
(a) (i) Furnish to the Bank within 30 days after the end of each month
during each fiscal year a consolidated balance sheet and income statement;
(ii) furnish to the Bank within 120 days after the end of each fiscal
year of the Company an audited consolidated balance sheet and income
statement;
(iii) furnish to the Bank within 120 days after the end of each fiscal
year of the Company cash flow projections for the ensuing year;
(iv) permit or cause to permit the Bank at any reasonable time to have
access to the books and records of the Company, and to inspect or otherwise
check the properties of the Company;
(v) furnish to the Bank from time to time with reasonable promptness
such further information relating to the financial condition and operations
of the Company as the Bank may reasonably request; and
(vi) reimburse the Bank for any reasonable costs incurred through the
performance by the Bank of inspections of the Company's book's or
operations.
(b) Maintain a cash plus Investment Grade Marketable Securities position of
$4,000,000.00 or greater.
(d) Maintain a Consolidated Debt to Worth Ratio not to exceed 1.5 to 1.
(e) Maintain a minimum Net Worth position of $4,000,000.00 or greater.
(f) Use the Bank as its principal depository for all demand and savings
business accounts.
(g) Allow the Bank the opportunity to bid on all short term investments
including certificates of deposit and repurchase agreements.
(h) Maintain insurance with responsible companies on such of its
properties, in such amounts and against such amount and against such risks as is
reasonable and customarily maintained by similar businesses operating in the
same vicinity.
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<PAGE> 5
(i) Comply in all material respects with all laws and regulations
applicable to its business and operations.
(j) Promptly provide notice to the Bank of (i) the occurrence of an Event
of Default; (ii) the occurrence of a "Reportable Event" (as defined in ERISA);
or (iii) the institution of steps by the Company to withdraw from or terminate
any employee benefit plan as to which the Company may have any liability.
(k) Promptly furnish to the Bank copies of all documents filed by it with
the Securities and Exchange Commission, the National Association of Securities
Dealers, Inc., any securities exchange or any state securities commission,
including but not limited to all registration statements, annual reports on Form
10K, quarterly reports on Form 10Q, reports on Form 8K, proxy statements and
annual reports to shareholders, and all amendments there to.
SECTION 4.2 So long as the Company may borrow hereunder and until payment
in full of the Note and performance of all other obligations of the Company
hereunder, the Company shall not, without the consent of the Bank, which consent
shall not be unreasonably withheld;
(a) Pay a dividend on capital stock now or hereafter outstanding, or
redeem, retire, purchase or otherwise acquire directly or indirectly any shares
of the debtor's stock now or hereafter outstanding.
(b) Enter into any mergers, acquisitions or consolidations.
(c) Sell, lease or otherwise dispose of all or any substantial part of its
assets or operation.
(d) Make any loans or advances to another person or entity, enter into any
direct borrowings other than purchase money security agreements for equipment
acquisitions or assume, guarantee or otherwise become contingently liable on any
borrowings or indebtedness of another person or entity.
(e) Permit any Pension and/or Profit Sharing Plan maintained by it to:
(i) Engage in any "prohibited transaction" as such term is defined in
section 4975 of the Internal Revenue Code of 12954, as amended;
(ii) Incur any "accumulated funding deficiency" as such term is defined
in section 302 of ERISA; or
(iii) Terminate in a manner which could result in the imposition of a
lien on the property of the Company pursuant to section 4068 to ERISA.
(f) Create, incur or permit to exist any lien, security interest or other
encumbrance upon any of its properties or assets included in the Borrowing Base
except (i) liens for taxes or other items
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<PAGE> 6
not yet overdue or being contested in good faith, or (ii) pursuant to purchase
money security agreements for equipment acquisitions.
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.1 The occurrence of any of the following events shall be an
"Event of Default":
(a) Any payment of principal or interest shall not be made when due and not
be cured within ten business days thereafter; or
(b) Any representation or warranty made by the Company in connection with
the execution and delivery of this Agreement, or in any certificate furnished
pursuant hereto, shall prove to be at any time incorrect in any material
respect; or
(c) The Company shall fail to perform or observe any other term, covenant
or agreement contained in this Agreement and such failure shall continue for a
period of seven days after written notice to the Company from the Bank; which
failure to perform or observe any covenant having occurred subsequent to review
of the occasion with the Bank; or
(d) Any obligation of the Company for the payment of borrowed money is not
made at maturity, whether by acceleration or otherwise, or is declared to be due
and payable prior to the stated maturity thereof by reason of default or other
violation of the terms thereof; or
(e) In the opinion of the Bank there shall occur a material adverse change
in the financial condition of the Company.
SECTION 5.2 Upon the occurrence of an Event of Default, the obligation of
the Bank to make advances under this Agreement or any other loan commitment to
the Company and to issue Letters of Credit shall terminate and the Bank may
declare the principal balance, together with accrued interest thereon, to be
immediately due and payable, and the same shall forthwith become immediately due
and payable without presentment, protest, notice or demand of any kind, all of
which are hereby expressly waived by the Company Upon any such Event of Default,
the Bank may proceed with each and every remedy provided for it in this
Agreement, the Note, or security agreements and other instruments executed in
connection with the Loans, anything in said instruments to the contrary
not-withstanding, and may pursue any other remedy available to the Bank, whether
in law or equity, to enforce collection of all sums due and owing to the Bank,
all of such right and remedies being cumulative and not exclusive of all rights
and remedies which the Bank has or may have against the Company.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 No failure on the part of the Bank in exercising any power or
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power
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<PAGE> 7
preclude any other or further exercise thereof or the exercise of any other
right or power hereunder. No modification or waiver of any provision of this
Agreement nor consent to any departure by the Company therefrom shall in any
event be effective unless the same shall be in writing and then such a waiver or
consent shall be effective only in the specific instance and for the purposes
for which it was given. No notice or demand on the Company in any case shall
entitle it to any other or further notice or demand in similar or other
circumstances.
SECTION 6.2 No modification of this Agreement shall be effective unless the
same be in writing and mutually agreeable between the two parties.
SECTION 6.3 The Company agrees to pay all costs incurred by both parties in
connection with preparation of this Agreement, the enforcement of any provision
of this Agreement, the collection of the Note or the foreclosure or realization
upon any security therefor.
SECTION 6.4 The Company agrees to defend, indemnify, and hold harmless the
Bank for, from, and against and to reimburse the Bank with respect to any and
all claims, actions, costs and expenses whatsoever (including, without
limitation, attorneys fees and expenses and costs reasonably incurred), known or
unknown, asserted against or incurred by the Bank at any time by reason of or
arising out of or relating to any actual or alleged violation of any existing or
future environmental law or actual or threatened Contamination relating to the
property or activities of the Company, whether or not such contamination was in
violation of any environmental statute. This indemnity shall last indefinitely
and is specifically intended to survive this Agreement.
SECTION 6.5 All notices or other communication s required or permitted
under this Agreement shall be in writing and shall be deemed given when
personally delivered or mailed to the respective parties' addresses as set forth
above.
SECTION 6.6 This Agreement and the rights and obligations of the parties
hereunder shall be construed and interpreted in accordance with the laws of the
State of Colorado.
Norwest Bank Colorado, N.A. Chaparral Network Storage, Inc
Boulder
By: /s/ Thomas H. Stauffer By: /s/ Douglas Lehrmann
-------------------------------- ---------------------------------
Thomas H. Stauffer Douglas Lehrmann
Vice President Chief Financial Officer
.
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<PAGE> 1
EXHIBIT 10.17
OCCUPANCY LICENSE AGREEMENT
THIS OCCUPANCY LICENSE AGREEMENT ("Agreement") is made effective as of
October 1, 1998, by and between ADAPTEC, INC., a Delaware corporation
("Licensor"), and CHAPARRAL TECHNOLOGIES, INC., a Delaware corporation
("Licensee"), in the context of the following facts and circumstances:
A. Licensor owns that certain building (the "Building") located at 1951
South Fordham Street, Longmont, Colorado 80503.
B. Licensor and Licensee are desirous of entering into a short-term
occupancy arrangement for the use by Licensee of certain space within the
Building.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. LICENSE AREA AND LOCATION. Licensor hereby grants to Licensee a
non-assignable, non-transferable right and revocable license for the use of that
certain area (the "License Area") containing approximately 19,823 rentable
square feet of space, located on the second floor of the Building approximately
as shown on the attached Exhibit A. (The rentable square feet is based upon a
18,021 square foot usable space plus a 1,802 square foot "load factor,"
representing ten percent of the usable square footage which is attributed to the
Common Facilities referenced in Paragraph 7 of this Agreement.) Licensee hereby
acknowledges and agrees that this right of use is a license only and not a
leasehold interest and that Licensee shall not be entitled to any actions,
claims, defenses, unlawful detainer protections, or other rights afforded to
lessees, tenants, or "parties in possession" under applicable law.
Licensor may in its sole discretion, upon forty-five (45) days written
notice to Licensee, relocate the License Area to another location within the
Building; provided, however, that in such event Licensor will provide a
replacement area similar in size and type as the original License Area and will
provide improvements and furnishings to the relocated License Area similar in
type and scope of the Furnishings (defined below) provided by Licensor within
the License Area as originally located. In addition, in the event Licensor
requests that Licensee relocate, all reasonable costs of relocation, to be
mutually agreed upon by Licensor and Licensee, will be borne by Licensor.
2. TERM. The term of this Agreement (the "License Term") will commence as
of the date Licensee first occupies the License Area pursuant to this Agreement
(the "Commencement Date"), and will continue for a period of nine (9) months
(the "Termination Date"), unless sooner terminated pursuant to the following
provisions:
(a) Licensor may terminate this Agreement for cause by giving fourteen
(14) days written notice to Licensee. As used herein, "cause" means any of the
following: (i) Licensee is in material breach of a material obligation under
this Agreement, and Licensee has failed to correct such breach within fourteen
(14) days after written notice from Licensor; or (ii) Licensee causes or permits
hazardous materials or toxic substances to be used or handled in violation of
Paragraph 6 below; or
<PAGE> 2
(iii) the License Area is damaged or destroyed by a fire or other casualty that
makes it impracticable for Licensor to continue to allow Licensee to occupy the
License Area.
(b) In the event that Licensor and Licensee enter into an enforceable
lease pursuant to Licensee's First Right of Negotiation (as set forth in
Paragraph 23), then this Agreement shall terminate as of the date that occupancy
commences under such lease.
(c) In the event that Licensor sells the Building during the License
Term, then this Agreement shall terminate as of the date Licensor closes escrow
for such sale; provided, however, Licensor shall give Licensee notice of such
prospective sale at least three (3) months prior to the close of escrow.
(d) In the event that there is a merger or acquisition of Licensee, at
Licensee's option, Licensee may terminate this agreement by giving Licensor at
least three (3) months prior written notice.
On or before the Termination Date, Licensee shall completely remove all
of its personal property and vacate the License Area, leaving all of the
Furnishings therein in a clean and sanitary condition and in good working order.
3. LICENSE FEE. For the use of the License Area, as well as for the use of
the Furnishings, the Common Facilities, and the Services provided by Licensor as
described below, Licensee shall pay to Licensor a fee (the "License Fee") in the
amount of $15.40 per rentable square foot per year, payable in monthly
installments in the amount of $25,439.52 due in advance on the first day of each
calendar month, in such manner and at such address as Licensor shall designate.
For any partial month at the beginning or end of the License Term, the monthly
License Fee will be prorated. A late charge of $400.00 will be assessed if the
License Fee is not paid by the 5th day of the month.
4. PREPAID LICENSE FEE AND SECURITY DEPOSIT. Licensee shall pay to Licensor
upon execution of this Agreement the first month's License Fee, which amount
shall be held by Licensor and applied to the first installment due under this
Agreement. Licensee also shall pay to Licensor upon execution of this Agreement
an amount equal to one month's License Fee as a "Security Deposit", which amount
shall be held by Licensor as security for Licensee's faithful performance under
this Agreement. If Licensee fails to pay any License Fee or other amount due
under this Agreement, as and when due, or otherwise fails to perform its
obligations hereunder, then Licensor may, at its option and without prejudice to
any other remedy which Licensor may have, apply, use or retain all or any
portion of the Security Deposit toward the payment of delinquent amounts or for
any loss or damage sustained by Licensor due to such failure by Licensee.
Licensee shall upon demand restore the Security Deposit to the original sum
deposited. The Security Deposit shall not bear interest nor shall Licensor be
required to keep such sum separate from its general funds. To the extent not
otherwise applied by Licensor as provided herein, the Security Deposit shall be
returned to Licensee within thirty (30) days after the Termination Date.
Notwithstanding the foregoing, Licensor agrees to waive the requirement for
Licensee to pay said Security Deposit, provided that Licensee (i) does not fail
to pay any License Fee or other amount due under this Agreement, as and when
due, and (ii) does not otherwise breach a material obligation under this
Agreement. In the event
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<PAGE> 3
of such failure or breach, Licensee shall be required to pay the Security
Deposit to Licensor within 10 days after written notice from Licensor.
5. IMPROVEMENTS AND FURNISHINGS. Licensor will provide offices, conference
rooms, cubicles and lab space within the License Area at Licensor's cost, based
on Licensor's building standard specifications, pursuant to the floor plan shown
in Exhibit A. Licensor will also furnish the License Area with Licensor's
standard furniture, such as basic desks, chairs, tables, bookshelves, and filing
cabinets, in Licensor's sole discretion. Such improvements and furnishings
(collectively, the "Furnishings") shall at all times remain Licensor's property.
Licensee shall not make any alterations or modifications to or upon the License
Area or any of the Furnishings (including without limitation any painting, wall
hangings or signage), or add to, delete from or relocate any of the same,
without Licensor's prior written approval which may be withheld in Licensor's
sole and absolute discretion. If Licensor does grant approval for any such
alterations or modifications, Licensee will be required to use Licensor's
established vendors for the performance of such work.
6. USE. Licensee will use the License Area during the License Term only for
general office purposes, research and development, light manufacturing, and
sales, and for no other purpose without Licensor's prior written approval which
may be withheld in Licensor's sole and absolute discretion. Licensee shall not
cause or permit any hazardous materials or toxic substances to be used, stored,
generated, discharged, treated, handled, transported to or from, or released in,
on, or about the License Area or the Building, without the prior written consent
of Licensor which consent may be withheld in the sole and absolute discretion of
Licensor.
7. COMMON FACILITIES. During the License Term, Licensee and its employees
shall be entitled to use, in common with Licensor's employees, contractors,
agents, and invitees, those portions of the Building and related parking areas
that are designated by Licensor from time to time as being available for such
common use (the "Common Facilities"). The Common Facilities include such areas
and facilities as reception areas, hallways, stairs and elevators, the
cafeteria, coffee stations (including the typical refreshments supplied by
Licensor at such coffee stations), bathrooms, locker rooms (including lockers),
parking stalls, Shipping/Receiving area, and other similar areas and facilities
designated by Licensor. The cost of Licensee's use of the Common Facilities
shall be included in the License Fee. Conference and training rooms will be
accessible by Licensee based on availability, subject to such rules regarding
scheduling and priority as may be promulgated by Licensor from time to time. At
Licensor's election, video conferencing equipment located within the conference
rooms may be accessible by Licensee for an additional charge of $50.00 per hour,
pro-rated on the quarter hour; provided, however, Licensor shall have no
obligation to maintain and/or upgrade such video conferencing equipment for the
benefit of Licensee.
8. SERVICES PROVIDED BY LICENSOR. Licensor shall provide to Licensee,
during the License Term, the services described below (the "Services") in
accordance with Licensor's typical practices and standards in Licensor's sole
determination. The cost of such Services shall be included in the License Fee
except where expressly provided below or otherwise in this Agreement. In
accepting Licensor's agreement to provide such Services, Licensee expressly
acknowledges that there is the possibility of error or malfunction in any or all
of the same, and agrees that Licensee is fully
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<PAGE> 4
assuming all risks associated with Licensee's use or dependence on such
Services, except for gross negligence or intentional misconduct of Licensor or
its agents, contractors and employees.
(a) Licensor shall provide general ground maintenance services, trash
collection, and general repairs and maintenance to reasonable commercial
standard. Licensee shall notify Licensor as soon as possible after Licensee
becomes aware of the need for any repairs or maintenance, or of any of the
foregoing matters that is in need of correction or attention by Licensor.
(b) Licensor shall provide up to 100 telephone systems and facilities
for Licensee's use in the License Area, including telephone set, voice mail with
direct dial extensions; and up to 50 concurrent telephone calls through
Licensor's PBX and interconnect facilities for networking equipment, all in such
amounts and types and according to such specifications as determined by Licensor
in its sole discretion. Licensee shall pay to Licensor (i) an initial set-up fee
in the amount of $750.00 for the foregoing items; (ii) a fee on a time and
material basis (with time being billed at $75 per hour) for any changes to such
telephone systems or facilities after the initial set-up; (iii) the monthly
charges incurred for toll and long distance calls (including fax transmissions)
made by Licensee or from the License Area; and (iv) a basic monthly telephone
service charge, in the amount of $65 per line per month. Licensee shall use one
or more of its direct dial extensions as Licensee's main office phone number, as
the receptionists employed by Licensor will not be expected to take or deliver
messages for Licensee except in extenuating circumstances. The initial set-up
fee will be waived, since the Licensor requested the Licensee to move.
(c) Licensee shall be permitted to utilize Licensor's mail room
services for the receipt and delivery of mail to and from Licensee, provided
that correct postage on all outgoing mail must be pre-affixed by Licensee.
(d) Licensor shall provide janitorial services and utilities for the
License Area. Licensee shall pay to Licensor an equitable portion of the charges
for such services based upon total Building usage. Such amount shall be payable
within ten (10) days after receipt of an invoice for any such costs.
9. OFFICE SUPPLIES AND EQUIPMENT. Licensee shall be responsible for
supplying, at Licensee's own cost, all office supplies and equipment utilized by
Licensee in connection with Licensee's operations in the Building, including
without limitation computer equipment, modems and networking equipment,
photocopy and fax machines, postage meter, and paper and materials. Any vendors,
suppliers or service contractors who will need to enter the Building regularly
for access to the License Area (such as photocopy machine lessors) shall be
subject to the reasonable approval of Licensor.
10. COMPLIANCE WITH LAWS.
(a) Licensee and its employees shall in all respects use the License
Area and Common Facilities, and operate Licensee's business therein, in
compliance with all applicable laws, ordinances and governmental rules and
regulations, including without limitation all fire codes and requirements and
the Americans with Disabilities Act.
-4-
<PAGE> 5
(b) Licensee shall secure, at its sole cost and expense, all necessary
use permits, business licenses, and other governmental approvals necessary for
the lawful conduct of Licensee's business.
(c) Licensee shall pay, before delinquency, any and all taxes, charges
and governmental fees assessed or levied upon or on account of Licensee's
business, Licensee's occupancy of the License Area, and Licensee's personal
property.
11. RULES OF CONDUCT. Licensee and its employees shall at all times use the
License Area, the Services, the Furnishings and the Common Facilities in
compliance with the following provisions:
(a) Licensee shall at all times conduct its activities in or about the
Building in a professional and proper manner in accordance with Licensor's rules
and regulations regarding employee conduct, which rules Licensor may change from
time to time in Licensor's sole discretion.
(b) Licensee shall keep the License Area and the Furnishings therein
neat and safe at all times. Any damage caused by Licensee in excess of normal
wear and tear will be the financial responsibility of Licensee.
(c) Licensee shall abide by Licensor's policies and procedures
regarding Building access and security, which policies and procedures Licensor
may change from time to time in Licensor's sole discretion.
(d) Licensee shall use its best efforts to safeguard and preserve the
confidentiality of the work spaces, discussions, work product, systems, files,
and any other proprietary information of Licensor, other licensees, and any
other users or occupants of the Building.
(e) Licensee will be provided a copy of Licensor's rules regulations,
and policies and procedures, and will promptly be notified of any changes in the
same.
(f) Neither Licensee nor Licensee's agents, employees, or invitees
shall do, nor permit to be done, any of the following in, on or about the
Building: (i) solicit the employees of Licensor, other licensees or other users
or occupants of the Building for employment, (ii) directly or indirectly or by
action in concert with others, induce or influence (or seek to induce or
influence) any person who is engaged (as an employee, agent, independent
contractor, or otherwise) by Licensor, other licensees or other users or
occupants of the Building to terminate his or her employment or engagement,
(iii) obstruct or interfere with the rights of Licensor, other licensees, or any
other users or occupants of the Building in the conduct of their business, (iv)
injure or annoy Licensor, other licensees, or any other users or occupants of
the Building, or (v) use or allow the Building to be used for any improper,
immoral, unlawful or objectionable purpose. If, in the reasonable opinion of
Licensor, Licensee or Licensee's agents, employees, or invitees are engaging in
such conduct prohibited in, on or about the Building, Licensee, upon demand of
Licensor, shall enforce such restrictions and have such persons removed from the
Building. Licensor shall have the right but not
-5-
<PAGE> 6
the obligation to remove or exclude from the Premises or the Building any person
engaging in such prohibited conduct.
(g) Neither Licensor nor Licensor's agents, employees, or invitees
shall do, nor permit to be done, any of the following in, on or about the
Building: (i) solicit the employees of Licensee for employment, (ii) directly or
indirectly or by action in concert with others, induce or influence (or seek to
induce or influence) any person who is engaged (as an employee, agent,
independent contractor, or otherwise) by Licensee to terminate his or her
employment or engagement, (iii) use or allow the Building to be used for any
improper, immoral, unlawful or objectionable purpose.
12. CONFIDENTIALITY. Licensee acknowledges that Licensee and other
licensees of the Building may be permitted by Licensor to utilize Licensor's
computer, telephone, message correspondence, and mail delivery facilities for
their operations, and Licensee agrees to use the utmost care to safeguard and
ensure that the confidential information, proprietary information, work product,
systems and files of Licensor, other licensees, or any other users or occupants
of the Building are not disclosed or misappropriated. Subject to the terms of
Paragraph 17 of this Agreement, Licensor shall use its best efforts to safeguard
and preserve the confidentiality of Licensee's work spaces, discussions, work
product, systems, files, and other proprietary information; provided, however,
Licensee acknowledges that if Licensee and other licensees of the Building
utilize Licensor's computer, telephone, message correspondence, and mail
delivery facilities for their operations, Licensor will have limited means to
protect the confidentiality of such confidential information, work product,
systems and files, and Licensee shall waive all claims for loss or damage to
Licensee or any person claiming by, through or under Licensee resulting from the
disclosure or misappropriation of Licensee's confidential information, work
product, systems or files, except to the extent caused by the gross negligence
or intentional misconduct of Licensor.
13. LICENSOR'S RIGHT TO ENTER. Licensee agrees that Licensor shall have the
right to enter the License Area at all times for the purpose of inspecting the
same, making repairs, and performing its obligations under this Agreement.
Licensor shall use commercially reasonable efforts not to interfere with
Licensee's use of the License Area in connection with such entry.
14. NO REPRESENTATIONS BY LICENSOR. Licensee hereby acknowledges and agrees
as follows:
(a) Licensor has made no representations or warranties regarding the
level of safety and security in the Building, and Licensee will be responsible
for adequately protecting its own possessions, work product and files. However,
Licensee may request that Licensor make appropriate safety and/or security
modifications, which requests will not be unreasonably denied; provided,
however, that Licensee bears the entire cost of such modifications to the extent
that such modifications are outside of the Licensor's normal practices and
procedures.
(b) Licensor has made no representations or warranties regarding the
condition of the License Area or the Common Facilities or the suitability
thereof for Licensee's purposes, and Licensee accepts the same in its "AS IS"
condition.
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<PAGE> 7
15. REQUIRED INSURANCE. Licensee shall obtain, at its sole cost and
expense, and deliver to Licensor prior to the Commencement Date, signed
certificates of insurance evidencing currently effective policies of insurance
as follows:
(a) Commercial general liability insurance with broad form contractual
liability coverage and with limits of not less than One Million Dollars
($1,000,000) combined each occurrence and in the aggregate insuring against any
and all liability of Licensee and/or Licensor (as an additional insured) with
respect to the License Area, or arising out of the maintenance, use or occupancy
thereof, or in connection with the conduct of Licensee's business within the
Building.
(b) All Risk property insurance covering Licensee's personal property
and work product, in an amount not less than ninety percent (90%) of their full
replacement cost.
(c) Workers' compensation insurance in such forms and amounts as is
required under the laws of the State in which the Building is located.
Such certificates shall contain a provision that the policy of
insurance may not be canceled or reduced without prior notice to Licensor.
16. INDEMNIFICATION OF LICENSOR. Licensee shall, at its sole cost and
expense, indemnify, protect, defend (with counsel acceptable to Licensor) and
hold harmless Licensor, its partners, shareholders, officers, directors,
attorneys, agents, beneficiaries, employees, affiliates, contractors, and
related entities (collectively, "Licensor's Related Parties") from and against
all liabilities, obligations, damages, penalties, claims, costs, charges and
expenses, including reasonable attorneys' fees, which may arise in any manner
out of or in connection with (i) Licensee's use of the License Area, the
Furnishings, the Services and/or the Common Facilities; (ii) the conduct of
Licensee's business; (iii) any act or omission of Licensee or Licensee's
partners, shareholders, officers, directors, attorneys, agents, beneficiaries,
employees, affiliates, contractors, and related entities (collectively,
"Licensee's Related Parties"); and/or (iv) any breach by Licensee under this
Agreement; provided, however, Licensee shall have no obligation to defend or
indemnify Licensor from claims which are caused by the sole negligence or
willful misconduct of Licensor or Licensor's Related Parties.
17. WAIVER OF RESPONSIBILITY. Licensor and Licensor's Related Parties shall
not be liable for, and Licensee waives, all claims for loss or damage to
Licensee's business or damage or injury to person or property sustained by
Licensee or any person claiming by, through, or under Licensee, resulting from
any accident or occurrence in, on or about the License Area, or any other part
of the Building, including, without limitation, claims for loss, theft or damage
resulting from: (i) any Furnishings or other equipment or appurtenances being in
disrepair; (ii) injury done or occasioned by wind or weather; (iii) any defect
in or failure to operate, for whatever reason, any Furnishings or other
equipment or facilities in or about the Building; (iv) broken glass; (v) any
act, omission or negligence of other licensees, any other users or occupants of
the Building, any of Licensor's employees, or the public; or (vi) any other
cause of any nature. To the maximum extent permitted by law, Licensee agrees to
use and occupy the License Area, the Furnishings, the Services, and the Common
Facilities at Licensee's own risk.
-7-
<PAGE> 8
18. WAIVER OF RIGHT OF RECOVERY. Licensee (for itself and its insureds)
hereby releases and waives all right of recovery which it might otherwise have
(including rights of subrogation) against Licensor and Licensor's Related
Parties by reason of any loss or damage resulting from any recovery, claim,
action or cause for damages or injury or other occurrence no matter how caused,
to the extent that the same is covered by Licensee's insurance or which would
have been covered had Licensee complied with the requirements of Paragraph 15 of
this Agreement. The foregoing waiver shall be effective whether or not Licensee
maintains the insurance required to be carried pursuant to this Agreement.
Licensor (for itself and its insureds) hereby releases and waives all
right of recovery which it might otherwise have (including rights of
subrogation) against Licensee and Licensee's Related Parties by reason of any
loss or damage resulting from any recovery, claim, action or cause for damages
or injury or other occurrence no matter how caused, to the extent that the same
is covered by Licensor's insurance.
19. HOLDING OVER. If Licensee fails to vacate the License Area upon
termination of this Agreement, Licensee's presence upon or occupancy of the
License Area shall constitute a trespass. Licensor shall have the benefit of all
provisions of law respecting the recovery of the License Area and removal of
Licensee and its employees, including but not limited to, changing the locks to
the Building and/or the License Area, requesting action by local law enforcement
officers, and/or immediate injunctive relief. Licensee's occupancy of the
License Area subsequent to the termination of this Agreement shall be subject to
all the terms, covenants, and conditions of this Agreement for Licensor's
benefit, except that the License Fee shall be three times the License Fee
otherwise payable hereunder. After termination of this Agreement, Licensor shall
have no obligation to provide or allow Licensee to use any Furnishings,
Services, or Common Facilities.
20. DEFAULT. Each party may exercise any remedy available to it at law or
in equity upon the other party's breach or default of this Agreement, and the
rights, remedies, and benefits provided by this Agreement and by law are
cumulative and nonexclusive. In the event of any action or other proceeding to
interpret or enforce this Agreement, the prevailing party shall be entitled to
recover its reasonable attorney's fees from the other party.
21. MISCELLANEOUS PROVISIONS. This Agreement may be modified only in
writing by Licensor and Licensee. This Agreement is the only agreement between
the parties with respect to the subject matter of this Agreement, and all other
negotiations, representations and agreements between the parties are merged
therein. This Agreement shall be governed by the laws of the State in which the
Building is located. This Agreement shall not be strictly construed against the
party preparing it, but shall be construed as if all parties prepared this
Agreement jointly upon the advice of their respective legal counsel. If any
provision in this Agreement is held by any court to be invalid, void or
unenforceable, the remaining provisions shall nevertheless continue in full
force and effect. Waiver by Licensor of any breach of any term, covenant or
condition herein contained shall not be deemed a waiver of any subsequent breach
of the same or any other term, covenant or condition herein contained. Time is
of the essence of this Agreement and of every term, covenant and condition
hereof.
-8-
<PAGE> 9
22. DELIVERY BY COUNTERPARTS AND FACSIMILES. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original and which
together shall constitute one and the same instrument. Each party may execute
and deliver this instrument by facsimile, and facsimiles of signatures shall be
deemed original signatures for all purposes, but each party executing and
delivering this instrument by facsimile shall also send the other party an
original of this instrument containing such party's ink signature. Each person
executing this Agreement represents that the execution of this Agreement has
been duly authorized by the party on whose behalf the person is executing this
Agreement.
23. FIRST RIGHT OF NEGOTIATION. If at any time during the License Term,
Licensor desires to lease the additional space located on second floor of the
Building (the "Lease Space"), to a party other than an Affiliate (defined
below), then Licensor shall give Licensee written notice ("Lease Notice") of
such intention. Licensee shall have the first right, by giving written notice to
Licensor within five (5) business days after receipt of Licensor's Lease Notice,
to negotiate with Licensor for the lease of the Lease Space. If, within thirty
(30) days after the date of Licensor's Lease Notice, the parties do not enter
into a written lease agreement for the Lease Space, then Licensor shall be
entitled to negotiate for the lease of the Lease Space with any other party and
enter into any agreements with respect thereto, and this first right of
negotiation shall be void and of no further force or effect.
For purposes of this Agreement, an "Affiliate" shall mean any
corporation or entity with which Licensor may merge or consolidate or become
affiliated as a parent, subsidiary, holding company or otherwise, or any
corporation or entity with which Licensor has a strategic business relationship.
24. CROSS DEFAULT. Any failure by Licensee to observe or perform any term,
covenant, or condition of the Occupancy License Agreement dated November 25,
1998, entered into by and between Licensor and Licensee with respect to that
certain building located at 9701 Jeronimo Road, Irvine, California 92618 and the
license area consisting of approximately 1,000 rentable square feet of space
within such building, shall constitute a material breach of a material
obligation by Licensee under the terms of this Agreement. Licensor and Licensee
acknowledge and agree that the dispute resolution procedure set forth in the
Asset Transfer Agreement between ADAPTEC, INC. and CHAPARRAL TECHNOLOGIES, INC.
dated November 25, 1998 shall be implemented with respect to any failure under
this Paragraph.
[signatory page to follow]
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<PAGE> 10
[signatory page]
IN WITNESS WHEREOF, the parties have executed this Agreement on the
respective dates set forth below.
"Licensor"
ADAPTEC, INC.
a Delaware corporation
By: /s/ Robert W. Kraiss
--------------------------------------
Robert W. Kraiss
Title: Director of Corporate Facilities
and Real Estate
Date Signed: November 24, 1998
-----------------------------
"Licensee"
CHAPARRAL TECHNOLOGIES, INC.
a Delaware corporation
By: /s/ M. Katherine Sills
--------------------------------------
M. Katherine Sills
Title: Vice President - Administration
Date Signed: November 25, 1998
-----------------------------
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<PAGE> 11
FIRST AMENDMENT TO
OCCUPANCY LICENSE AGREEMENT
THIS FIRST AMENDMENT TO OCCUPANCY LICENSE AGREEMENT ("Amendment") is made
effective as of July 15, 1999, by and between ADAPTEC, INC., a Delaware
corporation ("Licensor"), and CHAPARRAL NETWORK STORAGE, INC., formerly known as
Chaparral Technologies, Inc., a Delaware corporation ("Licensee"), in the
context of the following facts and circumstances:
A. Pursuant to that certain Occupancy License Agreement (the "OLA") between
the parties effective as of October 1, 1998, Licensor granted to Licensee the
right to occupy certain premises (the "License Area") within a building owned by
Licensor (the "Building") located at 1951 South Fordham Street, Longmont,
Colorado 80503.
B. The term of the OLA expired on June 30, 1999. Since that time Licensee
has been occupying the License Area on the basis of an oral agreement to extend
the OLA on a month-to-month basis. Licensor and Licensee are desirous of
formalizing such agreement in accordance with the terms and conditions set forth
in this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree that the OLA is hereby amended
as follows:
1. TERM. The term of the OLA is extended on a month-to-month basis
commencing effective as of July 1, 1999, on all of the terms and conditions of
the OLA, except as follows:
(a) Licensor and/or Licensee shall continue to have each of their
respective rights to terminate the OLA as and when provided by Paragraphs 2(a)
through 2(d) of the OLA; provided, however, that notwithstanding anything to the
contrary contained in the OLA, either Licensor or Licensee may terminate the OLA
at any time, for any reason, by giving at least thirty (30) days' written notice
of termination to the other party.
(b) Any Services provided by Licensor to Licensee, as defined in
Paragraph 8 of the OLA, can be deleted or changed by Licensor, upon giving at
least thirty (30) days' written notice to Licensee. Licensor shall include in
its notice a statement describing Licensor's reasonable determination of any
adjustment to the License Fee that will be made based on such deletion or change
in Services.
(c) Paragraph 23 of the OLA (regarding Licensee's First Right of
Negotiation) no longer applies and is hereby deleted.
(d) Paragraph 24 of the OLA (regarding Cross Default) is hereby amended
to delete the reference to the space located at 9701 Jeronimo Road, Irvine,
California 92618, and to substitute therefor the space located at 27121 Towne
Centre Drive, Foothill Ranch, California 92610.
<PAGE> 12
2. RATIFICATION OF OLA. Except as specifically provided in this Amendment,
all terms and conditions of the OLA shall remain unchanged and in full force and
effect, and are hereby ratified by the parties.
3. BINDING EFFECT. This Amendment shall be binding on both parties only
when both parties shall have executed this document and delivered the same to
each other.
4. DELIVERY BY COUNTERPARTS AND FACSIMILES. This Amendment may be executed
in two or more counterparts, each of which shall be deemed an original and which
together shall constitute one and the same instrument. Each party may execute
and deliver this instrument by facsimile, and facsimiles of signatures shall be
deemed original signatures for all purposes, but each party executing and
delivering this instrument by facsimile shall also send the other party an
original of this instrument containing such party's ink signature. Each person
executing this Agreement represents that the execution of this Agreement has
been duly authorized by the party on whose behalf the person is executing this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment on the
respective dates set forth below.
"Licensor"
ADAPTEC, INC.,
a Delaware corporation
By: /s/ Robert W. Kraiss
---------------------------------
Title: Director of Corporate
Facilities and Real Estate
------------------------------
Date Signed: July 27, 1999
------------------------
"Licensee"
CHAPARRAL NETWORK STORAGE, INC.
a Delaware corporation
By: /s/ Douglas J. Lehrmann
---------------------------------
Title: Vice President, Finance
------------------------------
Date Signed: July 22, 1999
------------------------
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<PAGE> 1
EXHIBIT 10.18
LEASE BETWEEN
BTC DEVELOPMENT, LLC
AND
CHAPARRAL NETWORK STORAGE, INC.
Current as of September 1, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1 PURPOSE....................................................1
SECTION 2 TERM.......................................................1
SECTION 3 COMPLETION OF THE PREMISES.................................2
SECTION 4 RENT.......................................................2
SECTION 5 TAXES AND OPERATING COST ADJUSTMENT FORMULA................4
SECTION 6 HOLDING OVER...............................................7
SECTION 7 BUILDING SERVICES..........................................7
SECTION 8 CONDITION OF PREMISES......................................8
SECTION 9 USE OF LEASED PREMISES.....................................9
SECTION 10 COMPLIANCE WITH LAW.......................................10
SECTION 11 ALTERATIONS AND REPAIRS...................................10
SECTION 12 ABANDONMENT...............................................11
SECTION 13 ASSIGNMENT AND SUBLETTING.................................11
SECTION 14 SIGNS AND ADVERTISING.....................................12
SECTION 15 DAMAGE TO PROPERTY, INJURY TO PERSONS.....................12
SECTION 16 TENANT'S INSURANCE........................................13
SECTION 17 DAMAGE OR DESTRUCTION.....................................14
SECTION 18 ENTRY BY LANDLORD.........................................15
SECTION 19 DEFAULT BY TENANT.........................................15
SECTION 20 TAXES.....................................................18
</TABLE>
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<PAGE> 3
<TABLE>
Page
<S> <C> <C>
SECTION 21 EMINENT DOMAIN..............................................19
SECTION 22 SUBORDINATION TO MORTGAGES AND DEEDS OF TRUST...............19
SECTION 23 WAIVER......................................................20
SECTION 24 SUBROGATION.................................................20
SECTION 25 PLATS AND RIDERS............................................21
SECTION 26 SALE BY LANDLORD............................................21
SECTION 27 RIGHT OF LANDLORD TO PERFORM................................21
SECTION 28 ATTORNEY'S FEES.............................................21
SECTION 29 ESTOPPEL CERTIFICATE........................................22
SECTION 30 NOTICE......................................................22
SECTION 31 RIGHTS RESERVED.............................................22
SECTION 32 REAL ESTATE BROKER..........................................23
SECTION 33 MISCELLANEOUS PROVISIONS....................................23
SECTION 34 SUCCESSORS AND ASSIGNS......................................24
SECTION 35 QUIET ENJOYMENT.............................................24
SECTION 36 RECORDING...................................................24
SECTION 37 RELIANCE BY LANDLORD........................................25
SECTION 38 OPTION TO EXTEND............................................25
SECTION 39 SECURITY DEPOSIT............................................25
SECTION 40 WORK LETTERS................................................25
SECTION 41 FIRST RIGHT OF REFUSAL ON ADDITIONAL SPACE..................26
</TABLE>
-ii-
<PAGE> 4
LEASE
THIS LEASE made this 1st day of September, 1999, between Chaparral Network
Storage, Inc., a Delaware Corporation ("Tenant"), and BTC Development, LLC
"Landlord").
WITNESSETH:
DEMISE
Landlord does hereby lease to Tenant and Tenant hereby leases from
Landlord an approximate 20,000 rentable square feet (the "Premises," or,
alternatively, the "Leased Premises") Dry Creek Corporate Center (the
"Building"), which Building is situated on land described as 7040 East Dry Creek
Parkway, Longmont, Colorado 80503 (the "Property"), together with a
non-exclusive right, subject to the provisions of this Lease, to use all
appurtenances thereto, including, but not limited to, any plazas, common areas,
parking lots, walks, ways or other areas in the Building or on the Property
designated by Landlord for the exclusive or non-exclusive use of the tenants of
the Building.
The Lease is upon and subject to the terms, conditions, and covenants
set forth below and Tenant covenants as a material part of the consideration for
this Lease to keep and perform each and all of the terms, conditions, and
covenants by it to be kept and performed and that this Lease is made upon the
condition of such performance.
SECTION 1
PURPOSE
1.1 Use of Premises. The Premises are to be used for office,
engineering labs, product development, shipping, receiving, warehousing and
manufacturing and related office functions, provided that such uses comply with
all zoning and use restrictions, and for no other purpose without the prior
written consent of Landlord.
SECTION 2
TERM
2.1 Primary Term. The Term of this Lease shall be for a period of sixty
(60) months. Lease commencement, (Commencement Date) will then take place on
March 15, 2000, and on March 31, 2005 ("The Primary Lease Term"). The Primary
Lease Term will commence upon receipt of a Certificate of Occupancy for the
Premises.
(a) Should Tenant, through the actions of Tenant, it's
employees, agents, contractors, subcontractors, guests, licensees, or invitees,
impede, delay or in some manner alter the aforementioned schedule for buildout,
thus causing the estimated occupancy date to move to a future date, then the
Primary Lease Term will commence on the estimated date specified in Section 2 of
herein lease, even though a Certificate of Occupancy has not been received from
the Building Department of the Boulder County.
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<PAGE> 5
SECTION 3
COMPLETION OF THE PREMISES
(See Space Plan. Addendum "A") Tenant shall have a Build Out Allowance
of $440,000.00 or $22.00 per useable square foot. The Build Out Allowance
includes all costs incurred in designing, permitting, construction, and
installation of Tenant Improvements. All costs in excess of allowance are to be
paid by Tenant. Golden Triangle Construction (GTC) will be the General
Contractor for any initial Tenant Improvement work done to the Premises. GTC
will generally request 3 competitive bids for all subcontract work to be
performed, and will provide to Tenant a breakdown of all costs prior to the
commencement of any work. All costs in excess of Build Out Allowance will be
added to Lease Rate and amortized at ten percent (10%) over the term of the
Lease.
SECTION 4
RENT
4.1 Base Rent. Tenant agrees to pay Landlord during the full Primary
Lease Term the sum of $1,144,458.33, payable in advance in equal monthly
installments of $18,916.66 for the Premises: The first full monthly installment
of Base Rent shall be payable on the Commencement Date and each succeeding
monthly installment shall be due and payable on or before the first day of each
and every successive calendar month thereafter during the Primary Lease Term.
The exact square footage of the Premises will be measured "as-built" and Rent
adjusted accordingly.
4.2 No Offsets. The Base Rent and all other sums or changes required by
this Lease to be paid by Tenant to Landlord, (all of which are sometimes
collectively referred to as "Rent") shall be paid to Landlord without deduction
or offset, in lawful money of the United States of America, at the office of
O'Connor Development, LLC, 287 Century Circle, Suite 101, Louisville, Colorado
80027 or to such other person or at such other place as Landlord may from time
to time designate in writing.
4.3 Interest on Late Payments. Any Rent or other amount due from Tenant
to Landlord under this Lease not paid within seven (7) days of when due shall
bear interest from the date due, computed on a daily basis, until the date paid,
at the rate of four percent (4%) over the "Prime Rate" per month, as announced
by Norwest Bank of Colorado, NA from time to time, but the payment of the
interest shall not excuse nor cure any default by Tenant under this Lease.
4.4 Late Payment Charge. Further, and notwithstanding the interest
charges provided for in the preceding Subsection 4.3, if any Rent or other
amounts owing hereunder are not paid within seven (7) days of when due, Landlord
and Tenant agree that Landlord will incur additional administrative and
financial expenses and inconveniences, the amount of which will be difficult if
not impossible to determine. Accordingly, Tenant shall pay to Landlord an
additional one-time late charge for any late monthly payment in the amount of
$500.00.
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<PAGE> 6
4.5 Inflation Index. The Base Rent shall be further increased annually
on each March 15 commencing on March 15, 2001, by an amount determined as
follows:
(a) As promptly as practical after January of every year
beginning January 2001, Landlord shall compute the increase, if any, in the cost
of living for the preceding calendar year, based upon the "All Items and Major
Group Figures for Urban Wage Earners and Clerical Workers, Denver, Colorado" all
items, as published by the Bureau of Labor Statistics United States Department
of Labor, based on all items for the period (1982-84 = 100). This Consumer Price
Index shall hereinafter be referred to as the "Index Figure."
(b) The Index Figure indicated in the column for All Cities
entitled "all items," for the month of January shall be the "Base Index Figure,"
and the corresponding Index Figure for the month of January for every year
thereafter shall be the "Current Index Figure."
(c) The Current Index Figure shall be divided by the Base
Index Figure and the resulting product, if greater than one, shall be multiplied
times the previous year's Base Rent to obtain the new increased Base Rent. If
the resulting product is equal to one or less than one, the new year's Base Rent
shall be the previous year's Base Rent.
(d) Landlord shall, within a reasonable time after obtaining
appropriate data necessary for computing the increase, give Tenant notice of the
increase so determined, which notification shall include computation of the
amount due to Landlord by Tenant.
(e) If publication of the Consumer Price Index for All Urban
Consumers shall be discontinued, the parties shall accept a comparable index
published by a reliable government agency which measures the purchasing power of
the consumer dollar.
4.6 Payment of Rent Increase. All determinations by Landlord pursuant
to Section 4.5 shall be conclusive, unless in error. Until Tenant is advised of
the adjustments in the Base Rent, if any, pursuant to the provisions of this
paragraph 4.6, Tenant's monthly Base Rent shall continue to be paid at the then
current rate (including all prior rental adjustments). Tenant shall commence
payment to Landlord of the monthly installment of Base Rent on the basis of the
adjustments so determined beginning on the first day of the month following the
month in which Landlord advises Tenant of the increased Base Rent. In addition,
Tenant shall pay to Landlord on the date required for the first payment of Base
Rent as adjusted, the difference, if any, between the monthly installment of
Base Rent so adjusted and the monthly installments of Base Rent actually paid
during the Base Rent period to make up for the increased Base Rent between the
first month that a rental Increase is due and the first payment after notice of
the increase, provided that Landlord notifies Tenant of Rental Rate Adjustment
within forty-five (45) days of effective date of said rental rate adjustment.
Notwithstanding any other provisions of the Lease, if this Lease is terminated
prior to the end of the calendar year, for any reason, Tenant's obligations to
pay rental adjustments for that portion of any calendar year which has elapsed
prior to termination shall survive the termination of the Lease, whether by
expiration or otherwise.
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SECTION 5
TAXES AND OPERATING COST ADJUSTMENT FORMULA
5.1 Additional Rent. In addition to Base Rent, Tenant shall reimburse
Landlord for the Taxes and Operating Costs of the Building in the manner, at the
times, and in the amounts set forth in this Section 5.
5.2 (a) Taxes. The Rent payable by Tenant shall be increased by the
amount of "Tenant's Proportional Share" of the Taxes on the Property. Tenant's
Proportional Share shall be 34% based upon Tenant's initial occupancy of 20,000
square feet out of a total building rental space of 60,000 square feet. Tenant's
Proportional Share shall be subject to confirmation and/or adjustment based on
"as-built" measurements of the Premises and Building. In determining the amount
of Taxes for any calendar year, the amount of special assessments to be included
shall be limited to the amount of the installment (plus any interest payable
thereon) of such special assessment which would have been required to have been
paid during such calendar year if Landlord had elected to have the special
assessment paid over the maximum period of time permitted by law, if the
election is available to Landlord. All reference to Taxes "for" and "billed for"
a particular calendar year shall be deemed to refer to Taxes levied, assessed,
billed or otherwise imposed for such calendar year, without regard to the dates
when any such Taxes are due and payable.
(b) Definition. As used in this Lease, the term "Taxes" means any
and all general and special taxes and impositions of every kind and nature
whatsoever levied, assessed, or imposed upon, or with respect to, the Premises,
any leasehold improvements, fixtures, installations, additions and equipment,
whether owned by Landlord or Tenant, or either because of or in connection with
Landlord's ownership, leasing and operation of the Building and the Property,
including, without limitation, real estate taxes, personal property taxes,
general or special assessments, and duties or levies charged or levied upon or
assessed against the Building and the Property and personal property, or any
other tax (however described) on account of rental received for use and
occupancy of any or all of the Building and the Property, whether any such taxes
are imposed by the United States, the State of Colorado, the County of Boulder,
or any local governmental municipality, authority, or agency or any political
subdivision. Taxes shall not include any net income, capital stock, succession,
transfer, franchise, gift, estate or inheritance taxes.
(c) Payment. Commencing with the first calendar month of this
Lease, Tenant shall pay to Landlord on the first day of each calendar month
until the next upward adjustment date (which period between adjustment dates is
herein called a "Tax Deposit Year") one-twelfth of Tenant's Proportional Share
of the estimated amount of the Taxes. Amounts paid under this Subsection 5.2(c)
in any Tax Deposit Year shall be reconciled with amounts actually billed to
Landlord for the same Tax Deposit Year, and provided there is any surplus
remaining after the credit to Tenant and provided Tenant shall not then be in
default under any of the provisions of this Lease, Landlord shall, at Landlord's
option, either refund the amount of the surplus to Tenant within thirty (30)
days following the end of the Tax Deposit Year or apply the surplus amount
against any other amounts then due from Tenant to Landlord, including Rent. If
upon the
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reconciliation there is any deficiency in the amount of Taxes paid by Tenant,
Landlord shall bill Tenant and Tenant shall pay the additional amount within
thirty (30) days following Tenant's receipt of Landlord's reconciliation report.
5.3 (a) Inclusion in Operating Costs. Tenant shall pay its Proportional
Share of the Operating Costs for the Property. As used in this Lease, the term
"Operating Costs" means any and all expenses, costs and disbursements (other
than Taxes and other than the exclusion described in Section (b) below) of every
kind and nature whatsoever, which are paid or accrued by Landlord in connection
with the management, maintenance, operation or repair of the Building,
including, without limitation, not to exceed $2.40 per square foot in the first
full year of operation:
(i) Costs of supplies;
(ii) Costs incurred in connection with obtaining and
providing energy for the Building, including, but not limited to, costs of
propane, butane, natural gas, steam, electricity, fuel oils, coal or any other
energy sources, except if separately metered to the Leased Premises, in which
case Tenant shall pay 100% of its metered amount and it's portion of any common
metered utility;
(iii) Costs of water and sanitary sewer and storm
drainage services;
(iv) Costs of general maintenance and repairs,
including costs of heating, ventilation and air conditioning systems and the
cost of exterior building and roof maintenance and repairs;
(v) Cost of insurance;
(vi) Costs of maintenance and replacement of
landscaping;
(vii) Labor costs associated with operation,
maintenance, and management of the Building; and management fees.
(b) Exclusion from Operating Costs. "Operating Costs" shall not
include:
(i) Insurance deductibles and the costs of repairs or
other work occasioned by fire, windstorm or other insured casualty to the extent
of insurance proceeds received;
(ii) Leasing commissions, advertising, advertising
expenses, Tenant finish allowances and other costs incurred in leasing space in
the Building;
(iii) Costs of repairs or building necessitated by
condemnation or necessitated by faulty or substandard initial construction;
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(iv) Any interest on borrowed money or debt
amortization, except as specifically set forth above;
(v) Depreciation on the Building;
(vi) Any settlement, payment or judgment incurred by
Landlord or the Building manager due to their willful misconduct or gross
negligence;
(vii) Cost of any damage to the Building caused
directly by Landlord's willful misconduct or gross negligence, as established by
a court of law, whether or not covered by insurance;
(viii) Cost of capital improvements (as defined under
the Internal Revenue Code) and structural repairs or reconstruction of any
portion of the Building;
(ix) Costs of providing utility lines to the Building
or repairing such lines if they break (but not if they are plugged by Tenant's
usage).
(c) Warranties. Tenant shall be entitled to reimbursement for
any amounts collected by Landlord under any manufacturer's warranty on any
systems or machinery used in the Building; provided that Tenant has previously
paid to Landlord the repair expense relating to Landlord's warranty claim.
(d) Payment. Beginning on the Commencement Date, Landlord
shall supply Tenant with written notice of Landlord's estimate of the Operating
Expenses that will be incurred or accrued during the current calendar year (the
"Deposit Year"). On or before the first day of each month during such Deposit
Year, Tenant shall pay to Landlord one-twelfth of Tenant's Proportional Share of
the estimated amount. If the monthly deposit amount is not determined in time
for Tenant to make the first payment on January 1 of the Deposit Year, then the
first monthly payment shall be due on the first day of the month immediately
following the date Landlord supplies Tenant with notice of the amount and the
first monthly payment(s) shall also include a payment equal to one-twelfth of
such additional sum multiplied by the number of calendar months which have
elapsed during the Deposit Year prior to the date Tenant makes its first
payment. If the total of the estimated payments made by Tenant during the
Deposit Year are less than Tenant's obligation under this Lease for Operating
Costs for the Deposit Year, then Tenant, within thirty (30) days of the billing
therefor, shall pay the deficiency to Landlord. If the total of the Tenant's
estimated payments for the Deposit Year exceed Tenant's obligation for excess
Operating Costs for such year, then the surplus shall be handled in the manner
provided in the second to last sentence of Section 5.2(c).
5.4 Audit and Adjustment Procedures.
(a) The annual determination and statement of Taxes and
Operating Costs shall be prepared in accordance with generally accepted
accounting principles. In the event of any dispute as to any Rent due under this
Lease, Tenant shall have the right to inspect Landlord's
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accounting records relative to Taxes and Operating Costs at the office in which
Landlord maintains its records during normal business hours at any time
following the furnishing by Landlord to Tenant of the statement. Any errors
shall be adjusted accordingly.
(b) If the Term of this Lease commences on any day other than
the first day of the month, or if the Term of this Lease ends on any day other
than the last day of the month, any payment due to Landlord by reason of an
increase in Taxes or Operating Costs shall be prorated on the basis by which the
number of days in such partial year bears to 365.
(c) All sums which Tenant is required to pay or discharge
pursuant to Section 5 of this Lease in addition to Base Rent, together with any
interest or other sums which may be added for late payment, shall constitute
"Rent".
SECTION 6
HOLDING OVER
6.1 Rent Increase. Should Tenant hold over after the termination of
this Lease, on account of a Tenant Event of Default which is not timely cured,
or if Tenant holds over at the expiration of this Lease for more than
one-hundred twenty (120) days after receipt of Landlord's written notice to
vacate, Tenant shall become a tenant from day-to-day upon each and all of the
terms herein provided as may be applicable to such a tenancy, and any such
tenancy shall not constitute an extension of this Lease; provided, however,
during the period as a tenant from day-to-day, Tenant shall pay Base Rent at
125% the rate payable for the month immediately preceding the date of
termination of this Lease and, in addition, Tenant shall reimburse Landlord for
all damages (consequential, as well as direct) sustained by it by reason of
Tenant's occupying the Premises past the termination date. Alternatively, unless
Landlord has provided Tenant with a notice to vacate not less than one-hundred
twenty (120) days prior to the expiration of this Lease, the retention of
possession past the termination date shall constitute a month-to-month tenancy
upon each and all of the terms of this lease as may be applicable to a
month-to-month tenancy except that Tenant shall be entitled to a one-hundred
twenty (120) day notice period prior to being required to vacate the Premises.
SECTION 7
BUILDING SERVICES
7.1 Interruption of Standard Services. Tenant agrees that Landlord
shall not be liable for failure to supply any heating, air conditioning,
janitorial services, electric current, or any other utility during any period
when Landlord uses reasonable diligence to restore or to supply such services or
utility. Landlord reserves the right to temporarily discontinue such services at
times as may be necessary by reason of accident, repairs, alterations, or
improvements, or whatever by reason of strikes, lockouts, riots, acts of God, or
any other happening or occurrence beyond the reasonable control of Landlord,
provided such discontinuance does not substantially interfere with Tenant's
business operations.
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7.2 Telephone. Tenant shall separately arrange with the applicable
local public authorities or utilities, as the case may be, for the furnishing of
and payment for all telephone services as may be required by Tenant in the use
of the Premises. Tenant shall directly pay for such telephone services,
including the establishment and connection thereof, at the rates charged for the
services by the authority or utility, and the failure of Tenant to obtain or to
continue to receive the services for any reason whatsoever shall not relieve
Tenant of any of its obligations under this Lease. Landlord shall supply
sufficient telephone lines into the Building for Tenant's connection.
7.3 Above-Standard Service Requirements. Landlord's original design
shall include HVAC equipment adequately sized for Tenant's needs. If Tenant
thereafter adds heat-generating machines or any equipment which cause the
temperature in the Premises, or any part, to exceed the temperatures that the
Building's air conditioning and other cooling systems would be able to maintain
in the Premises were it not for the heat-generating equipment then Landlord
reserves the right to install supplementary air conditioning units in the
Premises, and the cost, including the cost of installation and the cost of
operation and maintenance thereof, shall be paid by Tenant to Landlord upon
demand by Landlord. If Tenant requires electric current, water, or any other
energy in excess of that which is reasonably obtainable from existing electrical
outlets or water pipes, and which is, in Landlord's opinion, above normal for
use of the Premises, Tenant shall first procure the consent of Landlord, which
Landlord may not unreasonably refuse. If Landlord consents to such excess
electric, water, or other energy requirements, Tenant shall, on demand, pay all
costs of meter service and installation of facilities necessary to measure
and/or furnish such excess capacity. Tenant shall also pay the entire cost of
such additional electricity, water, or other energy used.
SECTION 8
CONDITION OF PREMISES
8.1 Acceptance Upon Possession. Tenant, by taking possession of the
Premises, shall be deemed to have agreed that the Premises were, as of the date
of taking possession, in good order, repair, and condition and satisfactorily
completed in accordance with Landlord's obligations under this Lease. No promise
of Landlord to alter, remodel, decorate, clean or improve the Premises, the
Building, or the Property and no representation or warranty, express or implied,
respecting the condition of the Premises, the Building, or the Property has been
made by Landlord to Tenant, unless the same is contained in this Lease, the Work
Agreement, the Plans or some other written agreement. This Lease does not grant
any rights to light or air over the Premises or the Property. Landlord warrants
that the Premises will be delivered to Tenant in good and workmanlike condition,
free from defects for a period of one (1) year at Landlord's sole cost and
expense (and not as an operating cost past through).
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SECTION 9
USE OF LEASED PREMISES
9.1 Use. The Leased Premises shall not be used other than for the
purpose set forth in Section 1 of this Lease. Tenant's use shall at all times
comply with all applicable laws, ordinances, regulations, or other governmental
ordinances in existence.
9.2 Hazardous Use. Tenant agrees that it will not keep, use, sell or
offer for sale in or upon the Leased Premises any article which may be
prohibited by any insurance policy in force from time to time covering the
Building. In the event Tenant's occupancy or conduct of business in or on the
Leased Premises, whether or not Landlord has consented to the same, results in
any increase in premiums for the insurance carried from time to time by Landlord
with respect to the Building, Tenant shall pay any such increase in premiums as
Rent within ten (10) days after bills for such additional premiums shall be
rendered by Landlord. Tenant shall promptly comply with all reasonable
requirements of the insurance authority or of any insurer now or hereafter in
effect relating to the Leased Premises.
9.3 No Waste. Tenant shall not commit, suffer, nor permit any waste,
damage, disfiguration, or injury to the Leased Premises or the Building's common
areas or the fixtures and equipment located in or on the Building, or permit or
suffer any overloading of the floors and shall not place any safes, heavy
business machinery, or other heavy things in the Premises other than as
specifically provided for in the Work Agreement and Plans, without first
obtaining the written consent of Landlord and, if required by Landlord, of
Landlord's architect, and shall not use or permit to be used by any part of the
Leased Premises for any dangerous, noxious, or offensive trade or business, and
shall not cause or permit any nuisance, noise, or action in, at, or on the
Leased Premises. Landlord shall not withhold its consent to Tenant's
installation of additional machinery and equipment as long as Tenant agrees to
make any modifications to the Premises which are necessary for the safe
installation and operation of said equipment or machinery.
9.4 Protection Against Insurance Cancellation. If any insurance policy
on the Building or any part thereof shall be canceled or if cancellation shall
be threatened, or if the coverage shall be reduced or be threatened to be
reduced, in any way by reason of the use of occupation of the Leased Premises or
any part thereof by Tenant, any assignee or subtenant of Tenant, or by anyone
permitted by Tenant to be upon the Leased Premises, and if Tenant fails to take
reasonable efforts to remedy the condition giving rise to the cancellation,
threatened cancellation, reduction, or threatened reduction of coverage within
forty-eight (48) hours after written notice or to complete the remedy within ten
(10) days after notice, Landlord may, at its option, enter upon the Leased
Premises and attempt to remedy the condition, and Tenant shall forthwith pay the
cost to Landlord as additional Rent. Landlord shall not be liable for any damage
or injury caused to any property of Tenant or of others located on the Leased
Premises as a result of such entry unless such damage or injury is a result of
Landlord's gross negligence.
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SECTION 10
COMPLIANCE WITH LAW
10.1 Compliance. Tenant shall not use the Premises or permit anything
to be done in or about the Premises which will in any way conflict with any law,
statute, ordinance, or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense,
promptly comply with all laws, statutes, ordinances, and governmental rules,
regulations, or requirements now in force or which may hereafter be in force,
and with the requirements of any board of fire underwriters or other similar
body now or hereafter constituted relating to or affecting the condition, use,
or occupancy of the Premises, excluding structural changes not related to or
affected by Tenant's improvements or acts.
SECTION 11
ALTERATIONS AND REPAIRS
11.1 Tenant to Maintain. Tenant shall, at its sole expense, keep the
Premises in good repair and tenantable condition during the Term of this Lease,
provided, however, that the Landlord warrants that the Premises shall be
delivered to Tenant in good and workmanlike condition, free from defects for the
first year of the Lease Term, at Landlord's sole cost and expense. Tenant shall
not, without the prior written consent of the Landlord, whose consent shall not
be unreasonably withheld so long as Tenant demonstrates financial assurance of
its ability to restore the Premises to original condition, make any alterations,
improvements, or additions to the Premises in excess of $25,000.00 per project,
including, but not limited to, partitions, wall coverings, floor coverings, and
special lighting or equipment installations. Prior to commencement of any
alterations, improvements, or additions, Tenant shall submit to Landlord a set
of fully detailed working drawings and specifications for the proposed
alteration, prepared by a licensed architect, or engineer, approved by the
Landlord. In particular, but not as a limitation, the working drawings must
fully detail changes to mechanical, wiring, electrical, lighting, plumbing, and
HVAC systems to landlord's satisfaction. Landlord may refuse to consent to the
alterations because of the inadequacy of the drawings and specifications. All
alterations, improvements, or additions, whether temporary or permanent in
character, made by Landlord or Tenant in or upon the Premises shall become
Landlord's property and shall remain upon the Premises at the termination of
this Lease by lapse of time or otherwise, without compensation to Tenant
(excepting only Tenant's movable office furniture, trade fixtures, manufacturing
equipment and machinery and office and professional equipment or other personal
property). Tenant shall promptly pay to Tenant's contractors, when due, the cost
of all work and of all decorating, and upon completion, deliver to Landlord, if
payment is made directly to Tenant's contractors, evidence of payment and
waivers of all liens for labor, services, or materials. Tenant shall defend and
hold Landlord, the Premises, the Building, and the Property harmless from all
costs, damages, liens for labor, services, or materials relating to the work,
and shall defend and hold Landlord harmless from all costs, damages, liens, and
expenses related to the work. If Landlord incurs any expenses in the removal of
trash or cleaning as a result of Tenant's contractor's work, then Tenant agrees
it shall reimburse Landlord within seven (7) days of billing.
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11.2 Protection Against Liens. At least five (5) days prior to the
commencement of any work on the Leased Premises in excess of $25,000.00, Tenant
shall notify Landlord of the names and addresses of the persons supplying labor
and materials for the proposed work so that Landlord may avail itself of the
provisions of statutes such as Section 38-22-105(2) of the Colorado Revised
Statutes (1973), or any successor statutory provision. During the progress of
any work on the Leased Premises, Landlord or its representatives shall have the
right to post and keep posted thereon notices such as those provided for by
Sections 38-22-105(2) (C.R.S. 1973) or to take any further action which Landlord
may deem to be proper for the protection of Landlord's interest in the Leased
Premises.
11.3 Condition on Surrender. Tenant shall, at the termination of this
Lease, surrender the Premises to Landlord in as good condition and repair as
reasonable and proper use will permit, loss by ordinary wear and tear, fire, and
other insured against casualty excepted.
11.4 Damage by Tenant. If any part of the Building or other
improvements become damaged or are destroyed through the negligence,
carelessness, or misuse of Tenant, its servants, agents, employees, or anyone
permitted by Tenant to be in the Building, or through Tenant or such parties,
which damage is not covered by applicable policies of insurance, then the cost
of necessary repairs, replacements, or alterations shall be borne by Tenant, who
shall, on demand, forthwith pay the same to Landlord as Rent.
SECTION 12
ABANDONMENT
12.1 Disposition of Personal Property. Tenant shall not vacate or
abandon the Premises at any time during the Lease Term, and if Tenant shall
abandon, vacate, or surrender (whether at the end of the stated Term or
otherwise) the Premises, or shall be dispossessed by process of law or otherwise
and Tenant shall thereafter cease paying its Rent, then any personal property
belonging to Tenant left on the Premises shall be deemed abandoned and may be
sold or otherwise disposed of by Landlord without any liability to Tenant
whatsoever. Tenant shall not at any time remove Landlord's property or any
fixtures constituting property of Landlord from the Premises. Any removal of
Landlord's property from the Premises by Tenant shall constitute a material
breach of this Lease and Landlord shall have the right to take all reasonable
steps to stop or prevent such breach without such actions constituting a
constructive eviction of Tenant.
SECTION 13
ASSIGNMENT AND SUBLETTING
13.1 Limitation on Assignment or Subletting. Tenant shall not assign
this Lease, or any interest therein, and shall not sublet the Premises, or any
part thereof, or any right or privilege appurtenant thereto, or shall not suffer
any other person to occupy or use the Premises, or any portion thereof, without
the written consent of Landlord, which consent may not be unreasonably withheld.
Neither this Lease nor any interest therein shall be assignable as to the
interest of Tenant by operation of law without the written consent of Landlord,
which consent may not be unreasonably withheld.
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13.2 Acceptance of Performance; No Waiver. If this Lease is assigned,
or if the Premises or any part are sublet or occupied by anybody other than
Tenant, Landlord may, upon default by Tenant, collect the rent from the
assignee, subtenant, or occupant and apply the net amount collected to the Rent.
Upon assignment pursuant to the terms of this section, Tenant shall be relieved
of further liability under this Lease as to the assigned premises. Consent by
Landlord to any one assignment or subletting shall not in any way be construed
as relieving Tenant from obtaining the Landlord's expressed written consent to
any further assignment or subletting.
13.3 Landlord to Approve Documents. All documents utilized by Tenant to
evidence any subletting or assignment to which Landlord has consented shall be
subject to prior approval by Landlord or its attorney. Tenant shall pay on
demand all Landlord's costs and expenses, including reasonable attorneys' fees,
incurred in determining whether or not to consent to any requested subletting or
assignment and in reviewing and approving such documentation which shall not
exceed $500.
SECTION 14
SIGNS AND ADVERTISING
Tenant shall not install, paint, display, inscribe, place, or affix any
sign, picture, advertisement, notice, lettering, or direction in the interior of
the Leased Premises which is visible from the outside of the Building, or on the
exterior of the Building without the prior written consent of Landlord unless
provided for in the Plans.
SECTION 15
DAMAGE TO PROPERTY, INJURY TO PERSONS
15.1 Damage by Tenant. Tenant agrees to pay for all damage to the
Building or the Premises, as well as all damage to tenants or occupants thereof
caused by Tenant's misuse or neglect of the Premises, its apparatus or
appurtenances, or caused by any licensee, contractor, agent, or employee of
Tenant. Notwithstanding the foregoing provisions, neither Landlord nor Tenant
shall be liable to one another for any loss, damage, or injury caused by its act
or neglect to the extent that the other party has recovered the amount of such
loss, damage, or injury from an insurer and the insurance company is bound by
this waiver of liability.
15.2 Tenant's Property. Particularly, but not in limitation of the
foregoing paragraph, all property belonging to Tenant, or any occupant of the
Premises, that is in the Building or the Premises, shall be there at the risk of
Tenant or other person only, and Landlord or its agents or employees (except in
the case of gross negligence of Landlord or its agents or employees) shall not
be liable for: (i) damage to or theft or misappropriation of such property; (ii)
any damage to property entrusted to Landlord, its agents, or employees, if any;
(iii) loss of or damage to any property by theft or otherwise, by any means
whatsoever; (iv) any injury or damage to persons or property resulting from
fire, explosion, falling plaster, steam, gas, electricity, snow, hail, water, or
rain which may leak from any part of the Building or from the pipes, appliances,
or plumbing works therein or from the roof, street, subsurface, or from any
other place, or resulting from
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dampness or any other cause whatsoever; or (v) interference with the light, air,
or other incorporeal hereditament. Tenant shall give prompt notice to Landlord
in case of fire or accidents in the Premises or in the Building or of observed
defects in the Building, its fixtures or equipment.
SECTION 16
TENANT'S INSURANCE
16.1 Insurance. Tenant shall, during the entire Term of this Lease, at
its sole cost and expense, obtain, maintain, and keep in full force and effect
the following types of insurance:
(a) All risk coverage insurance, including endorsements for
vandalism, malicious mischief, theft, sprinkler leakage, covering all of
Tenant's property, including, but not limited to, furniture, fittings,
equipment, installations, alterations, additions, partitions, fixtures, and
anything in the nature of a leasehold improvement in an amount equal to the full
replacement cost of such property without deduction for depreciation.
(b) Commercial general liability insurance, including bodily
injury and property damage, personal injury, contractual liability with respect
to all claims, demands, or actions by any person, firm, or corporation, in any
way arising from, related to, or connected with the conduct and operation of
Tenant's business in the Premises or Tenant's use of the Premises. Such policies
shall be written on a comprehensive basis, with limits not less than
$1,000,000.00, and such higher limits as Landlord or the mortgagees of Landlord
may require from time to time, but may not be unreasonably required.
(c) Any other form or forms of insurance as the mortgagees of
Landlord may reasonably require from time to time in form, in amounts and for
insurance risks against which a prudent tenant would protect itself.
16.2 Evidence. All policies shall be taken out with insurers acceptable
to Landlord and in form satisfactory from time to time to Landlord. Tenant
agrees that certificates of insurance or, if required by Landlord or the
mortgagees of Landlord, copies of each such insurance policy will be delivered
to Landlord as soon as practicable after the placing of the required insurance,
but in no event later than five (5) days after Tenant takes possession of all or
any part of the Leased Premises. All policies shall require that at least thirty
(30) days' prior written notice be delivered to Landlord by the insurer prior to
termination, cancellation, or material change in such insurance.
16.3 Proceeds. Tenant agrees that in the event of damage or destruction
to the leasehold improvements in the Leased Premises covered by insurance
required to be taken out by Tenant pursuant to this Section, Tenant shall use
the proceeds of the insurance for the purpose of building leasehold improvements
appropriate to the continuation of Tenant's business from the Premises. Landlord
shall have the right to review and approve the plans, which approval will not be
unreasonably withheld. In the event of damage or destruction of the Building
entitling the Landlord to terminate this Lease pursuant to Section 17, then, if
the Leased Premises have also been damaged, Tenant will pay to Landlord all of
its insurance proceeds relating to the leasehold
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improvements in the Leased Premises owned by Landlord pursuant to the terms of
the Lease, and if the Leased Premises have not been damaged, Tenant will deliver
to Landlord, in accordance with the provisions of this Lease, the leasehold
improvements and the Leased Premises.
SECTION 17
DAMAGE OR DESTRUCTION
17.1 Right to Terminate. If the Premises or the Building are damaged by
fire or other insured casualty, and the insurance proceeds have been made
available by the holder or holders of any mortgages or deeds of trust covering
the Building, the damage shall be repaired by and at the expense of Landlord to
the extent of such insurance proceeds available, provided such repairs can, in
Landlord's reasonable discretion, be completed within one hundred twenty (120)
days after the occurrence of such damage, without the payment of overtime or
other premiums. Until the repairs are completed, the Rent shall be abated in
proportion to the part of the Premises which is unusable by Tenant in the
conduct of its business. If repairs cannot, in Landlord's reasonable discretion,
be made within said one hundred twenty (120) day period, Landlord shall notify
Tenant within sixty (60) days of the date of occurrence of the damage as to
whether or not Landlord elects to make the repairs. If Landlord elects not to
make the repairs, then either party may, by written notice to the other, cancel
this Lease as of the date of the occurrence of the damage. Except as provided in
this Section 17, there shall be no abatement of Rent and no liability of
Landlord by reason of any injury, inconvenience, temporary limitation of access
or interference to or with Tenant's business or property arising from the making
of any necessary repairs, or any alterations or improvements in or to any
portion of the Building or the Premises, or in or to fixtures, appurtenances,
and equipment therein necessitated by the damage. Tenant understands that
Landlord will not carry insurance of any kind on Tenant's furniture and
furnishings or on any fixtures or equipment removable by Tenant under the
provision of this Lease, and that Landlord shall not be required to repair any
injury or damage caused by fire or other cause, or to make any repairs or
replacements to or of improvements installed in the Premises by or for Tenant at
Tenant's cost.
17.2 Landlord's Insurance. Landlord covenants and agrees that,
throughout the Lease Term, it will insure the Building (excluding foundations,
excavations and other non-insurable items) and the machinery, boilers, and
equipment contained therein owned by Landlord (excluding any property with
respect to which Tenant is obliged to insure pursuant to the provisions of
Section 16 thereof) against damage by fire and extended perils coverage in such
reasonable amounts as would be carried by a prudent owner of a similar property
in the same locale. Landlord will also, throughout the Term, carry commercial
general liability, property damage and loss of rent insurance with respect to
the operation of the Premises in reasonable amounts as would be carried by a
prudent owner of a similar property in the same locale. Landlord may, but shall
not be obligated to, take out and carry any other form or forms of insurance as
it or the mortgagees of Landlord may reasonably determine to be advisable.
Tenant shall pay its proportionate share for all such insurance carried by
Landlord as an Operating Cost, provided that such insurance is not duplicative
of the insurance obtained pursuant to Section 16.1. Notwithstanding any
contribution by Tenant to the cost of insurance premiums, Tenant acknowledges
that it has no right to receive any proceeds from the insurance policies carried
by
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Landlord, and that the insurance will be for the sole benefit of Landlord, with
no coverage for Tenant for any risk insured against.
SECTION 18
ENTRY BY LANDLORD
Landlord and its agents, upon giving 24 hours notice, shall have the
right to enter the Premises during normal business hours for the purpose of
examining or inspecting the same, to supply any services to be provided by
Landlord to Tenant hereunder, to show same to prospective purchasers or tenants
of the Premises, and to make such alterations, repairs, improvements, or
additions, whether structural or otherwise, to the Premises or to the Building
as Landlord may deem necessary or desirable. Landlord may enter by means of a
master key, without liability to Tenant except for any failure to exercise due
care for Tenant's property, and without affecting this Lease. Landlord shall use
reasonable efforts on any such entry not to unreasonably interrupt or interfere
with Tenant's use and occupancy of the Premises. Landlord may enter the Premises
at any time in the case of an emergency. Landlord will only show the Premises to
prospective Purchasers or Tenants upon twenty-four (24) hours notice and then
only with a representative of Tenant present in order to protect the
confidentiality and trade secret aspects of Tenant's operations.
SECTION 19
DEFAULT BY TENANT
19.1 Events of Default. Each one of the following events is referred to
as an "Event of Default":
(a) Tenant shall fail to make due and punctual payment of Rent
or any other amounts payable hereunder, and such failure shall continue for
fifteen (15) days after receipt of written notice from Landlord.
(b) Tenant shall vacate or abandon the Premises and cease
payment of Rent, or remove leasehold improvements or fixtures constituting
property of Landlord;
(c) This Lease shall be transferred to or shall pass to or
devolve upon any other person or party except in the manner set forth in Section
13;
(d) This Lease or the Premises or any part thereof shall be
taken upon execution or by other process of law directed against Tenant, or
shall be taken upon or subject to any attachment at the instance of any creditor
of, or claimant against Tenant, and said attachment shall not be discharged or
disposed of within sixty (60) days after the levy;
(e) Tenant shall file a petition in bankruptcy or insolvency
or for reorganization or arrangement under the bankruptcy laws of the United
States or under any insolvency act of any state, or shall voluntarily take
advantage of any such law or act by answer or otherwise, or shall be dissolved
or shall make an assignment for the benefit of creditors;
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(f) Involuntary proceedings under any such bankruptcy law or
insolvency act or for the dissolution of Tenant shall be instituted against
Tenant, or a receiver or trustee shall be appointed of all or substantially all
of the property of Tenant, and such proceedings shall not be dismissed or such
receivership or trusteeship vacated within sixty (60) days after such
institution or appointment;
(g) Tenant shall fail to pay Rent and shall fail to take
possession of the Premises thirty (30) days following the earlier of the date
the Premises are Ready for Occupancy or the Commencement Date;
(h) Tenant shall fail to perform any of the other agreements,
terms, covenants or conditions of this Lease on Tenant's part to be performed,
and such nonperformance shall continue for a period of thirty (30) days after
written notice by Landlord to Tenant, or if such performance cannot be
reasonably had within such thirty (30) day period, Tenant shall not in good
faith have commenced such performance within such thirty (30) day period and
shall not thereafter diligently proceed to completion.
19.2 Remedies of Landlord. If any one or more Events of Default shall
happen which are not timely cured, then Landlord shall have the right at
Landlord's election, or at any time thereafter, to reenter and take possession
of the Premises or any part thereof by proper legal process and repossess the
same as Landlord's former estate and expel Tenant and those claiming through or
under Tenant, and remove the effects of both or either, without being deemed
guilty of any manner of trespass, and without prejudice to any remedies for
arrears of Rent or breach of covenants or prior conditions and without
terminating this Lease. Should Landlord elect to reenter as provided in this
Subsection, or should Landlord take possession pursuant to legal proceedings or
pursuant to any notice provided for by law including a proceeding for possession
pursuant to Colorado's Forcible Entry and Unlawful Detainer Statutes, Landlord
may, from time to time, without terminating this Lease either:
(a) (i) Relet the Premises or any part thereof in Landlord's
or Tenant's name, but for the account of Tenant, for a term or terms (which may
be greater or less than the period which would otherwise have constituted the
balance of the term of this Lease) and on conditions and upon other terms (which
may include repair of the Premises) as Landlord, in its commercially reasonable
discretion, may determine, and Landlord may collect and receive the rents.
Landlord shall use reasonable efforts to relet the Premises and maximize the
income generated by the Premises. No reentry or taking possession of the
Premises by Landlord shall be construed as an election on Landlord's part to
terminate this Lease unless a written notice of such intention be given to
Tenant. No notice from Landlord hereunder or under a forcible entry and unlawful
detainer statute or similar law shall constitute an election by Landlord to
terminate this Lease unless such notice specifically so states. Landlord
reserves the right following any reentry and/or reletting to exercise its right
to terminate this Lease by giving Tenant written notice, in which event the
Lease will terminate as specific in the notice.
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(ii) If Landlord elects to take possession of the
Premises as provided in this Subsection (a) without terminating the Lease,
Tenant shall pay to Landlord (1) the Rent and other sums due under this Lease
which would be payable if repossession had not occurred, less (2) the net
proceeds, if any, of any reletting of the Premises after deducting Landlord's
expenses in connection with the reletting as follows: all repossession costs,
brokerage commissions, legal expenses and attorneys' fees, repair costs, and the
cost, prorated based on the number of years remaining under the Primary Term of
this Lease, of "freshening" the Premises for a new tenant, such as touch up
work, new paint and carpet, but not including the cost of the demolition and
replacement of the existing tenant finish work.
(b) To give Tenant written notice of intention to terminate
this Lease on the date of the notice, or on any later date specified in the
notice. Tenant's right to possession of the Premises shall cease and the Lease
shall thereupon be terminated, except as to Tenant's liability under this Lease,
as if the expiration of the term fixed in the notice were the end of the term
originally demised. If this Lease is terminated pursuant to the provisions of
this Subsection (b), or terminated pursuant to a proceeding for possession under
the Colorado Forcible Entry and Unlawful Detainer Statutes, Tenant shall remain
liable to Landlord for damages in an amount equal to the Rent and other sums
which would have been owing by Tenant under this Lease for the balance of the
Term had this Lease not been terminated, less the net proceeds, if any, of any
reletting of the Premises by Landlord subsequent to the termination, after
deducting Landlord's expenses in connection with such reletting, including the
expenses enumerated in Subsection (a) above. Landlord shall be entitled to
collect damages from Tenant monthly on the days on which the Rent and other
amounts would have been payable if this Lease had not been terminated.
19.3 Cumulative Remedies. Suit or suits for the recovery of the Rent
and other amounts and damages may be brought by Landlord, from time to time, at
Landlord's election, and nothing in this Lease shall be deemed to require
Landlord to await the date when this Lease or its Term would have expired by
limitation had there been no default by Tenant, or no termination, as the case
may be. Each right and remedy provided for in this Lease shall be cumulative and
shall be in addition to every other right or remedy provided for in this Lease
or now or hereafter existing at law or in equity or by statute or otherwise
including but not limited to suits for injunctive relief and specific
performance. The exercise or beginning of the exercise by Landlord of any one or
more of the rights or remedies provided for in this Lease or now or hereafter
existing at law or in equity by statute or otherwise shall not preclude the
simultaneous or later exercise by Landlord of any or all rights or remedies
provided for in this Lease or now or hereafter existing at law or in equity or
by statute or otherwise. All such rights and remedies shall be considered
cumulative and non-exclusive. All costs incurred by Landlord in connection with
collecting any Rent or other amounts and damages owing by Tenant pursuant to the
provisions of this Lease, or to enforce any provision of this Lease, including
reasonable attorney's fees from the date such matter is turned over to an
attorney, and an action is commenced by Landlord, shall also be paid by Tenant
to Landlord.
19.4 No Waiver. No failure by Landlord to insist upon the strict
performance of any agreement, term, covenant or condition of this Lease or to
exercise any right or remedy consequent upon a breach, and no acceptance of full
or partial payment of Rent during the
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continuance of any breach, shall constitute a waiver of any breach or of the
agreement to be performed or complied with by Tenant, and no breach shall be
waived, altered or modified except by written instrument executed by Landlord.
No waiver of any breach shall affect or alter this Lease, but each and every
agreement, term, covenant and condition shall continue in full force and effect
with respect to any other then existing or subsequent breach. Notwithstanding
any termination of this Lease, the same shall continue in force and effect as to
any provisions which require observance or performance by Landlord or Tenant
subsequent to such termination.
19.5 Bankruptcy. Nothing contained in this Section 19 shall limit or
prejudice the right of Landlord to prove and obtain as liquidated damages in any
bankruptcy, insolvency, receivership, reorganization or dissolution proceeding,
an amount equal to the maximum allowed by any statute or rule of law governing
such a proceeding, and in effect at the time when such damages are to be proved,
whether or not the amount is greater, equal to or less than the amounts
recoverable, either as damages or Rent, referred to in any of the preceding
provisions of this Section. Notwithstanding anything contained in this Section
to the contrary, any such proceeding or action involving bankruptcy, insolvency,
reorganization, arrangement, assignment for the benefit of creditors, or
appointment of a receiver or trustee, as set forth above, shall be considered to
be an event of default only when the proceeding, action or remedy shall be taken
or brought by or against the then holder of the leasehold estate under this
Lease.
SECTION 20
TAXES
During the Term hereof, Tenant shall pay, prior to delinquency, all
business and other taxes, charges, notes, duties and assessments levied, and
rates or fees imposed, charged, or assessed against or in respect of Tenant's
occupancy of the Leased Premises or in respect of the personal property, trade
fixtures, furnishings, equipment, and all other personal property of Tenant
contained in the Premises, and shall hold Landlord harmless from and against all
payment of such taxes, charges, notes, duties, assessments, rates, and fees, and
against all loss, costs, charges, and expenses occasioned by or arising from any
and all such taxes, charges, notes, duties, assessments, rates, and fees. Tenant
shall cause the fixtures, furnishings, equipment and other personal property to
be assessed and billed separately from the real and personal property of
Landlord. If any or all of Tenant's fixtures, furnishing, equipment, and other
personal property shall be assessed and taxed with Landlord's real property,
Tenant shall pay to Landlord Tenant's share of such taxes within ten (10) days
after delivery to Tenant by Landlord of a statement in writing setting forth the
amount of such taxes applicable to Tenant's property. Tenant agrees to provide
financial statements if so requested in writing by any lender holding a security
interest in the Property or the Building. All of the above documents shall be
considered confidential and only disclosed or used for Landlord's appropriate
business purposes.
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SECTION 21
EMINENT DOMAIN
21.1 If the Building, or a substantial part thereof, or a substantial
part of the Premises or Common Areas, shall be lawfully taken or condemned (or
conveyed under threat of such taking or condemnation) for any public or
quasi-public use or purpose, the Term of this Lease shall end upon, and not
before, the date of the taking of possession by the condemning authority.
Current Rent shall be apportioned as of the date of termination. If any part of
the Building, other than the Premises or not constituting a substantial part of
the Premises, shall be so taken or condemned (or conveyed under threat of such
taking or condemnation), or if the grade of any street adjacent to the Building
is changed by any competent authority and such taking or change of grade makes
it necessary or desirable to substantially remodel or restore the Building,
which could not be accomplished without the total relocation of Tenant, Landlord
shall have the right to cancel this Lease upon not less than sixty (60) days'
notice prior to the date of cancellation designated in the notice. No money or
other consideration shall be payable by Landlord to Tenant for the right of
cancellation, and Tenant shall have no right to share in any condemnation award,
or in any judgment for damages, or in any proceeds of any sale made under any
threat of condemnation or taking. Nothing in this Section shall prevent Tenant
from making and pursuing a claim against the condemning authority in its own
right for termination of its leasehold interest, moving costs and other amounts
to which Tenant may be entitled. If this Lease is not canceled, the Lease shall
continue in full force and effect, and Rent shall be equitably abated in
proportion to any reduction in the size and utility of the Premises.
SECTION 22
SUBORDINATION TO MORTGAGES AND DEEDS OF TRUST
22.1 Lease Subordinate to Mortgages.
(a) Landlord agrees to require each lienholder against the
Premises to execute a non-disturbance agreement in favor of Tenant. This Lease
and the rights of Tenant shall be and are hereby made subject and subordinate to
the lien of any mortgages or deeds of trust as to which Tenant has received a
non-disturbance agreement now or hereafter existing against the Building, the
Property or both, and to all renewals, modifications, consolidations,
replacements and extensions thereof and to all advances made now or in the
future. Although the subordination shall be selfoperating, Tenant, or its
successors in interest, shall upon Landlord's request, execute and deliver upon
the demand of Landlord any and all instruments desired by Landlord,
subordinating, in the manner reasonably requested by Landlord, this Lease to any
mortgage or deed of trust. Landlord is hereby irrevocably appointed and
authorized as agent and attorney-in- fact of Tenant to execute all subordination
instruments if Tenant fails to execute the instruments within ten (10) days
after notice from Landlord demanding their execution. The notice may be given in
the manner provided for giving notice below.
(b) Should any mortgage or deed of trust affecting the
Building, the Property or both be foreclosed by a Lender which has granted
Tenant a non-disturbance agreement, then: (i) the liability of the mortgagee,
beneficiary or purchaser at the foreclosure sale to Tenant shall
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exist only so long as the mortgagee, beneficiary, or purchaser is the owner of
the Building and/or Property and the liability shall not continue or survive
after further transfer of ownership; and (ii) Tenant shall be deemed to have
attorned, as Tenant under this Lease, to the purchaser at any foreclosure sale
and this Lease shall continue in force and effect as a direct lease between and
binding upon Tenant and the purchaser at any foreclosure sale. As used in this
Section 22, "mortgagee" and "beneficiary" shall include successors and assigns
of any such party, whether immediate or remote, the purchaser of any mortgage or
deed of trust, whether at foreclosure or otherwise, and the successors,
assignees, mortgagees, and beneficiaries of such purchaser, whether immediate or
remote.
22.2 Tenant's Notices. In the event of any act or omission by Landlord
under this Lease which would give Tenant the right to terminate this Lease, or
to claim a partial or total eviction, Tenant will not exercise any such right
until:
(a) it has given thirty days written notice (by United States
certified or registered mail, postage prepaid) of such act or omission to the
holder of any mortgage or deed of trust on the Property (whose names and
addresses Landlord has previously furnished to Tenant) with a copy to Joel C.
Davis, Dietze & Davis, P.C., P.O. Box 1530, Boulder, Colorado 80306; and
O'Connor Development, 287 Century Circle, Suite 101, Louisville, Colorado 80027;
and
(b) any holder of any mortgage or deed of trust on the
Property shall, following the giving of such notice, have failed with reasonable
diligence to commence and to pursue reasonable action to remedy the act or
omission within not more than sixty (60) days.
SECTION 23
WAIVER
The waiver by Landlord of any breach of any term, covenant, or
condition in this Lease shall not be deemed to be a waiver of the term,
covenant, or condition, or any subsequent breach of the same or any other term,
covenant or conditions. The acceptance of Rent hereunder shall not be construed
to be a waiver of any breach by Tenant of any term, covenant, or condition of
this Lease, it being understood and agreed that the remedies given to Landlord
shall be cumulative, and the exercise of any one remedy by Landlord shall not be
to the exclusion of any other remedy.
SECTION 24
SUBROGATION
The parties to this Lease agree that any and all fire and extended
coverage insurance which is required to be carried by either shall be endorsed
with a subrogation clause, substantially as follows: "This insurance shall not
be invalidated should the insured waive, in writing, prior to a loss, any and
all right of recovery against any party for loss occurring to the property
described herein." Each party waives all claims for recovery from the other
party, its officers, agents or employees for any loss or damage (whether or not
such loss or damage is caused by negligence of the other party, and
notwithstanding any provisions contained in this Lease to the contrary) to any
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of its real or personal property insured under valid and collectible insurance
policies to the extent of the collectible recovery under the insurance.
SECTION 25
PLATS AND RIDERS
Appendices, clauses, plats, and riders, if any, referred to in this
Lease and signed or initialed by Landlord and Tenant and affixed to this Lease
are hereby incorporated in and made a part of this Lease.
SECTION 26
SALE BY LANDLORD
In the event of a sale or conveyance or transfer by Landlord of its
interest in the Property and/or in the Building containing the Premises, and/or
in this Lease to a financially capable and responsible party, the same shall
operate to release Landlord from any future liability upon any of the covenants
or conditions, expressed or implied, contained in favor of Tenant, and in that
event, Tenant agrees to look solely to the responsibility of the successor in
interest of Landlord in and to this Lease. This Lease shall not be affected by
any such conveyance or transfer, and Tenant agrees to attorn to such purchaser
or transferee.
SECTION 27
RIGHT OF LANDLORD TO PERFORM
All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense, and without any abatement of Rent. If Tenant shall fail to pay any sum
of money, other than Rent, required to be paid by it, or shall fail to perform
any other act on its part to be performed, and the failure shall continue for
thirty (30) days after written notice by Landlord, Landlord may, but shall not
be obligated to do so, and without waiving or releasing Tenant from any
obligations of Tenant, make any payment or perform any other act on Tenant's
part to be made or performed as in this Lease provided. All sums so paid by
Landlord and all necessary incidental costs, together with interest at the rate
of 4% over the Prime Rate announced from time to time by Norwest Bank, Denver,
from the date of a payment by Landlord, shall be payable to Landlord on demand,
and Tenant covenants to pay any such sums, and Landlord shall have (in addition
to any other right or remedy of Landlord) the same rights and remedies in the
event of the non-payment thereof by Tenant, as in the case of default by Tenant
in the payment of Rent.
SECTION 28
ATTORNEY'S FEES
In the event of any litigation or arbitration between Tenant and
Landlord to enforce any provision of this Lease or any right of either party,
the unsuccessful party to such litigation or arbitration shall pay to the
successful party all costs and expenses, including reasonable attorney's fees,
incurred. Moreover, if Landlord, without fault, is made a party to any
litigation instituted by
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or against Tenant, Tenant shall indemnify Landlord against, and protect, defend,
and save it harmless from, all costs and expenses, including attorney's fees,
incurred by Landlord.
SECTION 29
ESTOPPEL CERTIFICATE
Tenant shall, at any time and from time to time but not more often than
once per year, upon not less than ten (10) days' prior written notice from
Landlord, execute, acknowledge, and deliver to Landlord a statement in writing
certifying that this Lease is unmodified and in full force and effect (or if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the dates to which the
Rent and other charges are paid, and acknowledging that Tenant is paying Rent on
a current basis with no offsets or claims, and there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder (or specifying
the offsets, claims, or defaults, if any are claimed). It is expressly
understood and agreed that any such statement may be relied upon by any
prospective purchaser or encumbrance of all or any portion of the Building or by
any other person to whom it is delivered. Tenant's failure to deliver the
statement within the required time shall be conclusive upon Tenant that this
Lease is in full force and effect, without modification except as may be
represented by Landlord, that there are no uncured defaults in Landlord's
performance, and that not more than two (2) months' rental have been paid in
advance.
SECTION 30
NOTICE
Any notice from Landlord to Tenant or from Tenant to Landlord shall be
in writing and may be served personally or by mail. If served by mail, it shall
be mailed by registered or certified mail, return receipt requested, addressed
to Tenant at the Premises or to Landlord at the place from time to time
established for the payment of Rent. Notices shall be effective when delivered,
if served personally, or three (3) days after mailing, if mailed. If no one at
the premises is available to accept the notice, then it shall be deemed
effective upon the second refusal or returned mail delivery attempt.
SECTION 31
RIGHTS RESERVED
Landlord and Tenant reserve the following rights, exercisable without
notice and without liability to Tenant for damage or injury to property, person,
or business, and without effecting an eviction, constructive or actual, or
disturbance of Tenant's use or possession, or giving rise to any claim for
set-off or abatement of rent:
(a) Landlord agrees to name the building the "Chaparral
Building" and not to change the name or address during the term of this Lease or
any extensions hereof, once Chaparral has leased and occupied the entire
building;
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(b) Tenant agrees to install, affix, and maintain any and all
signs on the exterior and interior of the Building;
(c) Tenant agrees to retain at all times, and to use in
appropriate instances, keys to all doors within and into the Premises. No locks
or bolts shall be altered, changed, or added without the prior written consent
of Landlord.
SECTION 32
REAL ESTATE BROKER
32.1 The commission to be paid will be 2 1/2% of Base Rent paid by
Tenant during the full Primary Lease Term. Tenant, Shirley Allison, and
Prudential Wise McIntire Realtors have agreed to the commission being paid as
follows:
(a) Shirley Allison and Prudential Wise McIntire Realtors will
be paid 1/4 of 1% of Base Rent paid by Tenant during the full Primary Lease
Term.
(b) Tenant will receive an additional Build Out Allowance
equal to 2 1/4% of Base Rent paid by Tenant during the full Primary Lease Term.
SECTION 33
MISCELLANEOUS PROVISIONS
(a) The words "re-enter", or "re-entry", as used in this
Lease, are not restricted to their technical legal meaning. The term "Landlord",
as used in this Lease, means only the Landlord from time to time, and upon
conveying or transferring its interest in compliance with Section 27. Landlord
shall be relieved from any further obligation or liability pursuant to Section
27.
(b) Time is of the essence of this Lease and of each and all
of its provisions.
(c) Submission of this instrument for examination or signature
by Tenant does not constitute a reservation of or an option for lease, and it is
not effective as a lease or otherwise until execution by both Landlord and
Tenant.
(d) The invalidity or unenforceability of any provision in
this Lease shall not affect or impair any other provisions.
(e) This Lease shall be governed by and construed pursuant to
the laws of the State of Colorado.
(f) Should any mortgagee or beneficiary under a deed of trust
require a modification of this Lease, which modification will not bring about
any increased cost or expense to Tenant or will not in any other way
substantially change the rights and obligations of Tenant hereunder, then and in
such event, Tenant agrees that this Lease may be so modified.
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(g) All rights and remedies of Landlord under this Lease, or
those which may be provided by law, may be exercised by Landlord in its own name
individually, or in its name by its agent, and all legal proceedings for the
enforcement of any rights or remedies, including distress for rent, unlawful
detainer, and any other legal or equitable proceedings, may be commenced and
prosecuted to final judgment and be executed by Landlord in its own name
individually or in its name by its agent. Landlord and Tenant each represent to
the other that each has full power and authority to execute this Lease and to
make and perform the agreements herein contained, and Tenant expressly
stipulates that any rights or remedies available to Landlord, either by the
provisions of this Lease or otherwise, may be enforced by Landlord in its own
name individually or in its name by its agent or principal.
(h) The marginal headings and titles to the paragraphs of this
Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part hereof.
(i) Tenant acknowledges that there are no covenants,
representations, warranties, agreements, or conditions, expressed or implied,
collateral or otherwise, forming part of or in any way effecting or relating to
this Lease except as expressly set out in this Lease and the attachments and
exhibits to this Lease, and that the terms and provisions of this Lease may not
be modified or amended except by written instrument by both Landlord and Tenant.
SECTION 34
SUCCESSORS AND ASSIGNS
Subject to the terms and provisions of Section 13, the covenants and
conditions contained in this Lease shall apply to and bind the respective heirs,
successors, executors, administrators, and assignees of the parties hereto, and
the terms "Landlord" and "Tenant" shall include the successors and assignees of
either such party, whether immediate or remote.
SECTION 35
QUIET ENJOYMENT
Subject to the terms and provisions of this Lease, Landlord covenants
and agrees that Tenant, upon complying with all of the obligations of Tenant
under this Lease, shall peaceably and quietly enjoy the Premises and Tenant's
rights under this Lease during its Term, without hindrance by Landlord or any
persons claiming under Landlord.
SECTION 36
RECORDING
This Lease shall not be recorded by Landlord or Tenant.
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<PAGE> 28
SECTION 37
RELIANCE BY LANDLORD
As of the date of executing this Lease, the Premises consist of
unimproved real property. Landlord intends to proceed with construction of the
Premises in reliance upon Tenant's covenants, obligations and representations
contained in this Lease. Tenant hereby acknowledges and accepts Landlord's
reliance in this regard. As additional consideration from Tenant to Landlord,
Tenant hereby agrees to provide updated business financial statements annually.
Said statements to be supplied to Landlord within ninety days of end of Tenant's
fiscal year.
SECTION 38
OPTION TO EXTEND
38.1 Option to Extend Primary Term. Upon the full and complete
performance of all terms, covenants and conditions contained in this Lease by
Tenant and the payment of all Rent and other sums due under the terms of this
Lease, Tenant shall have the option to renew this Lease for one (1) additional
term of Five (5) years. If Tenant desires to exercise the option, Tenant must
deliver written notice of its election to Landlord not less than one-hundred
eighty (180) days prior to the expiration of the Primary Term of this Lease. If
Tenant exercises its option, this Lease shall be deemed to be extended for the
additional Period, subject to the right of Landlord to make any adjustments and
to assess any charges against Tenant which are provided in this Lease. Rent
shall continue to be calculated according to the terms in this Lease, including
any increases pursuant to the Consumer Price Index or Market Rates. Option
Period Base Rent shall be the Base Rent adjusted by one-half the difference
between the rate determined by the increase in Consumer Price Index and the
current rate being charged for similar space in the area.
SECTION 39
SECURITY DEPOSIT
Tenant shall deposit unto Landlord the sum of $18,500.00 due thirty
(30) days prior to occupancy which is anticipated to be March 15, 2000, to be
held as a Damage Deposit.
SECTION 40
WORK LETTERS
40.1 Landlord and Tenant shall agree upon plans, specifications and
finish work as quickly as possible and shall attach work letters to this Lease
detailing those portions of the project which shall be Landlord's responsibility
and those portions of the finish which shall be attributable to Tenant's
Build-out allowance described in Section 3. At a minimum, Landlord's work shall
consist of the Building, all exterior landscaping and other work, HVAC and
electrical sized and designed for Tenant's needs, plus a "Vanilla Shell"
interior.
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<PAGE> 29
SECTION 41
FIRST RIGHT OF REFUSAL ON ADDITIONAL SPACE
41.1 Landlord agrees to grant Tenant an exclusive option to Lease the
adjoining twenty-thousand square feet of the Building. This option will expire
on November 1, 1999. The Base Rate and Term for the additional space shall be
the Base Rate and Term in effect on the occupied space at the time Tenant
occupies option space.
41.2 Landlord also agrees to grant Tenant an exclusive option to Lease
another twenty-thousand square feet in the Building. This option will expire
thirty (30) months from Commencement of Lease. The Base Rate for the additional
space shall be the current prevailing Market Rate.
LANDLORD:
BY: /s/ Terry J. O'Connor
--------------------------------------------
Terrence J. O'Connor, Managing Member
TENANT: CHAPARRAL NETWORK STORAGE, INC.
A Delaware Corporation
By: /s/ Douglas J. Lehrman
-------------------------------------------
Its: Vice President, Finance
------------------------------------------
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<PAGE> 30
ADDENDUM TO LEASE AGREEMENT
This Addendum is made and entered into this the l5th day of November, 1999,
between BTC Development, LLC ("Landlord"), and Chaparral Network Storage, Inc.,
a Delaware Corporation ("Tenant"). This Addendum amends the lease entered into
between the aforementioned parties on September 1, 1999 for the rental of
approximately 20,000 rentable square feet in Dry Creek Corporate Center (the
"Building") which Building is situated on land described as 7040 East Dry Creek
Parkway, Longmont, Colorado 80503.
ADDENDUM CONTROLS. This Addendum is attached to and made a part of the Lease
between Landlord and Tenant (as those terms defined above). In the event of any
conflict between the terms of the Lease and those set forth in this Addendum,
the terms of this Addendum will control. The Lease and this Addendum are
referred to collectively as the "Agreement".
PAGE FOUR OF LEASE - DEMISE Paragraph one is amended as follows:
Landlord does hereby lease to Tenant and Tenant hereby leases from Landlord an
approximate 40,000 rentable square feet (the "Premises," or, alternatively, the
"Leased Premises") Dry Creek Corporate Center (the "Building"), which Building
is situated on land described as 7040 East Dry Creek Parkway, Longmont, Colorado
80503 (the "Property"), together with a non-exclusive right, subject to the
provisions of this Lease, to use all appurtenances thereto, including, but not
limited to, any plazas, common areas, parking lots, walks, ways or other areas
in the Building or on the Property designated by Landlord for the exclusive or
non-exclusive use of the tenants of the Building.
PAGE FIVE OF LEASE - SECTION 3 -- COMPLETION OF THE PREMISES is amended as
follows:
(See Space Plan. Addendum "A") Tenant shall have a Build Out Allowance of
$880,000.00 or $22.00 per useable square foot. The Build Out Allowance includes
all costs incurred in designing, permitting, construction, and installation of
Tenant Improvements. All costs in excess of allowance are to be paid by Tenant.
Golden Triangle Construction, Inc. ("GTC") will be the General Contractor for
any initial Tenant Improvement work done to the Premises. GTC will generally
request 3 competitive bids for all subcontract work to be performed, and will
provide to Tenant a breakdown of all costs prior to the commencement of any
work. All costs in excess of Build Out Allowance will be added to Lease Rate and
amortized at ten percent (10%) over the term of the Lease.
/s/ Douglas J. Lehrmann /s/ Terry O'Connor
----------------------- ------------------
Tenant Landlord
1
<PAGE> 31
PAGE FIVE OF LEASE - SECTION 4.01 -- RENT is amended as follows:
4.01 Base Rent. Tenant agrees to pay Landlord during the full Primary Lease Term
the sum of $2,288,915.86, payable in advance in equal monthly installments of
$37,833.32 for the Premises: The first full monthly installment of Base Rent
shall be payable on the Commencement Date and each succeeding monthly
installment shall be due and payable on or before the first day of each and
every successive calendar month thereafter during the Primary Lease Term. The
first one hundred and twenty-six thousand dollars of Base Rent shall be prepaid
with the signing of this addendum. The prepayment pays the Base Rent for the
first one hundred and one days Tenant occupies Premises. Prepayment shall be in
the form of 42,000 shares of Chaparral Network Storage, Inc. common stock
purchased at $3.00 per share. The exact square footage of the Premises will be
measured "as-built" and Rent adjusted accordingly.
PAGE SEVEN OF LEASE -- SECTION 5.02(a) is amended as follows:
5.02(a) Taxes. The Rent payable by Tenant shall be increased by the amount of
"Tenant's Proportional Share" of the Taxes on the Property. Tenant's
Proportional Share shall be 67% based upon Tenant's initial occupancy of
approximately 40,000 square feet out of a total building rental space of
approximately 60,000 square feet. Tenant's Proportional Share shall be subject
to confirmation and/or adjustment based on "as-built" measurements of the
Premises and Building. In determining the amount of Taxes for any calendar year,
the amount of special assessments to be included shall be limited to the amount
of the installment (plus any interest payable thereon) of such special
assessment which would have been required to have been paid during such calendar
year if Landlord had elected to have the special assessment paid over the
maximum period of time permitted by law, if the election is available to
Landlord. All reference to Taxes "for" and "billed for" a particular calendar
year shall be deemed to refer to Taxes levied, assessed, billed or otherwise
imposed for such calendar year, without..
In witness whereof parties have executed this agreement the day and month first
written above.
<TABLE>
<S> <C>
LANDLORD: TENANT:
BTC Development, LLC Chapparal Network Storage, Inc.
/s/ TERRENCE J. O'CONNOR /s/ DOUGLAS J. LEHRMANN
- ---------------------------- ----------------------------
By: Terrence J. O'Connor By: Douglas J. Lehrmann
Managing Member Vice President, Finance
</TABLE>
2
<PAGE> 1
EXHIBIT 10.19
================================================================================
---------------------------------
ASSET TRANSFER AGREEMENT
---------------------------------
dated as of November 25, 1998
among
ADAPTEC, INC.
and
CHAPARRAL TECHNOLOGIES, INC.
================================================================================
<PAGE> 2
ASSET TRANSFER AGREEMENT
This ASSET TRANSFER AGREEMENT (this "AGREEMENT") is made and entered
into as of November 25, 1998 (the "EFFECTIVE DATE"), by and between Adaptec,
Inc., a California corporation ("ADAPTEC") and Chaparral Technologies, Inc., a
Delaware corporation ("CHAPARRAL").
W I T N E S S E T H:
WHEREAS, Chaparral desires to enter into licenses to certain
intellectual property rights of Adaptec in connection with the design,
development and manufacture of Products (as defined below) and commercial
exploitation of technology associated with the ESS Business (as defined below);
and
WHEREAS, Adaptec desires to transfer to Chaparral, and Chaparral
desires to have transferred from Adaptec, certain assets associated with
Adaptec's ESS Business, all upon the terms and subject to the conditions set
forth in this Agreement; and
WHEREAS, in connection with the transfer of assets and licenses
described above, Chaparral has made offers of employment to, and hired,
employees of Adaptec who have worked in the ESS Business; and
WHEREAS, in consideration of the transactions described in the
foregoing recitals, Chaparral will issue to Adaptec the Series B Stock (as
defined below); and
WHEREAS, the parties desire that Chaparral issue (i) 3,750,000 shares
of Chaparral Common Stock and 1,050,000 shares of Chaparral Series A Preferred
Stock to certain investors pursuant to the terms of a Contribution Agreement
substantially in the form attached hereto as Exhibit A (the "CONTRIBUTION
SHARES"), (ii) 10,500,000 shares of Chaparral Series A Preferred Stock to
certain investors in exchange for aggregate gross proceeds to Chaparral of
$795,000 (the "SERIES A SHARES") and (iii) 9,450,000 shares of Chaparral Common
Stock to certain individuals pursuant to the exercise of all outstanding stock
options (the "OPTION SHARES") in a manner that will result in each issuance
(including the issuance of the Series B Stock to Adaptec) qualifying for
tax-free treatment under Section 351 of the Internal Revenue Code (as defined
below);
NOW, THEREFORE, in consideration of the facts stated in the above
recitals and of the mutual agreements and covenants hereinafter set forth, and
for good and valuable consideration, the receipt, sufficiency and adequacy of
which is hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
SECTION 1.1. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
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<PAGE> 3
"AFFILIATE" or "ASSOCIATE" shall have those meanings ascribed to such
terms by Rule 405 promulgated under the 1933 Act.
"ADAPTEC'S DISCLOSURE LETTER" means Adaptec's Disclosure Letter dated
as of the Effective Date which is being delivered to Chaparral concurrently with
the execution of this Agreement.
"ANCILLARY AGREEMENTS" means, collectively, the Bill of Sale, the
Investors Rights Agreement, the Occupancy License, the Manufacturing Agreement
and Financing Side Letter.
"BILL OF SALE" means the Bill of Sale substantially in the form of
EXHIBIT B.
"BUSINESS ASSETS" means the Assigned Assets and the Licensed Assets (as
each such term is defined below).
"CHAPARRAL'S DISCLOSURE LETTER" means Chaparral's Disclosure Letter
dated as of the Effective Date which is being delivered to Adaptec concurrently
with the execution of this Agreement.
"ENCUMBRANCE" means any pledge, lien, collateral assignment, security
interest, mortgage, deed of trust, title retention, conditional sale or other
security arrangement, or any charge, adverse claim of title, ownership or use,
or any other encumbrance of any kind.
"ESS BUSINESS" means Adaptec's business of designing, developing,
manufacturing, testing, marketing, licensing, selling, distributing, using,
modifying, operating, installing, servicing, supporting, maintaining, repairing
or otherwise using or commercially exploiting one or more of the Products or the
Intellectual Property Rights therein.
"EXISTING NOTES" means those certain Promissory Notes from Chaparral to
Adaptec dated March 16, 1998 (as amended on May 5, 1998) and September 16, 1998
in the aggregate principal amount of $550,000.
"INTELLECTUAL PROPERTY RIGHTS" means, collectively, as such rights
exist as of the Closing Date, all of the worldwide patent rights, copyright
rights, maskwork rights and rights of Adaptec in trade secrets, each to the
extent and only to the extent such rights pertain to the Products, including
those rights existing or acquired by ownership, license (to the extent such can
be sublicensed) or other legal operation, whether or not filed, perfected,
registered or recorded.
"INTERNAL REVENUE CODE" means the U.S. Internal Revenue Code of 1986,
as amended, and the Treasury regulations (final and temporary) promulgated
thereunder and the administrative pronouncements issued by the Internal Revenue
Service relating thereto.
"INVENTORY" shall mean the in-process and finished goods inventory
listed on SCHEDULE 1 hereto.
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<PAGE> 4
"INVESTORS RIGHTS AGREEMENT" means the Investors Rights Agreement
substantially in the form attached as EXHIBIT C hereto.
"LICENSE AGREEMENT" means the License Agreement substantially in the
form attached as EXHIBIT D hereto.
"LICENSED ASSETS" means the physical embodiments of the Intellectual
Property Rights.
"MANUFACTURING AGREEMENT" means the Manufacturing Agreement
substantially in the form attached as EXHIBIT E hereto.
"OCCUPANCY LICENSE" means the Occupancy License substantially in the
form attached as EXHIBIT F hereto.
"PERSON" means any individual, partnership, limited liability company,
firm, corporation, association, trust, unincorporated organization or other
entity, as well as any syndicate or group that would be deemed to be a person
under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
"PRODUCTS" means the current products and products under development of
Adaptec utilized in the ESS Business described in SCHEDULE 2 hereto, whether or
not ever commercially offered.
"TANGIBLE ASSETS" means, the tangible personal property assets listed
on SCHEDULE 1 hereto.
"TAX" or "TAXES" means all taxes or similar governmental charge or levy
of any kind whatsoever (whether payable directly or by withholding), including
without limitation, income taxes, gross receipts taxes, franchise taxes,
transfer taxes or fees, stamp taxes, sales taxes, use taxes, excise taxes, ad
valorem taxes, value added taxes, documentary taxes, intangible personal
property taxes, withholding taxes, real or personal property taxes, employee
withholding taxes, worker's compensation, payroll taxes, unemployment insurance,
social security, minimum taxes or windfall profits taxes, together with any
related liabilities, penalties, fines, additions to tax or interest, imposed by
any governmental agency.
"1933 ACT" means the Securities Act of 1933, as amended.
ARTICLE II
TRANSFER OF ASSETS; LIABILITIES; CLOSING
SECTION 2.1. Assets to Be Transferred.
(a) Assigned Assets. Subject to the terms and conditions of this
Agreement, on the Closing Date Adaptec shall assign, transfer, convey and
deliver to Chaparral (or cause to be assigned, transferred, conveyed and
delivered to Chaparral) and Chaparral shall have received from Adaptec,
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<PAGE> 5
free and clear of any and all Encumbrances whatsoever, all right, title and
interest in and to all of the following (collectively, the "ASSIGNED ASSETS"):
(i) the Tangible Assets and Inventory;
(ii) the right to enforce confidentiality, non-disclosure,
employee invention assignment and other proprietary
rights agreements between Adaptec and New Hires (as
defined in Section 6.1(a) below) with respect to the
ESS Business; and
(iii) true, accurate and complete copies of Adaptec's
marketing and sales information, pricing, marketing
plans, business plans, financial and business
projections and other files and records pertaining
specifically to the ESS Business, but excluding any
personnel files of any past or present employee of
Adaptec (collectively, the "BUSINESS RECORDS").
(b) Licensed Assets. The parties acknowledge that certain assets
related to the ESS Business also are essential to other businesses conducted by
Adaptec. Accordingly, with respect to the Licensed Assets Adaptec shall provide
Chaparral licenses on the terms and conditions of the License Agreement.
SECTION 2.2. Liabilities. Adaptec shall retain, and shall be solely
responsible and liable for paying, performing and discharging when due, all
liabilities related to the ESS Business.
SECTION 2.3. Issuance of Preferred Shares. On the Closing Date,
Chaparral shall issue to Adaptec 5,540,200 shares of Chaparral's Series B
Preferred Stock, $0.001 par value per share (the "SERIES B STOCK") having the
rights, preferences, privileges and restrictions set forth in the Restated
Certificate of Incorporation of Chaparral attached to this Agreement as EXHIBIT
G (the "RESTATED CERTIFICATE"). The shares of Series B Stock issued pursuant to
this Agreement will be collectively hereinafter referred to as the "PREFERRED
SHARES" and the shares of Common Stock issuable upon conversion of the Preferred
Shares will be collectively hereinafter referred to as the "CONVERSION SHARES".
SECTION 2.4. Closing. Subject to the terms and conditions of this
Agreement, the license, assignment and transfer of the Business Assets, the
cancellation of the Existing Notes and any accrued interest and the issuance of
the Preferred Shares contemplated hereby shall take place at a closing at the
offices of Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California (the
"CLOSING") at 10:00 a.m., local time, on the second business day after the
satisfaction or waiver of the conditions to Closing set forth in Article VIII or
at such other time or on such other date or at such other place as Adaptec and
Chaparral may mutually agree in writing (the day on which the Closing takes
place being the "CLOSING DATE").
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<PAGE> 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ADAPTEC
Adaptec hereby represents and warrants to Chaparral that, except as
expressly set forth in Adaptec's Disclosure Letter, all of the following
statements, representations and warranties are true and correct:
SECTION 3.1. Organization and Good Standing of Adaptec. Adaptec is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and is in good standing in each
jurisdiction in which Business Assets are located. Adaptec has all requisite
corporate power and authority to carry on the ESS Business as now conducted and
to enter into this Agreement, the Ancillary Agreements and The Adaptec Closing
Documents and the transactions contemplated hereby and thereby.
SECTION 3.2. Authorization and Validity. All corporate action on the
part of Adaptec necessary for the authorization, execution and delivery of this
Agreement, the Ancillary Agreements and the Adaptec Closing Documents, the
performance of all obligations of Adaptec hereunder and thereunder, has been
taken or will be taken prior to the Closing. This Agreement has been, and at the
Closing the other Ancillary Agreements and the Adaptec Closing Documents will
be, duly executed and delivered by Adaptec. This Agreement constitutes, and,
upon Adaptec's execution of each of the other Ancillary Agreements and the
Adaptec Closing Documents, each of the other Ancillary Agreements and each of
the Adaptec Closing Documents will constitute, a legal, valid and binding
obligation of Adaptec enforceable against Adaptec in accordance with its terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement of
creditors' rights generally; and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies. The execution, delivery and performance by Adaptec of this Agreement
and each of the Ancillary Agreements have been duly and validly approved and
authorized by Adaptec's Board of Directors.
SECTION 3.3. No Conflict. The execution, delivery and performance of
this Agreement, the Ancillary Agreements and the Adaptec Closing Documents by
Adaptec and the consummation of the transactions contemplated hereby do not and
will not (a) result in a violation or default in any material respect of any
provision of Adaptec's charter documents or any judgment, order, writ or decree
applicable to Adaptec or to any of the Business Assets or (b) result in the
creation of any material Encumbrance on any of the Business Assets.
SECTION 3.4. Consents. No consent, approval, order or authorization of
or registration, qualification, designation, declaration or filing with, any
governmental entity on the part of Adaptec is required in connection with the
consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements.
SECTION 3.5. Title to Assigned Assets. Adaptec owns all the Assigned
Assets and has good and marketable title in and to all of the Assigned Assets,
free and clear of all material Encumbrances whatsoever. Title to all the
Assigned Assets is freely transferable from Adaptec to Chaparral free and
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<PAGE> 7
clear of all material Encumbrances without obtaining the consent or approval of
any person. Schedule 1 was prepared in the ordinary course, in a manner
consistent with Adaptec's past practice and in accordance with Adaptec's
business records.
SECTION 3.6. No Restrictive Agreements. No Business Asset is bound or
affected by any judgment, injunction, order, decree, contract, covenant or
agreement that restricts or prohibits Adaptec (or would restrict Chaparral) from
freely engaging in the ESS Business as now conducted.
SECTION 3.7. Litigation. There is no claim, action, suit, arbitration,
mediation, investigation or other proceeding of any nature pending or, to the
best of Adaptec's knowledge, threatened, at law or in equity, by way of
arbitration or before any court, governmental department, commission, board or
agency that: (i) may adversely affect, contest or challenge Adaptec's authority,
right or ability to transfer or convey any of the Business Assets to Chaparral
hereunder or otherwise perform Adaptec's obligations under this Agreement or any
of the Ancillary Agreements; (ii) challenges or contests Adaptec's right, title
or ownership of any of the Business Assets or seeks to impose an Encumbrance on,
or a transfer of title or ownership of, any Business Asset or (iii) asserts that
any Business Asset, or any action taken by any employee, consultant or
contractor of Adaptec with respect to any Business Asset, infringes or
misappropriates any Intellectual Property Rights of any third party.
SECTION 3.8. Intellectual Property Rights.
(a) Ownership. Adaptec is the sole and exclusive owner or has the right
to use the Business Assets pursuant to license, sublicense, agreement, or other
valid permission, all intellectual property rights necessary for the manufacture
and sale of the Products conducted.
(b) No Infringement. To Adaptec's knowledge, the Products and, as and
to the extent used in the development of or integrated or incorporated in or
with the Products, the other Licensed Assets have not infringed or violated and
currently do not infringe or violate upon, or misappropriate any copyright, mask
work or trade secret, or any patent or other intellectual property rights (other
than trademarks) of any third party, and no third party has asserted or
threatened to assert against Adaptec any claim of infringement or
misappropriation of any such rights. To Adaptec's knowledge, no third party has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any of the Intellectual Property Rights in any manner affecting
the ESS Business.
(c) Licenses. Adaptec has not granted to any third party any right to
the Business Assets inconsistent with the rights granted to Chaparral hereunder.
SECTION 3.9. Acquisition for Own Account. The Preferred Shares will be
acquired for investment for Adaptec's own account, not as a nominee or agent,
and not with a view to the public resale or distribution thereof within the
meaning of the 1933 Act, and Adaptec has no present intention of selling,
granting any participation in, or otherwise distributing the same.
SECTION 3.10. Investment Experience. Adaptec understands that the
acquisition of the Preferred Shares involves substantial risk. Adaptec: (a) has
experience as Adaptec in securities of companies in the development stage and
acknowledges that Adaptec is able to fend for itself, can bear
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<PAGE> 8
the economic risk of Adaptec's investment in the Preferred Shares and warrant
and has such knowledge and experience in financial or business matters that
Adaptec is capable of evaluating the merits and risks of this investment in the
Preferred Shares and protecting its own interests in connection with this
investment and/or (b) has a preexisting personal or business relationship with
Chaparral and certain of its officers, directors or controlling persons of a
nature and duration that enables Adaptec to be aware of the character, business
acumen and financial circumstances of such persons.
SECTION 3.11. Accredited Adaptec Status. Adaptec is an "accredited
investor" within the meaning of Regulation D promulgated under the 1933 Act.
SECTION 3.12. Restricted Securities. Adaptec understands that the
Preferred Shares are characterized as "restricted securities" under the 1933 Act
inasmuch as they are being acquired from Chaparral in a transaction not
involving a public offering and that under the 1933 Act and applicable
regulations thereunder such securities may be resold without registration under
the 1933 Act only in certain limited circumstances. In this connection, Adaptec
represents that Adaptec is familiar with Rule 144 of the U.S. Securities and
Exchange Commission (the "SEC"), as presently in effect, and understands the
resale limitations imposed thereby and by the 1933 Act. Adaptec understands that
Chaparral is under no obligation to register any of the securities sold
hereunder except as provided in Investors Rights Agreement. Adaptec understands
that no public market now exists for any of the Preferred Shares and Conversion
Shares (collectively, the "SECURITIES") and that it is uncertain whether a
public market will ever exist for the Securities.
SECTION 3.13. Further Limitations on Disposition. Without in any way
limiting the representations set forth above, Adaptec further agrees not to make
any disposition of all or any portion of the Securities unless and until:
(a) there is then in effect a registration statement under the 1933 Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(b) Adaptec shall have notified Chaparral of the proposed disposition,
shall have furnished Chaparral with a statement of the circumstances surrounding
the proposed disposition, and, at the expense of Adaptec or its transferee,
shall have furnished Chaparral with an opinion of counsel, reasonably
satisfactory to Chaparral, that such disposition will not require registration
of such securities under the 1933 Act.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be required for any transfer
of any Securities in compliance with SEC Rule 144 or Rule 144A.
SECTION 3.14. Legends. It is understood that the certificates
evidencing the Preferred Shares and Conversion Shares will bear the legends set
forth below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, As AMENDED (THE
-8-
<PAGE> 9
"ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE
AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT
AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER
TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(b) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations and
Sections 417 and 418 if the California Corporations Code or any other state
securities laws, including a legend substantially in the form of the following
on the certificates evidencing the Preferred Shares:
THE PREFERRED SHARES EVIDENCED BY THIS CERTIFICATE: (1) ARE
CONVERTIBLE INTO SHARES OF COMMON STOCK OF CHAPARRAL AT THE OPTION OF
THE HOLDER AT ANY TIME PRIOR TO AUTOMATIC CONVERSION THEREOF, AND (2)
AUTOMATICALLY CONVERT INTO COMMON STOCK OF CHAPARRAL IN THE EVENT OF A
PUBLIC OFFERING MEETING CERTAIN REQUIREMENTS OR UPON CERTAIN CONSENTS
OF THE HOLDERS OF CHAPARRAL'S PREFERRED STOCK; ALL PURSUANT TO AND UPON
THE TERMS AND CONDITIONS SPECIFIED IN CHAPARRAL'S CERTIFICATE OF
INCORPORATION. A COPY OF SUCH CERTIFICATE OF INCORPORATION MAY BE
OBTAINED, WITHOUT CHARGE, AT CHAPARRAL'S PRINCIPAL OFFICE.
The legend set forth in (a) above shall be removed by Chaparral from
any certificate evidencing Preferred Shares and Conversion Shares upon delivery
to Chaparral of an opinion by counsel, reasonably satisfactory to Chaparral,
that a registration statement under the 1933 Act is at that time in effect with
respect to the legended security or that such security can be freely transferred
in a public sale without such a registration statement being in effect and that
such transfer will not jeopardize the exemption or exemptions from registration
pursuant to which Chaparral issued the Preferred Shares and Conversion Shares.
SECTION 3.15. Brokers. Adaptec has not employed any broker, finder,
investment banker or agent, incurred or agreed to pay any brokerage fee,
finder's fee or commission with respect to the transactions contemplated by this
Agreement, or dealt with anyone purporting to act in the capacity of a broker,
finder, investment banker or agent with respect thereto.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CHAPARRAL
Chaparral hereby represents and warrants to Adaptec that, except as set
forth in Chaparral's Disclosure Letter, all of the following statements,
representations and warranties are true, accurate and correct:
SECTION 4.1. Organization and Good Standing. Chaparral is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction and is in good standing under the laws of its jurisdiction of
incorporation and in each jurisdiction in which it conducts business. Chaparral
has all requisite corporate power and authority to carry on its business as now
conducted and to enter into this Agreement, the Ancillary Agreements and
Chaparral Closing Documents and the transactions contemplated hereby and
thereby.
SECTION 4.2. Authorization and Validity. All corporate action on the
part of Chaparral, necessary for the authorization, execution and delivery of
this Agreement, the Ancillary Agreements and Chaparral Closing Documents, the
performance of all obligations of Chaparral hereunder and thereunder, including
the authorization, issuance, reservation for issuance and delivery of all of the
Preferred Shares being sold under this Agreement, of the Conversion Shares, and
the filing of the Restated Certificate, has been taken or will be taken prior to
the Closing. This Agreement constitutes, and the other Ancillary Agreements and
the Chaparral Closing Documents when executed and delivered, will constitute,
valid and legally binding obligations of Chaparral, as applicable, enforceable
in accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies. The execution, delivery and performance by
Chaparral of this Agreement and each of the Ancillary Agreements, as applicable,
have been duly and validly approved by its Board of Directors and, if required,
its stockholders.
SECTION 4.3. No Conflict. The execution, delivery and performance of
this Agreement, the Ancillary Agreements and the Chaparral Closing Documents by
Chaparral and the consummation of the transactions contemplated hereby and
thereby do not and will not (a) result in a violation or default in any material
respect of any provision of Chaparral's charter documents or any judgment,
order, writ or decree applicable to Chaparral, or (b) constitute a default (or
event which with the giving of notice or lapse of time, or both, would become a
breach, violation or default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material contract
of Chaparral or (c) result in the creation of any material Encumbrance on any of
Chaparral's assets.
SECTION 4.4. Consents. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
governmental entity or third party on the part of Chaparral is required in
connection with the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements, except for such qualifications or
filings under applicable securities laws of States of the United States as may
be required in connection with the transactions contemplated by this Agreement.
All such qualifications and filings will, in the case of
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qualifications, be effective on the Closing and will, in the case of filings, be
made within the time prescribed by law.
SECTION 4.5. Capitalization. The capitalization of Chaparral, as of the
Closing, will consist of the following:
(a) Preferred Stock. A total of 20,140,200 authorized shares of
preferred stock, $0.001 par value per share (the "PREFERRED STOCK"), consisting
of 14,600,000 shares designated as Series A Preferred Stock, of which 10,600,000
shares will be issued and outstanding and 5,540,200 shares designated as Series
B Preferred Stock, all of which will be issued and outstanding. Upon the
Closing, the rights, preferences and privileges of the Series A and Series B
Preferred Stock will be as stated in the Restated Certificate and as provided by
law.
(b) Common Stock. A total of 52,000,000 authorized shares of common
stock, $0.001 par value per share (the "COMMON STOCK"), of which 13,200,000
shares will be issued and outstanding.
(c) Options, Warrants, Reserved Shares. Except for: (i) the conversion
privileges of the Series A and Series B Preferred Stock and; (ii) the 16,250,000
shares of Common Stock reserved for issuance under Chaparral's Stock Option Plan
under which options to purchase 4,240,000 shares will be outstanding, options to
purchase 9,450,000 shares were issued and exercised prior to the Closing and
(iii) a warrant to purchase 100,000 shares of Common Stock issued to Grayson &
Associates, there will be no outstanding option, warrant, right (including
conversion or preemptive rights) or agreement for the purchase or acquisition
from Chaparral of any shares of its capital stock or any securities convertible
into or ultimately exchangeable or exercisable for any shares of Chaparral's
capital stock. Except for rights of first refusal held by Chaparral to purchase
shares of its stock issued under Chaparral's Stock Option Plan, no shares of
Chaparral's outstanding capital stock, or stock issuable upon exercise or
exchange of any outstanding options, warrants or rights, or other stock issuable
by Chaparral, are subject to any preemptive rights, rights of first refusal or
other rights to purchase such stock (whether in favor of Chaparral or any other
person), pursuant to any agreement or commitment of Chaparral.
(d) Outstanding Security Holders. Attached to this Agreement as
SCHEDULE 3 is a complete list of all outstanding stockholders, option holders,
warrant holders, convertible note holders and other security holders of
Chaparral as of the Closing.
SECTION 4.6. Valid Issuance of Stock.
(a) The Preferred Shares, when issued and paid for as provided in this
Agreement will be duly authorized and validly issued, fully paid and
nonassessable. The Conversion Shares have been duly and validly reserved for
issuance and, when issued upon conversion in accordance with the Restated
Certificate (assuming no change in the Restated Certificate or in applicable
law) will be duly authorized and validly issued, fully paid and nonassessable.
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(b) Based in part on the representations made by Adaptec in Section 4
hereof, the offer and sale of the Preferred Shares solely to Adaptec in
accordance with this Agreement and (assuming no change in currently applicable
law or the Restated Certificate, no transfer of Preferred Shares by an holder
thereof and no commission or other remuneration is paid or given, directly or
indirectly, for soliciting the issuance of Conversion Shares upon conversion of
the Preferred Shares) the Conversion Shares are exempt from the registration and
prospectus delivery requirements of the 1933 Act and the securities registration
and qualification requirements of the currently effective provisions of the
securities laws of the States of Colorado and California.
(c) The outstanding shares of the capital stock of Chaparral are duly
authorized and validly issued, fully paid and nonassessable, and have been
approved by all requisite stockholder action. Such shares of such capital stock,
and all outstanding options, warrants, convertible notes and other securities of
Chaparral, have been issued in full compliance with the registration and
prospectus delivery requirements of the 1933 Act or in compliance with
applicable exemptions therefrom, the registration and qualification requirements
of all applicable securities laws of states of the United States and all other
provisions of applicable securities laws of States of the United States,
including, without limitation, antifraud provisions.
SECTION 4.7. Litigation. There is no action, suit, proceeding or
investigation pending or currently threatened against Chaparral that questions
the validity of this Agreement, the Ancillary Agreements or the Chaparral
Closing Documents, or the right of Chaparral to enter into this Agreement, the
Ancillary Agreements or the Chaparral Closing Documents or to consummate the
transactions contemplated hereby or thereby.
SECTION 4.8. Invention Assignment and Confidentiality Agreement. Each
employee, officer, consultant and contractor of Chaparral has entered into and
executed an Invention Assignment and Confidentiality Agreement in the form
attached to this Agreement as EXHIBIT H or an employment or consulting agreement
containing substantially similar terms.
SECTION 4.9. Status of Proprietary Assets.
(a) Ownership. Chaparral has full title and ownership of, or has
license to, all patents, patent applications, trademarks, service marks, trade
names, copyrights, moral rights, mask works, trade secrets, confidential and
proprietary information, compositions of matter, formulas, designs, proprietary
rights, know-how and processes (all of the foregoing collectively hereinafter
referred to as the "PROPRIETARY ASSETS") necessary to enable it to carry on its
business as now conducted and as presently proposed to be conducted, without any
conflict with or infringement of the rights of others. To the best of
Chaparral's knowledge, no third party has any ownership right, title, interest,
claim in or lien on any of Chaparral's Proprietary Assets and Chaparral has
taken, and in the future Chaparral will use its best efforts to take, all steps
reasonably necessary to preserve its legal rights in, and the secrecy of, all
its Proprietary Assets, except those for which disclosure is required for
legitimate business or legal reasons.
(b) Licenses; Other Agreements. Chaparral has not granted, and, to the
best of Chaparral's knowledge, there are not outstanding, any options, licenses
or agreements of any kind
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relating to any Proprietary Asset of Chaparral, nor is Chaparral bound by or a
party to any option, license or agreement of any kind with respect to any of its
Proprietary Assets. Chaparral is not obligated to pay any royalties or other
payments to third parties with respect to the marketing, sale, distribution,
manufacture, license or use of any Proprietary Asset or any other property or
rights.
(c) No Infringement. To the best of Chaparral's knowledge, Chaparral
has not violated or infringed, and is not currently violating or infringing, and
Chaparral has not received any communications alleging that Chaparral (or any of
its employees or consultants) has violated or infringed or, by conducting its
business as proposed, would violate or infringe, any Proprietary Asset of any
other person or entity.
(d) No Breach by Employee. Chaparral is not aware that any employee or
consultant of Chaparral is obligated under any agreement (including licenses,
covenants or commitments of any nature) or subject to any judgment, decree or
order of any court or administrative agency, or any other restriction that would
interfere with the use of his or her best efforts to carry out his or her duties
for Chaparral or to promote the interests of Chaparral or that would conflict
with Chaparral's business as proposed to be conducted. The carrying on of
Chaparral's business by the employees and contractors of Chaparral and the
conduct of Chaparral's business as presently proposed, will not, to the best of
Chaparral's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees or contractors or
Chaparral is now obligated. Chaparral does not believe it is or will be
necessary to utilize any inventions of any employees of Chaparral (or persons
Chaparral currently intends to hire) made prior to their employment by
Chaparral. At no time during the conception of or reduction of any of
Chaparral's Proprietary Assets to practice was any developer, inventor or other
contributor to such patents operating under any grants from any governmental
entity or agency or private source, performing research sponsored by any
governmental entity or agency or private source or subject to any employment
agreement or invention assignment or nondisclosure agreement or other obligation
with any third party that could adversely affect Chaparral's rights in such
Proprietary Assets.
SECTION 4.10. Registration Rights. Except as provided in the Rights
Agreement, Chaparral is not under any obligation to register under the 1933 Act
any of its currently outstanding securities or any securities issuable upon
exercise or conversion of its currently outstanding securities nor is Chaparral
obligated to register or qualify any such securities under any state securities
or blue sky laws.
SECTION 4.11. Certificate of Incorporation; Bylaws. The Certificate of
Incorporation and the Bylaws of Chaparral are in the form previously provided to
Fenwick & West LLP, special counsel to Adaptec.
SECTION 4.12. Minute Books. The minute books of Chaparral provided to
special counsel to Adaptec contain a complete summary of all meetings, consents
and actions of the board of directors and the stockholders of Chaparral since
the time of its incorporation, accurately reflecting all transactions referred
to in such minutes in all material respects.
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SECTION 4.13. Material Agreements.
(a) List of Material Agreements. Attached to this Agreement as EXHIBIT
I is a complete list of all agreements, contracts, leases, licenses, instruments
and commitments (oral or written) to which Chaparral is a party or is bound
that, individually or in the aggregate, are material to the business,
properties, financial condition, results of operation, affairs or prospects of
Chaparral ("MATERIAL AGREEMENTS"); provided that for purposes of this Section
4.13 only, no agreement under which the only remaining obligation of Chaparral
is to make a payment of money in the amount of $10,000 or less will be deemed to
be material to its business, properties, financial condition or results of
operations if the failure to make such payment will not result in the loss by
Chaparral of any rights that are material to the conduct of its business.
(b) No Breach. Chaparral has not breached, nor does Chaparral have any
knowledge of any claim or threat that Chaparral has breached, any term or
condition of (i) any Material Agreement set forth in EXHIBIT I, or (ii) any
other agreement, contract, lease, license, instrument or commitment that,
individually or in the aggregate, would have a material adverse effect on the
business, properties, financial condition, results of operations or affairs or
prospects of Chaparral. Each Material Agreement set forth in EXHIBIT I is in
full force and effect and, to Chaparral's knowledge, no other party to such
Material Agreement is in default thereunder. Chaparral is not a party to any
agreement that restricts its ability to market or sell any of its products
(whether by territorial restriction or otherwise).
SECTION 4.14. Financial Statements. Attached to this Agreement as
EXHIBIT J is an unaudited balance sheet of Chaparral dated October 31, 1998 (the
"BALANCE SHEET DATE") and an unaudited income statement of Chaparral for the
period ended October 31, 1998 (all such financial statements being collectively
referred to herein as the "FINANCIAL STATEMENTS"). The Financial Statements (a)
are in accordance with the books and records of Chaparral, (b) are true, correct
and complete and present fairly the financial condition of Chaparral at the date
or dates therein indicated and the results of operations for the period or
periods therein specified, and (c) have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis, except,
as to the unaudited financial statements, for the omission of notes thereto and
normal year-end audit adjustments. Specifically, but not by way of limitation,
the respective balance sheets of the Financial Statements disclose all of
Chaparral's material debts, liabilities and obligations of any nature, whether
due or to become due, as of their respective dates (including, without
limitation, absolute liabilities, accrued liabilities, and contingent
liabilities) to the extent such debts, liabilities and obligations are required
to be disclosed in accordance with generally accepted accounting principles.
Chaparral has good and marketable title to all assets set forth on the balance
sheets of the Financial Statements, except for such assets as have been spent,
sold or transferred in the ordinary course of business since their respective
dates.
SECTION 4.15. Certain Actions. Since the Balance Sheet Date, Chaparral
has not: (a) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock;
(b) incurred any indebtedness for money borrowed or incurred any other
liabilities individually in excess of $10,000 or in excess of $25,000 in the
aggregate; (c) made any loans or advances to any person, other than ordinary
advances for travel expenses;
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(d) sold, exchanged or otherwise disposed of any material assets or rights other
than the sale of inventory in the ordinary course of its business; or (e)
entered into any transactions with any of its officers, directors or employees
or any entity controlled by any of such individuals.
SECTION 4.16. Activities Since Balance Sheet Date. Since the Balance
Sheet Date, there has not been: (a) any damage, destruction or loss, whether or
not covered by insurance, materially and adversely affecting the assets,
properties, financial condition, operating results, prospects or business of
Chaparral (as presently conducted and as presently proposed to be conducted);
(b) any waiver by Chaparral of a valuable right or of a material debt owed to
it; (c) any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by Chaparral, except such a satisfaction, discharge or
payment made in the ordinary course of business that is not material to the
assets, properties, financial condition, operating results or business of
Chaparral; (d) any material change or amendment to a material contract or
arrangement by which Chaparral or any of its assets or properties is bound or
subject, except for changes or amendments which are expressly provided for or
disclosed in this Agreement; (e) any material change in any compensation
arrangement or agreement with any present or prospective employee, contractor or
director not approved by Chaparral's board of directors; or (f) to Chaparral's
knowledge, any other event or condition of any character which would materially
and adversely affect the assets, properties, financial condition, operating
results or business of Chaparral.
SECTION 4.17. Title to Property and Assets. The Company owns its
properties and assets free and clear of all material Encumbrances. With respect
to the property and assets it leases, Chaparral is in compliance with such
leases and, to the best of Chaparral's knowledge, Chaparral holds valid
leasehold interests in such assets free of any material Encumbrances.
SECTION 4.18. ERISA Plans. Chaparral does not have any Employee Pension
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974,
as amended.
SECTION 4.19. Insurance. Chaparral has in full force and effect fire
and casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
SECTION 4.20. Tax Returns and Payments. Chaparral has timely filed all
tax returns and reports required by law and has never been audited by any state
or federal taxing authority. All tax returns and reports of Chaparral are true
and correct in all material respects. Chaparral has paid all taxes and other
assessments due, except those, if any, currently being contested by it in good
faith which are listed in the Chaparral Disclosure Schedule.
SECTION 4.21. Labor Agreements and Actions. Chaparral is not bound by
or subject to any contract, commitment or arrangement with any labor union, and
to Chaparral's best knowledge, no labor union has requested, sought or attempted
to represent any employees, representatives or agents of Chaparral. There is no
strike or other labor dispute involving Chaparral pending nor, to Chaparral's
best knowledge, threatened, nor is Chaparral aware of any labor organization
activity involving its employees. Chaparral is not aware that any officer or
employee intends to terminate
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their employment with Chaparral, nor does Chaparral have any present intention
to terminate the employment of any of its officers or employees.
SECTION 4.22. Interested Party Transactions. To the best knowledge of
Chaparral, no officer or director of Chaparral or any affiliate or associate of
any such person has had, either directly or indirectly, a material interest in:
(a) any person or entity which purchases from or sells, licenses or furnishes to
Chaparral any goods, property, technology, intellectual or other property rights
or services; or (b) any contract or agreement to which Chaparral is a party or
by which it may be bound or affected.
SECTION 4.23. Stock Restriction Agreements. Each person who, pursuant
to any benefit, bonus or incentive plan of Chaparral, holds any currently
outstanding shares of common stock or other securities of Chaparral or any
option, warrant or right to acquire such shares or other securities, has entered
into or is otherwise bound by, an agreement granting Chaparral (a) the right to
repurchase the shares for the original purchase price, or to cancel the option,
warrant or right, in the event the holder's employment or services with
Chaparral terminate for any reason, subject to release of such repurchase or
cancellation right on terms and conditions specified by the Board of Directors
of Chaparral, and (b) a right of first refusal with respect to all such shares.
The Company has furnished to special counsel to Adaptec true and complete copies
of the forms of all such stock restriction agreements.
SECTION 4.24. Tax Elections. The Company has not elected pursuant to
the Internal Revenue Code, to be treated as an "S" corporation or a collapsible
corporation, nor has it made any other elections pursuant to the Internal
Revenue Code, other than elections which relate solely to matters of accounting,
depreciation or amortization) which would have a material affect on Chaparral,
its financial condition, its business as presently conducted or presently
proposed to be conducted or any of its properties or material assets.
SECTION 4.25. Qualified Small Business Stock. The Series B Stock sold
hereunder constitutes "qualified small business stock" as defined in Section
1202(c) of the Internal Revenue Code.
SECTION 4.26. Brokers. Chaparral, nor any of their affiliates has
employed any broker, finder or agent, incurred or agreed to pay any brokerage
fee, finder's fee or commission with respect to the transactions contemplated by
this Agreement, or dealt with anyone purporting to act in the capacity of a
broker, finder or agent with respect thereto.
SECTION 4.27. Disclosure. This Agreement does not contain any untrue
statement of a material fact and do not omit to state a material fact necessary
to make the statements herein not misleading.
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ARTICLE V
COVENANTS
SECTION 5.1. Conduct of Business Prior to the Closing. Adaptec
covenants and agrees that, between the date hereof and the Closing Date, it
will:
(a) not sell, transfer, assign, convey, license, move, relocate,
encumber or otherwise dispose of any of the Business Assets;
(b) use its commercially reasonable efforts to secure and preserve good
and marketable title in Adaptec's name in and to all of the Business Assets,
free of all material Encumbrances, and to cause the conditions to Closing set
forth in Article VIII to be fulfilled as promptly as possible; and
(c) terminate or cause to be released or expunged all Encumbrances on
any Assigned Assets.
(d) not engage in any activities or transactions which shall be outside
the ordinary course of the ESS Business operations;
(e) not increase the salaries or wages of any ESS Business employee;
(f) use its commercially reasonable efforts to preserve the existing
licenses, franchisees, rights and privileges pertinent to the Business Assets;
and
(g) use its best efforts to preserve intact the business organization
of the ESS Business and to preserve its goodwill and relationships with its
suppliers, customers, employees and others with whom it deals.
SECTION 5.2. Consent of Third Parties. Adaptec shall use its
commercially reasonable efforts to obtain the consent in writing of all persons,
if any, necessary to permit Adaptec to assign and transfer all of the Business
Assets to Chaparral, free and clear of all material Encumbrances.
SECTION 5.3. Confidentiality.
(a) Existing Agreement. The terms of the Mutual Confidential Disclosure
Agreement dated as of January 21, 1998 (the "EXISTING CONFIDENTIALITY
AGREEMENT") between Adaptec and Chaparral are hereby incorporated herein by
reference and shall continue in full force and effect until the Closing Date, at
which time the Existing Confidentiality Agreement shall terminate. If this
Agreement is terminated prior to the Closing for any reason then the Existing
Confidentiality Agreement shall continue in full force and effect.
(b) Confidential Information. Excluding Acquired Confidential
Information (as defined below), all copies of financial information, marketing
and sales information, pricing, marketing plans, business plans, financial and
business projections, manufacturing processes and procedures, formulae,
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methodologies, inventions, product designs, product specifications and drawings,
and other confidential and/or proprietary information of a party (the
"DISCLOSING PARTY") disclosed to the other party (the "NON-DISCLOSING PARTY") in
the course of negotiating the transaction contemplated by this Agreement
("CONFIDENTIAL INFORMATION") will be held in confidence and not used or
disclosed by Non-Disclosing Party or any of its employees, affiliates or
stockholders for a period of three (3) years from the Closing Date and will be
promptly destroyed by the Non-Disclosing Party or returned to the Disclosing
Party, upon the Disclosing Party's written request to the Non-Disclosing Party.
The Non-Disclosing Party's employees, affiliates and stockholders will not be
given access to Confidential Information except on a "need to know" basis. It is
agreed that Confidential Information will not include information that: (a) is
proven to have been known to the Non-Disclosing Party prior to receipt of such
information from the Disclosing; (b) is disclosed by a third party having the
legal right to disclose such information and who owes no obligation of
confidence to the Disclosing Party; (c) is now, or later becomes part of the
general public knowledge or literature in the art, other than as a result of a
breach of this Agreement by the Non-Disclosing Party; or (d) is independently
developed by the Disclosing Party without the use of any Confidential
Information.
(c) Acquired Confidential Information. Except for marketing and sales
information which has been publicly disseminated to Adaptec's prospective
customers for the ESS Business prior to the Effective Date in the ordinary
course of business consistent with past business practice, all copies of
financial information, pricing, financial projections, customer lists,
methodologies, inventions, software, know-how, product designs, product
specifications and drawings, and other confidential and/or proprietary
information which constitutes or is constituted in the Assigned Assets or the
Licensed Assets (collectively, "ACQUIRED CONFIDENTIAL INFORMATION") will be
maintained by Adaptec in confidence at all times after the Effective Date of
this Agreement in the same manner and to the same extent that Adaptec, acting
reasonably, maintains Adaptec's Confidential Information in confidence. At all
times following the Closing, Adaptec will: (i) continue to hold all Acquired
Confidential Information which constitutes or is constituted in Assigned Assets
in strict confidence, (ii) will not use for itself or third parties any of
Acquired Confidential Information which constitutes or is constituted in
Assigned Assets to any third party, (iii) will not disclose to third parties any
of Acquired Confidential Information which constitutes or is constituted in
Assigned Assets to any third party, and (iv) upon Chaparral's request, promptly
destroy or deliver to Chaparral any Acquired Confidential Information which
constitutes or is constituted in Assigned Assets in Adaptec's possession or
control; except that Adaptec may internally use the original copies of all
Business Records solely to prepare and file Tax returns and prepare Adaptec's
financial statements, and Adaptec may disclose any Acquired Confidential
Information (except trade secrets) as may be required to comply with requests
from all governmental agencies, including without limitation the SEC. It is
agreed that Acquired Confidential Information will not include information that
is now, or later becomes, part of the general public knowledge or literature in
the art, other than as a result of a breach of this Agreement or the Existing
Confidentiality Agreement by Adaptec.
SECTION 5.4. Public Announcements. On and prior to the Closing Date,
Chaparral and Adaptec shall advise and confer with each other prior to the
issuance of any reports, statements or releases concerning this Agreement
(including the exhibits hereto) and the transactions contemplated herein.
Neither Chaparral nor Adaptec will make any public disclosure prior to the
Closing or with respect to the Closing unless both parties agree on the text and
timing of such public disclosure,
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except as required by law. Nothing contained in this Section shall prevent any
party at any time from furnishing any information pursuant to the requirements
of any governmental entity. In addition, nothing in this Section shall prevent
Chaparral from disclosing the terms of this Agreement or the transactions
contemplated hereby to any potential investor in Chaparral prior to the Closing,
provided each such potential investor executes a customary nondisclosure
agreement. Upon execution of this Agreement the parties shall issue a joint
press release.
SECTION 5.5. Books and Records. If, in order to properly prepare
documents required to be filed with governmental authorities (including Tax
authorities) or its financial statements, it is necessary that any party hereto
or any successors be furnished with additional information relating to the
Business Assets or the ESS Business, and such information is in the possession
of any other party hereto, such party agrees to use its good faith efforts to
promptly furnish such information to the party needing such information, at the
cost and expense of the party being furnished such information. From and after
the Effective Date and continuing beyond the Closing, Adaptec shall cooperate
with Chaparral and provide to Chaparral at Chaparral's expense all financial
information that may be required to enable Chaparral to comply with all
applicable laws, rules and regulations, and any governmental filing
requirements, with respect to reporting and reflecting the transactions
contemplated by this Agreement and the Ancillary Agreements.
SECTION 5.6. Regulatory and Other Authorizations; Consents. Each party
hereto will use its reasonable best efforts to obtain all authorizations,
consents, orders and approvals of all federal, state and local regulatory bodies
and officials that may be or become necessary for the execution and delivery of,
and the performance of its obligations pursuant to, this Agreement and the
Ancillary Agreements and will cooperate fully with the other party in promptly
seeking to obtain all such authorizations, consents, orders and approvals. The
parties hereto will not take any action that will have the effect of delaying,
impairing or impeding the receipt of any required approvals.
SECTION 5.7. Tax Treatment Under Section 351. Each of the parties
hereto shall treat the issuance of the Contribution Shares, the Series A Shares,
the Option Shares and the Preferred Shares as transactions under Section 351 of
the Internal Revenue Code for state and federal income tax purposes.
SECTION 5.8. Further Actions. Each of the parties hereto shall, at its
own expense, execute and deliver such documents and other papers and take such
further actions as may be reasonably required to carry out the provisions of
this Agreement and the Ancillary Agreements and to give effect to the
transactions contemplated by this Agreement and the Ancillary Agreements.
SECTION 5.9. Survival of Covenants. Each of the covenants set forth in
Sections 5.3(b), 5.3(c), 5.4, 5.7 and 5.8 shall survive the Closing. The
covenants set forth in Section 5.3(a) and 5.4 above shall survive the
termination of this Agreement for any reason.
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ARTICLE VI
EMPLOYEE MATTERS
SECTION 6.1. Employment of ESS Business Employees.
(a) New Hires. SCHEDULE 4 contains a list of each former employee of
Adaptec who had worked in, or provided services in connection with, the ESS
Business that has been hired as an employee, or otherwise engaged to provide
services to, Chaparral prior to the Effective Date (each an "NEW HIRE").
Chaparral shall not be obligated to offer employment to, or retain, any New
Hire.
(b) Chaparral Liability; Indemnity. Chaparral shall be liable for and
obligated to pay and indemnify, and hold Adaptec and its affiliates harmless
from, any and all expenses, contracts, agreements, commitments, obligations,
claims, suits, and other liabilities of any nature whatsoever, whether known or
unknown, accrued or not accrued, fixed or contingent, or arising hereafter,
directly or indirectly, with respect to (i) the employment by Chaparral or
termination of employment by Chaparral of any current or future employee or
consultant of Chaparral or any of its affiliates, including without limitation,
the employment or termination of a New Hire after the Closing Date, whether in
connection with the transactions contemplated hereby or otherwise; (ii) any
claims of discrimination under state or federal law provided such claims arise
from the New Hire's employment or service with or termination by Chaparral;
(iii) any other claims or obligations arising out of the terms and conditions of
employment of any person by Chaparral whether for salary, wages, bonuses, profit
sharing, commissions, severance, vacation pay, sick pay or otherwise; (iv) any
duties or obligations of Chaparral or administrators under any existing or
future employee benefit plans or arrangements maintained by Chaparral with
respect to its employees; or (v) any present or future obligations or
liabilities of Chaparral to prior, existing or future employees of Chaparral.
Except as otherwise set forth in this Section 6, Chaparral also shall be
responsible for any liability for severance, termination or like payments to any
New Hire that accrues or becomes payable during the period of such New Hire's
employment or service with Adaptec or any affiliate of Adaptec or arise out of
the termination of such person's employment with Adaptec or any affiliate of
Adaptec, whether occurring prior to or following the Effective Date. Chaparral
shall defend and indemnify Adaptec and hold Adaptec harmless from and against
all liabilities to Adaptec to the extent that the same arise as a result of any
New Hire's alleging that the acquisition of the Business Assets hereunder and
the hiring (or nonhiring) of New Hires by Chaparral on the Closing Date
constitutes a termination entitling such New Hire to severance or any similar
benefit or right pursuant to a plan maintained by Adaptec or pursuant to
applicable statutes.
SECTION 6.2. Employment Taxes. Adaptec shall be responsible for any
withholding or employment Taxes with respect to any New Hires which accrue or
become payable during the period of such New Hire's employment or service with
Adaptec or any affiliate of Adaptec or arise out of the termination of such
person's employment with Adaptec or any affiliate of Adaptec. Adaptec shall be
responsible for filing all employment Tax returns with respect to such New Hires
attributable to periods of employment or service with Adaptec or any affiliate
of Adaptec.
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SECTION 6.3. Termination of Employment. Adaptec agrees to comply with
the provisions of any statute or regulation regarding termination of employment,
plant closing or layoffs and to perform all obligations required by Adaptec with
respect to the cessation of any operations of the ESS Business or any other
business of Adaptec or reductions in workforce or the termination,
re-assignment, re-location or change in position of any New Hire prior to, on or
after the Effective Date. Adaptec shall indemnify and hold Chaparral harmless
with respect to any liability under any applicable statute or regulation
affecting termination of employment arising in connection with the transactions
contemplated by this Agreement.
SECTION 6.4. Employment Obligations Assumed by Adaptec. Adaptec shall
be liable for and obligated to pay and indemnify and hold Chaparral and its
affiliates harmless from any and all expenses, contracts, agreements,
commitments, obligations, claims, suits, and other liabilities of any nature
whatsoever, whether known or unknown, accrued or not accrued, fixed or
contingent or arising hereafter, directly or indirectly, with respect to any
claims of discrimination under federal, state or local law provided such claims
arise from such New Hire's employment or service with or termination by Adaptec.
Adaptec shall pay to all terminated New Hires, any liability for accrued
vacation, sick leave or similar benefits with respect to such New Hires
attributable to periods of employment or service with Adaptec, consistent with
Adaptec's policies and applicable law, and shall make such payment within the
statutory time period therefor.
SECTION 6.5. Survivability. Each of the agreements and covenants set
forth in this Article VI shall survive the Closing.
ARTICLE VII
TAX MATTERS
SECTION 7.1. Transaction Taxes. Each party shall be responsible for
one-half of any and all excise, value added, registration, stamp, property,
documentary, transfer, sales, use and similar Taxes, levies, charges and fees
(including all real estate transfer taxes) incurred, or that may be payable to
any taxing authority, in connection with, the transactions contemplated by this
Agreement (collectively, "TRANSACTION TAXES"). Each party shall defend,
indemnify and hold the other party harmless against and in respect of any
Transaction Taxes in excess of, one-half of the aggregate amount of Transaction
Taxes.
SECTION 7.2. Other Taxes. Adaptec is and shall remain solely
responsible for all tax matters arising from or relating to the Business Assets
and related businesses on or prior to the Closing Date ("PRE-CLOSING PERIOD").
Adaptec shall indemnify and hold harmless Chaparral from any liability for, or
arising out of or based upon, or relating to any tax matter arising from the
Business Assets and related businesses during the Pre-Closing Period. Chaparral
shall be solely responsible for all tax matters arising from or relating to the
Assigned Assets and related businesses beginning after the Closing Date
("POST-CLOSING PERIOD"). Chaparral shall indemnify and hold harmless Adaptec
from any liability for, or arising out of or based upon, or relating to any tax
matter arising from the Assigned Assets and related businesses during the
Post-Closing Period. Adaptec and Chaparral shall cooperate concerning all tax
matters relating to this division of responsibility,
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including, but not limited to, the filing of Tax returns and other governmental
filings associated therewith. Each party shall be responsible for the payment of
one-half of any and all Transaction Taxes.
ARTICLE VIII
CONDITIONS TO THE CLOSING
SECTION 8.1. Conditions to Obligations of Adaptec. The obligations of
Adaptec to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment, at or prior to the Closing, of each of the following
conditions:
(a) Accuracy of Representations and Warranties; Covenants. The
representations and warranties of Chaparral contained in Article IV of this
Agreement (as qualified by Chaparral's Disclosure Letter) shall be true and
correct in all material respects as of the Closing, with the same force and
effect as if made as of the Closing, other than such representations and
warranties as are made as of another date, and all the covenants contained in
this Agreement to be complied with by Chaparral on or before the Closing shall
have been complied with in all material respects, and Adaptec shall have
received a certificate of Chaparral signed by a duly authorized officer thereof
certifying such compliance and that the condition specified in Section 8.1(h)
has been satisfied.
(b) No Order. No non-U.S. or United States federal, state or other
governmental authority or other agency or commission or non-U.S. or United
States federal, state or other court of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
injunction or other order (whether temporary, preliminary or permanent) which is
in effect and has the effect of making the transactions contemplated by this
Agreement and/or the Ancillary Agreements illegal or otherwise restraining or
prohibiting consummation of such transactions; provided, however that the
parties hereto shall use their best efforts to have any such order or injunction
vacated.
(c) No Litigation. No suit, claim, cause of action, arbitration,
mediation, investigation or other proceeding under which a third party or
governmental entity is contesting, challenging or seeking to alter, enjoin or
adversely affect the transfer of the Business Assets contemplated by this
Agreement or any other transaction contemplated by this Agreement, will be
pending or threatened.
(d) Ancillary Agreements. Chaparral shall have executed and delivered
counterparts of each of the Ancillary Agreements to which Chaparral,
respectively, is a signatory and Chaparral shall have made all payments and
performed all obligations required to be completed by each of them prior to or
at the Closing under all of the Ancillary Agreements.
(e) Issuance of Contribution Shares, Series A Shares and Option Shares.
The Contribution Shares, Series A Shares and Option Shares shall have been
issued.
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(f) Restated Certificate Effective. The Restated Certificate shall have
been duly adopted by Chaparral by all necessary corporate action of its Board of
Directors and stockholders, and shall have been duly filed with and accepted by
the Secretary of State of the State of Delaware.
(g) Securities Exemptions. The offer and sale of the Preferred Shares
to Adaptec pursuant to this Agreement shall be exempt from the registration
requirements of the 1933 Act, the qualification requirements of the California
Corporate Securities Law of 1968, as amended (the "LAW") and the registration
and/or qualification requirements of all other applicable state securities laws.
(h) Opinion. Adaptec will have received favorable opinion of
Chaparral's counsel, Wise & Shepard, with respect to each of the matters set
forth in EXHIBIT K attached hereto.
The various certificates, documents, opinions and schedules deliverable
at Closing by or on behalf of Chaparral are referred to herein as the "CHAPARRAL
CLOSING DOCUMENTS".
SECTION 8.2. Conditions to Obligations of Chaparral. The obligations of
Chaparral to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment, at or prior to the Closing, of each of the following
conditions:
(a) Accuracy of Representations and Warranties; Covenants. The
representations and warranties of Adaptec contained in Article III of this
Agreement (as qualified by Adaptec's Disclosure Letter) shall be true and
correct in all material respects as of the Closing, with the same force and
effect as if made as of the Closing, other than such representations and
warranties as are made as of another date, and all the covenants contained in
this Agreement to be complied with by Adaptec on or before the Closing shall
have been complied with in all material respects, and Chaparral shall have
received a certificate of Adaptec, dated as of the Closing Date, to such effect
signed by a duly authorized officer thereof.
(b) Delivery. Chaparral and its legal counsel shall be satisfied that
all Business Assets shall have been duly delivered by or for Adaptec to
Chaparral as required by this Agreement. All software and tangible deliverables
included in the Business Assets and all other Business Assets that can be
delivered electronically, will have been delivered to Chaparral electronically
to Chaparral's facilities at Longmont, Colorado, U.S.A. and all Business Assets
that cannot be delivered electronically will have been delivered to Chaparral
FOB at its Longmont, Colorado, facility or at another location specified by
Chaparral, at Chaparral's option, and in such manner as Chaparral directs, in
each case at Chaparral's cost and expense.
(c) No Order. No federal, state or other governmental authority or
other agency or commission or federal, state or other court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and has the effect of making the
transactions contemplated by this Agreement and/or the Ancillary Agreements
illegal or otherwise restraining or prohibiting consummation of such
transactions; provided, however, that the parties hereto shall use their best
efforts to have any such order or injunction vacated.
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(d) No Litigation. No suit, claim, cause of action, arbitration,
mediation, investigation or other proceeding under which a third party or
government entity is contesting, challenging or seeking to alter, enjoin or
adversely affect the Business Assets or the transactions contemplated by this
Agreement will be pending or threatened.
(e) Ancillary Agreements. Adaptec shall have executed and delivered
counterparts of each of the Ancillary Agreements not referenced in this Section
8.2 and provided all deliverables and performed all obligations required to be
completed by Adaptec prior to or at the Closing under all of the Ancillary
Agreements.
(f) Proceedings and Documents Satisfactory. All proceedings, corporate
or other, to be provided or undertaken by Adaptec in connection with the
transactions contemplated by this Agreement, and all documents incident thereto,
shall be reasonably satisfactory in form and substance to counsel to Chaparral.
(g) Opinion. Chaparral will have received favorable opinion of
Adaptec's counsel, Fenwick & West LLP, with respect to each of the matters set
forth in EXHIBIT L attached hereto.
(h) Restated Certificate Effective. The Restated Certificate shall have
been duly adopted by Chaparral by all necessary corporate action of its Board of
Directors and stockholders, and shall have been duly filed with and accepted by
the Secretary of State of the State of Delaware.
(i) Securities Exemptions. The offer and sale of the Preferred Shares
to Adaptec pursuant to this Agreement shall be exempt from the registration
requirements of the 1933 Act, the qualification requirements of the California
Corporate Securities Law of 1968, as amended (the "LAW") and the registration
and/or qualification requirements of all other applicable state securities laws.
(j) Existing Notes. The originally executed Existing Notes shall have
been delivered to Chaparral.
(k) Financing Letter. The Financing Letter substantially in the form
attached hereto as EXHIBIT M shall have been delivered to Chaparral.
The various certificates, documents, opinions and schedules deliverable
at Closing by or on behalf of Adaptec are referred to herein as the "ADAPTEC
CLOSING DOCUMENTS".
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1. Termination. This Agreement may be terminated at any time
prior to the Closing:
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(a) by the mutual written consent of Adaptec and Chaparral; or
(b) by either Chaparral or Adaptec at any time prior to Closing, if the
other commits a material breach of this Agreement that is not cured within ten
(10) days after written notice thereof, or
(c) by either Adaptec or Chaparral, if the Closing shall not have
occurred prior to November 20, 1998; provided, however, that the right to
terminate this Agreement under this Section 9.1(c) shall not be available to any
party whose failure to fulfill any obligation under this Agreement shall have
been the cause of, or shall have resulted in, the failure of the Closing to
occur prior to such date; or
(d) by either Adaptec or Chaparral if there shall have been instituted,
pending or threatened (and not withdrawn) any action or proceeding by any
governmental authority or administrative agency before any governmental
authority, administrative agency or court of competent jurisdiction, or there
shall be in effect any judgment, decree or order of any governmental authority,
administrative agency or court of competent jurisdiction, in either case,
seeking to prevent consummation of any of the transactions contemplated by this
Agreement or the Ancillary Agreements, or seeking to prohibit or limit Chaparral
or any of its subsidiaries from exercising all material rights and privileges
pertaining to the Business Assets or the ownership, use or operation by
Chaparral or any of its subsidiaries of all or a material portion of the
Business Assets.
SECTION 9.2. Effect of Termination. In the event of termination of this
Agreement as provided in Section 9.1, this Agreement shall forthwith become void
(excepting only those provisions hereof that by their terms survive the
termination of this Agreement) and there shall be no liability on the part of
any party hereto; provided that nothing herein shall relieve either party from
liability for any willful breach hereof.
SECTION 9.3. Waiver. At any time prior to the Closing, any party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party to be bound thereby.
ARTICLE X
DISPUTE RESOLUTION
SECTION 10.1. Management Negotiation.
(a) Chaparral and Adaptec shall attempt to resolve disputes between
Chaparral and Adaptec arising out of or in connection with this Agreement
through good faith negotiations as provided herein. The parties agree that
disputes shall be fully discussed by representatives of Chaparral and Adaptec
involved in the dispute in an attempt to achieve a prompt resolution of such
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dispute. In the event that such dispute shall not be promptly resolved by the
mutual agreement of such representatives, the dispute shall be submitted to
senior management representatives of Chaparral and Adaptec. Such senior
management representatives of Chaparral and Adaptec shall meet and fully discuss
such dispute in an attempt to achieve a prompt resolution of the dispute. If
such dispute is not promptly resolved by the mutual agreement of such senior
management representatives of Chaparral and Adaptec, Chaparral and Adaptec shall
be free to exercise any of the remedies available to it (i) pursuant to the
terms of this Agreement or (ii) otherwise at law or in equity.
(b) Chaparral and Adaptec acknowledge that, from time to time, certain
material disputes arising out of or in connection with this Agreement may
objectively require immediate resolution. Accordingly, any such dispute may, at
the option of either Chaparral or Adaptec, be processed through an abbreviated
mediation process. Such abbreviated mediation process shall entail submitting
any such dispute to the senior management representatives of each of Chaparral
and Adaptec designated by each of Chaparral and Adaptec for a prompt and
expeditious resolution. In the event that a prompt and expeditious resolution of
such dispute is not achieved through the mutual agreement of such senior
management representatives of Chaparral and Adaptec, Chaparral and Adaptec shall
be free to exercise any of the remedies available to it (i) pursuant to the
terms of this Agreement or (ii) otherwise at law or in equity.
(c) Chaparral and Adaptec agree to act reasonably and in good faith in
connection with all matters arising out of or in connection with this Agreement
that are submitted to the mediation process set forth in this Article X.
SECTION 10.2. Arbitration. Any disputes between Chaparral and Adaptec
with respect to this Agreement shall be settled by binding, final arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association then in effect (the "AAA Rules"). Any arbitration proceeding shall
be conducted in Santa Clara, California. The following arbitration provisions
shall govern over any conflicting rules which may now or hereafter be contained
in the AAA Rules. Any judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction over the subject matter thereof. The
arbitrator shall have the authority to grant any equitable and legal remedies
that would be available.
(a) Any such arbitration shall be conducted before a single arbitrator
who shall be compensated for his or her services at a rate to be determined by
the parties or by the American Arbitration Association, but based upon
reasonable hourly or daily consulting rates for the arbitrator in the event the
parties are not able to agree upon his or her rate of compensation.
(b) The AAA Rules for the selection of the arbitrator shall be
followed.
(c) Chaparral and Adaptec shall each advance fifty percent (50%) of the
initial compensation to be paid to the arbitrator in any such arbitration and
fifty percent (50%) of the costs of transcripts and other normal and regular
expenses of the arbitration proceedings; provided, however, that the arbitrator
shall have the discretion to grant to the prevailing party in any arbitration an
award of attorneys' fees and costs, and all costs of arbitration.
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(d) The parties shall be entitled to conduct discovery proceedings in
accordance with the provisions of the Federal Rules of Civil Procedure, subject
to any limitation imposed by the arbitrator.
(e) For any claim submitted to arbitration, the burden of proof shall
be as it would be if the claim were litigated in a judicial proceedings.
(f) Upon the conclusion of any arbitration proceeding hereunder, the
arbitrator shall render findings of fact and conclusions of law and a written
opinion setting forth the basis and reasons for any decision reached by him or
her and shall deliver such documents to each party to this Agreement along with
a signed copy of the award.
(g) The arbitrator chosen in accordance with these provisions shall not
have the power to alter, amend or otherwise affect the terms of these
arbitration provisions or the provisions of this Agreement.
(h) The parties acknowledge that, except as specifically provided in
this Agreement, no other action need be taken by either party before proceeding
directly in accordance with the provisions of this Section.
(i) The arbitration provisions set forth in this Section 10.2 are
intended by the parties to be exclusive for all purposes and applicable to each
and every controversy, dispute and/or claim in any manner arising out of or
relating to this Agreement, the meaning, application and/or interpretation of
this Agreement, any breach hereof and/or any voluntary or involuntary
termination of this Agreement with or without cause, including, without
limitation, any such controversy, dispute and/or claim which, if pursued through
any state or federal court or administrative agency, would arise at law, in
equity and/or pursuant to statutory, regulatory and/or common law rules,
regardless of whether any such dispute, controversy and/or claim would arise in
and/or from contract, tort or any other legal and/or equitable theory or basis.
Notwithstanding the foregoing, the parties shall at all times have and retain
the full, complete and unrestricted right to seek injunctive relief for any
breach or threatened breach of any term, provision or covenant of Section 5.5 of
this Agreement. The prevailing party in any action instituted pursuant to this
Section 10.2(i), or in any appeal from any arbitration conducted pursuant to
this Section 10.2, shall be entitled to recover from the other party its
reasonable attorneys' fees and other expenses incurred in such litigation.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.1. Expenses. All costs and expenses, including, without
limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses, whether or not the Closing shall have occurred.
SECTION 11.2. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given
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or made upon receipt) by delivery in person, by courier service, by cable, by
telecopy, by telegram, by telex or by registered or certified mail (postage
prepaid, return receipt requested) to the parties at the following addresses (or
at such other address for a party as shall be specified by like notice):
(a) if to Adaptec:
Adaptec, Inc.
691 South Milpitas Blvd.
Milpitas, CA 95035
Attention: President and General Counsel
Telecopy: (408) 957-7137
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Dennis R. DeBroeck, Esq.
Timothy A. Covington, Esq.
Telecopy: (650) 494-1417
(b) if to Chaparral:
Chaparral Technologies, Inc.
1951 S. Fordham Street
Longmont, Colorado 80503
Attention: Gary L. Allison
Telecopy: (304) 684-3201
with a copy to:
Wise & Shepard
3030 Hansen Way
Palo Alto, California 94304
Attention: Amy L. Gibson, Esq.
Telecopy: (650) 856-1344
SECTION 11.3. Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 11.4. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or
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incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the greatest extent possible.
SECTION 11.5. Survival. The representation and warranties made herein
shall survive until the one year anniversary of the Closing Date.
SECTION 11.6. Entire Agreement. This Agreement, the Ancillary
Agreements, the Existing Confidentiality Agreement and those certain letters and
agreements executed by New Hires in September 1998 constitute the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersede all prior agreements and undertakings with respect
to the subject matter hereof, both written and oral. Upon the effectiveness of
the Closing, the Existing Confidentiality Agreement shall terminate.
SECTION 11.7. Assignment. This Agreement shall not be assigned by
Chaparral or Adaptec without the prior written consent of the non-assigning
party; provided, however, that either party may assign all or a portion of its
rights and obligations hereunder to one or more wholly-owned subsidiaries or
affiliates of such party. In addition, the foregoing will not be deemed to
prohibit either party from assigning this Agreement in the event of a merger or
acquisition of substantially all of such party's assets, other than to a present
or future direct competitor of the non-assigning party. Subject to the
foregoing, this Agreement will bind and inure to the benefit of each party's
permitted successors and assigns.
SECTION 11.8. No Third-Party Beneficiaries. This Agreement is for the
sole benefit of the parties hereto and their permitted assigns and nothing
herein, express or implied, is intended to or shall confer upon any other person
or entity, including but not limited to any New Hire, any legal or equitable
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
SECTION 11.9. Amendment; Waiver. This Agreement may not be amended or
modified except by an instrument in writing signed by Adaptec and Chaparral.
Waiver of any term or condition of this Agreement shall only be effective if in
writing and shall not be construed as a waiver of any subsequent breach or
waiver of the same term or condition, or a waiver of any other term or condition
of this Agreement.
SECTION 11.10. Governing Law; Jurisdiction and Venue. This Agreement
shall be governed by, and construed in accordance with, the internal laws of the
State of California applicable to contracts executed in and to be performed by
residents of California within that State. Each party consents to submit to the
jurisdiction of any federal or state court located in the State of California
and agrees not to object to venue in the federal or state courts located in
Santa Clara County, California.
SECTION 11.11. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when
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executed shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, Adaptec and Chaparral have caused this Agreement to
be executed as of the date first written above by their respective officers
thereunto duly authorized.
"ADAPTEC" "CHAPARRAL"
ADAPTEC, INC. CHAPARRAL TECHNOLOGIES, INC.
By: /s/ Larry Boucher By: /s/ Michael J. Gluck
-------------------------------- --------------------------------
Name: Larry Boucher Name: Michael J. Gluck
------------------------------ ------------------------------
Title: Chairman of the Board Title: President and Chief
----------------------------- Operating Officer
-----------------------------
[SIGNATURE PAGE TO ASSET TRANSFER AGREEMENT]
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EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A Contribution Agreement
Exhibit B Bill of Sale
Exhibit C Investor Rights Agreement
Exhibit D License Agreement
Exhibit E Manufacturing Agreement
Exhibit F Occupancy Licenses
Exhibit G Restated Certificate
Exhibit H Invention Assignment and Confidentiality Agreement
Exhibit I Chaparral Material Agreements
Exhibit J Chaparral Financial Statements
Exhibit K Opinion of Chaparral's Counsel
Exhibit L Opinion of Adaptec's Counsel
Exhibit M Financing Side Letter
SCHEDULES
Schedule 1 Tangible Assets and Inventory
Schedule 2 Products
Schedule 3 Chaparral Security Holders
Schedule 4 New Hires
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EXHIBIT 10.20
CONTRIBUTION AGREEMENT
This Agreement is made and entered into as of November 25, 1998 (the
"EFFECTIVE DATE") among Chaparral Technologies, Inc., a Delaware corporation
(the "COMPANY"), Adaptec, Inc., a Delaware corporation ("ADAPTEC") and each of
the individuals holding the Company's securities listed on Exhibit A attached
hereto (the "NOTE HOLDERS" and, together with Adaptec, the "PURCHASERS").
R E C I T A L S
A. Adaptec desires to purchase shares of the Company's Series B Preferred
Stock, par value $0.001 per share (the "SERIES B PREFERRED STOCK"), in
exchange for the transfer by Adaptec to the Company of the Business
Assets, as defined in the Asset Acquisition Agreement between the
Company and Adaptec entered into concurrently herewith (the "ASSET
ACQUISITION AGREEMENT").
B. The Note Holders desire to purchase shares of the Company's Common
Stock, par value $0.001 per share (the "COMMON STOCK") and/or Series A
Preferred Stock, par value $0.001 per share (the "SERIES A PREFERRED
STOCK") in exchange for delivery to the Company by the Note Holders of
the full purchase price paid by cancellation of indebtedness evidenced
by promissory notes of the Company in favor of the Note Holders dated
November 15, 1998 in the aggregate principal amount of $118,750.00 (the
"PROMISSORY NOTES").
C. The parties hereto intend that the payment for and receipt of the stock
of the Company to the Purchasers hereunder and the issuance of the
Common Stock, Series A Preferred Stock and Series B Preferred Stock by
the Company hereunder shall be treated as a tax-free exchange, pursuant
to Section 351 of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants hereinafter set forth, the parties hereby agree as follows:
1. PURCHASE OF SHARES. On the Effective Date and subject to the terms
and conditions of this Agreement, (a) Adaptec hereby purchases from the Company,
and Company hereby sells to Adaptec, an aggregate of 8,698,919 shares of the
Company's Series B Preferred Stock in consideration for the Business Assets and
(b) the Note Holders hereby purchase from the Company, and Company hereby sells
to the Note Holders, an aggregate of 3,750,000 shares of the Company's Common
Stock and an aggregate of 1,150,000 shares of Series A Preferred Stock (together
with the Series B Preferred Stock, the "SHARES") in consideration for
cancellation of indebtedness evidenced by the Promissory Notes. As used in this
Agreement, the term "Shares" refers to the Shares purchased under this Agreement
and includes all securities received (a) upon conversion of or in replacement of
the Shares, (b) as a result of stock dividends or stock splits in respect of the
Shares, and (c) in replacement of the Shares in a recapitalization, merger,
reorganization or the like. As a result of the purchase of the Shares, Adaptec
and the Note Holders will own, in the aggregate, more than eighty percent (80%)
of the Company's outstanding voting stock and more than eighty percent (80%) of
each class of the Company's nonvoting stock.
<PAGE> 2
2. PAYMENT OF PURCHASE PRICE; CLOSING.
(a) DELIVERIES BY ADAPTEC. Adaptec hereby delivers to the Company
the full purchase price set forth on Exhibit A by delivery to the Company of the
Business Assets as set forth in the Asset Acquisition Agreement.
(b) DELIVERIES BY THE NOTE HOLDERS. Each Note Holder hereby delivers
to the Company the full purchase price set forth in Exhibit A by delivery to the
Company of the Promissory Notes, duly canceled by the Note Holders, a Founder's
Restricted Stock Purchase Agreement in the form attached hereto as Exhibit B
and/or a Series A Preferred Stock Purchase Agreement in the form attached hereto
as Exhibit C and such other documents and certificates as the Company may
reasonably request.
(c) DELIVERIES BY THE COMPANY. Upon its receipt of the purchase
prices set forth in subsections (a) and (b) from each of the Purchasers, and all
the documents to be executed and delivered by such Purchasers to the Company
thereunder, the Company will issue duly executed stock certificates evidencing
the Shares purchased in the name of each Purchaser (as set forth in Exhibit A).
3. RIGHTS AS STOCKHOLDERS. Subject to the terms and conditions of this
Agreement, each Purchaser will have all of the rights of a stockholder of the
Company with respect to the Shares from and after the date that such Purchaser
delivers payment of the purchase price until such time as such Purchaser
disposes of the Shares.
4. MARKET STANDOFF AGREEMENT. Each Purchaser agrees m connection with
any registration of the Company's securities under the Securities Act of 1933,
as amended, that, upon the request of the Company or the underwriters managing
any registered public offering of the Company's securities, the Purchasers will
not sell or otherwise dispose of any Shares without the prior written consent of
the Company or such managing underwriters, as the case may be, for a period of
time (not to exceed 180 days) after the effective date of such registration
requested by such managing underwriters and subject to all restrictions as the
Company or the managing underwriters may specify for employee-stockholders
generally.
5. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of
the Shares will be subject to and conditioned upon compliance by the Company and
each Purchaser with all applicable state and federal laws and regulations and
with all applicable requirements of any stock exchange or automated quotation
system on which the Company's Common Stock may be listed or quoted at the time
of such issuance or transfer. The parties hereto acknowledge that they are not
obligated to enter into this Agreement and that the execution of this Agreement
does not conflict with and is not barred by any other obligations of the
parties.
6. SUCCESSORS AND ASSIGNS. The Company and the Purchasers may assign
any of their rights and obligations under this Agreement. This Agreement will be
binding upon and inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer herein set forth, this
Agreement will be binding upon each Purchaser and such Purchaser's heirs,
executors, administrators, successors and assigns.
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7. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and
construed in accordance with the internal laws of the State of California,
excluding that body of laws pertaining to conflict of laws. If any provision of
this Agreement is determined by a court of law to be illegal or unenforceable,
then such provision will be enforced to the maximum extent possible and the
other provisions will remain fully effective and enforceable.
8. NOTICES. Any notice required or permitted hereunder will be given in
writing and will be deemed effectively given upon personal delivery, three (3)
days after deposit in the United States mail by certified or registered mail
(return receipt requested), one (1) business day after its deposit with any
return receipt express courier (prepaid), or one (1) business day after
transmission by telecopier, addressed to the other party at its address (or
facsimile number, in the case of transmission by telecopier) as shown below its
signature to this Agreement, or to such other address as such party may
designate in writing from time to time to the other party.
9. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
10. HEADINGS. The captions and headings of this Agreement are included
for ease of reference only and will be disregarded in interpreting or construing
this Agreement. All references herein to Sections will refer to Sections of this
Agreement.
11. ENTIRE AGREEMENT. This Agreement, together with all its Exhibits,
constitutes the entire agreement and understanding of the parties with respect
to the subject matter of this Agreement, and supersedes all prior understandings
and agreements, whether oral or written, between the parties hereto with respect
to the specific subject matter hereof:
12. COUNTERPARTS. For the convenience of the parties, this Agreement
may be executed in one or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
[Remainder of this page intentionally left blank.]
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<PAGE> 4
IN WITNESS WHEREOF, the Company and the Purchasers have caused this
Contribution Agreement to be executed by its respective duly authorized
representative as of the Effective Date.
THE COMPANY:
CHAPARRAL TECHNOLOGIES, INC.
By: /s/ Douglas J. Lehrmann
------------------------------------------
Name: Douglas J. Lehrmann
----------------------------------------
Title: Vice President, Finance
---------------------------------------
THE PURCHASERS:
ADAPTEC, INC.
By: /s/ Larry Boucher
------------------------------------------
Name: Lawrence Boucher
----------------------------------------
Title: Chairman of the Board
---------------------------------------
/s/ Gary L. Allison /s/ Brian J. Allison
- ---------------------------------- ----------------------------------
Gary L. Allison Brian J. Allison
/s/ Robert Baker /s/ Ruby V. Ebell
- ---------------------------------- ----------------------------------
Robert Baker Ruby V. Ebell
/s/ Michael J. Gluck /s/ S. Robert Perera
- ---------------------------------- ----------------------------------
Michael J. Gluck S. Robert Perera
/s/ M. Katherine Sills /s/ Jerry L. Walker
- ---------------------------------- ----------------------------------
M. Katherine Sills Jerry L. Walker
- ----------------------------------
William R. Childs
[SIGNATURE PAGE TO CONTRIBUTION AGREEMENT]
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EXHIBIT 10.22
BOARD MANUFACTURING AND TRANSITION AGREEMENT
This Board Manufacturing and Transition Agreement ("Agreement") is entered into
effective as of November, 1998 (the "Effective Date"), by and between Chaparral
Technologies, Inc. a Delaware corporation, having a place of business at 1951
South Fordham Street, Longmont, CO 80503 ("Purchaser"), and Adaptec, Inc., a
Delaware corporation having a place of business at 691 S. Milpitas Boulevard,
Milpitas, CA 95035 ("Adaptec").
RECITALS
A. On November 17, 1998, Purchaser and Adaptec are entering into a certain Asset
Transfer Agreement under which Purchaser shall acquire certain assets of Adaptec
and license certain intellectual property and technology of Adaptec related to
certain Adaptec bridge products.
B. During a transition period not to extend beyond April 30, 1999, Purchaser
desires for Adaptec to perform certain manufacturing services, including
purchasing, assembly and manufacture, testing, and packaging of certain of the
Adaptec bridge products transferred to Purchaser under the Asset Acquisition
Agreement, and to sell and ship such products to Purchaser, and Adaptec is
willing to perform such services.
C. The parties desire to define the general terms and conditions governing
Adaptec's manufacture of such products, and the purchase and sale of such
products, all as further set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing, premises and the
covenants and agreements set forth in this Agreement, the parties agree as
follows:
AGREEMENT
1. DEFINITIONS
1.1 "Confidential Information" shall have the meaning set forth in the
Mutual Master Non-Disclosure Agreement, dated January 21, 1998, executed between
the parties ("MNDA"), attached hereto as Exhibit C, and shall include the terms
and conditions of this Agreement, which shall constitute confidential
information of both parties.
1.2 "Deliver, Delivered or Delivery" means the delivery of the Products
ordered pursuant to a particular Purchase Order to the Delivery Point for
shipment in accordance with Purchaser's instructions.
1.3 "Delivery Point" means the San Francisco Bay Area.
1.4 "Lead Time" means 1) the minimum amount of time prior to the
requested Delivery of each respective Product that Adaptec must receive a
Purchase Order for the Product, and
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2) the maximum amount of time that Adaptec has after receiving a Purchase Order
before Adaptec must Deliver the ordered Product, as specified in Exhibit A.
1.5 "Packaging Specification" means Adaptec's standard packaging process
and format for each respective Product as set forth in Adaptec's applicable
standard assembly specification as may be amended from time to time by Adaptec
in its sole discretion, including without limitation the use and placement of
Adaptec stickers and logos on such packaging.
1.6 "Price" means the price for each respective Product, initially as
set forth in Exhibit A and Section 4, as may be adjusted from time to time in
accordance with Section 4.
1.7 "Product" means an Adaptec bridge product to be manufactured and
sold by Adaptec hereunder, as set forth in Exhibit A.
1.8 "Purchase Orders" means written or electronically transmitted
purchase orders to Adaptec for the Products, including the description of the
Product, quantity, Delivery Point, requested Delivery date and other relevant
information relating to the order and shipment.
1.9 "Purchaser Documentation" means the documentation to be provided to
Adaptec by Purchaser for each respective Product, including the items listed on
Exhibit B.
1.10 "Purchaser Technology" means technical information specific to the
Products, including Product design documentation (including Purchaser
Documentation); test data; and Test Equipment.
1.11 "Services" means the manufacturing services performed by Adaptec
hereunder, including purchasing, assembly and manufacture, testing, packaging
and shipping.
1.12 "Specifications" means the respective specifications for each
Product, as agreed in writing by the parties.
1.13 "Test Equipment" means testers, fixtures, tooling, and other test
equipment used in manufacture, assembly, and production test of the Products, as
set forth on Exhibit B hereto.
1.14 "Functional Test Plan" means the testing process and criteria with
respect to each Product to determine whether such Product meets the
Specifications.
1.15 "Consigned Inventory" means the inventory of AIC-1160 integrated
circuit products, which are owned by Purchaser and consigned to Adaptec for
purposes of incorporation into Products.
1.16 "Inventory" means the Consigned Inventory, Risk-buy Inventory,
Unique Inventory and other Adaptec inventory of components for Products,
partially completed Products, and completed Products consistent with Purchaser's
outstanding Purchase Orders.
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1.17 "ICT" means in circuit testing.
1.18 "Standard Cost" means the standard cost of a component or Product,
as set forth in Adaptec's SAP system, at the Effective Date or such later date
as a Price of a Product may be determined in accordance with Section 4.
1.19 "Minimum Lot Size" means the minimum quantity of each type of
Product that may be manufactured at one time, as specified in Exhibit A.
1.20 "Risk-buy Inventory" means the inventory of long lead time
components used in rendering the Services, as specified in Exhibit F, ("Long
Lead Time Components") which are purchased by Adaptec pursuant to Purchaser's
direction for purposes of Adaptec's rendering the Services.
1.21 "Unique Inventory" means the inventory of components which are used
by Adaptec solely for the purpose of rendering the Services, as specified in
Exhibit G, ("Unique Components"), which are purchased by Adaptec for the purpose
of rendering the Services.
2. TERM OF AGREEMENT
The term of this Agreement ("Term") shall commence on the Effective Date
and shall continue until the earlier of Purchaser's transition of manufacturing
to another manufacturer or April 30, 1999, subject to earlier termination as
provided in Section 16.
3. MANUFACTURE OF PRODUCTS
3.1 Manufacture of Products. During the Term, Adaptec shall use
reasonable commercial efforts to manufacture the Products in accordance with the
terms of this Agreement. This Agreement shall be strictly limited to the
Products listed in Exhibit A and no Product shall be added to this Agreement
after the Effective Date. Adaptec will commence performance of the Services with
respect to a Product upon receipt of a Purchase Order therefor, including
without limitation the procurement of any components required to render such
Services. Adaptec shall have no obligation to procure or stock in inventory any
such components prior to the receipt of a Purchase Order requiring such
components. Adaptec may, at its reasonable discretion, allocate production and
delivery among Adaptec's customers.
3.2 Provision of Purchaser Documentation and Purchaser Technology. As
soon as required after the Effective Date, Purchaser will deliver to Adaptec the
Purchaser Documentation. Subject to the terms and conditions of this Agreement,
Purchaser grants to Adaptec and its subcontractors, during the Term of this
Agreement, a non-exclusive, nontransferable license to use the Purchaser
Technology solely to perform the Services.
3.3 Provision of Test Equipment. Upon the Effective Date, Purchaser
consigns to Adaptec Test Equipment necessary for Adaptec to test the Products in
accordance with the Functional Test Plan. Such Test Equipment shall remain the
property of Purchaser, and Adaptec
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<PAGE> 4
agrees to use the Test Equipment solely for the purpose of testing the Products.
Adaptec shall use reasonable commercial efforts to maintain the Test Equipment
in good condition and repair, including the provision of any necessary regular
maintenance. However, Adaptec shall not be responsible for any loss or damage to
the Test Equipment unless it results from the negligence or willful misconduct
of Adaptec or its employees. Adaptec will use reasonable efforts to monitor the
capacity of existing Test Equipment and to advise Purchaser when additional Test
Equipment is necessary.
3.4 Purchase of Long Lead Time Components. Upon Purchaser's written
request, Adaptec shall purchase Long Lead Time Components consistent with
Purchaser's forecast and outstanding Purchase Orders. All such Long Lead Time
Components shall be deemed to be "Risk-buy Inventory" and Purchaser shall assume
all risk for non-use of such components.
3.5 Reconciliation of Unique Inventory. Adaptec shall purchase Unique
Components consistent with Purchaser's forecast and outstanding Purchase Orders.
All such Unique Components shall be deemed to be "Unique Inventory" and
Purchaser shall assume all risk for non-use of such components. At each
Quarterly Review Meeting, if the per-unit price of the then-existing Unique
Inventory has decreased since the last reconciliation of the Unique Inventory,
Purchaser shall pay to Adaptec an amount equal to the decrease in per-unit price
multiplied by the number of units in the then-existing Unique Inventory.
3.6 Packaging. Adaptec will package each Product substantially in
accordance with the applicable Packaging Specification.
3.7 Meetings. Purchaser shall be responsible for scheduling the
Quarterly Review Meeting and for preparing the agenda for discussion. Each party
shall use reasonable efforts to have appropriate personnel attend such meetings
in order to conduct a thorough operations review in accordance with the agenda.
3.8 Contractors. Adaptec may retain third parties ("Contractors") and
subsidiary companies ("Subsidiaries") to furnish services to it in connection
with the performance of its obligations hereunder and permit such Contractors
and Subsidiaries to have access to Purchaser's Confidential Information, but
only to the extent and insofar as reasonably required in connection with the
performance of Adaptec's obligations under this Agreement; provided that all
such Contractors and Subsidiaries shall be required by Adaptec to execute a
written agreement (a) sufficient to secure compliance by such Contractors and
Subsidiaries with Adaptec's obligations of confidentiality concerning
Confidential Information set forth in Section 17; (b) acknowledging the
Contractor's or Subsidiary's obligation to assign all work product in connection
with performance hereunder; and (c) effecting assignments of all Intellectual
Property Rights concerning any Purchaser Technology to Purchaser. Purchaser,
upon request, may review such agreements at any time before or after execution
by such Contractors and Subsidiaries to ensure compliance with this Agreement.
3.9 Consigned Inventory. Purchaser shall consign to Adaptec a sufficient
quantity of the Consigned Inventory and will maintain the Consigned Inventory at
sufficient levels for Adaptec to timely manufacture Products utilizing such
Consigned Inventory in accordance with the applicable Lead Time and yields.
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4. PRICING
Subject to the terms and conditions of this Agreement, Adaptec agrees to
sell the Products at the respective Prices set forth on Exhibit A. The Prices
shall not include the cost of any Consigned Inventory. Any Price which is not
set forth on Exhibit A initially will be set at the Standard Cost of the Product
at the time of production release (exclusive of the AIC-1160), plus ten percent
(10%). All Prices shall be reviewed at the Quarterly Review Meeting, and shall
be adjusted including for variations in the yield of each Product such that they
are approximately equivalent to the Standard Cost of the Product, plus ten
percent (10%). Unless otherwise agreed to in writing by Adaptec, all Prices are
exclusive of transportation and insurance costs, and all taxes, duties and
assessments (except taxes levied against Adaptec's income), including state and
local use, sales property and similar taxes. Purchaser agrees to pay such taxes
unless Purchaser has provided Adaptec with (i) an exemption resale certificate
in the appropriate form for the jurisdiction of Purchaser's place of business
and any jurisdiction to which Product is to be directly shipped hereunder, or
(ii) written evidence that such sale is otherwise exempt from such taxes. In the
event Adaptec is required to pay any tax, transportation, insurance, or duty
charges, Purchaser shall reimburse Adaptec therefor. Where applicable,
transportation and taxes shall appear as separate items on Adaptec's invoice
5. FORECASTS, ORDERING & ADJUSTMENTS
5.1 Forecasts. Purchaser has provided to Adaptec a forecast of
Purchaser's quantity requirements for each Product for the Term ("Forecast").
Purchaser acknowledges that the Forecast will be used by Adaptec for material
and manufacturing planning purposes, and that, during the Term, Purchaser shall
be required to purchase the quantity of Products forecasted. The Forecast is
attached hereto as Exhibit E.
5.2 Purchase Order. On the first day of each calendar month, Purchaser
shall issue a Purchase Order to Adaptec to initiate the performance of Services
with respect to the Products. Each Purchase Order will be issued by Purchaser in
accordance with the applicable Lead Time(s) to allow Delivery during the Term
and, together with previously issued Purchase Orders, shall cover the ordering
of Products to be delivered during the next three (3) months. Quantities
specified in each Purchase Order shall be at least the Minimum Lot Size for each
Product ordered. Adaptec shall use reasonable efforts to acknowledge the
Purchase Order and to confirm the scheduled Delivery Date within forty-eight
(48) hours. No Purchase Order shall be binding until accepted by Adaptec.
5.3 No Cancellation. Purchaser may not cancel any Products ordered or on
order for Delivery and, further, must order the quantities set forth in the
Forecast. Upon Purchaser's request, Adaptec will use reasonable efforts to
reschedule Products scheduled for Delivery. However, such adjustment may be
subject to additional costs or charges and may not be feasible for short time
frames.
5.4 Agreement Controls. Except for the Products, quantities and other
matters necessary to be specified by a Purchase Order, to the extent accepted by
Adaptec, the terms
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governing the manufacture, delivery, acceptance and payment for the Products
will be governed by the terms and conditions of this Agreement. In the case of
conflict between this Agreement and any Purchase Order, invoice, acknowledgment
or similar document, the terms of this Agreement will prevail. Any remedies at
law or equity not specifically disclaimed or modified by this Agreement remain
available to both parties.
6. DELIVERY, CARRIER & RISK OF LOSS
6.1 Delivery of Product: Risk of Loss. All Products purchased hereunder
shall be Delivered F.O.B. Adaptec's dock in the San Francisco Bay Area, and
title and risk of loss or damage to the Products will pass to Purchaser at such
Delivery Point. All quoted Delivery dates are estimates only and Adaptec shall
not be liable for any failure to meet a quoted Delivery date.
6.2 Shipment. Unless otherwise agreed by the parties, shipment costs
from San Francisco and Milpitas to destinations within the United States shall
be freight collect. The carrier will be selected by Adaptec. In no event shall
Adaptec be liable for any delay in delivery, or assume any liability in
connection with shipment, nor shall the carrier be deemed an agent of Adaptec.
All claims for damages must be filed with the carrier. Shipments may be made in
installments. All shipments will be made directly to Purchaser; no drop
shipments shall be made under this Agreement. Unless otherwise agreed in writing
or as set forth in the Packaging Specification, all Products will be packed and
shipped in accordance with Adaptec's normal practices.
7. PAYMENTS
Upon Delivery of the Products, Adaptec will send an invoice to Purchaser
identifying the Purchase Order and confirming the quantity and description of
all Products that have been shipped. Purchaser will pay invoices for Products,
or such other invoices as are issued under this Agreement, within thirty (30)
days of receipt. Payment of invoices shall be made to Adaptec as Adaptec may
direct in its invoice (or otherwise in writing). Payment does not constitute
final acceptance of the Products and is subject to adjustments for errors,
shortages and defects. Shipments, deliveries, and performance of the Services
shall at all times be subject to the approval of Adaptec's credit department and
Adaptec may at any time decline to make any shipments or deliveries or perform
any Services except upon receipt of payment, or upon terms and conditions or
security satisfactory to Adaptec. If shipments are delayed by Purchaser, payment
shall become due, at Adaptec's option, thirty (30) days after the date Adaptec
is prepared to make shipment.
8. QUALITY AND INSPECTION
8.1 Process and Quality. Adaptec will manufacture the Products in
accordance with its general process and quality procedures currently in place
for the Products.
8.2 Yield Improvement and Problems. Adaptec will use reasonable
commercial efforts to improve Product yield, but shall not be liable for Product
yield except as provided in Sections 9 and 10. Purchaser acknowledges that the
Prices are based on a yield of at least ninety percent (90%) acceptable Products
under the Functional Test Plan. If the yield is less than ninety
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percent (90%) on any lot of Products, Adaptec shall issue a Stop Action and
Purchaser and Adaptec shall review the design details and other issues which may
have contributed to the inadequate yield. As a consequence of such Stop Action
and review, the parties shall negotiate appropriate revisions to the Prices,
Functional Test Plan or other terms of this Agreement with respect to future
Product deliveries.
8.3 Adaptec Testing. Adaptec will use the Functional Test Plan, which
has been approved by Purchaser, to test each Product. Adaptec shall fully test
all products delivered hereunder in accordance with its ICT and with the
applicable Functional Test Plan.
8.4 Training on RMA Testers. Within thirty (30) days after the
Effective Date, upon Purchaser's request and at the mutual convenience of the
parties, Adaptec shall provide to two (2) representatives of Purchaser training
on the maintenance and operation of the RMA ("Chop Top") Testers to be
transferred to Purchaser under the Asset Transfer Agreement. Adaptec shall
provide up to thirty (30) hours of such training at Adaptec's facility in
Milpitas. Upon the conclusion of such training, the RMA Testers shall be
delivered to Purchaser, F.O.B. Adaptec's facility in Milpitas.
9. ACCEPTANCE AND REJECTION OF PRODUCTS
Any Product Delivered hereunder shall be deemed accepted by Purchaser
unless Adaptec receives written notice of a defect or non-conformity with
respect to such Product within thirty (30) days of shipment to Purchaser or its
Customer. In the event a Product appears not to conform to the Specifications,
Purchaser shall promptly notify Adaptec and afford Adaptec a reasonable
opportunity to inspect such Product. No Product shall be returned to Adaptec
without compliance with Adaptec's Return Material Authorization ("RMA")
procedures, a current version of which is attached hereto as Exhibit D.
10. WARRANTY
10.1 Materials and Workmanship. Adaptec warrants that the Products
purchased and Delivered hereunder will, for a period of one (1) year ("Warranty
Period"), commencing on the date of Delivery, be free from defects in material
and workmanship and conform to the Specifications. Notwithstanding the
foregoing, the warranty in this Section 10.1 will not extend to defects
attributable to the Product design or defects arising from compliance with the
Specifications or defects in the Functional Test Plan.
10.2 Warranty Remedy. If any Product is found to breach the warranty
specified in Section 10.1 during the Warranty Period, Purchaser may send a
notice to Adaptec informing it of the breach of warranty and shall provide
appropriate failure analysis data indicating the defect or failure mode. Upon
Adaptec's confirmation of such failure analysis data, Adaptec shall reimburse
Purchaser for the lesser of its actual cost of repair of such defective Product
and the actual purchase price paid by Purchaser for such defective Product.
Subject to confirmation of a defect, Adaptec will make payment of any
reimbursement or refund within thirty (30) days of receipt of the failure
analysis data and documentation of Purchaser's actual cost of repair or, if
repair is not appropriate, an explanation of why repair is not appropriate.
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10.3 No Liability. Adaptec shall have no liability or obligation to
Purchaser under this Section 10 with respect to any Products which have been
subjected to abuse, misuse, improper use, negligence, accident, alteration,
repair or rework performed by unauthorized parties.
10.4 Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN SECTION
10.1, THE PRODUCTS ARE PROVIDED "AS IS" AND ADAPTEC MAKES NO REPRESENTATION OR
WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED
TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
NONINFRINGEMENT.
11. PRODUCT CHANGES
11.1 On Adaptec's Notice. In no event shall Adaptec make any
modification to the form, fit or function of the Products without Purchaser's
prior written approval, which shall not be unreasonably withheld or delayed.
11.2 At Purchaser's Request. Should Purchaser desire modifications in
the Product which do not affect fit, form or function, Purchaser shall submit
its request to Adaptec in writing, and Adaptec shall use reasonable commercial
efforts to respond to such request in writing within five (5) business days,
setting forth the impact of such proposed change on the performance of the
Services and the Price of the Products. Any change affecting, safety or
necessary for proper functioning of the Products will be implemented by Adaptec
as soon as possible. Unless the parties agree otherwise, requested changes will
not affect the Products already scheduled or rescheduled for Delivery as of the
date such request is received by Adaptec. Purchaser shall be responsible for
payment for any inventory which is made obsolete or any yield loss as a
consequence of the implementation of the change.
11.3 Change Management. All changes to a Product shall be subject to
Adaptec's standard change management procedure.
12. TRADEMARK LICENSE
12.1 Trademark License. Subject to the terms and conditions of this
Agreement, Adaptec hereby grants to Purchaser and Purchaser accepts a worldwide,
nontransferable, fully-paid and royalty-free right and license to use the
Adaptec trademarks "AIC", "Adaptec" and the Adaptec stylized "a" logotype (the
"Adaptec Marks") solely as affixed by Adaptec to Products and corresponding
packaging supplied by Adaptec to Purchaser hereunder. Purchaser acknowledges and
agrees that Adaptec owns and will continue to own all right, title and interest
in and to the Adaptec Marks and any and all goodwill therein and thereto,
whether arising as a result of Purchaser's use of the Adaptec Marks or
otherwise. Purchaser hereby assigns and, if and as Adaptec may request in the
future, agrees to assign and affirm assignment to Adaptec of all such right,
title and interest in the Adaptec Marks and related goodwill. If requested by
Adaptec, Purchaser will cooperate with Adaptec in securing any trademark
registrations and other indicia of ownership for which Purchaser's cooperation
is required as a matter of applicable local law as a result of Purchaser's use
of the
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Adaptec Marks. Purchaser agrees to use the Adaptec Marks only in the exact
manner of use by Adaptec.
12.2 Private Labeling. If Purchaser repackages Products received from
Adaptec, Purchaser agrees to repackage in packaging using Purchaser's marks and
to sticker over Adaptec Marks with Purchaser's marks. Purchaser further agrees
to use commercially reasonable efforts to cease all use of the Adaptec Marks as
soon as feasible.
13. FREEDOM OF ACTION
Purchaser is aware that Adaptec is in the business of developing and
manufacturing products similar to the Products, and intends to continue to
manufacture the same in the future. Nothing, in this Agreement shall limit the
ability of Adaptec to produce products or portions of products which are similar
to the Products for customers other than Purchaser, either during the term of
this Agreement or after its termination, provided that in doing so, Adaptec does
not infringe Purchaser's intellectual property rights or breach the terms of the
Asset Transfer Agreement or Technology License Agreement entered into between
the parties contemporaneously herewith.
14. PROPRIETARY RIGHTS INDEMNITY
14.1 Adaptec Indemnity. Adaptec shall, at its expense and at
Purchaser's request, defend any claim or action brought against Purchaser, and
Purchaser's subsidiaries, affiliates, directors, officers, employees, agents and
independent contractors, to the extent it is based on a claim that the
manufacturing process for the Products infringes any patent, copyright, mask
work right or other intellectual property right, or misappropriates any trade
secret, of a third party ("Claim"). Adaptec shall pay all costs of defense and
settlement, together with any judgment which may be finally awarded; provided:
(a) Purchaser gives Adaptec reasonably prompt notice in writing of any such
Claim and permits Adaptec, through counsel of its choice, to defend and/or
settle such Claim; and (b) Purchaser provides Adaptec information, assistance
and authority, at Adaptec's expense, to enable Adaptec to defend such Claim.
Adaptec shall not be responsible for any settlement made by Purchaser without
Adaptec's written permission.
14.2 Exceptions. Adaptec will not have liability under this Section 14
to the extent that the Claim results from (a) the use of the Purchaser
Documentation or otherwise from the Product design or features; or (b)
Purchaser's combination, operation, or use of the Products with designs,
devices, parts, or software not supplied by Adaptec (including, but not limited
to, Purchaser Components).
14.3 Purchaser Indemnity. Purchaser shall, at its expense and at
Adaptec's request, defend any claim or action brought against Adaptec, and
Adaptec's subsidiaries, affiliates, directors, officers, employees, agents and
independent contractors, to the extent it is based on a claim that the Purchaser
Documentation, the Product design or any third party intellectual property
incorporated in Product at the direction of Purchaser, infringes any patent,
copyright, mask work right or other intellectual property right, or
misappropriates any trade secret, of a third party ("Claim"). Purchaser shall
pay all costs of defense and settlement, together with any judgment which may be
finally
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awarded, provided: (a) Adaptec gives Purchaser reasonably prompt notice in
writing of any such suit and permits Purchaser, through counsel of its choice,
to defend and/or settle such Claim; and (b) Adaptec provides Purchaser
information, assistance and authority, at Purchaser's expense, to enable
Purchaser to defend such Claim. Purchaser shall not be responsible for any
settlement made by Adaptec without Purchaser's written permission.
14.4 Exceptions. Purchaser will not have liability under this Section
14 to the extent that such Claim results from Adaptec's manufacturing process.
15. GENERAL INDEMNITY
Each party hereto (the "Indemnifying Party") shall, at its own expense,
defend the other party, and its subsidiaries, affiliates, directors, officers,
employees, agents and independent contractors (collectively, the "Indemnified
Party"), from and against any and all loss, cost, liability or expense
(including costs and reasonable fees of attorneys and other professionals)
arising out of or in connection with the negligence of the Indemnifying Party's
agents and employees. Such indemnity shall include claims brought with respect
to the defective design of the Product for which Purchaser shall be the
indemnifying party. The Indemnifying Party shall pay all costs of defense and
settlement, together with any judgment which may be finally awarded; provided:
(a) the Indemnified Party gives the Indemnifying Party reasonably prompt notice
in writing of any such suit and permits the Indemnifying Party, through counsel
of its choice, to defend and/or settle such Claim; and (b) the Indemnified Party
provides the Indemnifying Party information, assistance and authority, at the
Indemnifying, Party's expense, to enable the Indemnifying Party to defend such
Claim. The Indemnifying, Party shall not be responsible for any settlement made
by the Indemnified Party without the Indemnifying Party's written permission.
16. TERMINATION
16.1 Termination Without Cause. Purchaser may, for any reason or for no
reason whatsoever, terminate this Agreement, in whole, or in part, upon two (2)
months advance notice to Adaptec.
16.2 Effect Of Termination Without Cause. In the event Purchaser
terminates this Agreement pursuant to Section 16.1, Purchaser shall immediately
pay to Adaptec all amounts due to Adaptec, including the full purchase price for
all outstanding Purchase Orders, the full purchase price of all Risk-buy
Inventory not incorporated into Products, and the then-current price of all
Unique Inventory not incorporated into Products.
16.3 Termination For Default. Either party may suspend its performance
and/or terminate this Agreement immediately upon written notice at any time if:
(a) The other party is in material breach of any warranty, term,
condition or covenant of this Agreement other than those contained in Section 17
and fails to cure that breach within thirty (30) days after written notice of
that breach and of the first party's intention to suspend its performance or
terminate;
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(b) The other party is in material breach of any warranty, term,
condition or covenant of Section 17; or
(c) The other party: (i) becomes insolvent; (ii) admits in writing
its insolvency or inability to pay its debts or perform its obligations as they
mature; or (iii) makes a general assignment for the benefit of creditors.
16.4 Effect of Termination in General. The following terms apply to any
termination under this Agreement, including without limitation, termination for
convenience and for default:
(a) Immediately upon any termination of this Agreement, Adaptec
shall, to the extent and at times specified by Purchaser, stop all work on
outstanding Purchase Orders, incur no further direct cost, and protect all
property in which Purchaser has or may acquire an interest pursuant to this
Section 16.
(b) Immediately upon any termination of this Agreement, each party
will return to the other party or, pursuant to the other party's written
instructions, destroy all materials in its possession containing Confidential
Information of the other party. Returned Confidential Information materials
shall be shipped freight collect. In addition Adaptec shall immediately deliver
to Purchaser any and all Purchaser Technology, Inventory or other property of
the Purchaser within Adaptec's possession or control. Such items shall be
delivered FOB Singapore. Notwithstanding the foregoing, Adaptec shall have no
obligation to deliver any Inventory until and unless Purchaser has paid in full
all amounts due to Adaptec.
(c) Unless this Agreement is terminated pursuant to Section 16.1
or by Adaptec pursuant to Section 16.3, Purchaser shall reimburse Adaptec for
(i) the full purchase price paid by Adaptec, including freight, tax, and other
costs paid by Adaptec, of all Risk-buy Inventory which is not incorporated into
Products, and (ii) the then-current price for all Unique Inventory which is not
incorporated into Products. Such reimbursement shall be paid for as provided in
Section 7.
(d) If this Agreement is terminated by Adaptec pursuant to Section
16.3, then Purchaser shall immediately pay to Adaptec all amounts due to
Adaptec, including the full purchase price for all outstanding Purchase Orders,
the fall purchase price of all Risk-buy Inventory not incorporated into
Products, and the then-current price for all Unique Inventory not incorporated
into Products.
(e) If this Agreement is terminated by Purchaser pursuant to
Section 16.3, then Purchaser shall pay to Adaptec amounts due for Products
Delivered to Purchaser, the full purchase price of all Risk-buy Inventory not
incorporated into Products, and the then-current price for all Unique Inventory
not incorporated into Products, but Purchaser shall have no obligation to pay
for unfilled Purchase Orders.
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(f) Notwithstanding any termination of this Agreement, the
provisions of Section 7, 9, 10, 12, 13, 14, 15, 17, 18 and the relevant sections
of Sections 16 and 19 shall remain in effect.
16.5 Transition Assistance. In connection with the transition of the
manufacture of the Products to Purchaser's designated third party manufacturer,
Adaptec will provide up to forty (40) hours of transition assistance in
connection with the production of the Products and the use of the ICT test
fixtures and Functional Testers, including maintenance and debugging of the
Functional Testers, to such manufacturer at its own or its designated
facilities. Purchaser shall request such assistance at least thirty (30) days
prior to the expiration of this Agreement and provision of the assistance shall
be scheduled at the mutual convenience of the affected parties. Subject to
reimbursement of the reasonable travel costs incurred by Adaptec's personnel in
connection with such training, which shall be billed to Purchaser and paid as
provided in Section 7, such training shall be provided at no charge. Should
Purchaser desire additional transition assistance, Purchaser may make a written
request for a quotation for the provision of such technical assistance. Adaptec
shall provide such quotation for such additional assistance as is reasonably
requested by Purchaser and shall provide the technical assistance quoted upon
Purchaser's written acceptance of the quotation.
17. CONFIDENTIALITY
Each party will protect the other's Confidential Information in
accordance with the terms of the MNDA. Notwithstanding the terms of the MNDA,
Purchaser may disclose the terms and conditions of this Agreement to investors
and potential investors, subject to such parties' agreement to maintain such
terms and conditions in confidence.
18. LIMITATION OF LIABILITY
EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, AND EXCEPT AS SET FORTH
IN SECTIONS 14 AND 15, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER OR
ANY OTHER PERSON FOR ANY SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES
OF ANY KIND, INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS OR DAMAGES TO THE
OTHER PARTY'S BUSINESS REPUTATION HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY,
WHETHER IN AN ACTION FOR CONTRACT, STRICT LIABILITY OR TORT (INCLUDING
NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THE FIRST PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGE AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE
OF ANY REMEDY.
19. GENERAL
19.1 Notice. Any notice shall be considered given if delivered
personally or if sent by either party to the other by prepaid Federal Express,
registered or certified mail, or by telefax (followed by a confirming hard copy)
addressed to the address specified below, or to such other address as the party
provides by written notice:
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If to Adaptec:
Adaptec, Inc.
691 S. Milpitas Boulevard
Milpitas, California 95035
Attention: Vice President, Operations
cc: General Counsel
If to Purchaser:
Chaparral Technologies, Inc.
1951 South Fordham Street
Longmont, CO 80503
Attention: President
19.2 Assignment. Neither party shall assign any of its rights or
privileges hereunder without the prior written consent of the other party;
provided, however, that Adaptec may subcontract the performance of any or all of
the Services without Purchaser's consent. Any attempt at assignment in
derogation of the foregoing shall be null and void. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto, their subsidiaries, and their respective successors and assigns.
19.3 Damage Limitation. INDEPENDENTLY OF ANY OTHER REMEDY LIMITATION
HEREOF AND NOTWITHSTANDING ANY FAILURE OF THE ESSENTIAL PURPOSE OF ANY SUCH
LIMITED REMEDY, THE PARTIES AGREE THAT IN NO EVENT SHALL ADAPTEC BE LIABLE FOR
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND UNDER THIS AGREEMENT.
19.4 Allocation of Risk. The parties acknowledge and affirm that the
sections on limitation of liability, warranties and disclaimer of warranties and
damage limitation in this Agreement allocate the risks between the parties. This
allocation is reflected in the pricing of the Products and is an essential
element of the basis of the bargain between the parties.
19.5 Export Control.
(a) Representation. Purchaser agrees to comply strictly and fully
with all export controls imposed on the Products by any country or organization
in whose jurisdiction Purchaser operates or does business. Purchaser will not
knowingly, export or reexport any Product to any country prohibited under United
States Export Administration Regulations, without first obtaining a valid
license to so export or reexport the Products.
(b) Responsibility. All export permits, import certificates,
insurance, duty, customs clearance charges and/or licenses and related costs
will be Purchaser's responsibility.
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19.6 Waiver. No failure or delay on the part of either party in the
exercise of any right or privilege hereunder shall operate as a waiver thereof
or as a waiver of the exercise of any other right or privilege hereunder, nor
shall any single or partial exercise of any such right or privilege preclude
other or further exercise thereof or of any other right or privilege.
19.7 Governing Law; Attorneys' Fees. This Agreement shall be governed
by and enforced in accordance with California law as applied to contracts
entered into in California by California residents to be performed entirely
within the State of California. Any action arising out of any dispute between
any of the parties to this Agreement with respect to any of the transactions
contemplated by this Agreement shall be brought in either the Superior Court for
the City and County of Santa Clara, or the United States District Court for the
Northern District of California, and each of the parties hereto hereby submits
itself to the jurisdiction of such courts for purposes of any such action. In
the event either party is required to seek legal recourse to enforce its rights
hereunder, such party shall be entitled to receive, in addition to any other
award, all costs in connection therewith, including reasonable attorneys' fees.
19.8 Titles. Any titles included herein are for convenience only and
are not to be used in the interpretation of this Agreement.
19.9 Severability. If any provision of this Agreement is held to be
ineffective, unenforceable or illegal for any reason, such provision partially
will be enforced to the maximum extent permitted by law, and the remainder of
this Agreement will remain in full force and effect.
19.10 Force Majeure. Neither of the parties shall be deemed to be in
default of this Agreement to the extent any failure to perform hereunder is a
result of conditions beyond the other party's reasonable control, including but
not limited to, acts of God, war, strikes, fires, floods, earthquakes, work
stoppages and embargoes, material shortages, subcontractor delays, equipment or
other facilities failures (which delays or failures are beyond the reasonable
control, without negligence, of the defaulting party), and neither party shall
have the right to terminate this Agreement for any such delay or default on the
part of the other party.
19.11 Integration. This Agreement and its Exhibits embodies the entire
understanding of the parties and supersedes any prior agreements,
representations or understandings between the parties as it relates to the
subject matter hereof. No amendment or modification of this Agreement shall be
valid or binding unless in writing and signed by duly authorized representatives
of each party.
19.12 Publicity. Except as required by law, neither party will disclose
the existence or terms of this Agreement to any third party without the express
written consent of the other, which consent shall not unreasonably be withheld
or delayed.
19.13 Relationship. The parties are independent contractors. Nothing
contained herein and no action taken pursuant hereto shall constitute the
parties as joint ventures or the agents of the other party for any purpose or in
any sense whatsoever.
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19.14 Counterparts. This Agreement may be executed in counterparts,
each of which constitutes an original, and together which constitute the
Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives as of the Effective Date.
ADAPTEC, INC.
- ------------------------------------ ("Adaptec")
("Purchaser")
By: /s/ Michael J. Gluck By: /s/ Larry Boucher
------------------------------- --------------------------------
Name: Michael J. Gluck Name: Lawrence Boucher
------------------------------ ------------------------------
Title: President and Chief Title: Chairman of the Board
Operating Officer -----------------------------
-----------------------------
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<PAGE> 1
EXHIBIT 10.25
GATES/ARROW
DISTRIBUTING, INC.
AND
CHAPARRAL TECHNOLOGIES, INC.
DISTRIBUTION
AGREEMENT
<PAGE> 2
DISTRIBUTION AGREEMENT
As of March 10, 1999, Chaparral Technologies, Inc., a Delaware
corporation having its principal place of business at 1951 South Fordham Street,
Longmont, Colorado 80503 ("Supplier"), and Gates/Arrow Distributing, Inc., a
Delaware corporation, having its principal place of business at 39 Pelham Ridge
Drive, Greenville, S.C. 29615, ("Gates/Arrow"), agree as follows:
1. APPOINTMENT Supplier appoints Gates/Arrow an authorized distributor of its
Products within the United States, Canada and Puerto Rico (the "Territory")
through its subsidiary, Consan, Inc, a Minnesota corporation. Supplier remains
free to distribute its Products within the territory either directly or through
other distributors or dealer. As used in this agreement, "Product" means all
products offered for sale by Supplier generally, as set forth and described in
Supplier's current price list. Products may be added to or deleted from the
price list by Supplier on thirty days prior written notice to Gates/Arrow.
2. RESPONSIBILITIES OF GATES/ARROW Gates/Arrow will use its reasonable best
efforts to:
a. maintain a competent and aggressive sales force and otherwise
promote the sale, lease or other distribution of the Products within the
Territory;
b. maintain a representative inventory of Products in reasonably
sufficient quantities to provide adequate and timely delivery to Gates/Arrow's
customers, with a goal of shipment or acknowledgement of orders within two
business days; and
c. participate in such training programs as may be offered by Supplier.
3. RESPONSIBILITIES OF SUPPLIER Supplier will use its reasonable best efforts
to:
a. furnish Gates/Arrow with current price and product information on
magnetic media (or other suitable electronic format) and with a supply of such
printed price lists, sales literatures, books, catalogues and the like as
Supplier may prepare and such training and technical and sales support
(including sales forecasting and planning assistance) as may be necessary to
assist Gates/Arrow in effectively carrying out its activities under this
Agreement;
b. advertise the Products throughout the Territory, inform the public
that Gates/Arrow is an authorized distributor of the Products, encourage
customers or potential customers for the Products to order the same from its
distributors (including Gates/Arrow), and refer to its distributors (including
Gates/Arrow), leads and orders involving quantities of Products normally handled
by distribution; and
c. establish and maintain quality control, manufacturing, handling and
testing procedures, and such other programs as are necessary to ensure that the
Products, as manufactured and sold to Gates/Arrow, are of the highest quality
and reliability, are in full compliance with all applicable laws, standards,
codes and regulations, are duly marked and labeled and are suitable for resale
or other distribution.
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4. REPORTS, REVIEWS, AND AUDITS Within fifteen business days after the end of
each month, Gates/Arrow will send to Supplier, in a mutually agreeable format,
i) a stock status report showing the month end on- hand quantities of Products
by device type and warehouse location and ii) a point of sale report showing
each sale of the Products for the month by device type, selling location,
customer name and address, and sales price.
A 12 month rolling forecast will be generated by Gates/Arrow and delivered to
Supplier quarterly. (during the third month of each calendar quarter) The
forecast will address each Product as listed on Schedule A. The forecast format
will be mutually agreed upon and will facilitate communication. The quantities
reflected should take into account opportunities and established run rates. This
will be a significant part of the quarterly review meeting.
The appropriate personnel from each party will schedule and hold quarterly
business reviews, the agenda will include the following items but not be limited
to; forecast, product level, training, quality, supplier performance and
industry/company updates.
No more than twice during any year, at reasonable times and upon reasonable
prior notice, employees of Supplier may i) conduct a physical inventory of
Products in any stocking location (or in automated facilities, observe cycle
counts and related methodology) or ii) audit such business records, located at
Gates/Arrow's corporate headquarters, as pertain solely to the purchase of
Products hereunder during any such year.
5. ORDERS; DELIVERY; RESCHEDULING; CANCELLATION;
a. ORDERS Gates/Arrow will place written, telefaxed, telexed or
electronically interchanged purchase orders (or do so verbally with written
confirmation within thirty days), which will include the Products ordered,
quantities requested, delivery dates, prices, and shipping instructions (when
necessary). Supplier will acknowledge each order in writing, by telefax, by
telex, or electronic interchange within ten business days of the receipt thereof
and will confirm the requested shipment date or specify an alternative shipment
date ("Acknowledged Shipment Date").
b. SHIPPING AND PACKING All shipments will be made F.O.B. origin in
accordance with Gates/Arrow's then current Shipping Instructions. Such Shipping
Instructions are subject to change from time to time upon Supplier's receipt of
written notice from Gates/Arrow.
c. RESCHEDULING AND CANCELLATION Gates/Arrow may reschedule the
Acknowledged Shipment Date of, or cancel, any order without cost or penalty up
to ten (10) days prior to scheduled shipment date.
d. GATES/ARROW'S ACCEPTANCE Gates/Arrow's acceptance of an order will
occur upon its receipt of the Products, unless Gates/Arrow notifies Supplier
within thirty business days of such receipt that the Products are defective or
do not conform to the Supplier's applicable warranty, the terms of this
Agreement, or Gates/Arrow's order.
e. EARLY SHIPMENTS Products delivered prior to their acknowledged
Shipment Date may be accepted or rejected by Gates/Arrow. If Supplier is
notified of Gates/Arrow's intention to reject any such delivery, it will issue
(or will be deemed to have issued) a Return Material Authorization within five
days. The return will be made
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<PAGE> 4
fright collect. if Gates/Arrow elects to accept any such delivery, payment terms
on the related invoice will be based on the original Acknowledged Shipment Date.
6. PRICES The prices for Products will be as set forth in Supplier's Price List
in effect as of the date of this Agreement, subject to change from such date
forward upon at lest thirty days prior written notice from Supplier to
Gates/Arrow.
a. PRICE INCREASES Prior to the effective date of a price increase,
Gates/Arrow may order Products for delivery within the term at the prior (i.e.
lower) price. Products shipped under orders submitted by Gates/Arrow prior to
the effective date of any price increase will be shipped and invoiced at the
price in effect at the time of order placement.
b. PRICE DECREASES In the event Supplier decreases the price of any
Product, Gates/Arrow will receive a credit equal to the difference between the
price paid for the Product by Gates/Arrow (less any prior credits taken by
Gates/Arrow on such Product) and the new decreased price for the Product
multiplied by the quantity of such Product in Gates/Arrow's inventory, or in
transit to Gates/Arrow, on the effective date of the decrease. Price protection
will also apply to all Products returned to Gates/Arrow by its customers within
sixty days of the effective date. Gates/Arrow will submit to Supplier, within
sixty business days following the later of the effective date of such price
decrease or the date Gates/Arrow actually receives notice thereof, a list of the
Products upon which such credit is due. All Products shipped after the effective
date of any price decrease will be shipped and invoiced at the price in effect
at the of shipment.
c. SUPPLIER'S REPRESENTATION Supplier represents and warrants that its
practices and policies, including prices and discounts, comply with all
applicable laws. Such prices and discounts will not be less favorable than those
extended to other purchasers of similar quantities of Products from Supplier for
resale or other distribution.
d. TAXES AND OTHER CHARGES Gates/Arrow will pay any applicable sales or
use taxes pertaining to its purchase of the Products (and, if Products are to be
delivered to points outside the United States, the cost of packing, duties,
licenses, and fees) if included as a separate item on the invoices sent by
Supplier to Gates/Arrow.
e. TERMS Terms of payment are for the initial order under this
agreement only are net sixty (60) days from date of invoice. Thereafter, payment
terms will be two percent (2%) 10, net thirty (30) days from date of invoice.
7. RETURN OF PRODUCT
a. QUARTERLY ROTATION At any time during the first thirty (30) days
following the end of each CALENDAR quarter, Gates/Arrow may return to Supplier
for credit, a quantity of Products the value of which will not exceed ten
percent of the amount invoiced by Supplier to Gates/ARROW for all Products
purchased by Gates/Arrow during the previous quarter. Credit issued for such
returned Products will equal the price paid by Gates/Arrow for such Products,
less any prior credits taken thereon. Such returns, which may be made from one
or more stocking locations, will be shipped F.O.B. Supplier's domestic facility,
freight prepaid. Gates/Arrow must obtain a return authorization from Supplier
prior to shipment, and all Products returned must be in their original unopened
packaging, or undamaged and in merchantable condition.
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<PAGE> 5
b. INITIAL PURCHASES Any and all Products ordered by Gates/Arrow on the
initial order under this Agreement may be returned for credit within sixty (60)
days of such date, subject to all of the terms and conditions of paragraph (a)
above, but will not be counted as a "stock rotation" for purposes of computing
the amount of Products returnable under paragraph (a).
8. PRODUCT CHANGES
a. OBSOLESCENCE AND MODIFICATION Supplier reserves the right to
discontinue the manufacture or sale of, or otherwise render or treat as
obsolete, any or all of the Products (or to modify the design or manufacture of
any Product so as to preclude or limit Gates/Arrow's sales of such Product) upon
at least thirty (30) days prior written notice to Gates/Arrow. Gates/Arrow may,
in its discretion, within sixty days of its receipt of such notice, notify
Supplier in writing of its intention to return any or all such Products which
remain in its inventory for a credit equal to the net price paid by Gates/Arrow
for such Products. The Products will be returned within sixty days of the date
of Gates/ARROW's receipt of Supplier's return authorization. Supplier will pay
all freight and shipping charges in connection with any such returns. Such
returns will not be counted for computing the amount of Product returnable under
paragraph 7 (a).
b. INTRODUCTION OF NEW PRODUCTS Supplier will give Gates/Arrow at least
thirty (30) days prior written notice of the introduction of any new Products
that preclude or materially limit Gates/Arrow from selling any Products in its
inventory and will work with Gates/Arrow to resell the affected Product still
remains in Gates/Arrow's inventory, Supplier will replace it with the new
Products within one hundred twenty days of the official public announcement, or
Supplier's first shipment, of such new Products, whichever occurs first. Such
returns will not be counted for computing the amount of Products returnable
under paragraph 7 (a).
9. WARRANTY The Products will be covered by Supplier's standard warranties,
copies of which are attached to this Agreement as Schedule B. The warranty
period set forth in Schedule B will begin with Gates/Arrow's shipment to its
customer, and the warranty will extend directly to Gates/Arrow's customer as if
it had purchased the Products directly from Supplier. Supplier will pay (or
refund the amount of) all freight and shipping charges for any defective
Products returned under its warranty.
10. COMPLIANCE WITH LAWS Despite anything to the contrary contained in Schedule
B or elsewhere in this Agreement, Supplier will indemnify Gates/Arrow against,
and hold it harmless from, any cost, loss, damage or liability (including
reasonable attorney's fees) arising from or related to Supplier's conduct or the
failure, or alleged failure, of the Products, as manufactured and sold to
Gates/Arrow, to fully comply with all applicable laws, standards, codes,
specifications and regulations or to be suitable for resale or other
distribution by Gates/Arrow as contemplated by this Agreement. All warranty and
indemnification provisions of this Agreement will survive the termination
hereof.
11. INTELLECTUAL PROPERTY Supplier will indemnify, defend and otherwise hold
harmless Gates/Arrow, its affiliates and its customers from all cost, loss,
damage or liability arising from any proceeding or claim brought or asserted
against Gates/Arrow, its affiliates or its customers, to the extent such
proceeding or claim is based on an allegation that the Products, any part
thereof, or their
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<PAGE> 6
distribution or use infringe any patent, copyright, trademark, trade secret,
right in a mask work, or any similar claim, if Gates/Arrow notifies Supplier of
any such proceeding or claim promptly after it becomes known and provides all
the assistance and cooperation to Supplier that is reasonably requested.
Supplier will not be liable to Gates/Arrow under this paragraph to the extent
that any claim is based on a use for which the Product or part was not designed,
or an alteration of the Product by Gates/Arrow or at its direction which caused
the infringement.
12. TERM AND TERMINATION
a. TERM This Agreement is effective once signed by both parties and
until terminated in accordance with the provisions of this paragraph. Either
party may at any time terminate this Agreement without cause and for its
convenience by giving ninety days prior written notice to the other. Supplier
and Gates/Arrow represent that they have considered the making of expenditures
in preparing to perform under this Agreement. In that regard, both parties
acknowledge that neither party will in any way be liable to the other for any
loss, expense or damage (including special, consequential, or incidental
damages) by reasons of any termination of this Agreement without cause,
excepting only the then current value of equipment purchased or improvements
made by either party and dedicated to the Products or services of such other
party.
b. EVENTS OF DEFAULT Any of the following is a default under this
Agreement:
i. the assignment of this Agreement by either party without the prior
written consent of the other party;
ii. either party's failure to cure any breach of this Agreement within
sixty days following written notice thereof from the other (or, if not curable
within sixty days, if the cure is not commenced within that period and
thereafter diligently completed); and,
iii. the assignment by either party of its business for the benefit of
creditors, or the filing of a petition by either party under the Bankruptcy Code
or any similar statute, or the filing of such a petition against either of them
which is not discharged or stayed within sixty days, or the appointment of a
receiver or similar officer to take charge of either party's property, or any
other act indicative of bankruptcy or insolvency.
c. REMEDIES UPON DEFAULT In the event of either party's default, the
other party may terminate this Agreement for cause by written notice and/or
avail itself of any remedy available at law or equity.
d. RETURN OF INVENTORY In the event of any termination of this
Agreement, Supplier will repurchase from Gates/Arrow any or all unsold Products
designated by Gates/Arrow from its inventory at the price paid therefor by
Gates/Arrow, less any prior credit taken by Gates/Arrow on such Products. If
Gates/Arrow terminates this Agreement without cause, or Supplier terminates it
with cause, the price will reduced by a five percent handling charge and
Gates/Arrow will pay all freight and shipping charges (which otherwise will be
paid by Supplier). In the event of any termination, Supplier will, at
Gates/Arrow's request, honor any Gates/Arrow purchase order then outstanding.
Supplier will be required to accept only those Products which are in their
original unopened packaging or any undamaged and in merchantable condition. No
termination of this Agreement will affect any obligation of either party to pay
amounts due to the other hereunder.
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<PAGE> 7
13. MARKETING COMMUNICATION To assist Gates/Arrow in advertising and promoting
the Products, Supplier will accrue into a cooperative marketing fund two percent
of the net sales dollars invoiced to Gates/Arrow each month, to be used by
Gates/Arrow for promotional efforts approved by both Gates/Arrow and Supplier.
14. NOTICES Notices under this Agreement will be deemed given when delivered by
hand or deposited in the United States mail as certified mail, postage prepaid,
addressed to the president of either party at its then principal place of
business.
15. TRADEMARKS This Agreement does not create, and neither party will have any
right in, or to the use of, any mark, name, style or logo of the other party.
Gates/Arrow is, however, hereby granted a nonexclusive right to use Supplier's
marks, names or logos to identify itself as an authorized distributor of the
Products and for advertising and promoting its services under this Agreement.
16. CONFIDENTIAL INFORMATION Each party will receive and maintain in confidence
all proprietary information, trade secrets or other know-how belonging to the
other (including but not limited to knowledge of manufacturing or technical
processes, financial and systems data, and customer information) provided that
any such information, secrets or know-how is expressly designated as being
confidential, except and to the extent that disclosure is required by law,
regulation or court order, or enters into the public domain through no fault of
the party obligated to maintain such confidentiality. Without limiting the
foregoing, all material and information made known to Supplier by Gates/Arrow
pursuant to paragraph 4 of this Agreement is hereby designated as confidential.
17. CREDITS In the event Gates/Arrow is entitled to a credit from Supplier which
exceeds Gates/Arrow's obligation to Supplier at the time, Supplier will promptly
pay the amount of such excess to Gates/Arrow.
18. AUTHORIZATION NOT UNREASONABLY WITHHELD Whenever any consent, action or
authorization is required or requested of either party hereunder, it will not be
unreasonably withheld or delayed. Any required return authorization will be
granted within five business days from the day it is requested.
19. FORCE MAJEURE Neither party will bear any liability to the other for any
failure or delay to the extent that it results from acts of God, labor
difficulties, inability to obtain materials or any other cause beyond such
party's reasonable control.
20. RELATIONSHIP OR PARTIES The parties are independent contractors, each in
full control of its business. Under no circumstances will either party have the
right or authority to act or make any commitment on behalf of or bind the other
or represent the other as its agent in any way.
21. PUBLICITY This Agreement is confidential within the meaning of paragraph 16.
Except as required by law, no press release or other like publicity regarding
the relationship between Gates/Arrow and Supplier, this Agreement or its
termination will be made without the other party's prior approval.
22. SOFTWARE Supplier warrants that it is the owner or licensee of all software
provided to Gates/Arrow under this Agreement (whether or not included or
embedded in any other Product), and has the authority to permit Gates/Arrow to
use or
6
<PAGE> 8
resell or sublicense the software to third parties. Gates/Arrow will not resell
or sublicense the software without the license agreement provided by Supplier
for that purpose and will advise Supplier of any known breach of the terms
thereof.
23. GENERAL
a. ENTIRE AGREEMENT This Agreement supersedes all prior communications
or understandings between Gates/Arrow and Supplier and constitutes the entire
agreement between the parties with respect to the matters covered herein. In the
event of a conflict or inconsistency between the terms of this Agreement and
those of any order, quotation, acknowledgment or other communication from one
party to the other, the terms of this Agreement will be controlling.
b. AMENDMENT This Agreement cannot be changed in any way except by a
writing signed by the party against which the enforcement of the change is
sought.
c. GOVERNING LAW This Agreement is made in, governed by, and will be
construed solely in accordance with, the internal laws of the State of New York.
Any action brought under or in connection with this Agreement must be instituted
in the state or federal forum covering the defending party's principal place of
business. In any such action, the prevailing party's reasonably legal fees will
be paid by the other party.
d. REFORMATION In the event any provision of this Agreement is held to
be invalid or unenforceable for any reason, such invalidity or unenforceability
will attach only to such provision and will not affect or render invalid or
unenforceable any other provision of this Agreement. Any such provision may be
reformed by a court of competent jurisdiction so as to render the same valid or
enforceable while most nearly effectuating the intent of the parties.
e. ASSIGNMENT Neither party has the right to assign this Agreement in
whole or in part without the prior written consent of the other except to
another corporation wholly- owned by or under common control with it. For
purposes hereof, an assignment includes, without limitation, a merger, a sale of
assets or business, or other transfer of control by operation of law or
otherwise.
24. SCHEDULES The indicated schedules are attached to, and are part of, this
Agreement.
Schedule A - Product price list
- ---------
Schedule B - Supplier's Standard Warranties
- ---------
Schedule C - D.O.A. Policy
- ---------
7
<PAGE> 9
Each party has entered this Agreement by having an authorized representative
sign below:
GATES/ARROW DISTRIBUTING, INC.
BY: /s/ Mike Long
----------------------------------------
Mike Long
----------------------------------------
(NAME) (TITLE)
DATE: 3/18/99
SUPPLIER: CHAPARRAL TECHNOLOGIES, INC.
BY: /s/ Michael J. Gluck
----------------------------------------
Michael J. Gluck, President
----------------------------------------
(NAME) (TITLE)
DATE: 3/10/99
8
<PAGE> 1
EXHIBIT 10.26
FINANCIAL CONSULTANT AGREEMENT
This Agreement is made and entered into this 12 day of January, 1999,
by and between Chaparral Technologies, Inc. ("Chaparral"), 1951 S. Fordham St.,
Longmont, Colorado 80503, and Sentinel Consulting Corporation ("Sentinel"), with
its principal place of business located at
27068 La Paz (Box 631)
Aliso Viejo, CA 92656
RECITALS
WHEREAS, Sentinel has propose and presented itself as having experience
in providing advice concerning debt finance, equity finance and investment
banking; and Sentinel is willing to consult with Chaparral and render advice to
Chaparral to achieve financing for Chaparral; and
WHEREAS, Chaparral desires to obtain such services from Sentinel on a
non-exclusive basis and understands and that Sentinel is not, or will not be,
overlapping or in conflict with other fund raising efforts on the part of
Chaparral, Chaparral agrees to provide compensation for such services to
Sentinel pursuant to the terms contained herein below.
1. Duties Of Consultant.
Chaparral hereby retains Sentinel to perform those duties delineated below and
Sentinel agrees to perform the following activities on behalf of the company:
Make recommendations to Chaparral's management regarding private and public
equity and debt financing, acquisitions, mergers and other similar business
combinations toward the objective of:
Negotiating with and presenting the best interest of Chaparral to the financial
community and investment banking institutions, or potential merger candidates,
as appropriate.
These specific objectives may be altered, modified or revised based on
Chaparral's needs or new developments.
2. Compensation Of Consultant.
The parties hereto acknowledge that Gerald Grayson and/or his company, Grayson &
Associates, Inc., may make a claim for some portion of, or all of, the
compensation as a result of any transaction initiated and consummated by
Sentinel. The parties hereto agree that it will be Sentinel's responsibility to
resolve any fee issues with Gerald Grayson and Grayson & Associates, Inc.
Chaparral shall be indemnified by Sentinel with respect to any disputes or
litigation. Any fees paid will be solely for performance. Specifically, cash and
warrants are due only in the event of a direct and exclusive relationship
provided to Chaparral by Sentinel. The maximum total compensation Chaparral will
be required to pay as a result of services provided by consultant will be, as
follows:
<PAGE> 2
Financial Consultant Agreement
Page 2
Six percent (6%) of gross proceeds to Chaparral of any financing transaction;
and
A warrant to purchase the number of shares of common stock of Chaparral
equivalent to ten percent (10%) of the common stock equivalent of shares issued
to the investors in the offering, exercisable at a price equal to the common
stock equivalent to the offering price.
All fees and other compensation due Sentinel herein shall be tendered within ten
(10) days of the closing of the applicable funding, merger or other transaction.
In the event of a disagreement related to Sentinel's fee, Chaparral and Sentinel
agree to be guided by Generally Accepted Accounting Principals.
3. Prior Relationships.
This Agreement will not apply to a candidate which Sentinel refers to Chaparral
if Chaparral is currently engaged with a proposed candidate in negotiations
prior to Sentinel's referral. Chaparral will notify Sentinel in writing within
five (5) days of any proposed introduction Sentinel makes to Chaparral with
which Chaparral is currently negotiating.
4. Confidentiality.
Sentinel acknowledges that is has entered into Mutual Nondisclosure Agreement
with Chaparral and that the terms of that agreement remain in full force and
effect. Sentinel will require any potential investors to also sign the Chaparral
Mutual Nondisclosure Agreement, which is to be controlled by Chaparral's
management and administration.
5. Non-Solicitation.
Sentinel agrees not to, directly or indirectly, solicit any of Chaparral's
clients for any other entity other than on behalf of Chaparral.
6. Non-Circumvention.
Chaparral agrees not to, directly or indirectly, circumvent Sentinel's clients
or potential clients or financing sources, whether Sentinel is or is not
actively engaged by Chaparral.
7. Mandatory Arbitration.
Any controversy or claim arising out of or relating to this Agreement, or the
breach thereof, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (or by a
mutually agreed upon arbitrator), and judgment upon the award
<PAGE> 3
Financial Consultant Agreement
Page 3
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof. The prevailing party at the arbitration will be entitled to
reimbursement of fees and costs associated with said action including, but not
limited to, reasonable attorneys fees.
8. Term.
The initial term of this Agreement is for six (6) month period and may be
terminated or extended by either party upon fifteen (15) days advance written
notice to party prior to the expiration of this primary term. In the event of
extension, mutual agreement is required.
9. Indemnification by Sentinel.
Sentinel will indemnify and hold Chaparral and its directors, officers,
employees, and agents harmless from any and all claims arising from any dispute
with Gerald Grayson and/or Grayson & Associates may claim as a result of any
transaction initiated and consummated by Sentinel.
10. Indemnification by Chaparral.
Chaparral will indemnify and hold harmless Sentinel and its directors, officers,
Employees, and agents harmless from any and all claims arising from any dispute
concerning full disclosure of current company information that would be material
to current or potential investors.
11. Notice.
Any notice required hereunder shall be complete upon certified mailing to that
party at the address appearing herein, or at the address which shall be from
time to time be provided to the other party. The parties shall notify the other
of any alteration or change in address hereinafter occurring.
12. Counterparts.
This Agreement may be executed in multiple counterparts. Each executed
counterpart shall be considered an original, and taken together, shall
constitute one and the same document. Any signature, notice or other
communication with respect to the subject matter hereof may be given by telex,
telecopy or other facsimile transmission and relied upon the same extent as if
it were an original.
<PAGE> 4
Financial Consultant Agreement
Page 4
13. Severability.
If any provision, paragraph or subparagraph of this Agreement is adjudged by any
court or arbitrator to be void or unenforceable in whole or in part, this
adjudication shall not affect the validity of the remainder of this Agreement,
including any other provision, paragraph or subparagraph. Each provision,
paragraph or subparagraph of this Agreement is separable from every other
provision, paragraph and subparagraph and constitutes a separate and distinct
covenant.
14. Governing Law.
This Agreement shall be subject to and governed by the laws of the State of
Colorado.
15. Amendment.
This Agreement may only be amended in writing, duly endorsed by the parties
hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement, effective
the date first written above.
CHAPARRAL TECHNOLOGIES, INC.
by: /s/ Douglas J. Lehrmann
-------------------------------------
SENTINEL CONSULTING CORPORATION
by: /s/ Robert Harvey
-------------------------------------
<PAGE> 1
EXHIBIT 10.27
[CHAPARRAL TECHNOLOGIES, INC. LOGO]
FOUNDER STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of (MonthDay), 1998, by and between
CHAPARRAL TECHNOLOGIES, Delaware corporation (the "Company"), and (Purchaser)
("Purchaser").
RECITALS
A. Purchaser is a founder of the Company; and
B. The Company desires to issue and sell to Purchaser, and Purchaser
desires to acquire, Common Stock of the Company on the terms and conditions set
forth below.
C. Purchaser understands that the opportunity to purchase Founders'
Stock is consideration given to each Founder for the prior services actually
rendered to the Company for no compensation during the founding of Company.
NOW, THEREFORE, the parties, intending to be legally bound, hereby
agree as follows:
1. Purchase and Sale of Common Stock.
(a) Purchase and Sale. Purchaser agrees that the opportunity
to purchase Founders' Stock is consideration for Purchaser's efforts
with no compensation during the founding and formation of the Company.
Purchaser agrees that said consideration is sufficient for those
founding efforts and that award of Founders' Stock extinguishes any
claims or additional compensation for those founding efforts, other
than as set forth in any existing agreement. Subject to the terms of
this Agreement, Purchaser agrees to purchase from the Company, and the
Company agrees to sell to Purchaser, (NoofShares) shares of the
Company's Common Stock (the "Shares") for an aggregate purchase price
of $One Tenth of One Cent (or $0.001) per share. Purchaser will pay the
purchase price to the Company, by cash or check, at the closing.
(b) Closing. The closing of the purchase and sale of the
Shares will occur at the offices of the Company within one week after
the date of this Agreement. If the closing has not occurred by such
date, this Agreement will be terminated and have no further force and
effect.
2. Repurchase Option re: Termination of Employment.
(a) In the event of termination of Purchaser's employment or
consulting arrangement with the Company (the "Employment Arrangement")
for cause, (referred to as the "Termination for Cause"), the Company
shall, upon the date of such Termination (the "Termination Date"), have
an irrevocable and exclusive option (the "Repurchase Option") to
repurchase up to the total number of Purchaser's Unvested Shares at the
Option Price, as defined below.
(b) Within sixty (60) days following Purchasers Termination
for Cause, the Company shall notify
Page 1
<PAGE> 2
Purchaser as to whether it (or its assignee) wishes to purchase all or
a portion of the Unvested Shares pursuant to the exercise of the
Repurchase Option. If the Company (or its assignee) elects to purchase
such Shares hereunder, it shall notify Purchaser, in writing, of its
(or its assignee's) intention to purchase such Shares hereunder at the
repurchase price per share set pursuant to Section 3.1(a), and either
(i) set a date and location for the closing of the
transaction not later than thirty (30) days from the date of
such notice, at which time the Company (or its assignee) shall
tender payment for the Shares, or
(ii) close the transaction by mail by including
payment for the Shares with the Company's notice to Purchaser.
Payment for the Shares may be in the form of cash,
the Company's check, a note by the Company (for a term of no
longer than eighteen months at an interest rate of eight
percent per year), or cancellation of all or a portion of
Purchaser's indebtedness to the Company, or any combination
thereof. At such closing, the certificate(s) representing the
Shares so purchased shall be delivered to the Company and
canceled (or the Shares transferred to the Company's assignee,
if applicable) or, the case of payment by the Company (or its
assignee) by mail, such certificate(s) shall be deemed
canceled (or the Shares transferred to the Company's assignee,
if applicable) as of the date of the mailing of the Company's
notice, and, thereafter, shall be promptly returned by
Purchaser to the Company by certified or registered mail.
Shares subject to the Repurchase Option as to which the
Company (or its assignee) has not exercised its Repurchase
Option within ninety (90) days following Purchaser's
Termination shall be released from the Repurchase Option.
(c) Certain Definitions. As used in this Agreement, the
following terms have the following meanings:
(i) Commencement Date: (MonthDay), 1998.
(ii) "Cause" means (1) the negligent, grossly
negligent or willful failure by Purchaser to perform his
duties as an employee of the Company or his continued failure
to perform duties reasonably requested or reasonably
prescribed by the Board of Directors (other than as a result
of Purchaser's debt or disability), (2) the engaging by
Purchaser in conduct which is materially injurious to the
Company or any of its affiliates, (3) negligence, gross
negligence or willful misconduct by Purchaser in the
performance of his duties which results in, or causes, harm to
the Company or any of its affiliates, or (4) Purchaser's
commission of a felony or other offense involving moral
turpitude.
(d) Vested and Unvested Shares. Pursuant to the provisions set
forth in this paragraph (d) if Purchaser ceases to be employed by the
Company upon the Termination Date, each share of stock will be deemed
to be either a share of "Vested Shares" or a share of "Unvested Shares"
as follows:
(i) Founders Stock. The Company will have the right
of first refusal to purchase Founder's Stock as set forth in
Section 3 below.
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<PAGE> 3
(ii) Voluntary Termination. If Purchaser ceases to be
employed by the Company as a result of Purchaser's voluntary
termination, then the percentage set forth in the table below
opposite the time period during which the Termination Date
occurred of each class of stock will be deemed to be Vested
Shares. All other stock will be deemed to be subject to the
Repurchase Option.
(iii) Termination for Cause. If Purchaser is no
longer employed by the Company as a result of Purchaser's
termination for Cause, then Purchaser's shares, except for the
initial 62% of Purchaser's shares which vested on the
Commencement Date, will be deemed to be "Unvested Shares" and
subject to the Repurchase Option. The shares which vested as
of the Commencement Date shall be subject to the right of
first refusal as set forth below in Section 3.
(iv) In the event the Company terminates an "at will"
employee Purchaser, then the Company has the right to
repurchase all unvested shares according to the table above.
(v) Notwithstanding anything in this agreement to the
contrary, upon an ownership change as defined in Section 6,
all of Purchaser's Founder's Stock will be deemed vested
shares and may be purchased at Fair Market Value as of the
date of the ownership change.
[SPACE INTENTIONALLY LEFT BLANK]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
DATE CUMULATIVE % OF
STOCK VESTED
- -------------------------------------------------------------------------------
<S> <C>
Commencement Date 62%
- -------------------------------------------------------------------------------
December 1 to December 31, 1998 64%
- -------------------------------------------------------------------------------
January 1 to January 31, 1999 66%
- -------------------------------------------------------------------------------
February 1 to February 28, 1999 68%
- -------------------------------------------------------------------------------
March 1 to March 31, 1999 70%
- -------------------------------------------------------------------------------
April 1 to April 30, 1999 72%
- -------------------------------------------------------------------------------
May 1 to May 31, 1999 74%
- -------------------------------------------------------------------------------
June 1 to June 30, 1999 76%
- -------------------------------------------------------------------------------
July 1 to July 31, 1999 78%
- -------------------------------------------------------------------------------
August 1 to August 31, 1999 80%
- -------------------------------------------------------------------------------
September 1 to September 30, 1999 82%
- -------------------------------------------------------------------------------
October 1 to October 31, 1999 84%
- -------------------------------------------------------------------------------
November 1 to November 30, 1999 86%
- -------------------------------------------------------------------------------
December 1 to December 31, 1999 88%
- -------------------------------------------------------------------------------
January 1 to January 31, 2000 90%
- -------------------------------------------------------------------------------
February 1 to February 28, 2000 92%
- -------------------------------------------------------------------------------
March 1 to March 31, 2000 94%
- -------------------------------------------------------------------------------
April 1 to April 30, 2000 96%
- -------------------------------------------------------------------------------
May 1 to May 31, 2000 98%
- -------------------------------------------------------------------------------
June 1 to June 30, 2000 100%
- -------------------------------------------------------------------------------
</TABLE>
Page 3
<PAGE> 4
(e) Exercise of Repurchase -Option. The Company may exercise
the Repurchase Option by written notice (the "Exercise Notice")
delivered to Purchaser or Purchaser's legal representative within sixty
(60) days after the termination of Purchaser's service to the Company.
If the Company fails to deliver the Exercise Notice within such sixty
(60) day period, the Repurchase Option will terminate unless the
Company and Purchaser have agreed in writing to extend the time for the
exercise of the Unvested Share Purchase Option.
(f) Payment for Shares. The purchase price per Share
repurchased by the Company under the Repurchase Option will be an
amount equal to Purchaser's original purchase price per share, subject
to adjustment pursuant to Section 9 hereof (the "Option Price").
Payment by the Company to Purchaser will be made, by cash or check,
within thirty (30) days after the date of the mailing of the Exercise
Notice. For purposes of the foregoing, cancellation of any indebtedness
of Purchaser to the Company will be treated as payment to Purchaser in
cash to the extent of the unpaid principal and any accrued interest
canceled.
(g) Ownership Change. In the event of an Ownership Change, as
defined in Section 6 hereof, and notwithstanding anything in this
agreement to the contrary, all of Purchaser's Founder's Stock will be
deemed Vested Shares.
(h) Transfer of Unvested Shares. Purchaser will not sell,
pledge or otherwise transfer any unvested Shares, or any interest
therein, except pursuant to an exercise of the Unvested Share Purchase
Option.
3. Right of First Refusal.
(a) Right of First Refusal. In the event Purchaser proposes to
sell, pledge, or otherwise transfer any Vested shares (the "Transfer
Shares") to any person or entity, including, without limitation, any
shareholder of the Company, the Company will have the right to
repurchase the Transfer Shares under the terms and subject to the
conditions set forth in this Section 3 (the "Right of First Refusal").
For purposes of this Section 3, a change in record ownership of Shares
will be deemed a transfer subject to the Right of First Refusal whether
or not such change in record ownership results in a change in the
beneficial ownership of such Shares.
(b) Notice of Proposed Transfer. Prior to any proposed
transfer of Transfer Shares, Purchaser will give a written notice (the
"Transfer Notice") to the Company describing fully the proposed
transfer, including the number of Transfer Shares, the name and address
of the proposed transferee (the "Proposed Transferee") and, if the
transfer is voluntary, the proposed transfer price, and containing
information necessary to show the bona fide nature of the proposed
transfer. In the event of a bona fide gift or
Page 4
<PAGE> 5
involuntary transfer, the proposed transfer price will be deemed to be
the Fair Market Value of the Transfer Shares as determined by the
Company's Board of Directors as of the date of the Transfer Notice,
subject to Section 5 hereof. In the event Purchaser proposes to
transfer any Vested Shares to more than one Proposed Transferee,
Purchaser will provide a separate Transfer Notice for the proposed
transfer to each Proposed Transferee.
(c) Bona Fide Transfer. In the event that the Company
determines that the information provided by Purchaser in the Transfer
Notice is insufficient to establish the bona fide nature of a proposed
voluntary transfer, the Company will give Purchaser written notice of
Purchasers failure to comply with the procedure described in this
Section 3 and Purchaser will have no right to transfer the Transfer
Shares without first complying with the procedure described in this
Section 3.
(d) Exercise of the Right of First Refusal. In the event the
proposed transfer is determined by the Company to be bona fide, the
Company will have the right to purchase all, but not less than all, of
the Transfer Shares (except as the Company and Purchaser otherwise
agree) at the purchase price and on the terms set forth in the Transfer
Notice by delivery to Purchaser of a notice of exercise of the Right of
First Refusal within thirty (30) days after the date the Transfer
Notice is delivered to the Company. The Company's exercise or failure
to exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice will not affect the Company's
right to exercise the Right of First Refusal with respect to any
proposed transfer described in any other Transfer Notice. If the
Company exercises the Right of First Refusal, the Company and Purchaser
will thereupon consummate the sale of the Transfer Shares to the
Company on the terms set forth in the Transfer Notice within sixty (60)
days after the date the Transfer Notice is delivered to the Company
(unless a longer period is offered by the Proposed Transferee);
provided, however, that in the event the Transfer Notice provides for
the payment for the Transfer Shares other than in cash, the Company
will have the option of paying for the Transfer Shares by the
discounted cash equivalent of the consideration described in the
Transfer Notice, as reasonably determined by the Company. For purposes
of the foregoing, cancellation of any indebtedness of Purchaser to the
Company will be treated as payment to Purchaser in cash to the extent
of the unpaid principal and any accrued interest canceled.
(e) Failure to Exercise the Right of First Refusal. If the
Company fails to exercise the Right of First Refusal in full within the
period specified in Section 3(d), Purchaser may conclude a transfer to
the Proposed Transferee of the Transfer Shares on the terms and
conditions described in the Transfer Notice, provided such transfer
occurs not later than ninety (90) days following delivery to the
Company of the Transfer Notice. The Company will have the right to
demand further assurances from Purchaser and the Proposed Transferee
(in a form satisfactory to the Company) that the transfer of the
Transfer Shares was actually carried out on the terms and conditions
described in the Transfer Notice. No Transfer Shares will be
transferred on the books of the Company until the Company has received
such assurances, if so demanded. Any proposed transfer on terms and
conditions different from those described in the Transfer Notice, as
well as any subsequent proposed transfer by Purchaser, will again be
subject to the Right of First Refusal and will require compliance by
Purchaser with the procedure described in this Section 3.
(f) Transferees of the Transfer Shares. All transferees of the
Transfer Shares or any interest therein, other than the company, will
be required as a condition of such transfer to agree in writing (in a
form satisfactory to the Company) that such transferee will receive and
hold such Transfer Shares or interests
Page 5
<PAGE> 6
subject to the provisions of this Section 3 providing for the Right of
First Refusal with respect to any subsequent transfer. Any sale or
transfer of any Shares will be void unless the provisions of this
Section 3 are complied with.
(g) Transfers Not Subject to the Right of First Refusal. The
Right of First Refusal will not apply to any transfer of Vested Shares
to Purchaser's estate, members of Purchaser's family or trusts for the
benefit of Purchaser or any member of Purchaser's family, provided that
in each case the proposed transferee agrees in writing (in a form
satisfactory to the Company) that such transferee will receive and hold
such Vested Shares subject to the provisions of this Section 3
providing for the Right of First Refusal with respect to any subsequent
transfer. Neither will the Right of First Refusal apply to any transfer
or exchange of the Shares if such transfer or exchange is in connection
with an Ownership Change, as defined in Section 6 hereof. If the
consideration received pursuant to such transfer or exchange consists
of securities, such securities will remain subject to the Right of
First Refusal unless the provisions of Section 3(h) result in a
termination of the Right of First Refusal.
(h) Early Termination of the Right of First Refusal. The other
provisions of this Section 3 notwithstanding, the Right of First
Refusal will terminate, and be of no further force and effect, upon
(i) the occurrence of a Transfer of Control, as
defined in Section 6 hereof, or
(ii) the existence of a public market for the class
of securities subject to the Right of First Refusal (including
any securities issued in exchange for any Shares). A "public
market" will be deemed to exist if such securities are (1)
listed on a national securities exchange (as that term is used
in the Securities Exchange Act of 1934, as amended [the
"Exchange Act"]) or (2) traded in the over- the-counter market
and prices therefor are published daily on business days in a
recognized financial journal.
4. Spousal Consent. If Purchaser is married on the date of this
Agreement, Purchaser's spouse will execute a Consent of Spouse in the form of
Exhibit A hereto, effective on the date hereof. Such consent will not be deemed
to confer or convey to the spouse any rights in the Shares that do not otherwise
exist by operation of law or the agreement of the parties. If Purchaser should
marry or remarry subsequent to the date of this Agreement, Purchaser will within
thirty (30) days thereafter obtain his or her new spouse's acknowledgment of and
consent to the existence and binding effect of all restrictions contained in
this Agreement by signing an additional Consent of Spouse in the form of Exhibit
A. Failure to provide an additional Consent of Spouse will be treated as a
transfer of all of Purchaser's Shares to such spouse and trigger the Company's
Right of First Refusal under Section 3 above.
5. Appraisal. In the case of the Company's exercise of its Right of
First Refusal pursuant to Section 3 hereof with respect to a bona fide gift or
involuntary transfer referred to therein, if Purchaser disagrees with the
valuation determined by the Company's Board of Directors, Purchaser may, by
giving written notice to the Company within ten (10) days after being informed
of such valuation, request that the value of the Shares at issue be determined
by an independent appraiser to be selected by the Company. The Company will
select an appraiser to determine the value of such Shares within fifteen (15)
days after the Company's actual receipt of Purchaser's notice disputing the
valuation set by the Company's Board of Directors. Such appraiser will be
subject to the approval of Purchaser, which approval will not be unreasonably
withheld or delayed. Purchaser's approval
Page 6
<PAGE> 7
or refusal to approve the appraiser must be given before the appraiser announces
a valuation. The value of such Shares, as determined by the appraiser, will be
conclusively binding on all of the parties concerned.
The expenses of appraisal will be borne equally by the Company and Purchaser.
Any time required to resolve valuation dispute will be added to the time period
in which the Company may exercise its Right of First Refusal under Section 3
hereof.
6. Ownership Change and Transfer of Control. An "Ownership Change" will
be deemed to have occurred if any of the following events occur with respect to
the Company:
(a) the direct or indirect sale or exchange by the
shareholders of the Company of all or substantially all of the capital
stock of the Company;
(b) a merger or consolidation in which the Company is a party;
(c) the sale, exchange, or transfer of all or substantially
all of the assets of the Company (other than a sale, exchange, or
transfer to one ore more subsidiary corporations [as defined in section
424(f) of the Internal Revenue Code of 1986, as amended (the "Code")]
of the Company) or
(d) a liquidation or dissolution of the Company.
A "Transfer of Control" shall mean an Ownership Change in
which the shareholders of the Company immediately before such Ownership
Change do not retain, directly or indirectly, at least a majority of
the beneficial interest in the voting stock or securities of the
Company or any successor entity thereto immediately after such
transaction.
7. At-Will Employment. Unless specifically provided in another written
agreement signed by Purchaser and an executive officer of the Company (or
another executive officer of the Company if Purchaser is executive officer of
the Company), any employment of Purchaser by the Company is not for any definite
period of time, is at- will, and may be terminated at any time, with or without
cause, by Purchaser or by the Company. Nothing in this Agreement is intended to
change the nature of any such employment relationship.
8. Assignment of Rights. The Company may assign its rights under
Section 2 or 3 hereof at any time, whether or not any event has occurred which
permits the Company to exercise such rights, to one or more persons, including
shareholders of the Company, who will have the right to so exercise such rights
in his, her or their own names and for his, her or their own account. If the
exercise of any such right requires the consent of the Delaware Commissioner of
Corporations, the parties agree to cooperate in requesting such consent.
9. Adjustment to Shares Subject to Company's Rights. If, from time to
time during the term of this Agreement, there is any stock dividend or
liquidating dividend of cash and/or property, stock split, reverse stock split,
recapitalization, reclassification or other similar change in the character or
amount of any of the outstanding securities of the Company, then, in such event
any and all new, substituted or additional securities or other property to which
Purchaser is entitled by reason of his or her ownership of the Shares will be
immediately subject to the provisions of this Agreement on the same basis as all
Shares originally purchased hereunder, and will be included in
Page 7
<PAGE> 8
the word "Shares" for all purposes of this Agreement with the same force and
effect as the Shares presently subject to this Agreement. For purposes of
Sections 2 and 3 hereof, while the total price payable to exercise the rights
provided in such sections will remain the same after each such event, the price
payable per share to exercise such rights will be appropriately adjusted.
10. Initial Public Offering. Purchaser hereby agrees that in the event
of an initial underwritten public offering of securities (an "IPO") made by the
Company pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended (the "Securities Act"), Purchaser will not
offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase
or make any short sale of, or otherwise dispose of any securities of the Company
or any rights to acquire securities of the Company for such period of time from
and after the effective date of such registration statement as may be designated
by the managing underwriter(s) for the IPO; provided, however, that such period
of time will not exceed one hundred eighty (180) days from the effective date of
such registration statement. At the Company's request, Purchaser shall execute
and deliver to managing underwriter(s) an agreement, in customary form,
confirming Purchaser's obligations under this Section 10. The foregoing
restriction will not apply to securities registered in the IPO. Purchaser shall
be subject to the foregoing restriction only if all officers and directors of
the Company are also subject to similar arrangements.
11. Legends. All certificates representing any Shares subject to the
provisions of this Agreement will the following legends:
(a) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
TRANSFER RESTRICTIONS IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT
BETWEEN THE COMPANY AND THE REGISTERED HOLDER, OR HIS OR HER
PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THE COMPANY.
(b) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY OR ITS ASSIGNEE
SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED
HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON
FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
(c) THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH
SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701
UNDER SUCH ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY,
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
(d) Any legend required under applicable state securities
laws.
Page 8
<PAGE> 9
12. Purchaser Representations and Warranties. In connection with the
proposed purchase of the Shares, Purchaser hereby agrees, represents and
warrants as follows:
(a) Investment Intent. Purchaser is purchasing the Shares
solely for Purchasers own account for investment and not with a view
to, or for resale in connection with, any distribution thereof within
the meaning of the Securities Act. Purchaser does not have any present
intention of selling, offering to sell or otherwise disposing of or
distributing the Shares or any portion thereof; and the entire legal
and beneficial interest of the Shares Purchaser is acquiring is being
purchased for, and will be held for the account of, Purchaser only and
neither in whole nor in part for any other person.
(b) Information Concerning the Company. Purchaser is aware of
the Company's business affairs and financial condition and has acquired
sufficient information about the Company to reach an informed and
knowledgeable decision to acquire the Shares. Purchaser further
represents and warrants that Purchaser has discussed the Company and
its plans, operations and financial condition with its officers, has
received all such information as Purchaser deems necessary and
appropriate to enable Purchaser to evaluate the financial risk inherent
in making an investment in the Shares and has received satisfactory and
complete information concerning the business and financial condition
and prospects of the Company in response to all inquiries in respect
thereof.
(c) Economic Risk. Purchaser realizes that the purchase of the
Shares will be a highly speculative investment, and Purchaser is able,
without impairing his or her financial condition, to hold the Shares
for an indefinite period of time and to suffer a complete loss of
Purchaser's investment in the Shares.
(d) Restricted Securities. Purchaser understands and
acknowledges that:
(i) The sale of the Shares has not been registered
under the Securities Act, and the Shares must be held
indefinitely unless a transfer of the Shares is subsequently
registered under the Securities Act or an exemption from such
registration is available, and that the Company is under no
obligation to register the Shares; and
(ii) The Company will make a notation in its records
of the aforementioned restrictions on transfer and legends.
(e) Rule 144. Purchaser is aware of the provisions of Rule
144, promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly, from the issuer thereof (or an affiliate of such issuer),
in a nonpublic offering subject to the satisfaction of certain
conditions, including among other things: the resale occurring not less
than one year from the date Purchaser has purchased and paid for the
Shares; the availability of certain public information concerning the
Company; the sale being made through a broker in an unsolicited
"broker's transaction" or in a transaction directly with a market maker
(as said term is defined under the Exchange Act); and that any sale of
the Shares may be made by him or her only in limited amounts during any
three-month period. Purchaser understands that at the time Purchaser
wishes to sell the Shares there may be no public market upon which to
make such a sale, and that, even if such a public market then exists,
the Company may not then be satisfying the current public information
requirements of Rule 144, and that, in such event, Purchaser would be
precluded from selling the Shares under Rule 144 even if the one-year
minimum holding period
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<PAGE> 10
has been satisfied. Purchaser understands that in the event all of the
requirements of Rule 144 are not satisfied, registration under the
Securities Act or compliance with another exemption from such
registration will be required; and that, notwithstanding the fact that
Rule 144 is not exclusive, the Staff of the SEC has expressed its
opinion that persons proposing to sell restricted securities other than
in a registered offering or pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such
transactions do so at their own risk.
(f) Further Limitations on Disposition. Purchaser further
agrees that Purchaser will in no event make any disposition of all or
any portion of the Shares unless:
(i) There is then in effect a registration statement
under the Securities Act covering such proposed disposition
and such disposition is made in accordance with said
registration statement; or
(ii) Purchaser has notified the Company of the
proposed disposition and furnished the Company with a detailed
statement of the circumstances surrounding the proposed
disposition, and Purchaser has furnished the Company with an
opinion of Purchaser's own counsel to the effect that such
disposition will not require registration of such shares under
the Securities Act, and such opinion of Purchaser's counsel
has been concurred in by counsel for the Company.
(g) Capacity to Protect Interests. Purchaser has (i) a
preexisting personal or business relationship with the Company or one
or more of its officers, directors, or controlling persons, consisting
of personal or business contacts of a nature and duration to enable
Purchaser to be aware of the character, business acumen and general
business and financial circumstances of the person with whom such
relationship exists, or (ii) such knowledge and experience in financial
and business matters as to make Purchaser capable of evaluating the
merits and risks of an investment in the Shares and to protect
Purchaser's own interests in the transaction, or (iii) both such
relationship and such knowledge and experience.
(h) No Qualification. Purchaser understands that the Shares
have not been qualified under General Corporation Law. Purchaser
understands that the Company is relying on Purchaser's representations
and warrants that the Company is entitled to rely on such
representations and that such reliance is reasonable.
13. Escrow and Transfer Restrictions.
(a) Escrow. As security for Purchaser's faithful performance
of the terms of this Agreement and to ensure the availability for
delivery of Purchaser's Shares upon exercise of the Repurchase Option,
Purchaser agrees to deliver to and deposit with the Company's legal
counsel, Robert D. Baker, Attorney at Law (the "Escrow Agent"), as
Escrow Agent, two originals of an Assignment Separate From Certificate
duly endorsed (with date and number of shares blank) in the form
attached hereto as Exhibit B, together with the certificate or
certificates evidencing the Shares; said documents are to be held by
the Escrow Agent pursuant to the Joint Escrow Instructions of the
Company and Purchaser set forth in Exhibit C attached hereto and
incorporated by this reference, which instructions will also be
delivered to the Escrow Agent at the closing hereunder.
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<PAGE> 11
(b) Rights as Shareholder. Purchaser will, during the term of
this Agreement, exercise all rights and privileges of a shareholder of
the Company with respect to the Shares deposited in said escrow, except
that Purchaser will not sell, transfer, pledge, hypothecate or
otherwise dispose of any Shares except in accordance with the terms of
this Agreement.
(c) Transfers in Violation of Agreement. The Company will not
be required to (i) transfer on its books any Shares which are sold or
transferred in violation of any of the provisions of this Agreement or
(ii) treat as owner of such Shares, or to accord the right to vote as
such owner or to pay dividends to, any transferee to whom such Shares
are so transferred.
14. Tax Matters.
(a) Valuation of Shares. Purchaser understands that:
(i) The Shares have been valued by the Company, and
the Company believes such valuation represents a fair attempt
at reaching an accurate appraisal of their worth; Purchaser
understands, however, that the Company can give no assurances
that the Internal Revenue Service ("IRS") will not assert that
the value of the Shares on the date of purchase is greater
than so determined.
(ii) If the IRS were to succeed in a tax
determination under the Internal Revenue Service Code of 1986,
as amended (the "Code") that the Shares have value greater
than that upon which this transaction was based, the
additional value would constitute ordinary income as of the
date of its receipt. The additional taxes (and interest) due
would be payable by Purchaser, and there is no provision for
the Company to reimburse him or her for such tax liability,
and Purchaser assumes all responsibility for such potential
tax liability. The Company undertakes no obligation to inform
Purchaser of any change in the tax laws which may affect this
Agreement or its consequences.
(iii) The Company would be entitled to the benefit,
in any such transaction, if a determination were made prior to
the three (3) year statute of limitations period affecting the
Company, of an increase in its deduction for the excess amount
deemed paid, which would offset its operating profits, or, if
not profitable, would create a net operating loss carry
forward arising from operations in that year.
(b) Election Under Section 83(b) of the Code.
(i) Purchaser understands that Section 83 of the Code
taxes as ordinary income the difference between the amount
paid for the Shares and the Fair Market Value of the Shares as
of the date any restrictions on the Shares lapse. In this
context, "restriction" means the right of the Company to buy
back the stock pursuant to the Repurchase Option contained in
this Agreement. In the event the Company has registered its
securities under the Exchange Act, "restriction" with respect
to officers, directors and greater than 10% shareholders also
means the six (6) month period
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<PAGE> 12
after the closing during which such officers, directors and
greater than 10% shareholders are subject to suit under
Section 16(b) of the Exchange Act. Purchaser understands that
he or she may elect to be taxed at the time the Shares are
purchased rather than when and as the Repurchase Option or six
(6) month Section 16(b) period expires by filing an election
under Section 83(b) of the Code with the IRS within thirty
(30) days from the date of purchase. Even if the Fair Market
Value of the Shares equals the amount paid for the Shares, the
election must be made to avoid adverse tax consequences in the
future. The form for making this election is attached as
Exhibit D hereto. Purchaser understands that failure to make
this filing timely will result in the recognition of ordinary
income by Purchaser, as the Repurchase Option lapses, or after
the lapse of the six (6) month Section 16(b) period, on the
difference between the purchase price and the Fair Market
Value of the Shares at the time such restrictions lapse.
(ii) Purchaser understands that he or she should
consult with the his or her tax advisor regarding the
advisability of filing with the IRS an election under Section
83(b) of the Code, which must be filed no later than thirty
(30) days after the date of this Agreement. Failure to file an
election under Section 83(b), if appropriate, may result in
adverse tax consequences to Purchaser. Purchaser acknowledges
that he or she has been advised to consult with a tax advisor
regarding the tax consequences to Purchaser of the purchase of
Shares hereunder. AN ELECTION UNDER SECTION 83(b) MUST BE
FILED WITHIN 30 DAYS AFTER THE DATE ON WHICH PURCHASER
PURCHASES THE SHARES. THIS TIME PERIOD CANNOT BE EXTENDED.
PURCHASER ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b)
ELECTION IS PURCHASER'S SOLE RESPONSIBILITY, EVEN IF PURCHASER
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH
ELECTION ON HIS OR HER BEHALF.
15. Miscellaneous.
(a) Future Instruments. The parties agree to execute such
further instruments and to take such further action as may reasonably
be necessary to carry out the intent of this Agreement.
(b) Notice. Any notice required or permitted hereunder will be
given in writing and will 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 the other party hereto at the address shown below that party's
signature or at such other address as such party may designate by ten
(10) days' advance written notice to the other party hereto.
(c) Successors and Assigns. This Agreement will inure to the
benefit of the successors and assigns of the Company and, subject to
the restrictions on transfer herein set forth, be binding upon
Purchaser and Purchaser's heirs, executors, administrators, successors
and assigns; provided, however, that Purchaser may not assign his or
her rights under this Agreement without the Company's prior written
consent.
(d) Entire Agreement; Applicable Law. This Agreement, together
with the exhibits hereto, will be construed under the laws of the State
of Colorado other than the conflict of laws and except for matters
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<PAGE> 13
of corporate governance which shall be governed by and construed
according to the laws of the State of Delaware, and constitutes the
entire agreement of the parties with respect to the subject matter
hereof, superseding all prior written or oral agreements, and no
amendment or addition hereto will be deemed effective unless agreed to
in writing by the parties hereto.
(e) Right to Specific Performance. Purchaser agrees that the
Company will be entitled to a decree of specific performance of the
terms hereof or an injunction restraining violation of this Agreement,
said right to be in addition to any other remedies available to the
Company.
(f) Delays. No failure on the part of any party to exercise or
delay in exercising any right hereunder will be deemed a waiver
thereof, nor will any such failure or delay, or any single or partial
exercise of any such right, preclude any further or other exercise of
such right or any other right.
(g) Partial Invalidity. If any provision of this Agreement, or
the application thereof, is for any reason and to any extent determined
by a court of competent jurisdiction to be invalid or unenforceable,
the remainder of this Agreement and the application of such provision
to other persons or circumstances will be interpreted so as best to
reasonably effect the intent of the parties hereto. The parties agree
to use their best efforts to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision
which will achieve, to the extent greatest possible, the economic,
business and other purposes of the void or unenforceable provision.
(h) Counterparts. This Agreement may be executed in
counterparts, each of which will be an original and all of which
together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CHAPARRAL TECHNOLOGIES, INC. PURCHASER
/s/ Gary L. Allison
- ----------------------------------- ---------------------------------
Gary L. Allison (Purchaser)
Chairman & CEO (Title)
1951 South Fordham Street (Street)
Longmont, CO 80503 (CityStateZip)
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<PAGE> 14
[CHAPARRAL TECHNOLOGIES, INC. LOGO]
FOUNDER STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of _____________, 1998, by and between
CHAPARRAL TECHNOLOGIES, INC., a Delaware corporation (the "Company"), and
_________________("Purchaser").
RECITALS
A. Purchaser is a founder of the Company; and
B. The Company desires to issue and sell to Purchaser, and Purchaser
desires to acquire, Common Stock of the Company on the terms and conditions set
forth below.
C. Purchaser understands that the opportunity to purchase Founders'
Stock is consideration given to each Founder for the prior services actually
rendered to the Company for no compensation during the founding of the Company.
NOW, THEREFORE, the parties, intending to be legally bound, hereby
agree as follows:
1. Purchase and Sale of Common Stock.
(a) Purchase and Sale. Purchaser agrees that the opportunity
to purchase Founders' Stock is consideration for Purchaser's efforts
with no compensation during the founding and formation of the Company.
Purchaser agrees that said consideration is sufficient for those
founding efforts and that award of Founders' Stock extinguishes any
claims or additional compensation for those founding efforts, other
than as set forth in any existing agreement. Subject to the terms of
this Agreement, Purchaser agrees to purchase from the Company, and the
Company agrees to sell to Purchaser, _________ shares of the Company's
Common Stock (the "Shares") for an aggregate purchase price of $One
Tenth of One Cent (or $0.001) per share. Purchaser will pay the
purchase price to the Company, by cash or check, at the closing.
(b) Closing. The closing of the purchase and sale of the
Shares will occur at the offices of the Company within one week after
the date of this Agreement. If the closing has not occurred by such
date, this Agreement will be terminated and have no further force and
effect.
2. Repurchase Option re: Termination for Cause.
(a) In the event of termination of Purchaser's employment or
consulting arrangement with the Company (the "Employment Arrangement")
for cause, (referred to as the "Termination for Cause"), the Company
shall, upon the date of such Termination, have an irrevocable and
exclusive option (the "Repurchase Option") to repurchase up to the
total number of Purchaser's Shares at the Original Issuance Price per
Share, as adjusted for stock splits, stock dividends, consolidations,
and the like.
(b) Within sixty (60) days following Purchaser's Termination
for Cause, the Company shall notify Purchaser as to whether it (or its
assignee) wishes to purchase all or a portion of the Shares pursuant to
the exercise of the Repurchase Option. If the Company (or its assignee)
elects to purchase such Shares hereunder, it shall notify Purchaser, in
writing, of its (or its assignee's) intention to purchase such Shares
hereunder at the repurchase price per share set pursuant to Section 3.1
(a), and either
(i) set a date and location for the closing of the
transaction not later than thirty (30) days from the date of
such notice, at which time the Company (or its assignee) shall
tender payment for the Shares, or
(ii) close the transaction by mail by including
payment for the Shares with the Company's notice to Purchaser.
Payment for the Shares may be in the form of cash,
the Company's check, a note by the Company (for a term of no
longer than eighteen months at an interest rate of eight
percent per year), or cancellation of all or a portion of
Purchaser's indebtedness to the Company, or any
CONFIDENTIAL Page 1 of 18
<PAGE> 15
combination thereof. At such closing, the certificate(s)
representing the Shares so purchased shall be delivered to the
Company and canceled (or the Shares transferred to the
Company's assignee, if applicable) or, in the case of payment
by the Company (or its assignee) by mail, such certificate(s)
shall be deemed canceled (or the Shares transferred to the
Company's assignee, if applicable) as of the date of the
mailing of the Company's notice, and, thereafter, shall be
promptly returned by Purchaser to the Company by certified or
registered mail. Shares subject to the Repurchase Option as to
which the Company (or its assignee) has not exercised its
Repurchase Option within ninety (90) days following
Purchaser's Termination shall be released from the Repurchase
Option.
(c) Certain Definitions. As used in this Agreement, the
following terms have the following meanings:
(i) Commencement Date: ______________, 1998.
(ii) "Cause" means (1) the negligent, grossly
negligent or willful failure by Purchaser to perform his
duties as an employee of the Company or his continued failure
to perform duties reasonably requested or reasonably
prescribed by the Board of Directors (other than as a result
of Purchaser's debt or disability), (2) the engaging by
Purchaser in conduct which is materially injurious to the
Company or any of its affiliates, (3) negligence, gross
negligence or willful misconduct by Purchaser in the
performance of his duties which results in, or causes, harm to
the Company or any of its affiliates, or (4) Purchaser's
commission of a felony or other offense involving moral
turpitude.
(d) Vested and Unvested Shares. Pursuant to the provisions set
forth in this paragraph (d) if Purchaser ceases to be employed by the
Company upon the Termination Date, each share of stock will be deemed
to be either a share of "Vested Shares" or a share of "Unvested Shares"
as follows:
(i) Founders Stock. The Company will have the right
of first refusal to purchase Founder's Stock according to the
table below.
(ii) Voluntary Termination. If Purchaser ceases to be
employed by the Company as a result of Purchaser's voluntary
termination, then the percentage set forth below opposite the
time period during which the Termination Date occurred of each
class of stock will be deemed to be subject to the original
repurchase price according to the table below. All other stock
will be deemed to be Vested Shares.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
DATE CUMULATIVE % OF REPURCHASE PRICE
STOCK VESTED
- -----------------------------------------------------------------------------------
<S> <C> <C>
Commencement Date 52% 52% FMV 48% original price
- -----------------------------------------------------------------------------------
July 1 to July 31, 1998 54% 54% FMV, 46% original price
- -----------------------------------------------------------------------------------
August 1 to August 31, 1998 56% 56% FMV, 44% original price
- -----------------------------------------------------------------------------------
September 1 to September 30, 1998 58% 58% FMV. 42% original price
- -----------------------------------------------------------------------------------
October 1 to October 31, 1998 60% 60% FMV, 40% original price
- -----------------------------------------------------------------------------------
November 1 to November 30, 1998 62% 62% FMV, 38% original price
- -----------------------------------------------------------------------------------
December 1 to December 31, 1998 64% 64% FMV, 36% original price
- -----------------------------------------------------------------------------------
January 1 to January 31, 1999 66% 66% FMV, 34% original price
- -----------------------------------------------------------------------------------
February 1 to February 28, 1999 68% 68% FMV, 32% original price
- -----------------------------------------------------------------------------------
March 1 to March 31, 1999 70% 70% FMV, 30% original price
- -----------------------------------------------------------------------------------
April 1 to April 30, 1999 72% 72% FMV, 28% original price
- -----------------------------------------------------------------------------------
May 1 to May 31, 1999 74% 74% FMV, 26% original price
- -----------------------------------------------------------------------------------
June 1 to June 30, 1999 76% 76% FMV, 24% original price
- -----------------------------------------------------------------------------------
July 1 to July 31, 1999 78% 78% FMV, 22% original price
- -----------------------------------------------------------------------------------
August 1 to August 31, 1999 80% 80% FMV, 20% original price
- -----------------------------------------------------------------------------------
</TABLE>
CONFIDENTIAL Page 2 of 18
<PAGE> 16
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------
September 1 to September 30, 1999 82% 82% FMV, 18% original price
- ---------------------------------------------------------------------------
October 1 to October 31, 1999 84% 84% FMV, 16% original price
- ---------------------------------------------------------------------------
November 1 to November 30, 1999 86% 86% FMV, 14% original price
- ---------------------------------------------------------------------------
December 1 to December 31, 1999 88% 88% FMV, 12% original price
- ---------------------------------------------------------------------------
January 1 to January 31, 2000 90% 90% FMV, 10% original price
- ---------------------------------------------------------------------------
February 1 to February 28, 2000 92% 92% FMV, 8% original price
- ---------------------------------------------------------------------------
March 1 to March 31, 2000 94% 94% FMV, 6% original price
- ---------------------------------------------------------------------------
April 1 to April 30, 2000 96% 96% FMV, 4% original price
- ---------------------------------------------------------------------------
May 1 to May 31, 2000 98% 98% FMV, 2% original price
- ---------------------------------------------------------------------------
June 1 to June 30, 2000 100% 100% FMV
- ---------------------------------------------------------------------------
</TABLE>
* FMV (Fair Market Value )
CONFIDENTIAL Page 3 of 18
<PAGE> 17
(iii) Termination for Cause. If Purchaser is no
longer employed by the Company as a result of Purchaser's
termination for Cause, then Purchaser's shares, except for the
initial 52% of Purchaser's shares which vested on the
Commencement Date, will be deemed to be "Unvested Shares" and
subject to repurchase by the Company at the original Purchase
Price. The shares which vested as of the Commencement Date may
be purchased at Fair Market Value .
(iv) In the event the Company terminates an "at will"
employee Purchaser, then the Company has the right to
repurchase all shares according to the table above.
(v) Notwithstanding anything in this agreement to the
contrary, upon an ownership change as defined in Section 6,
all of Purchaser's Founder's Stock will be deemed vested
shares and may be purchased at Fair Market Value as of the
date of the ownership change.
(d) Exercise of Unvested Share Purchase Option. The Company
may exercise the Unvested Share Purchase Option by written notice (the
"Exercise Notice") delivered to Purchaser or Purchaser's legal
representative within sixty (60) days after the termination of
Purchaser's service to the Company. If the Company fails to deliver the
Exercise Notice within such sixty (60) day period, the Unvested Share
Purchase Option will terminate unless the Company and Purchaser have
agreed in writing to extend the time for the exercise of the Unvested
Share Purchase Option.
(e) Payment for Shares. The purchase price per Share
repurchased by the Company hereunder will be an amount equal to
Purchaser's original purchase price per share, subject to adjustment
pursuant to Section 9 hereof (the "Option Price"). Payment by the
Company to Purchaser will be made, by cash or check, within thirty (30)
days after the date of the mailing of the Exercise Notice. For purposes
of the foregoing, cancellation of any indebtedness of Purchaser to the
Company will be treated as payment to Purchaser in cash to the extent
of the unpaid principal and any accrued interest canceled.
(f) Ownership Change. In the event of an Ownership Change, as
defined in Section 6 hereof, and notwithstanding anything in this
agreement to the contrary, all of Purchaser's Founder's Stock will be
deemed vested shares and may be purchased at Fair Market Value as of
the date of the ownership change.
(g) Transfer of Unvested Shares. Purchaser will not sell,
pledge or otherwise transfer any Unvested Shares, or any interest
therein, except pursuant to an exercise of the Unvested Share Purchase
Option.
3. Right of First Refusal.
(a) Right of First Refusal. In the event Purchaser proposes to
sell, pledge, or otherwise transfer any Vested Shares (the "Transfer
Shares") to any person or entity, including, without limitation, any
shareholder of the Company, the Company will have the right to
repurchase the Transfer Shares under the terms and subject to the
conditions set forth in this Section 3 (the "Right of First Refusal").
For purposes of this Section 3, a change in record ownership of Shares
will be deemed a transfer subject to the Right of First Refusal whether
or not such change in record ownership results in a change in the
beneficial ownership of such Shares.
(b) Notice of Proposed Transfer. Prior to any proposed
transfer of Transfer Shares, Purchaser will give a written notice (the
"Transfer Notice") to the Company describing fully the proposed
transfer, including the number of Transfer Shares, the name and address
of the proposed transferee (the "Proposed Transferee") and, if the
transfer is voluntary, the proposed transfer price, and containing
information necessary to show the bona fide nature of the proposed
transfer. In the event of a bona fide gift or involuntary transfer, the
proposed transfer price will be deemed to be the Fair Market Value of
the Transfer Shares as determined by the Company's Board of Directors
as of the date of the Transfer Notice, subject to Section 5 hereof. In
the event Purchaser proposes to transfer any Vested Shares to more than
one Proposed Transferee, Purchaser will provide a separate Transfer
Notice for the proposed transfer to each Proposed Transferee.
(c) Bona Fide Transfer. In the event that the Company
determines that the information provided by Purchaser in the Transfer
Notice is insufficient to establish the bona fide nature of a proposed
voluntary transfer, the Company will give Purchaser written notice of
Purchaser's failure to comply with the procedure described in this
Section 3 and Purchaser will have no right to transfer the Transfer
Shares without first complying with the procedure described in this
Section 3.
CONFIDENTIAL Page 4 of 18
<PAGE> 18
(d) Exercise of the Right of First Refusal. In the event the
proposed transfer is determined by the Company to be bona fide, the
Company will have the right to purchase all, but not less than all, of
the Transfer Shares (except as the Company and Purchaser otherwise
agree) at the purchase price and on the terms set forth in the Transfer
Notice by delivery to Purchaser of a notice of exercise of the Right of
First Refusal within thirty (30) days after the date the Transfer
Notice is delivered to the Company. The Company's exercise or failure
to exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice will not affect the Company's
right to exercise the Right of First Refusal with respect to any
proposed transfer described in any other Transfer Notice. If the
Company exercises the Right of First Refusal, the Company and Purchaser
will thereupon consummate the sale of the Transfer Shares to the
Company on the terms set forth in the Transfer Notice within sixty (60)
days after the date the Transfer Notice is delivered to the Company
(unless a longer period is offered by the Proposed Transferee);
provided, however, that in the event the Transfer Notice provides for
the payment for the Transfer Shares other than in cash, the Company
will have the option of paying for the Transfer Shares by the
discounted cash equivalent of the consideration described in the
Transfer Notice, as reasonably determined by the Company. For purposes
of the foregoing, cancellation of any indebtedness of Purchaser to the
Company will be treated as payment to Purchaser in cash to the extent
of the unpaid principal and any accrued interest canceled.
(e) Failure to Exercise the Right of First Refusal. If the
Company fails to exercise the Right of First Refusal in full within the
period specified in Section 3(d), Purchaser may conclude a transfer to
the Proposed Transferee of the Transfer Shares on the terms and
conditions described in the Transfer Notice, provided such transfer
occurs not later than ninety (90) days following delivery to the
Company of the Transfer Notice. The Company will have the right to
demand further assurances from Purchaser and the Proposed Transferee
(in a form satisfactory to the Company) that the transfer of the
Transfer Shares was actually carried out on the terms and conditions
described in the Transfer Notice. No Transfer Shares will be
transferred on the books of the Company until the Company has received
such assurances, if so demanded. Any proposed transfer on terms and
conditions different from those described in the Transfer Notice, as
well as any subsequent proposed transfer by Purchaser, will again be
subject to the Right of First Refusal and will require compliance by
Purchaser with the procedure described in this Section 3.
(f) Transferees of the Transfer Shares. All transferees of the
Transfer Shares or any interest therein, other than the Company, will
be required as a condition of such transfer to agree in writing (in a
form satisfactory to the Company) that such transferee will receive and
hold such Transfer Shares or interests subject to the provisions of
this Section 3 providing for the Right of First Refusal with respect to
any subsequent transfer. Any sale or transfer of any Shares will be
void unless the provisions of this Section 3 are complied with.
(g) Transfers Not Subject to the Right of First Refusal. The
Right of First Refusal will not apply to any transfer of Vested Shares
to Purchaser's estate, members of Purchaser's family or trusts for the
benefit of Purchaser or any member of Purchaser's family, provided that
in each case the proposed transferee agrees in writing (in a form
satisfactory to the Company) that such transferee will receive and hold
such Vested Shares subject to the provisions of this Section 3
providing for the Right of First Refusal with respect to any subsequent
transfer. Neither will the Right of First Refusal apply to any transfer
or exchange of the Shares if such transfer or exchange is in connection
with an Ownership Change, as defined in Section 6 hereof. If the
consideration received pursuant to such transfer or exchange consists
of securities, such securities will remain subject to the Right of
First Refusal unless the provisions of Section 3(h) result in a
termination of the Right of First Refusal.
(h) Early Termination of the Right of First Refusal. The other
provisions of this Section 3 notwithstanding, the Right of First
Refusal will terminate, and be of no further force and effect, upon
(i) the occurrence of a Transfer of Control, as
defined in Section 6 hereof, or
(ii) the existence of a public market for the class
of securities subject to the Right of First Refusal (including
any securities issued in exchange for any Shares). A "public
market" will be deemed to exist if such securities are (1)
listed on a national securities exchange (as that term is used
in the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or (2) traded in the over-the-counter market
and prices therefor are published daily on business days in a
recognized financial journal.
CONFIDENTIAL Page 5 of 18
<PAGE> 19
4. Spousal Consent. If Purchaser is married on the date of this
Agreement, Purchaser's spouse will execute a Consent of Spouse in the form of
Exhibit A hereto, effective on the date hereof. Such consent will not be deemed
to confer or convey to the spouse any rights in the Shares that do not otherwise
exist by operation of law or the agreement of the parties. If Purchaser should
marry or remarry subsequent to the date of this Agreement, Purchaser will within
thirty (30) days thereafter obtain his or her new spouse's acknowledgment of and
consent to the existence and binding effect of all restrictions contained in
this Agreement by signing an additional Consent of Spouse in the form of Exhibit
A. Failure to provide an additional Consent of Spouse will be treated as a
transfer of all of Purchaser's Shares to such spouse and trigger the Company's
Right of First Refusal under Section 3 above.
5. Appraisal. In the case of the Company's exercise of its Right of
First Refusal pursuant to Section 3 hereof with respect to a bona fide gift or
involuntary transfer referred to therein, if Purchaser disagrees with the
valuation determined by the Company's Board of Directors, Purchaser may, by
giving written notice to the Company within ten (10) days after being informed
of such valuation, request that the value of the Shares at issue be determined
by an independent appraiser to be selected by the Company. The Company will
select an appraiser to determine the value of such Shares within fifteen (15)
days after the Company's actual receipt of Purchaser's notice disputing the
valuation set by the Company's Board of Directors. Such appraiser will be
subject to the approval of Purchaser, which approval will not be unreasonably
withheld or delayed. Purchaser's approval or refusal to approve the appraiser
must be given before the appraiser announces a valuation. The value of such
Shares, as determined by the appraiser, will be conclusively binding on all of
the parties concerned. The expenses of appraisal will be borne equally by the
Company and Purchaser. Any time required to resolve a valuation dispute will be
added to the time period in which the Company may exercise its Right of First
Refusal under Section 3 hereof.
6. Ownership Change and Transfer of Control. An "Ownership Change" will
be deemed to have occurred if any of the following events occur with respect to
the Company:
(a) the direct or indirect sale or exchange by the
shareholders of the Company of all or substantially all of the capital
stock of the Company;
(b) a merger or consolidation in which the Company is a party;
(c) the sale, exchange, or transfer of all or substantially
all of the assets of the Company (other than a sale, exchange, or
transfer to one or more subsidiary corporations [as defined in section
424(f) of the Internal Revenue Code of 1986, as amended (the "Code")]
of the Company); or
(d) a liquidation or dissolution of the Company.
A "Transfer of Control" shall mean an Ownership Change in
which the shareholders of the Company immediately before such Ownership
Change do not retain, directly or indirectly, at least a majority of
the beneficial interest in the voting stock or securities of the
Company or any successor entity thereto immediately after such
transaction.
7. At-Will Employment. Unless specifically provided in another written
agreement signed by Purchaser and an executive officer of the Company (or
another executive officer of the Company if Purchaser is an executive officer of
the Company), any employment of Purchaser by the Company is not for any definite
period of time, is at-will, and may be terminated at any time, with or without
cause, by Purchaser or by the Company. Nothing in this Agreement is intended to
change the nature of any such employment relationship.
8. Assignment of Rights. The Company may assign its rights under
Section 2 or 3 hereof at any time, whether or not any event has occurred which
permits the Company to exercise such rights, to one or more persons, including
shareholders of the Company, who will have the right to so exercise such rights
in his, her or their own names and for his, her or their own account. If the
exercise of any such right requires the consent of the Delaware Commissioner of
Corporations, the parties agree to cooperate in requesting such consent.
9. Adjustment to Shares Subject to Company's Rights. If, from time to
time during the term of this Agreement, there is any stock dividend or
liquidating dividend of cash and/or property, stock split, reverse stock split,
recapitalization, reclassification or other similar change in the character or
amount of any of the outstanding
CONFIDENTIAL Page 6 of 18
<PAGE> 20
securities of the Company, then, in such event any and all new, substituted or
additional securities or other property to which Purchaser is entitled by reason
of his or her ownership of the Shares will be immediately subject to the
provisions of this Agreement on the same basis as all Shares originally
purchased hereunder, and will be included in the word "Shares" for all purposes
of this Agreement with the same force and effect as the Shares presently subject
to this Agreement. For purposes of Sections 2 and 3 hereof, while the total
price payable to exercise the rights provided in such sections will remain the
same after each such event, the price payable per share to exercise such rights
will be appropriately adjusted.
10. Initial Public Offering. Purchaser hereby agrees that in the event
of an initial underwritten public offering of securities (an "IPO") made by the
Company pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended (the "Securities Act"), Purchaser will not
offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase
or make any short sale of, or otherwise dispose of any securities of the Company
or any rights to acquire securities of the Company for such period of time from
and after the effective date of such registration statement as may be designated
by the managing underwriter(s) for the IPO; provided, however, that such period
of time will not exceed one hundred eighty (180) days from the effective date of
such registration statement. At the Company's request, Purchaser shall execute
and deliver to such managing underwriter(s) an agreement, in customary form,
confirming Purchaser's obligations under this Section 10. The foregoing
restriction will not apply to securities registered in the IPO. Purchaser shall
be subject to the foregoing restriction only if all officers and directors of
the Company are also subject to similar arrangements.
11. Legends. All certificates representing any Shares subject to the
provisions of this Agreement will bear the following legends:
(a) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
TRANSFER RESTRICTIONS IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT
BETWEEN THE COMPANY AND THE REGISTERED HOLDER, OR HIS OR HER
PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THE COMPANY.
(b) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY OR ITS ASSIGNEE
SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED
HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON
FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
(c) THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH
SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701
UNDER SUCH ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY,
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
(d) Any legend required under applicable state securities
laws.
12. Purchaser Representations and Warranties. In connection with the
proposed purchase of the Shares, Purchaser hereby agrees, represents and
warrants as follows:
(a) Investment Intent. Purchaser is purchasing the Shares
solely for Purchaser's own account for investment and not with a view
to, or for resale in connection with, any distribution thereof within
the meaning of the Securities Act. Purchaser does not have any present
intention of selling, offering to sell or otherwise disposing of or
distributing the Shares or any portion thereof; and the entire legal
and beneficial interest of the Shares Purchaser is acquiring is being
purchased for, and will be held for the account of, Purchaser only and
neither in whole nor in part for any other person.
CONFIDENTIAL Page 7 of 18
<PAGE> 21
(b) Information Concerning the Company. Purchaser is aware of
the Company's business affairs and financial condition and has acquired
sufficient information about the Company to reach an informed and
knowledgeable decision to acquire the Shares. Purchaser further
represents and warrants that Purchaser has discussed the Company and
its plans, operations and financial condition with its officers, has
received all such information as Purchaser deems necessary and
appropriate to enable Purchaser to evaluate the financial risk inherent
in making an investment in the Shares and has received satisfactory and
complete information concerning the business and financial condition
and prospects of the Company in response to all inquiries in respect
thereof.
(c) Economic Risk. Purchaser realizes that the purchase of the
Shares will be a highly speculative investment, and Purchaser is able,
without impairing his or her financial condition, to hold the Shares
for an indefinite period of time and to suffer a complete loss of
Purchaser's investment in the Shares.
(d) Restricted Securities. Purchaser understands and
acknowledges that:
(i) The sale of the Shares has not been registered
under the Securities Act, and the Shares must be held
indefinitely unless a transfer of the Shares is subsequently
registered under the Securities Act or an exemption from such
registration is available, and that the Company is under no
obligation to register the Shares; and
(ii) The Company will make a notation in its records
of the aforementioned restrictions on transfer and legends.
(e) Rule 144. Purchaser is aware of the provisions of Rule
144, promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly, from the issuer thereof (or an affiliate of such issuer),
in a nonpublic offering subject to the satisfaction of certain
conditions, including among other things: the resale occurring not less
than one year from the date Purchaser has purchased and paid for the
Shares; the availability of certain public information concerning the
Company; the sale being made through a broker in an unsolicited
"broker's transaction" or in a transaction directly with a market maker
(as said term is defined under the Exchange Act); and that any sale of
the Shares may be made by him or her only in limited amounts during any
three-month period. Purchaser understands that at the time Purchaser
wishes to sell the Shares there may be no public market upon which to
make such a sale, and that, even if such a public market then exists,
the Company may not then be satisfying the current public information
requirements of Rule 144, and that, in such event, Purchaser would be
precluded from selling the Shares under Rule 144 even if the one-year
minimum holding period has been satisfied. Purchaser understands that
in the event all of the requirements of Rule 144 are not satisfied,
registration under the Securities Act or compliance with another
exemption from such registration will be required; and that,
notwithstanding the fact that Rule 144 is not exclusive, the Staff of
the SEC has expressed its opinion that persons proposing to sell
restricted securities other than in a registered offering or pursuant
to Rule 144 will have a substantial burden of proof in establishing
that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk.
(f) Further Limitations on Disposition. Purchaser further
agrees that Purchaser will in no event make any disposition of all or
any portion of the Shares unless:
(i) There is then in effect a registration statement
under the Securities Act covering such proposed disposition
and such disposition is made in accordance with said
registration statement; or
(ii) Purchaser has notified the Company of the
proposed disposition and furnished the Company with a detailed
statement of the circumstances surrounding the proposed
disposition, and Purchaser has furnished the Company with an
opinion of Purchaser's own counsel to the effect that such
disposition will not require registration of such shares under
the Securities Act, and such opinion of Purchaser's counsel
has been concurred in by counsel for the Company.
CONFIDENTIAL Page 8 of 18
<PAGE> 22
(g) Capacity to Protect Interests. Purchaser has (i) a
preexisting personal or business relationship with the Company or one
or more of its officers, directors, or controlling persons, consisting
of personal or business contacts of a nature and duration to enable
Purchaser to be aware of the character, business acumen and general
business and financial circumstances of the person with whom such
relationship exists, or (ii) such knowledge and experience in financial
and business matters as to make Purchaser capable of evaluating the
merits and risks of an investment in the Shares and to protect
Purchaser's own interests in the transaction, or (iii) both such
relationship and such knowledge and experience.
(h) No Qualification. Purchaser understands that the Shares
have not been qualified under General Corporation Law. Purchaser
understands that the Company is relying on Purchaser's representations
and warrants that the Company is entitled to rely on such
representations and that such reliance is reasonable.
13. Escrow and Transfer Restrictions.
(a) Escrow. As security for Purchaser's faithful performance
of the terms of this Agreement and to ensure the availability for
delivery of Purchaser's Shares upon exercise of either the Unvested
Share Purchase Option or the Share Purchase Option, Purchaser agrees to
deliver to and deposit with the Company's legal counsel, Robert D.
Baker, Attorney at Law (the "Escrow Agent"), as Escrow Agent, two
originals of an Assignment Separate From Certificate duly endorsed
(with date and number of shares blank) in the form attached hereto as
Exhibit B, together with the certificate or certificates evidencing the
Shares; said documents are to be held by the Escrow Agent pursuant to
the Joint Escrow Instructions of the Company and Purchaser set forth in
Exhibit C attached hereto and incorporated by this reference, which
instructions will also be delivered to the Escrow Agent at the closing
hereunder.
(b) Rights as Shareholder. Purchaser will, during the term of
this Agreement, exercise all rights and privileges of a shareholder of
the Company with respect to the Shares deposited in said escrow, except
that Purchaser will not sell, transfer, pledge, hypothecate or
otherwise dispose of any Shares except in accordance with the terms of
this Agreement.
(c) Transfers in Violation of Agreement. The Company will not
be required to (i) transfer on its books any Shares which are sold or
transferred in violation of any of the provisions of this Agreement or
(ii) treat as owner of such Shares, or to accord the right to vote as
such owner or to pay dividends to, any transferee to whom such Shares
are so transferred.
14. Tax Matters.
(a) Valuation of Shares. Purchaser understands that:
(i) The Shares have been valued by the Company, and
the Company believes such valuation represents a fair attempt
at reaching an accurate appraisal of their worth; Purchaser
understands, however, that the Company can give no assurances
that the Internal Revenue Service ("IRS") will not assert that
the value of the Shares on the date of purchase is greater
than so determined.
(ii) If the IRS were to succeed in a tax
determination under the Internal Revenue Service Code of 1986,
as amended (the "Code") that the Shares have value greater
than that upon which this transaction was based, the
additional value would constitute ordinary income as of the
date of its receipt. The additional taxes (and interest) due
would be payable by Purchaser, and there is no provision for
the Company to reimburse him or her for such tax liability,
and Purchaser assumes all responsibility for such potential
tax liability. The Company undertakes no obligation to inform
Purchaser of any change in the tax laws which may affect this
Agreement or its consequences.
CONFIDENTIAL Page 9 of 18
<PAGE> 23
(iii) The Company would be entitled to the benefit,
in any such transaction, if a determination were made prior to
the three (3) year statute of limitations period affecting the
Company, of an increase in its deduction for the excess amount
deemed paid, which would offset its operating profits, or, if
not profitable, would create a net operating loss carry
forward arising from operations in that year.
(b) Election Under Section 83(b) of the Code.
(i) Purchaser understands that Section 83 of the Code
taxes as ordinary income the difference between the amount
paid for the Shares and the Fair Market Value of the Shares as
of the date any restrictions on the Shares lapse. In this
context, "restriction" means the right of the Company to buy
back the stock pursuant to the Unvested Share Repurchase
Option contained in this Agreement. In the event the Company
has registered its securities under the Exchange Act,
"restriction" with respect to officers, directors and greater
than 10% shareholders also means the six (6) month period
after the closing during which such officers, directors and
greater than 10% shareholders are subject to suit under
Section 16(b) of the Exchange Act. Purchaser understands that
he or she may elect to be taxed at the time the Shares are
purchased rather than when and as the Unvested Share
Repurchase Option or six (6) month Section 16(b) period
expires by filing an election under Section 83(b) of the Code
with the IRS within thirty (30) days from the date of
purchase. Even if the Fair Market Value of the Shares equals
the amount paid for the Shares, the election must be made to
avoid adverse tax consequences in the future. The form for
making this election is attached as Exhibit D hereto.
Purchaser understands that failure to make this filing timely
will result in the recognition of ordinary income by
Purchaser, as the Unvested Share Repurchase Option lapses, or
after the lapse of the six (6) month Section 16(b) period, on
the difference between the purchase price and the Fair Market
Value of the Shares at the time such restrictions lapse.
(ii) Purchaser understands that he or she should
consult with the his or her tax advisor regarding the
advisability of filing with the IRS an election under Section
83(b) of the Code, which must be filed no later than thirty
(30) days after the date of this Agreement. Failure to file an
election under Section 83(b), if appropriate, may result in
adverse tax consequences to Purchaser. Purchaser acknowledges
that he or she has been advised to consult with a tax advisor
regarding the tax consequences to Purchaser of the purchase of
Shares hereunder. AN ELECTION UNDER SECTION 83(b) MUST BE
FILED WITHIN 30 DAYS AFTER THE DATE ON WHICH PURCHASER
PURCHASES THE SHARES. THIS TIME PERIOD CANNOT BE EXTENDED.
PURCHASER ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b)
ELECTION IS PURCHASER'S SOLE RESPONSIBILITY, EVEN IF PURCHASER
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH
ELECTION ON HIS OR HER BEHALF.
15. Miscellaneous.
(a) Future Instruments. The parties agree to execute such
further instruments and to take such further action as may reasonably
be necessary to carry out the intent of this Agreement.
(b) Notice. Any notice required or permitted hereunder will be
given in writing and will 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 the other party hereto at the address shown below that party's
signature or at such other address as such party may designate by ten
(10) days' advance written notice to the other party hereto.
(c) Successors and Assigns. This Agreement will inure to the
benefit of the successors and assigns of the Company and, subject to
the restrictions on transfer herein set forth, be binding upon
Purchaser and Purchaser's heirs, executors, administrators, successors
and assigns; provided, however, that Purchaser may not assign his or
her rights under this Agreement without the Company's prior written
consent.
CONFIDENTIAL Page 10 of 18
<PAGE> 24
(d) Entire Agreement; Applicable Law. This Agreement, together
with the exhibits hereto, will be construed under the laws of the State
of Colorado other than the conflict of laws and except for matters of
corporate governance which shall be governed by and construed according
to the laws of the State of Delaware, and constitutes the entire
agreement of the parties with respect to the subject matter hereof,
superseding all prior written or oral agreements, and no amendment or
addition hereto will be deemed effective unless agreed to in writing by
the parties hereto.
(e) Right to Specific Performance. Purchaser agrees that the
Company will be entitled to a decree of specific performance of the
terms hereof or an injunction restraining violation of this Agreement,
said right to be in addition to any other remedies available to the
Company.
(f) Delays. No failure on the part of any party to exercise or
delay in exercising any right hereunder will be deemed a waiver
thereof, nor will any such failure or delay, or any single or partial
exercise of any such right, preclude any further or other exercise of
such right or any other right.
(g) Partial Invalidity. If any provision of this Agreement, or
the application thereof, is for any reason and to any extent determined
by a court of competent jurisdiction to be invalid or unenforceable,
the remainder of this Agreement and the application of such provision
to other persons or circumstances will be interpreted so as best to
reasonably effect the intent of the parties hereto. The parties agree
to use their best efforts to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision
which will achieve, to the extent greatest possible, the economic,
business and other purposes of the void or unenforceable provision.
(h) Counterparts. This Agreement may be executed in
counterparts, each of which will be an original and all of which
together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CHAPARRAL TECHNOLOGIES, INC. PURCHASER
- --------------------------------- ---------------------------------------
Gary L. Allison Purchaser
Chairman & CEO Title
1951 South Fordham Street Street
Longmont, CO 80503 City, State Zip
CONFIDENTIAL Page 11 of 18
<PAGE> 25
EXHIBIT A
CONSENT OF SPOUSE
I, __________, spouse of ______________, acknowledge that I have read
the Founder Stock Purchase Agreement dated as of ______________, 1998, to which
this Consent is attached as Exhibit A (the "Agreement") and that I know its
contents. I am aware that by its provisions, (a) CHAPARRAL TECHNOLOGIES, INC.
(the "Company") has the option to purchase certain shares of the Company's
Common Stock (the "Shares") which my spouse will acquire pursuant to the
Agreement, including any interest I might have therein, upon termination of my
spouse's employment or other service relationship with the Company under
circumstances set forth in the Agreement, and (b) certain other restrictions are
imposed upon the sale or other disposition of the Shares.
I hereby agree that my interest, if any, in the Shares subject to the
Agreement will be irrevocably bound by the Agreement and further understand and
agree that any community property interest I may have in the Shares will be
similarly bound by the Agreement.
I am aware that the legal, financial and related matters contained in
the Agreement are complex and that I am free to seek independent professional
guidance or counsel with respect to this Consent. I have either sought such
guidance or counsel or determined, after reviewing the Agreement carefully, to
waive such right.
Dated as of the day of , 1998
-------- ------------------
--------------------------------------
Spouse
CONFIDENTIAL Page 12 of 18
<PAGE> 26
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, _____________ hereby sells, assigns and transfers
unto CHAPARRAL TECHNOLOGIES, INC. (____________) shares of the Common Stock of
CHAPARRAL TECHNOLOGIES, INC., a Delaware corporation, standing in the
undersigned's name on the books of said corporation represented by Certificate
No. ___________ herewith, and does hereby irrevocably constitute and appoint
Robert D. Baker, attorney to transfer the said stock on the books of the
corporation with full power of substitution in the premises.
----------------------------------------
Purchaser
----------------------------------------
Date
CONFIDENTIAL Page 13 of 18
<PAGE> 27
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
_____________, 1998
Robert D. Baker, Attorney at Law
5353 Manhattan Circle, Ste. 201
Boulder, Colorado 80303
Dear Sir:
As Escrow Agent for both CHAPARRAL TECHNOLOGIES, INC., a Delaware
corporation (the "Company"), and the undersigned purchaser ("Purchaser") of
Common Stock of the Company (the "Shares"), you are hereby authorized and
directed to hold the documents delivered to you pursuant to the terms of that
certain Founder Stock Purchase Agreement (the "Agreement"), dated as of the date
hereof, to which a copy of these Joint Escrow Instructions is attached as
Exhibit C, in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company
(referred to collectively for convenience herein as the "Company") shall elect
to exercise the Unvested Share Purchase Option as defined in the Agreement, the
Company will give to Purchaser and you a written notice specifying the number of
Shares to be purchased, the purchase price, and the time of the closing
hereunder at the principal office of the Company. Purchaser 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 to (a) date the stock assignments
necessary for the transfer in question, (b) fill in the number of Shares being
transferred, and (c) deliver same, together with the certificates evidencing the
Shares to be transferred, to the Company against the simultaneous delivery to
you of the purchase price (by check or evidence of cancellation of indebtedness
of Purchaser to the Company) for the number of Shares being purchased pursuant
to the exercise of the Unvested Share Purchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing Shares to be held by you hereunder and any additions and
substitutions to said Shares as defined in the Agreement. Purchaser does hereby
irrevocably constitute and appoint you as his or her attorney-in-fact and agent
for the term of this escrow to execute with respect to such securities all stock
certificates, stock assignments, or other documents necessary or appropriate to
make such securities negotiable and complete any transaction herein
contemplated. Subject to the provisions of this Paragraph and the transfer
restrictions set forth in the Agreement, Purchaser will exercise all rights and
privileges of a shareholder of the Company while the Shares are held by you.
4. This escrow will terminate at such time as there are no longer any
Shares subject to the Unvested Share Purchase 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 Purchaser,
you will deliver all of same to Purchaser and will 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 will be obligated only for the performance of such duties as are
specifically set forth herein and may rely and will 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
will not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith and
in the exercise of your own good judgment, and any act done or omitted by you
pursuant to the advice of your own attorneys will be conclusive evidence to such
good faith.
CONFIDENTIAL Page 14 of 18
<PAGE> 28
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree of any
court, you will 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 will not be liable in any respect on account of the identities,
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 will 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.
11. You will be entitled to employ such legal counsel and other experts
as you may deem necessary or proper 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 will terminate if
you will resign by written notice to each party. In the event of any such
termination, the Company will appoint a successor Escrow Agent.
13. If you reasonably require other or further instructions in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto will 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 rights 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 dispute will 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 will be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder will be given in writing
and will 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
(10) days' advance written notice to each of the other parties hereto.
COMPANY: CHAPARRAL TECHNOLOGIES, INC.
1951 South Fordham Street
Longmont, CO 80503
Attn: Gary L. Allison
PURCHASER: Purchaser
Street
City, State Zip
ESCROW AGENT: Robert D. Baker, Attorney at Law
5353 Manhattan Circle, Ste. 201
Boulder, Colorado 80303
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.
CONFIDENTIAL Page 15 of 18
<PAGE> 29
17. This instrument will be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
18. This instrument will be construed under the laws of the State of
Colorado other than the conflict of laws and except for matters of corporate
governance which shall be governed by and construed according to the laws of the
State of Delaware, and constitutes the entire agreement of the parties with
respect to the subject matter hereof, superseding all prior written or oral
agreements, and no amendment or addition hereto will be deemed effective unless
agreed to in writing by the parties hereto.
Very truly yours,
CHAPARRAL TECHNOLOGIES, INC.
Date
- ------------------------------------------ --------------------------
Gary L. Allison, Chairman & CEO
PURCHASER:
Date
- ------------------------------------------ --------------------------
Purchaser, Title
Agreed to and accepted as of the date set forth above.
ESCROW AGENT:
Date
- ------------------------------------------ --------------------------
Robert D. Baker, Attorney at Law
5353 Manhattan Circle, Suite 201
Boulder, Colorado 80303
CONFIDENTIAL Page 16 of 18
<PAGE> 30
EXHIBIT D
___________________, 1998
Internal Revenue Service
5045 East Butler Avenue
Fresno, CA 93888
Re: Election Under Section 83(b) of the Internal Revenue Code
of 1986, as Amended
Gentlemen:
The following information is submitted pursuant to Treas. Reg. section
1.83-2 in connection with this election by the undersigned under section 83(b)
of the Internal Revenue Code of 1986, as amended.
1. The name, address, and taxpayer identification number of the
taxpayer are:
Purchaser
Street
City State Zip
SS
2. The following is a description of each item of property with
respect to which the election is made:
___________ shares of Common Stock of CHAPARRAL
TECHNOLOGIES, INC.
3. The property was transferred to the undersigned on:
____________, 1998.
The taxable year for which the election is made is:
Calendar, 1998.
4. The nature of the restriction to which the property is
subject:
See Attachment A.
5. The following is the Fair Market Value at the time of transfer
(determined without regard to any restriction other than a
restriction which by its terms will never lapse) of each
property with respect to which the election is made:
$One Tenth of One Cent (_________shares at $0.001 per
share)
6. The following is the amount paid for the property:
$___________ in cash
7. A copy of this election has been furnished to CHAPARRAL
TECHNOLOGIES, INC., the corporation for which services are
performed by the undersigned.
Please acknowledge receipt of this election by signing or stamping the
enclosed copy of this letter and returning it to the undersigned in the enclosed
envelope.
Very truly yours,
---------------------------------------
Purchaser
Enclosures
cc: CHAPARRAL TECHNOLOGIES, INC.
CONFIDENTIAL Page 17 of 18
<PAGE> 31
ATTACHMENT A
If I cease to provide services to CHAPARRAL TECHNOLOGIES, INC., (the
"Company") for any reason or no reason, without cause, at any time within
twenty-four (24) months after the Commencement Date set forth in my Founder
Stock Purchase Agreement with the Company dated as of ___________, 1998, the
Company will have the right at any time within sixty (60) days after the date I
cease to provide such services to exercise a purchase option and to purchase
from me or my personal representative, as the case may be, at $0.001 per share,
subject to adjustment pursuant to said agreement (the "Option Price"), the
maximum portion of the Stock which has not vested according to the terms of the
following vesting schedule:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
DATE CUMULATIVE % OF REPURCHASE PRICE
STOCK VESTED
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Commencement Date 52% 52% FMV 48% original price
- ---------------------------------------------------------------------------------------------------
July 1 to July 31, 1998 54% 54% FMV, 46% original price
- ---------------------------------------------------------------------------------------------------
August 1 to August 31, 1998 56% 56% FMV, 44% original price
- ---------------------------------------------------------------------------------------------------
September 1 to September 30, 1998 58% 58% FMV. 42% original price
- ---------------------------------------------------------------------------------------------------
October 1 to October 31, 1998 60% 60% FMV, 40% original price
- ---------------------------------------------------------------------------------------------------
November 1 to November 30, 1998 62% 62% FMV, 38% original price
- ---------------------------------------------------------------------------------------------------
December 1 to December 31, 1998 64% 64% FMV, 36% original price
- ---------------------------------------------------------------------------------------------------
January 1 to January 31, 1999 66% 66% FMV, 34% original price
- ---------------------------------------------------------------------------------------------------
February 1 to February 28, 1999 68% 68% FMV, 32% original price
- ---------------------------------------------------------------------------------------------------
March 1 to March 31, 1999 70% 70% FMV, 30% original price
- ---------------------------------------------------------------------------------------------------
April 1 to April 30, 1999 72% 72% FMV, 28% original price
- ---------------------------------------------------------------------------------------------------
May 1 to May 31, 1999 74% 74% FMV, 26% original price
- ---------------------------------------------------------------------------------------------------
June 1 to June 30, 1999 76% 76% FMV, 24% original price
- ---------------------------------------------------------------------------------------------------
July 1 to July 31, 1999 78% 78% FMV, 22% original price
- ---------------------------------------------------------------------------------------------------
August 1 to August 31, 1999 80% 80% FMV, 20% original price
- ---------------------------------------------------------------------------------------------------
September 1 to September 30, 1999 82% 82% FMV, 18% original price
- ---------------------------------------------------------------------------------------------------
October 1 to October 31, 1999 84% 84% FMV, 16% original price
- ---------------------------------------------------------------------------------------------------
November 1 to November 30, 1999 86% 86% FMV, 14% original price
- ---------------------------------------------------------------------------------------------------
December 1 to December 31, 1999 88% 88% FMV, 12% original price
- ---------------------------------------------------------------------------------------------------
January 1 to January 31, 2000 90% 90% FMV, 10% original price
- ---------------------------------------------------------------------------------------------------
February 1 to February 28, 2000 92% 92% FMV, 8% original price
- ---------------------------------------------------------------------------------------------------
March 1 to March 31, 2000 94% 94% FMV, 6% original price
- ---------------------------------------------------------------------------------------------------
April 1 to April 30, 2000 96% 96% FMV, 4% original price
- ---------------------------------------------------------------------------------------------------
May 1 to May 31, 2000 98% 98% FMV, 2% original price
- ---------------------------------------------------------------------------------------------------
June 1 to June 30, 2000 100% 100% FMV
- ---------------------------------------------------------------------------------------------------
</TABLE>
* FMV (Fair Market Value )
If I cease to provide services to the Company for any reason, with
cause, at any time within twenty-four (24) months after the Commencement Date
set forth in my Founder Stock Purchase Agreement with the Company dated as of
______________, 1998, the Company will have the right at any time within sixty
(60) days after the date I cease to provide such services to exercise a purchase
option and to purchase from me or my personal representative, as the case may
be, at $0.001 per share, subject to adjustment pursuant to said agreement (the
"Option Price"), all of my Stock, whether unvested or vested, at the purchase
price of $0.001 per share.
CONFIDENTIAL Page 18 of 18
<PAGE> 1
EXHIBIT 10.28
[CHAPARRAL TECHNOLOGIES, INC. LOGO]
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
This Series A Preferred Stock Purchase Agreement (this "Agreement") is
made and entered into as of (Date) by and among Chaparral Technologies, Inc., a
Delaware corporation (the "Company"), and (Purchaser) ("Purchaser").
WITNESSETH:
WHEREAS, the Company desires to sell to Purchaser, and Purchaser
desires to purchase from the Company, shares of the Company's Series A Preferred
Stock on the terms and conditions set forth in this Agreement; and
WHEREAS, the Company is in the process of preparing the following
documents to be executed by the Company, Purchaser and Adaptec, as applicable:
Series B Preferred Stock Purchase Agreement, Investors' Rights Agreement, and
WHEREAS, the Company has filed an Amended and Restated Certificate of
Incorporation to reflect, inter alia, the relative rights of the stockholders;
NOW, THEREFORE, the parties hereby agree as follows:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
1.1 Authorization. As of the Closing (as defined below) the Company
will have authorized the issuance, pursuant to the terms and conditions of this
Agreement, of (TotalAuthorizedPrefA) shares of the Company's Series A
Preferred Stock, par value $0.001 per share (the "Series A Stock") having the
rights, preferences, privileges and restrictions set forth in the Amended and
Restated Certificate of Incorporation of the Company, a copy of which is
attached as Exhibit A (the "Restated Certificate").
1.2 Agreement to Purchase and Sell. Subject to the terms and
conditions hereof, the Company agrees to sell to Purchaser at the Closing, and
Purchaser agrees to purchase from the Company at the Closing, an aggregate of
(PurchaserNoOfShares) shares of Series A Stock at a price of
$(PurchaserTotalPrice), or $(PricePerShare) per share. The shares of Series A
Stock purchased and sold pursuant to this Agreement will be collectively
hereinafter referred to as the "Purchased Shares" and the shares of Common Stock
issuable upon conversion of the Purchased Shares will be collectively
hereinafter referred to as the "Conversion Shares".
2. CLOSING. The purchase and sale of the Purchased Shares will take
place at the offices of Chaparral Technologies, Inc., 1951 South Fordham Street,
Longmont, CO 80503 on (Date), respectively, or at such other time and place as
the Company and Purchaser mutually agree upon (which time and place are referred
to in this Agreement as the "Closing"). At the Closing, the Company will deliver
to Purchaser a certificate or certificates representing the number of Purchased
Shares that Purchaser has agreed to purchase hereunder against delivery to the
Company by Purchaser of the full purchase price of such Purchased Shares, paid
by (a) a check payable to the Company's order, (b) wire transfer of funds to the
Company, (c) a full recourse promissory note, (d) cancellation of indebtedness
of the Company to Purchaser, or (e) any combination of the foregoing.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Purchaser that, except as set forth in the Schedule
of Exceptions ("Schedule of Exceptions") which will be provided to Purchaser
upon its completion and will at that time be attached to this Agreement as
Exhibit B (which Schedule of Exceptions shall be deemed to be representations
and warranties to Purchaser by the Company under this Section 3), the statements
in the following paragraphs of this Section 3 are all true and correct:
3.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own its properties and assets and to carry on its business as now conducted and
as presently proposed to be conducted. The Company will become qualified to do
business as a foreign corporation in each jurisdiction where failure to be so
qualified would have a material adverse effect on its financial condition,
business, prospects or operations.
Preferred A.doc (Rev. 3/31/99) CONFIDENTIAL Page 1 of 11
<PAGE> 2
3.2 Capitalization. Immediately prior to the Closing the
capitalization of the Company will consist of the following:
(a) Preferred Stock. A total of (TotalAuthorizedPref) authorized
shares of preferred stock, $0.001 par value per share (the "Preferred Stock"),
consisting of (TotalAuthorizedPrefA) shares designated as Series A Preferred
Stock ("Series A Stock"), (TotalPreferredIssuedAndOutstanding) of which will be
issued and outstanding upon closing, and (TotalAuthorizedPrefB) shares
designated as Series B Preferred Stock ("Series B Stock"), which will be issued
and outstanding to Adaptec. The rights, preferences and privileges of the Series
A Stock and Series B Stock will be as stated in the Restated Certificate and as
provided by law.
(b) Common Stock. A total of (TotalAuthorizedCommon) authorized
shares of common stock, $0.001 par value per share (the "Common Stock"), of
which(TotalCommonIssuedandOutstanding)shares are issued and outstanding.
(c) Options, Warrants, Reserved Shares. Except for: (i) the
Series B Preferred Stock Purchase Agreement which will be entered into between
the Company and Adaptec, Inc., a California corporation ("Adaptec"), (the
"Series B Agreement"); (ii) the conversion privileges of the Series A Stock and
Series B Stock, (iii) the rights of first refusal provided in Section 2.8 of the
Stockholder Rights Agreement (as defined in Section 5.2(d) below); and (iv) the
(TotalCommonReservedForIssue) shares of Common Stock reserved for issuance under
the Company's 1998 Stock Option Plan under which there are planned options;
there are not outstanding any options, warrants, rights (including conversion or
preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock or any securities convertible into or
ultimately exchangeable or exercisable for any shares of the Company's capital
stock. Apart from the exceptions noted in this Section 3.2(c), and except for
the Company's right of first refusal and repurchase rights under the Investors'
Rights Agreement and rights of first refusal held by the Company to purchase
shares of its stock issued under the Company's form of Employee Stock Purchase
Agreement and 1998 Stock Option Plan, no shares of the Company's outstanding
capital stock, or stock issuable upon exercise or exchange of any outstanding
options, warrants or rights, or other stock issuable by the Company, are subject
to any rights of first refusal or other rights to purchase such stock (whether
in favor of the Company or any other person), pursuant to any agreement or
commitment of the Company.
(d) Outstanding Security Holders. Attached to this Agreement as
Exhibit C is a complete list of all outstanding stockholders, option holders,
warrant holders, convertible note holders and other security holders of the
Company as of immediately prior to the Closing.
3.3 Subsidiaries. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, partnership,
trust, joint venture, association, or other entity.
3.4 Due Authorization. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution, delivery of, and the performance of all obligations of
the Company under this Agreement, and the authorization, issuance, reservation
for issuance and delivery of all of the Purchased Shares being sold under this
Agreement and of the Conversion Shares has been taken or will be taken within a
reasonable time following the Closing, and this Agreement constitutes valid and
legally binding obligations of the Company, enforceable in accordance with its
respective terms, except as may be limited by (a) applicable bankruptcy,
insolvency, reorganization or others laws of general application relating to or
affecting the enforcement of creditors' rights generally and (b) the effect of
rules of law governing the availability of equitable remedies.
3.5 Valid Issuance of Stock.
(a) The Purchased Shares, when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration provided for
herein, will be duly and validly issued, fully paid and non-assessable. The
Conversion Shares have been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Restated Certificate, will be duly
and validly issued, fully paid and non-assessable.
(b) Based in part on the representations made by Purchaser in
Section 4 hereof, the Purchased Shares and (assuming no change in applicable law
and no unlawful distribution of Purchased Shares by Purchaser or other parties)
the Conversion Shares will be issued in full compliance with the registration
and prospectus delivery requirements of the U.S. Securities Act of 1933, as
amended (the "1933 Act") or in compliance with applicable exemptions therefrom,
and the registration and qualification requirements of the California Corporate
Securities Law of 1968, as amended, and the rules thereunder (the "Law");
provided that with respect to the Conversion Shares, no commission or other
remuneration is paid or given, directly or indirectly, for soliciting the
issuance of Conversion Shares upon the conversion of the Purchased Shares and no
additional
Preferred A.doc (Rev. 3/31/99) CONFIDENTIAL Page 2 of 11
<PAGE> 3
consideration is paid for the Conversion Shares other than surrender of the
applicable Purchased Shares upon conversion thereof in accordance with the
Restated Certificate.
(c) The outstanding shares of the capital stock of the Company
are duly and validly issued, fully paid and non-assessable, and such shares of
such capital stock, and all outstanding options, warrants, convertible notes and
other securities of the Company, have been issued in full compliance with the
registration and prospectus delivery requirements of the 1933 Act or in
compliance with applicable exemptions therefrom, the registration and
qualification requirements of all applicable securities laws of states of the
United States and all other provisions of applicable securities laws of states
of the United States, including, without limitation, anti-fraud provisions.
3.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for the filing of a Notice of Transaction
pursuant to Section 25102(f) of the Law, which filing will be effected within
the time prescribed by law.
3.7 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation ("Action") pending or, to the best of the Company's
knowledge, currently threatened against the Company, its activities, properties
or assets or, to the best of the Company's knowledge, against any officer,
director or employee of the Company in connection with such officer's,
director's or employee's relationship with, or actions taken on behalf of, the
Company. To the best of the Company's knowledge, there is no factual or legal
basis for any such Action that might result, individually or in the aggregate,
in any material adverse change in the business, properties, assets, financial
condition, affairs or prospects of the Company. By way of example but not by way
of limitation, there are no Actions pending or, to the best of the Company's
knowledge, threatened (or any basis therefor known to the Company) relating to
the prior employment of any of the Company's employees or consultants, their use
in connection with the Company's business of any information, technology or
techniques allegedly proprietary to any of their former employers, clients or
other parties, or their obligations under any agreements with prior employers,
clients or other parties. The Company is not a party to or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality and there is no Action by the Company
currently pending or which the Company intends to initiate.
3.8 Employee Inventions and Proprietary Rights Assignment Agreement.
Each employee, officer, consultant and contractor of the Company has entered
into and executed an Employee Inventions and Proprietary Rights Assignment
Agreement in the form attached to this Agreement as Exhibit D or an employment
or consulting agreement containing substantially similar terms.
3.9 Status of Proprietary Assets.
(a) Ownership. The Company has full title and ownership of, or
has license to, all patents, patent applications, trademarks, service marks,
trade names, copyrights, moral rights, mask works, trade secrets, confidential
and proprietary information, compositions of matter, formulas, designs,
proprietary rights, know-how and processes (all of the foregoing collectively
hereinafter referred to as the "Proprietary Assets") necessary to enable it to
carry on its business as now conducted and as presently proposed to be
conducted, without any conflict with or infringement of the rights of others. To
the best of the Company's knowledge, no third party has any ownership right,
title, interest, claim in or lien on any of the Company's Proprietary Assets and
the Company has taken, and in the future the Company will use its best efforts
to take, all steps reasonably necessary to preserve its legal rights in, and the
secrecy of, all its Proprietary Assets, except those for which disclosure is
required for legitimate business or legal reasons.
(b) Licenses; Other Agreements. The Company has not granted,
and, to the best of the Company's knowledge, there are not outstanding, any
options, licenses or agreements of any kind relating to any Proprietary Asset of
the Company, nor is the Company bound by or a party to any option, license or
agreement of any kind with respect to any of its Proprietary Assets. The Company
is not obligated to pay any royalties or other payments to third parties with
respect to the marketing, sale, distribution, manufacture, license or use of any
Proprietary Asset or any other property or rights.
(c) No Infringement. To the best of the Company's knowledge, the
Company has not violated or infringed, and is not currently violating or
infringing, and the Company has not received any communications alleging that
the Company (or any of its employees or consultants) has violated or infringed
or, by conducting its business as proposed, would violate or infringe, any
Proprietary Asset of any other person or entity.
Preferred A.doc (Rev. 3/31/99) CONFIDENTIAL Page 3 of 11
<PAGE> 4
(d) No Breach by Employee. The Company is not aware that any
employee or consultant of the Company is obligated under any agreement
(including licenses, covenants or commitments of any nature) or subject to any
judgment, decree or order of any court or administrative agency, or any other
restriction that would interfere with the use of his or her best efforts to
carry out his or her duties for the Company or to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted. The carrying on of the Company's business by the employees and
contractors of the Company and the conduct of the Company's business as
presently proposed, will not, to the best of the Company's knowledge, conflict
with or result in a breach of the terms, conditions or provisions of, or
constitute a default under, any contract, covenant or instrument under which any
of such employees or contractors or the Company is now obligated. The Company
does not believe it is or will be necessary to utilize any inventions of any
employees of the Company (or persons the Company currently intends to hire) made
prior to their employment by the Company. At no time during the conception of or
reduction of any of the Company's Proprietary Assets to practice was any
developer, inventor or other contributor to such patents operating under any
grants from any governmental entity or agency or private source, performing
research sponsored by any governmental entity or agency or private source or
subject to any employment agreement or invention assignment or nondisclosure
agreement or other obligation with any third party that could adversely affect
the Company's rights in such Proprietary Assets.
3.10 Compliance with Law and Charter Documents. The Company is not
in violation or default of any provisions of its Certificate of Incorporation or
Bylaws, both as amended, and to the best of the Company's knowledge, except for
any violations that individually and in the aggregate would have no material
adverse impact on the Company's business, the Company is in compliance with all
applicable statutes, laws, regulations and executive orders of the United States
of America and all states, foreign countries or other governmental bodies and
agencies having jurisdiction over the Company's business or properties. The
Company has not received any notice of any violation of such statutes, laws,
regulations or orders which has not been remedied prior to the date hereof. The
execution, delivery and performance of this Agreement, and the execution,
delivery, and performance of the Stockholder Rights Agreement and the Co-Sale
Agreement, when entered into, and the consummation of the transactions
contemplated hereby or thereby will not result in any such violation or default,
or be in conflict with or constitute, with or without the passage of time or the
giving of notice or both, either a default under the Company's Certificate of
Incorporation or Bylaws, or any agreement or contract of the Company, or, to the
best of the Company's knowledge, a violation of any statutes, laws, regulations
or orders, or an event which results in the creation of any lien, charge or
encumbrance upon any asset of the Company.
3.11 Material Agreements.
(a) List of Material Agreements. Attached to this Agreement as
Exhibit E is a complete list of all agreements, contracts, leases, licenses,
instruments and commitments (oral or written) to which the Company is a party or
is bound that, individually or in the aggregate, are material to the business,
properties, financial condition, results of operation, affairs or prospects of
the Company ("Material Agreements"); provided that for purposes of this Section
3.11 only, no agreement under which the only remaining obligation of the Company
is to make a payment of money in the amount of $5,000 or less will be deemed to
be material to its business, properties, financial condition or results of
operations if the failure to make such payment will not result in the loss by
the Company of any rights that are material to the conduct of its business.
(b) No Breach. The Company has not breached, nor does the
Company have any knowledge of any claim or threat that the Company has breached,
any term or condition of (i) any Material Agreement set forth in Exhibit E, or
(ii) any other agreement, contract, lease, license, instrument or commitment
that, individually or in the aggregate, would have a material adverse effect on
the business, properties, financial condition, results of operations or affairs
or prospects of the Company. Each Material Agreement set forth in Exhibit E is
in full force and effect, is enforceable against each of the parties thereto,
and, to the Company's knowledge, no other party to such Material Agreement is in
default thereunder. The Company is not a party to any agreement that restricts
its ability to market or sell any of its products (whether by territorial
restriction or otherwise).
3.12 Registration Rights. Except as will be provided in the
Stockholder Rights Agreement, the Company has not granted or agreed to grant to
any person or entity any rights (including piggyback registration rights) to
have any securities of the Company registered with the United States Securities
and Exchange Commission ("SEC") or any other governmental authority.
3.13 Certificate of Incorporation/Bylaws. The Certificate of
Incorporation and the Bylaws of the Company are in the form provided to
Purchaser.
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<PAGE> 5
3.14 Title to Property and Assets. The Company owns its properties
and assets free and clear of all mortgages, deeds of trust, liens, encumbrances,
security interests and claims except for statutory liens for the payment of
current taxes that are not yet delinquent and liens, encumbrances and security
interests which arise in the ordinary course of business and which do not affect
material properties and assets of the Company. With respect to the property and
assets it leases, the Company is in compliance with such leases and, to the best
of the Company's knowledge, the Company holds valid leasehold interests in such
assets free of any liens, encumbrances, security interests or claims of any
party other than the lessors of such property and assets.
3.15 Material Liabilities. The Company has no material liability or
obligation, absolute or contingent (individually or in the aggregate), except
(a) obligations and liabilities incurred after the date of incorporation in the
ordinary course of business that are not material, individually or in the
aggregate, and (b) obligations under contracts made in the ordinary course of
business that would not be required to be reflected in financial statements
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods indicated.
3.16 ERISA Plans. The Company does not have any Employee Pension
Benefit Plan as defined in Section 3 of the Employee Retirement Income Security
Act of 1974, as amended.
3.17 Insurance. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
3.18 Labor Agreements and Actions. The Company is not bound by or
subject to any contract, commitment or arrangement with any labor union, and to
the Company's best knowledge, no labor union has requested, sought or attempted
to represent any employees, representatives or agents of the Company. There is
no strike or other labor dispute involving the Company pending nor, to the
Company's best knowledge, threatened, nor is the Company aware of any labor
organization activity involving its employees. The Company is not aware that any
officer or employee intends to terminate their employment with the Company, nor
does the Company have any present intention to terminate the employment of any
of its officers or employees.
3.19 Environmental Matters. The Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
3.20 Real Property Holding Corporation Status. Since its inception,
the Company has not been a "United States real property holding corporation", as
defined in Section 897(c)(2) of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"), and in Section 1.897-2(b) of the Treasury Regulations
issued thereunder (the "Regulations"), and the Company has filed with the
Internal Revenue Service all statements, if any, with its United States income
tax returns which are required under Section 1.897-2(h) of the Regulations.
3.21 Interested Party Transactions. To the Company's knowledge, no
officer or director of the Company or any "affiliate" or "associate" (as those
terms are defined in Rule 405 promulgated under the 1933 Act) of any such person
has had, either directly or indirectly, a material interest in: (a) any person
or entity which purchases from or sells, licenses or furnishes to the Company
any goods, property, technology, intellectual or other property rights or
services; or (b) any contract or agreement to which the Company is a party or by
which it may be bound or affected.
3.22 Stock Restriction Agreements. Each person who, pursuant to any
benefit, bonus or incentive plan of the Company, holds any currently outstanding
shares of Common Stock or other securities of the Company or any option, warrant
or right to acquire such shares or other securities, has entered into or is
otherwise bound by, an agreement granting the Company (a) the right to
repurchase the shares for the original purchase price, or to cancel the option,
warrant or right, in the event the holder's employment or services with the
Company terminate for any reason, subject to release of such repurchase or
cancellation right on terms and conditions specified by the Board of Directors
of the Company, and (b) a right of first refusal with respect to all such
shares. All currently outstanding shares of Common Stock have been sold and
issued for a cash purchase price of not less than $.001 per share.
3.23 Disclosure. This Agreement, and the Exhibits hereto (when read
together) do not contain any untrue statement of a material fact and do not omit
to state a material fact necessary to make the statements therein or herein not
misleading.
Preferred A.doc (Rev. 3/31/99) CONFIDENTIAL Page 5 of 11
<PAGE> 6
3.24 Tax Elections. The Company has not elected pursuant to the Code
to be treated as an "S" corporation or a collapsible corporation pursuant to
Section 341(f) or Section 1362(a) of the Code, nor has it made any other
elections pursuant to the Code (other than elections which relate solely to
matters of accounting, depreciation or amortization) which would have a material
affect on the Company, its financial condition, its business as presently
conducted or presently proposed to be conducted or any of its properties or
material assets.
3.25 Qualified Small Business Stock. As of the Closing: (a) the
Company will be an eligible corporation as defined in Section 1202(e)(4) of the
Code, (b) the Company will not have made any purchases of its own stock during
the one-year period preceding the Closing having an aggregate value exceeding 5%
of the aggregate value of all its stock as of the beginning of such period, and
(c) the Company's aggregate gross assets, as defined by Code Section 1202(d)(2),
at no time between the Company's inception and through the Closing have exceeded
or will exceed $50 million, taking into account the assets of any corporations
required to be aggregated with the Company in accordance with Code Section
1202(d)(3).
3.26 Section 83(b) Elections. To the best of the Company's
knowledge, all Purchasers who have purchased unvested shares of the Company's
Common Stock have timely filed elections under Section 83(b) of the Code and any
analogous provisions of applicable state tax laws.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF PURCHASER.
Purchaser hereby represents and warrants to, and agrees with, the Company that:
4.1 Authorization. This Agreement constitutes Purchaser' valid and
legally binding obligation, enforceable in accordance with its terms except as
may be limited by (a) applicable bankruptcy, insolvency, reorganization or other
laws of general application relating to or affecting the enforcement of
creditors' rights generally and (b) the effect of rules of law governing the
availability of equitable remedies. Purchaser represents that he has full power
and authority to enter into this Agreement, the Stockholder Rights Agreement,
and the Co-Sale Agreement.
4.2 Purchase for Own Account. The Purchased Shares to be purchased
by Purchaser hereunder will be acquired for investment for Purchaser' own
account, not as a nominee or agent, and not with a view to the public resale or
distribution thereof within the meaning of the 1933 Act, and Purchaser has no
present intention of selling, granting any participation in, or otherwise
distributing the same.
4.3 Disclosure of Information. Purchaser has received or has had
full access to all the information he considers necessary or appropriate to make
an informed investment decision with respect to the Purchased Shares to be
purchased by Purchaser under this Agreement. Purchaser further has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Purchased Shares and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to Purchaser or to which Purchaser had access. The
foregoing, however, does not in any way limit or modify the representations and
warranties made by the Company in Section 3.
4.4 Investment Experience. Purchaser understands that the purchase
of the Purchased Shares involves substantial risk. Purchaser: (a) has experience
as an investor in securities of companies in the development stage and
acknowledges that it is able to fend for himself, can bear the economic risk of
its investment in the Purchased Shares and has such knowledge and experience in
financial or business matters that he is capable of evaluating the merits and
risks of this investment in the Purchased Shares and protecting its own
interests in connection with this investment and/or (b) has a preexisting
personal or business relationship with the Company and certain of its officers,
directors or controlling persons of a nature and duration that enables it to be
aware of the character, business acumen and financial circumstances of such
persons.
4.5 Accredited Investor Status. Purchaser is an "accredited
investor" within the meaning of Regulation D promulgated under the 1933 Act.
4.6 Restricted Securities. Purchaser understands that the Purchased
Shares are characterized as "restricted securities" under the 1933 Act inasmuch
as they are being acquired from the Company in a transaction not involving a
public offering and that under the 1933 Act and applicable regulations
thereunder such securities may be resold without registration under the 1933 Act
only in certain limited circumstances. In this connection, Purchaser represents
that he is familiar with Rule 144 of the SEC, as presently in effect, and
understands the resale limitations imposed thereby and by the 1933 Act.
Purchaser understands that the Company is under no obligation to register any of
the securities sold hereunder except as will be provided
Preferred A.doc (Rev. 3/31/99) CONFIDENTIAL Page 6 of 11
<PAGE> 7
in the Investors' Rights Agreement. Purchaser understands that no public market
now exists or is likely to exist for any of the Purchased Shares and that it is
uncertain whether a public market will ever exist for the Conversion Shares.
4.7 Further Limitations on Disposition. Without in any way limiting
the representations set forth above, Purchaser further agrees not to make any
disposition of all or any portion of the Purchased Shares or the Conversion
Shares unless and until:
(a) There is then in effect a registration statement under the
1933 Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) Purchaser shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the proposed disposition, and (ii) Purchaser shall
have furnished the Company, at the expense of Purchaser or his transferee, with
an opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such securities under the 1933 Act.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be required: (i) for any
transfer of any Purchased Shares or Conversion Shares in compliance with SEC
Rule 144 or Rule 144A; or (ii) for any transfer of any Purchased Shares or
Conversion Shares by Purchaser to (A) a partner of Purchaser, or (B) the estate
of any such partner, or (iii) for the transfer by gift to any trust for any of
the foregoing or for the benefit of any family member of Purchaser, or (iv) to
any entity controlled by Purchaser or any member of Purchaser; provided that in
each of the foregoing cases the transferee agrees in writing to be subject to
the terms of this Section 4 (other than Section 4.5) to the same extent as if
the transferee were Purchaser hereunder.
4.8 Legends. It is understood that the certificates evidencing the
Purchased Shares and the Conversion Shares will bear the legends set forth
below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS
ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
(b) Any legend required by the Law or by the laws of the State
of Delaware, including a legend substantially in the form of the following:
THE SHARES EVIDENCED BY THIS CERTIFICATE: (1) ARE CONVERTIBLE
INTO SHARES OF COMMON STOCK OF THE COMPANY AT THE OPTION OF THE HOLDER AT ANY
TIME PRIOR TO AUTOMATIC CONVERSION THEREOF; AND (2) AUTOMATICALLY CONVERT INTO
COMMON STOCK OF THE COMPANY IN THE EVENT OF A PUBLIC OFFERING MEETING CERTAIN
REQUIREMENTS OR UPON CERTAIN CONSENTS OF THE HOLDERS OF THE COMPANY'S PREFERRED
STOCK; ALL PURSUANT TO AND UPON THE TERMS AND CONDITIONS SPECIFIED IN THE
COMPANY'S CERTIFICATE OF INCORPORATION. A COPY OF SUCH CERTIFICATE OF
INCORPORATION MAY BE OBTAINED, WITHOUT CHARGE, AT THE COMPANY'S PRINCIPAL
OFFICE.
The legend set forth in (a) above shall be removed by the
Company from any certificate evidencing Purchased Shares or Conversion Shares
upon delivery to the Company of an opinion by counsel, reasonably satisfactory
to the Company, that a registration statement under the 1933 Act is at that time
in effect with respect to the legended security or that such security can be
freely transferred in a public sale without such a registration statement being
in effect and that such transfer will not jeopardize the exemption or exemptions
from registration pursuant to which the Company issued the Purchased Shares or
Conversion Shares. The Company will not require options of counsel for
transactions made pursuant to Rule 144 except in unusual circumstances.
5. CONDITIONS TO PURCHASER' OBLIGATIONS AT THE CLOSING. The obligations
of Purchaser under Section 2 of this Agreement are subject to the fulfillment or
waiver, on or before the Closing, of
Preferred A.doc (Rev. 3/31/99) CONFIDENTIAL Page 7 of 11
<PAGE> 8
each of the following conditions, the waiver of which shall not be effective
against Purchaser if he does not consent to such waiver, which consent may be
given by written, oral or telephone communication to the Company or its counsel:
5.1 Representations and Warranties True. Each of the representations
and warranties of the Company contained in Section 3 shall be true and correct
on and as of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing, subject to the
delivery of a Schedule of Exceptions updated through the Closing.
5.2 Performance. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
5.3 Restated Certificate Effective. The Restated Certificate has
been duly adopted by the Company by all necessary corporate action of its Board
of Directors and stockholders, and has been duly filed with and accepted by the
Secretary of State of the State of Delaware.
5.4 Compliance Certificate. The Company shall, upon reasonable
request, deliver to Purchaser a certificate signed on its behalf by its
President, Chief Executive Officer, or Chief Financial Officer certifying that
the conditions specified in paragraphs 5.1, 5.2 and 5.3 have been fulfilled and
stating that there shall have been no material adverse change in the business,
affairs, prospects, operations, properties, assets or condition of the Company
not generally contemplated by the Company's Business Plan or otherwise
previously disclosed to Purchaser in writing.
5.5 Securities Exemptions. The offer and sale of the Purchased
Shares to Purchaser pursuant to this Agreement shall be exempt from the
registration requirements of the 1933 Act, the qualification requirements of the
Law and the registration and/or qualification requirements of all other
applicable state securities laws.
5.6 Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Purchaser as he may reasonably request. Such documents shall
include (but not be limited to) the following:
(a) Certified Charter Documents. A copy of the Restated
Certificate and the Bylaws of the Company (as amended through the date of the
Closing), certified by the Secretary of the Company as true and correct copies
thereof as of the Closing.
(b) Secretary's Incumbency Certificate. A certificate of the
Secretary or an Assistant Secretary or other officer of the Company certifying
the names of the officers of the Company authorized to sign this Agreement, the
certificates for the Purchased Shares and the other documents, instruments or
certificates to be delivered pursuant to this Agreement by the Company or any of
its officers, together with the true signatures of such officers.
(c) Corporate Actions. A copy of the resolutions of the Board of
Directors and, if required, the stockholders of the Company evidencing the
amendment to the Company's Certificate of Incorporation providing for the
authorization of the Series A Stock.
(d) Good Standing Certificates. Good standing certificate issued
by the Delaware Secretary of State dated within ten (10) days of the Closing.
5.7 Board of Directors. The directors of the Company shall be Gary
L. Allison, Jerry L. Walker , Michael J. Gluck, and F. Grant Saviers.
5.8 Investors' Rights Agreement. The Company and Adaptec have
executed an Investors' Rights Agreement.
5.9 Series B Agreement. The Company and Adaptec have executed a
Series B Agreement.
5.10 Due Diligence. Purchaser shall have completed his business and
legal due diligence in a manner which is satisfactory to Purchaser.
5.11 Adaptec Technology Agreement. The Company and Adaptec have
executed a Technology Cross-License Agreement.
Preferred A.doc (Rev. 3/31/99) CONFIDENTIAL Page 8 of 11
<PAGE> 9
5.12 Asset Transfer Agreement. The Company and Adaptec have executed
an Asset Transfer Agreement.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT THE CLOSING. The
obligations of the Company to Purchaser under this Agreement are subject to the
fulfillment or waiver by the Company on or before the Closing of each of the
following conditions:
6.1 Representations and Warranties. Each of the representations and
warranties of Purchaser contained in Section 4 shall be true and correct on the
date of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
6.2 Payment of Purchase Price. Purchaser shall have delivered to the
Company the purchase price for the Purchased Shares to be purchased at the
Closing in accordance with the provisions of Section 2.
6.3 Restated Certificate Effective. The Restated Certificate have
been duly adopted by the Company by all necessary corporate action of its Board
of Directors and stockholders, and have been duly filed with and accepted by the
Secretary of State of the State of Delaware.
6.4 Securities Exemptions. The offer and sale of the Purchased
Shares to Purchaser pursuant to this Agreement shall be exempt from the
registration requirements of the 1933 Act, the qualifications requirements of
the Law and the registration and/or qualification requirements of all other
applicable state securities laws.
6.5 Investors' Rights Agreement. Purchaser and Adaptec have executed
the Investors' Rights Agreement.
6.6 Series B Agreement. Adaptec has executed the Series B Agreement.
7. MISCELLANEOUS.
7.1 Survival of Warranties. The representations, warranties and
covenants of the Company and Purchaser contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of any of Purchaser, his counsel or the
Company, as the case may be.
7.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
7.3 Governing Law. This Agreement shall be governed by and construed
under the internal laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California, without reference to principles of conflict of laws or choice of
laws.
7.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5 Headings. The headings and captions used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
7.6 Notices. Any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery to the party to be notified or upon four business days after deposit
with the United States Post Office, by registered or certified mail, postage
prepaid and addressed in the case of Purchaser, (PurchaserAddress) or, in the
case of the Company, to 1951 South Fordham Street, Longmont, CO 80503,
Attention: Chief Executive Officer, or at such other address as any party or the
Company may designate by giving ten (10) days advance written notice to all
other parties.
7.7 No Finder's Fees. Each party represents that it neither is nor
will be obligated for any finder's or broker's fee or commission in connection
with this transaction. Purchaser agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finders' or broker's fee (and any asserted liability) for which Purchaser or any
of his partners, employees, or representatives
Preferred A.doc (Rev. 3/31/99) CONFIDENTIAL Page 9 of 11
<PAGE> 10
is responsible. The Company agrees to indemnify and hold harmless Purchaser from
any liability for any commission or compensation in the nature of a finder's or
broker's fee (and any asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
7.8 Attorneys' Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement or the Restated Certificate,
the prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
7.9 Costs, Expenses. Each of the parties to this Agreement shall be
responsible for its own fees and expenses in connection with the preparation,
execution and delivery of this Agreement, the issuance of the Purchased Shares
and the other transactions contemplated hereby.
7.10 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
Purchased Shares and/or Conversion Shares representing at least a majority of
the aggregate number of shares of Common Stock into which the Purchased Shares
then are convertible and/or have been converted (excluding any of such shares
that have been sold to the public or pursuant to SEC Rule 144). Any amendment or
waiver effected in accordance with this Section shall be binding upon Purchaser,
each future holder of such securities, and the Company.
7.11 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision(s) shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
7.12 Entire Agreement. This Agreement, together with all exhibits
and schedules hereto, constitutes the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings duties or
obligations between the parties with respect to the subject matter hereof.
7.13 Further Assurances. From and after the date of this Agreement,
upon the request of Purchaser or the Company, the Company and Purchaser shall
execute and deliver such instruments, documents or other writings as may be
reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Series A
Preferred Stock Purchase Agreement as of the date first above written.
<TABLE>
<S> <C>
CHAPARRAL TECHNOLOGIES, INC. (Purchaser)
a Delaware corporation (PurchaserStreet)
1951 South Fordham Street (PurchaserCityStateZip)
Longmont, CO 80503 (PurchaserPhoneNumber)
303/684-3200
- ----------------------------------- -----------------------------------
Gary L. Allison, Chairman & CEO (Purchaser)
</TABLE>
Preferred A.doc (Rev. 3/31/99) CONFIDENTIAL Page 10 of 11
<PAGE> 11
CHAPARRAL
NETWORK STORAGE
THE SECURITIES TO WHICH THIS AGREEMENT RELATES HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
ANY STATE SECURITIES LAWS, AND ARE BEING OFFERED AND SOLD PURSUANT TO RULE 701,
REGULATION D, OR OTHER APPLICABLE EXEMPTIONS UNDER THE SECURITIES ACT. THESE
SECURITIES MAY NOT BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION UNDER THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
CHAPARRAL NETWORK STORAGE, INC.
(SERIES A PREFERRED STOCK)
Ladies and Gentlemen:
The undersigned, (PURCHASER) (the "Purchaser"), hereby irrevocably
subscribes for and agrees to purchase [no. of shares] shares of Series A
Preferred Stock, $.001 par value (the "Preferred Stock") of Chaparral Network
Storage, Inc., a Delaware corporation (the "Company"), at a purchase price of
$(purchase price) or $(price per share) per share (the "Purchase Price").
The Purchaser's subscription pursuant to this agreement constitutes a
binding subscription for and offer to purchase the amount of Preferred Stock
referred to herein at the aggregate price referred to herein.
1. DELIVERY AND PAYMENT. The Company will deliver to Purchaser a
certificate or certificates representing the number of shares of Preferred Stock
that Purchaser has agreed to purchase hereunder against delivery to the Company
by Purchaser of the Purchase Price, paid by (a) check payable to the Company's
order, (b) wire transfer of funds to the Company, (c) cancellation of
indebtedness of the Company to Purchaser or (d) any combination of the
foregoing. Purchaser also agrees to deliver to the Company:
(a) one completed and duly signed copy of this Purchase Agreement;
(b) one completed and duly signed copy of the Investors' Rights
Agreement, as amended; and
(c) all other documentation as may be required by applicable
securities laws.
2. CLOSING. Delivery of a certificate for the Preferred Stock will be
completed, against payment of the purchase price as set out above, upon delivery
to the Company of the signed agreement and Investor Questionnaire (the "Closing
Date").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER. The
Purchaser makes the following representations, warranties, acknowledgments and
covenants to and for the benefit of the Company:
(a) the Purchaser acknowledges and understands that the Preferred
Stock has not been registered under the Securities Act or any other
applicable securities laws, that the Company has
Subscription Agreement (Pub. 1/18/00) CONFIDENTIAL Page 1 of 6
<PAGE> 12
no obligation to register the Preferred Stock under the Securities
Act or any other applicable securities laws, and that the Preferred
Stock may not be offered, sold or otherwise transferred except in
compliance with the registration requirements of the Securities Act
and any other applicable securities laws or pursuant to an exemption
therefrom and in each case in compliance with the conditions for
transfer set in Section 3(o);
(b) the Purchaser is purchasing the Preferred Stock as a principal
for the Purchaser's own account and not for the benefit of any other
person;
(c) the Purchaser is a resident of the jurisdiction included in its
address on the signature page of this agreement;
(d) the Purchaser has attained the age of majority and is legally
competent to execute this agreement and to take all actions pursuant
hereto;
(e) the Purchaser will execute and deliver all documentation as may
be required by all applicable securities laws to permit the purchase
of the Preferred Stock hereunder on the terms as set forth herein;
(f) the Purchaser is purchasing the Preferred Stock for investment
only and not with a view to resale or distribution;
(g) the Purchaser has such knowledge and experience in financial and
business affairs as to be capable of evaluating the merits and risks
of this investment;
(h) the Purchaser's decision to enter into this agreement and to
purchase Preferred Stock pursuant hereto has not been based upon any
oral or written representation as to fact or otherwise by the
Company or any other person other than as set forth herein, and the
Purchaser has not received and is not relying on any document; the
Purchaser has had access to any financial and other information
concerning the Company and the Preferred Stock as it has deemed
necessary in connection with its decision to purchase the Preferred
Stock, including an opportunity to ask questions of and request
information of the Company;
(i) the Purchaser acknowledges and understands that there is no
public market for the Preferred Stock and there is no certainty that
such a market will ever develop;
(j) the Purchaser recognizes that the Company has a history of
financial losses and that an investment in the Company involves
substantial risks, and the Purchaser has taken full cognizance of
and understands all of the risk factors related to the purchase of
the Preferred Stock; the Purchaser acknowledges and understands that
no governmental agency has made any finding or determination as to
the fairness of this offering for investment, nor any recommendation
or endorsement of the Preferred Stock;
(k) the Purchaser has carefully considered and has, to the extent
the Purchaser believes such discussion necessary, discussed with the
Purchaser's professional legal, tax and financial advisors the
suitability of an investment in the Company for the Purchaser's
particular tax and financial situation and the Purchaser has
determined that the Preferred Stock is a suitable investment for the
Purchaser; the Purchaser understands and acknowledges that there can
be no assurance as to the tax results of an investment in the
Preferred Stock;
(l) the Purchaser shall indemnify and hold harmless the Company or
any of its officers, employees, registered representatives,
directors, control persons or agents 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 or arising from any
actual or alleged misrepresentation or misstatement of facts or
omission to represent or state
Subscription Agreement (Pub. 1/18/00) CONFIDENTIAL Page 2 of 6
<PAGE> 13
facts made by the Purchaser to the Company concerning itself or its
financial position in connection with the offering or sale of the
Preferred Stock that is not remedied by timely notice to the
Company, against losses, liabilities and expenses for which the
Company or any of its officers, employees, registered
representatives, directors, control persons or agents have not
otherwise been reimbursed (including attorneys fees, judgments,
fines and amounts paid in settlement) as actually and reasonably
incurred by such person or entity in connection with such action,
suit or proceeding;
(m) the Purchaser understands and acknowledges that upon issuance
thereof, and until such time as the same is no longer required under
applicable securities laws, the Preferred Stock will bear a legend
in the form attached hereto as Exhibit A;
(n) the Purchaser acknowledges that it has not purchased the
Preferred Stock as a result of any general solicitation or general
advertising (as those terms are used in Regulation D under the
Securities Act), including advertisements, articles, notices or
other communications published in any newspaper, magazine or similar
media or broadcast over radio or television, or any seminar or
meeting whose attendees have been invited by general solicitation or
general advertising; and
(o) the Purchaser acknowledges that it will not offer, sell or
otherwise transfer the Preferred Stock, directly or indirectly,
unless:
(i) the sale is made pursuant to the exemption from the
registration requirements under the Securities Act provided by
Rule 144 thereunder, if available, and in accordance with any
applicable U.S. state securities or `blue sky' laws;
(ii) the Preferred Stock is sold in a transaction that does not
require registration under the Securities Act or any applicable
U.S. state laws and regulations governing the offer and sale of
securities; or
(iii) the sale is made outside of the United States in a
transaction meeting the requirements of Rule 904 of Regulation S
under the Securities Act and in compliance with applicable local
laws and regulations.
In each such case, the Purchaser agrees to furnish to the Company,
prior to such sale, an opinion of counsel reasonably satisfactory to
the Company with respect to the matters set forth above; and
(p) the Purchaser is an "accredited investor" as defined in Rule
501(a) under the Securities Act; the undersigned has previously
completed the Investor Questionnaire attached hereto as Exhibit B
and the information set forth therein remains true and accurate in
all material respects.
Purchaser acknowledges that the foregoing representations, warranties
and covenants are made by Purchaser with the intent that they may be relied upon
in determining Purchaser's suitability as a purchaser of Preferred Stock.
Purchaser further agrees that by accepting Preferred Stock at the Closing Date,
Purchaser shall be representing and warranting that the foregoing
representations and warranties are true as at the Closing Date, as if they had
been made by Purchaser at that time.
5. SURVIVAL. This Purchase Agreement, including without limitation the
representations, warranties and covenants contained herein, shall survive and
continue in full force and effect and be binding upon the Purchaser
notwithstanding the completion of the purchase of the Preferred Stock by the
Purchaser hereto and any subsequent disposition by the Purchaser of the
Preferred Stock.
6. GOVERNING LAW. This Purchase Agreement shall be enforced, governed
and construed in all respects in accordance with the laws of the State of
Colorado, as such laws are applied by Colorado courts.
Subscription Agreement (Pub. 1/18/00) CONFIDENTIAL Page 3 of 6
<PAGE> 14
7. ASSIGNMENT. This Purchase Agreement shall be binding upon the
Purchaser, the Purchaser's heirs, estate, legal representatives, successors and
assigns, and shall inure to the benefit of the Company and its successors and
assigns. This Purchase Agreement is not transferable or assignable by the
Purchaser.
8. FACSIMILE SUBSCRIPTIONS. The Company will be entitled to rely upon
delivery by facsimile machine of an executed copy of this Purchase Agreement and
acceptance of the Company of such facsimile copy will be legally effective to
create a valid and binding agreement between the Purchaser and the Company in
accordance with the terms hereof.
9. ENTIRE AGREEMENT. This Purchase Agreement contains the entire
agreement of the parties hereto relating to the subject matter hereof and there
are no representations, covenants or other agreements relating to the subject
matter hereof except as stated or referred to herein. This Purchase Agreement
may be amended only by a writing executed by all parties hereto.
10. DETAILS OF SUBSCRIPTION. The Purchaser subscribes for Preferred
Stock as set forth below:
NUMBER OF SHARES OF PREFERRED STOCK SUBSCRIBED FOR:
TOTAL AMOUNT OF SUBSCRIPTION:
NAME & ADDRESS OF PURCHASER:
--------------------------------
(Street Address)
--------------------------------
(City, Province and Postal Code)
DELIVERY INSTRUCTIONS: The name and address (including contact name and
telephone number) of the person to whom the certificate representing the
Preferred Stock is to be delivered, if other than the Purchaser:
Name:
Contact Name:
Telephone No.:
Address:
Subscription Agreement (Pub. 1/18/00) CONFIDENTIAL Page 4 of 6
<PAGE> 15
IN WITNESS WHEREOF the Purchaser has executed, or caused its duly
authorized representative to execute, on its own behalf, this Subscription
Agreement as of the (date)
- ---------------------- ----------------------------------------
Signature of Purchaser Name of Purchaser (if not an individual)
(if an individual)
Gary L. Allison Per:
- ------------------ ------------------------------------
Name of Purchaser (signature of authorized representative)
(if an individual) Name:
-----------------------------------
Title:
----------------------------------
* * *
This Subscription Agreement is confirmed and accepted by the Company as
of the (date)
CHAPARRAL NETWORK STORAGE, INC.
-------------------------------------------------------
Michael J. Gluck, President and Chief Operating Officer
Subscription Agreement (Pub. 1/18/00) CONFIDENTIAL Page 5 of 6
<PAGE> 16
EXHIBIT A
LEGEND FOR PREFERRED STOCK
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN
STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT
AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER
OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS
IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE SHARES EVIDENCED BY THIS CERTIFICATE: (1) ARE CONVERTIBLE INTO SHARES OF
COMMON STOCK OF THE COMPANY AT THE OPTION OF THE HOLDER AT ANY TIME PRIOR TO
AUTOMATIC CONVERSION THEREOF; AND (2) AUTOMATICALLY CONVERT INTO COMMON STOCK OF
THE COMPANY IN THE EVENT OF A PUBLIC OFFERING MEETING CERTAIN REQUIREMENTS OR
UPON CERTAIN CONSENTS OF THE HOLDERS OF THE COMPANY'S PREFERRED STOCK; ALL
PURSUANT TO AND UPON THE TERMS AND CONDITIONS SPECIFIED IN THE COMPANY'S
CERTIFICATE OF INCORPORATION. A COPY OF SUCH CERTIFICATE OF INCORPORATION MAY BE
OBTAINED, WITHOUT CHARGE, AT THE COMPANY'S PRINCIPAL OFFICE.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO TRANSFER AND OTHER
RESTRICTIONS IN ACCORDANCE WITH THE TERMS OF AN INVESTORS' RIGHTS AGREEMENT, AS
AMENDED FROM TIME TO TIME, BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
Subscription Agreement (Pub. 1/18/00) CONFIDENTIAL Page 6 of 6
<PAGE> 1
EXHIBIT 10.29
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Series C Preferred Stock Purchase Agreement (this "Agreement") is
made and entered into as of July __, 1999 by and among Chaparral Network
Storage, Inc. (formerly Chaparral Technologies Inc.), a Delaware corporation
(the "Company"), and________________ , a_____________ ("Purchaser").
WITNESSETH:
WHEREAS, the Company desires to sell to Purchaser, and Purchaser
desires to purchase from the Company, shares of the Company's Series C Preferred
Stock on the terms and conditions set forth in this Agreement; and
WHEREAS, the Company is in the process of preparing the following
documents to be executed by the Company and Purchaser as applicable: Series C
Preferred Stock Purchase Agreement, and the Second Amended Investors' Rights
Agreement attached hereto as Exhibit C (the "Investors' Rights Agreement").
WHEREAS, the Company has filed an Amended and Restated Certificate of
Incorporation (the "Restated Certificate") to reflect, inter alia, the relative
rights of the stockholders;
NOW, THEREFORE, the parties hereby agree as follows:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
1.1 Authorization. As of the Closing (as defined below) the Company
will have authorized the issuance, pursuant to the terms and conditions of this
Agreement, of 5,000,000 shares of the Company's Series C Preferred Stock, par
value $0.001 per share (the "Series C Stock") having the rights, preferences,
privileges and restrictions set forth in the Amended and Restated Certificate of
Incorporation of the Company, a copy of which is attached as Exhibit A.
1.2 Agreement to Purchase and Sell. Subject to the terms and
conditions hereof, the Company agrees to sell to Purchaser at the Closing, and
Purchaser agrees to purchase from the Company at the Closing, an aggregate of
_________ shares of Series C Stock at a price of $_________, or $____ per share.
The shares of Series C Stock purchased and sold pursuant to this Agreement
(hereinafter the "Purchased Shares") and the shares of Common Stock issuable
upon conversion of the Purchased Shares will be collectively hereinafter
referred to as the "Conversion Shares".
2. CLOSING. The purchase and sale of the Purchased Shares will take
place at the offices of Chaparral Network Storage, Inc., 1951 South Fordham
Street, Longmont, CO 80503 on July __, 1999, respectively, or at such other time
and place as the Company and Purchaser
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mutually agree upon (which time and place are referred to in this Agreement as
the "Closing"). At the Closing, the Company will deliver to Purchaser a
certificate or certificates representing the number of Purchased Shares that
Purchaser has agreed to purchase hereunder against delivery to the Company by
Purchaser of the full purchase price of such Purchased Shares, paid by (a) a
check payable to the Company's order, (b) wire transfer of funds to the Company,
(c) a full recourse promissory note, (d) cancellation of indebtedness of the
Company to Purchaser, or (e) any combination of the foregoing.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Purchaser that, except as set forth in the Schedule
of Exceptions ("Schedule of Exceptions") which will be provided to Purchaser
upon its completion and will at that time be attached to this Agreement as
Exhibit B (which Schedule of Exceptions shall be deemed to be representations
and warranties to Purchaser by the Company under this Section 3), the statements
in the following paragraphs of this Section 3 are all true and correct:
3.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement and the Second Amended Investors' Rights Agreement substantially
in the form attached hereto as Exhibit C (the "Investors' Rights Agreement"), to
issue and sell the Shares and the Conversion Shares and to carry out the
provisions of this Agreement, and the Restated Certificate and to carry on its
business as presently conducted and as presently proposed to be conducted. The
Company is duly qualified and is authorized to do business and is in good
standing in each jurisdiction in which the nature of its activities and of its
properties (both owned and leased) makes such qualification necessary, except
for those jurisdictions in which failure to do so would not have a material
adverse effect on the Company or its business.
3.2 Capitalization. Immediately prior to the Closing the
capitalization of the Company will consist of the following:
(a) Preferred Stock. A total of 29,140,200 authorized shares of
preferred stock, $0.001 par value per share (the "Preferred Stock"), consisting
of 18,600,000 shares designated as Series A Preferred Stock ("Series A Stock"),
18,599,372 of which will be issued and outstanding upon closing, 5,540,200
shares designated as Series B Preferred Stock ("Series B Stock"), 5,540,200 of
which have been issued and is outstanding and 5,000,000 shares designated as
Series C Preferred Stock ("Series C Stock"), of which no shares are issued and
outstanding. The rights, preferences and privileges of the Series A Stock,
Series B Stock and Series C Stock will be as stated in the Restated Certificate
and as provided by law.
(b) Common Stock. A total of 52,000,000 authorized shares of
common stock, $0.001 par value per share (the "Common Stock"), of which
16,245,000 shares are issued and outstanding.
(c) Options, Warrants, Reserved Shares. Except for: (i) the
conversion privileges of the Series A Stock, Series B Stock and Series C Stock,
(ii) the rights of first refusal
2
<PAGE> 3
provided in section 3.1 of the Second Amended Restated Investors' Rights
Agreement, (iii) the 19,665,000 shares of Common Stock reserved for issuance
under the Company's 1998 Stock Option Plan under which there are 5,086,346
shares of Common Stock subject to outstanding options and (iv) warrants to
purchase 638,801 shares of Common Stock; there are no outstanding options,
warrants, rights (including conversion or preemptive rights) or agreements for
the purchase or acquisition from the Company of any shares of its capital stock
or any securities convertible into or ultimately exchangeable or exercisable for
any shares of the Company's capital stock. Apart from the exceptions noted in
this Section 3.2(c), and except for the Company's right of first refusal and
repurchase rights under the Investors' Rights Agreement, no shares of the
Company's outstanding capital stock, or stock issuable upon exercise or exchange
of any outstanding options, warrants or rights, or other stock issuable by the
Company, are subject to any rights of first refusal or other rights to purchase
such stock (whether in favor of the Company or any other person), pursuant to
any agreement or commitment of the Company.
(d) Outstanding Security Holders. Attached to this Agreement as
Exhibit D is a complete list of all outstanding stockholders, option holders,
warrant holders, convertible note holders and other security holders of the
Company as of immediately prior to the Closing.
3.3 Subsidiaries. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, partnership,
trust, joint venture, association, or other entity.
3.4 Due Authorization. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution, delivery of, and the performance of all obligations of
the Company under the Investors' Rights Agreement, the authorization, issuance,
reservation for issuance and delivery of all of the Purchased Shares being sold
under this Agreement and the Conversion Shares following the Closing is duly
authorized and valid. This Agreement constitutes, along with the Investors'
Rights Agreement, when executed, valid and legally binding obligations of the
Company, enforceable in accordance with their respective terms, except as may be
limited by (a) applicable bankruptcy, insolvency, reorganization or others laws
of general application relating to or affecting the enforcement of creditors'
rights generally and (b) the effect of rules of law governing the availability
of equitable remedies.
3.5 Valid Issuance of Stock.
(a) The Purchased Shares, when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration provided for
herein, will be duly and validly issued, fully paid and nonassessable. The
Conversion Shares have been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Restated Certificate, will be duly
and validly issued, fully paid and nonassessable.
(b) Based in part on the representations made by Purchaser in
Section 4 hereof, the Purchased Shares and (assuming no change in applicable law
and no unlawful distribution of Purchased Shares by Purchaser or other parties)
the Conversion Shares
3
<PAGE> 4
will be issued in full compliance with the registration and prospectus delivery
requirements of the U.S. Securities Act of 1933, as amended (the "1933 Act") or
in compliance with applicable exemptions therefrom, and the registration and
qualification requirements under the applicable state securities laws.
(c) The outstanding shares of the capital stock of the Company
are duly and validly issued, fully paid and nonassessable, and such shares of
such capital stock, and all outstanding options, warrants, convertible notes and
other securities of the Company, have been issued in full compliance with the
registration and prospectus delivery requirements of the 1933 Act or in
compliance with applicable exemptions therefrom, the registration and
qualification requirements of all applicable securities laws of states of the
United States and all other provisions of applicable securities laws of states
of the United States, including, without limitation, anti-fraud provisions.
3.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, the Investors' Rights Agreement, or any
applicable state securities law filing requirements.
3.7 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation ("Action") pending or, to the best of the Company's
knowledge, currently threatened against the Company, its activities, properties
or assets or, to the best of the Company's knowledge, against any officer,
director or employee of the Company in connection with such officer's,
director's or employee's relationship with, or actions taken on behalf of, the
Company. To the best of the Company's knowledge, there is no factual or legal
basis for any such Action that might result, individually or in the aggregate,
in any material adverse change in the business, properties, assets, financial
condition, affairs or prospects of the Company. By way of example but not by way
of limitation, there are no Actions pending or, to the best of the Company's
knowledge, threatened (or any basis therefor known to the Company) relating to
the prior employment of any of the Company's employees or consultants, their use
in connection with the Company's business of any information, technology or
techniques allegedly proprietary to any of their former employers, clients or
other parties, or their obligations under any agreements with prior employers,
clients or other parties. The Company is not a party to or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality and there is no Action by the Company
currently pending or which the Company intends to initiate.
3.8 Employee Inventions and Proprietary Rights Assignment Agreement.
Each employee, officer, consultant and contractor of the Company has entered
into and executed an Employee Inventions and Proprietary Rights Assignment
Agreement in the form attached to this Agreement as Exhibit E or an employment
or consulting agreement containing substantially similar terms.
3.9 Status of Proprietary Assets.
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(a) Ownership. The Company has full title and ownership of, or
has license to, all patents, patent applications, trademarks, service marks,
trade names, copyrights, moral rights, mask works, trade secrets, confidential
and proprietary information, compositions of matter, formulas, designs,
proprietary rights, know-how and processes (all of the foregoing collectively
hereinafter referred to as the "Proprietary Assets") necessary to enable it to
carry on its business as now conducted and as presently proposed to be
conducted, without any conflict with or infringement of the rights of others. No
third party has any ownership right, title, interest, claim in or lien on any of
the Company's Proprietary Assets and the Company has taken, and in the future
the Company will use its best efforts to take, all steps reasonably necessary to
preserve its legal rights in, and the secrecy of all its Proprietary Assets,
except those for which disclosure is required for legitimate business or legal
reasons.
(b) Licenses; Other Agreements. The Company has not granted and
there are no outstanding licenses or agreements nor any options of any kind
relating to any Proprietary Asset of the Company. The Company is not bound by a
party to any option, license or agreement of any kind with respect to any of its
Proprietary Assets. The Company is not obligated to pay any royalties or other
payments to third parties with respect to the marketing, sale, distribution,
manufacture, license or use of any Proprietary Asset or any other property or
rights.
(c) No Infringement. To the best of the Company's knowledge, the
Company has not violated or infringed, and is not currently violating or
infringing, nor received any communications alleging that the Company (or any of
its employees or consultants) has violated or infringed or, by conducting its
business as proposed, would violate or infringe, any Proprietary Asset of any
other person or entity.
(d) No Employee Breach. The Company is not aware that any
employee or consultant of the Company is obligated under any agreement
(including licenses, covenants or commitments of any nature) or subject to any
judgment, decree or order of any court or administrative agency, or any other
restriction that would interfere with the use of his or her best efforts to
carry out his or her duties for the Company, promote the interests of the
Company, or conflicts with the Company's business as proposed to be conducted.
The carrying on of the Company's business by the employees and contractors of
the Company and the conduct of the Company's business as presently proposed,
will not, to the best of the Company's knowledge, conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any contract, covenant or instrument under which any of such employees or
contractors or the Company is now obligated. The Company does not believe it is
or will be necessary to utilize any inventions of any employees of the Company
(or persons the Company currently intends to hire) made prior to their
employment by the Company. At no time during the conception of or reduction of
any of the Company's Proprietary Assets to practice was any developer, inventor
or other contributor to such patents operating under any grants from any
governmental entity or agency or private source, performing research sponsored
by any governmental entity or agency or private source or subject to any
employment agreement or
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invention assignment or nondisclosure agreement or other obligation with any
third party that could adversely affect the Company's rights in such Proprietary
Assets.
3.10 Compliance with Law and Charter Documents. The Company is not
in violation or default of any provisions of its Certificate of Incorporation or
Bylaws except for any violations that individually and in the aggregate would
have no material adverse impact on the Company's business, the Company is in
compliance with all applicable statutes, laws, regulations and executive orders
of the United States of America and all states, foreign countries or other
governmental bodies and agencies having jurisdiction over the Company's business
or properties. The Company has not received any notice of any violation of such
statutes, laws, regulations or orders, which has not been remedied prior to the
date hereof. The execution, delivery and performance of this Agreement and the
Investors' Rights Agreement, when entered into, and the consummation of the
transactions contemplated hereby or thereby, will not result in any such
violation or default, or be in conflict with or constitute, with or without the
passage of time or the giving of notice or both, either a default under the
Company's Certificate of Incorporation or Bylaws, or any agreement or contract
of the Company, or, to the best of the Company's knowledge, a violation of any
statutes, laws, regulations or orders, or an event which results in the creation
of any lien, charge or encumbrance upon any asset of the Company.
3.11 Material Agreements.
(a) List of Material Agreements. Attached to this Agreement as
Exhibit F is a complete list of all agreements, contracts, leases, licenses,
instruments and commitments (oral or written) to which the Company is a party or
is bound that, individually or in the aggregate, are material to the business,
properties, financial condition, results of operation, affairs or prospects of
the Company ("Material Agreements"); provided that, for purposes of this Section
3.11, agreements under which the only remaining obligation of the Company is to
make a payment of money in the amount of fifty thousand dollars ($50,000) or
less will be deemed to be not material to its business, properties, financial
condition or results of operations if the failure to make such payment will not
result in the loss by the Company of any rights that are material to the conduct
of its business.
(b) No Breach. The Company has not breached, nor does the
Company have any knowledge of any claim or threat that the Company has breached,
any term or condition of (i) any Material Agreement set forth in Exhibit F, or
(ii) any other agreement, contract, lease, license, instrument or commitment
that, individually or in the aggregate, would have a material adverse effect on
the business, properties, financial condition, results of operations or affairs
or prospects of the Company. Each Material Agreement set forth in Exhibit F is
in full force and effect, is enforceable against each of the parties thereto,
and, to the Company's knowledge, no other party to such Material Agreement is in
default thereunder. The Company is not a party to any agreement that restricts
its ability to market or sell any of its products (whether by territorial
restriction or otherwise).
3.12 Registration Rights. Except as will be provided in the
Investors' Rights Agreement, the Company has not granted or agreed to grant to
any person or entity any rights
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(including piggyback registration rights) to have any securities of the Company
registered with the United States Securities and Exchange Commission ("SEC") or
any other governmental authority.
3.13 Certificate of Incorporation/Bylaws. The Certificate of
Incorporation and the Bylaws of the Company are in the form provided to
Purchaser.
3.14 Title to Property and Assets. The Company owns its properties
and assets free and clear of all mortgages, deeds of trust, liens, encumbrances,
security interests and claims except for statutory liens for the payment of
current taxes that are not yet delinquent and liens, encumbrances and security
interests which arise in the ordinary course of business and which do not affect
material properties and assets of the Company. With respect to the property and
assets it leases, the Company is in compliance with such leases and, to the best
of the Company's knowledge, the Company holds valid leasehold interests in such
assets free of any liens, encumbrances, security interests or claims of any
party other than the lessors of such property and assets.
3.15 Material Liabilities. The Company has no material liabilities
and knows of no material contingent liabilities not disclosed in the Latest
Balance Sheet, except current liabilities incurred in the ordinary course of
business subsequent to the Statement Date which have not been, either in any
individual case or in the aggregate, materially adverse. The Company's audited
balance sheet as of March 31, 1999, audited statements of operations and cash
flows for the period ended March 31, 1999, unaudited balance sheet as of May 31,
1999 (the "Latest Balance Sheet"), unaudited statements of operations and cash
flow for the period ended May 31, 1999 (the "Statement Date") delivered to the
Purchasers in connection with the investment contemplated hereby (copies of
which are attached hereto as Exhibit G) (the "Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except, with respect to the unaudited financial statements,
for the exclusion of footnotes and normal year end adjustments) and fairly
present in all material respects the financial position and the results of
operations of the Company for the respective periods covered thereby.
3.16 ERISA Plans. The Company does not have any Employee Pension
Benefit Plan as defined in Section 3 of the amended Employee Retirement Income
Security Act of 1974.
3.17 Insurance. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
3.18 Labor Agreements and Actions. The Company is not bound by or
subject to any contract, commitment or arrangement with any labor union, and to
the Company's best knowledge, no labor union has requested, sought or attempted
to represent any employees, representatives or agents of the Company. There is
no strike or other labor dispute pending nor threatened in writing involving the
Company, nor is the Company aware of any labor organization activity involving
its employees. The Company is not aware that any officer or
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employee intends to terminate their employment with the Company, nor does the
Company have any present intention to terminate the employment of any of its
officers or employees.
3.19 Environmental Matters. The Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
3.20 Real Property Holding Corporation Status. Since its inception,
the Company has not been a "United States real property holding corporation", as
defined in Section 897(c)(2) of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"), and in Section 1.897-2(b) of the Treasury Regulations
issued thereunder (the "Regulations"), and the Company has filed with the
Internal Revenue Service all statements, if any, with its United States income
tax returns which are required under Section 1.897-2(h) of the Regulations.
3.21 Interested Party Transactions. To the Company's knowledge, no
officer or director of the Company or any "affiliate" or "associate" (as those
terms are defined in Rule 405 promulgated under the 1933 Act) of any such person
has had, either directly or indirectly, a material interest in: (a) any person
or entity which purchases from or sells, licenses or furnishes to the Company
any goods, property, technology, intellectual or other property rights or
services; or (b) any contract or agreement to which the Company is a party or by
which it may be bound or affected.
3.22 Stock Restriction Agreements. Each person who, pursuant to any
benefit, bonus or incentive plan of the Company, holds any currently outstanding
shares of Common Stock or other securities of the Company or any option, warrant
or right to acquire such shares or other securities, has entered into or is
otherwise bound by, an agreement granting the Company (a) the right to
repurchase the shares for the original purchase price, or to cancel the option,
warrant or right, in the event the holder's employment or services with the
Company terminate for any reason, subject to release of such repurchase or
cancellation right on terms and conditions specified by the Board of Directors
of the Company, and (b) a right of first refusal with respect to all such
shares. All currently outstanding shares of Common Stock have been sold and
issued for a cash purchase price of not less than $.001 per share.
3.23 Disclosure. This Agreement, and the Exhibits hereto (when read
together) do not contain any untrue statement of a material fact and do not omit
to state a material fact necessary to make the statements therein or herein not
misleading.
3.24 Tax Considerations. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the Company have been
paid or will be paid prior to the time they become delinquent. The Company has
not been advised (i) that any of its returns, federal, state or other, have been
or are being audited as of the date hereof, or (ii) of any deficiency in
assessment or proposed judgment to its federal, state or other taxes. The
Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
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<PAGE> 9
provided for. The Company has not elected pursuant to the Code to be treated as
an "S" corporation or a collapsible corporation pursuant to Section 341(f) or
Section 1362(a) of the Code, nor has it made any other elections pursuant to the
Code (other than elections which relate solely to matters of accounting,
depreciation or amortization) which would have a material affect on the Company,
its financial condition, its business as presently conducted or presently
proposed to be conducted or any of its properties or material assets.
3.25 Qualified Small Business Stock. As of the Closing: (a) the
Company will be an eligible corporation as defined in Section 1202(e)(4) of the
Code, (b) the Company will not have made any purchases of its own stock during
the one-year period preceding the Closing having an aggregate value exceeding 5%
of the aggregate value of all its stock as of the beginning of such period, and
(c) the Company's aggregate gross assets, as defined by Code Section 1202(d)(2),
at no time between the Company's inception and through the Closing have exceeded
or will exceed $50 million, taking into account the assets of any corporations
required to be aggregated with the Company in accordance with Code Section
1202(d)(3).
3.26 Section 83(b) Elections. To the best of the Company's
knowledge, all Purchasers who have purchased unvested shares of the Company's
Common Stock have timely filed elections under Section 83(b) of the Code and any
analogous provisions of applicable state tax laws.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF PURCHASER.
Purchaser hereby represents and warrants to, and agrees with, the Company that:
4.1 Authorization. This Agreement constitutes Purchaser's valid and
legally binding obligation, enforceable in accordance with its terms except as
may be limited by (a) applicable bankruptcy, insolvency, reorganization or other
laws of general application relating to or affecting the enforcement of
creditors' rights generally and (b) the effect of rules of law governing the
availability of equitable remedies. Purchaser represents that he has full power
and authority to enter into this Agreement, and the Investors' Rights Agreement.
4.2 Purchase for Own Account. The Purchased Shares to be purchased
by Purchaser hereunder will be acquired for investment for Purchaser's own
account, not as a nominee or agent, and not with a view to the public resale or
distribution thereof within the meaning of the 1933 Act, and Purchaser has no
present intention of selling, granting any participation in, or otherwise
distributing the same.
4.3 Disclosure of Information. Purchaser has received or has had
full access to all the information he considers necessary or appropriate to make
an informed investment decision with respect to the Purchased Shares to be
purchased by Purchaser under this Agreement. Purchaser further has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Purchased Shares and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished
9
<PAGE> 10
to Purchaser or to which Purchaser had access. The foregoing, however, does not
in any way limit or modify the representations and warranties made by the
Company in Section 3.
4.4 Investment Experience. Purchaser understands that the purchase
of the Purchased Shares involves substantial risk. Purchaser: (a) has experience
as an investor in securities of companies in the development stage and
acknowledges that it is able to fend for himself, can bear the economic risk of
its investment in the Purchased Shares and has such knowledge and experience in
financial or business matters that he is capable of evaluating the merits and
risks of this investment in the Purchased Shares and protecting its own
interests in connection with this investment and/or (b) has a preexisting
personal or business relationship with the Company and certain of its officers,
directors or controlling persons of a nature and duration that enables it to be
aware of the character, business acumen and financial circumstances of such
persons.
4.5 Accredited Investor Status. Purchaser is an "accredited
investor" within the meaning of Regulation D promulgated under the 1933 Act.
4.6 Restricted Securities. Purchaser understands that the Purchased
Shares are characterized as "restricted securities" under the 1933 Act inasmuch
as they are being acquired from the Company in a transaction not involving a
public offering and that under the 1933 Act and applicable regulations
thereunder such securities may be resold without registration under the 1933 Act
only in certain limited circumstances. In this connection, Purchaser represents
that he is familiar with Rule 144 of the SEC, as presently in effect, and
understands the resale limitations imposed thereby and by the 1933 Act.
Purchaser understands that the Company is under no obligation to register any of
the securities sold hereunder except as will be provided in the Investors'
Rights Agreement. Purchaser understands that no public market now exists or is
likely to exist for any of the Purchased Shares and that it is uncertain whether
a public market will ever exist for the Conversion Shares.
4.7 Further Limitations on Disposition. Without in any way limiting
the representations set forth above, Purchaser further agrees not to make any
disposition of all or any portion of the Purchased Shares or the Conversion
Shares unless and until:
(a) There is then in effect a registration statement under the
1933 Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) Purchaser shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the proposed disposition, and (ii) Purchaser shall
have furnished the Company, at the expense of Purchaser or his transferee, with
an opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such securities under the 1933 Act.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be required: (i) for any
transfer of any Purchased Shares or
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<PAGE> 11
Conversion Shares in compliance with SEC Rule 144 or Rule 144A except in unusual
circumstances; or (ii) for any transfer of any Purchased Shares or Conversion
Shares by Purchaser to (A) a partner of Purchaser, or (B) the estate of any such
partner, or (iii) for the transfer by gift to any trust for any of the foregoing
or for the benefit of any family member of Purchaser, or (iv) to any entity
controlled by Purchaser or any member of Purchaser; provided that in each of the
foregoing cases the transferee agrees in writing to be subject to the terms of
this Section 4 (other than Section 4.5) to the same extent as if the transferee
were Purchaser hereunder.
4.8 Legends. It is understood that the certificates evidencing the
Purchased Shares and the Conversion Shares will bear the legends set forth
below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS
ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
(b) Any legend required by the laws of the State of Delaware or
any other state, including a legend substantially in the form of the following:
THE SHARES EVIDENCED BY THIS CERTIFICATE: (1) ARE CONVERTIBLE INTO
SHARES OF COMMON STOCK OF THE COMPANY AT THE OPTION OF THE HOLDER AT
ANY TIME PRIOR TO AUTOMATIC CONVERSION THEREOF; AND (2)
AUTOMATICALLY CONVERT INTO COMMON STOCK OF THE COMPANY IN THE EVENT
OF A PUBLIC OFFERING MEETING CERTAIN REQUIREMENTS OR UPON CERTAIN
CONSENTS OF THE HOLDERS OF THE COMPANY'S PREFERRED STOCK; ALL
PURSUANT TO AND UPON THE TERMS AND CONDITIONS SPECIFIED IN THE
COMPANY'S CERTIFICATE OF INCORPORATION. A COPY OF SUCH CERTIFICATE
OF INCORPORATION MAY BE OBTAINED, WITHOUT CHARGE, AT THE COMPANY'S
PRINCIPAL OFFICE.
The legend set forth in (a) above shall be removed by the Company from any
certificate evidencing Purchased Shares or Conversion Shares upon delivery to
the Company of an opinion by counsel, reasonably satisfactory to the Company,
that a registration statement under the 1933
11
<PAGE> 12
Act is at that time in effect with respect to the legended security or that such
security can be freely transferred in a public sale without such a registration
statement being in effect and that such transfer will not jeopardize the
exemption or exemptions from registration pursuant to which the Company issued
the Purchased Shares or Conversion Shares. The Company will not require opinions
of counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
5. MISCELLANEOUS.
5.1 Survival of Warranties. The representations, warranties and
covenants of the Company and Purchaser contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of any of Purchaser, his counsel or the
Company, as the case may be.
5.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
5.3 Governing Law. This Agreement shall be governed by and construed
under the internal laws of the State of Colorado as applied to agreements among
Colorado residents entered into and to be performed entirely within Colorado,
without reference to principles of conflict of laws or choice of laws.
5.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.5 Headings. The headings and captions used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
5.6 Notices. Any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery to the party to be notified or upon four business days after deposit
with the United States Post Office, by registered or certified mail, postage
prepaid and addressed in the case of Purchaser, ________________ or, in the case
of the Company, to 1951 South Fordham Street, Longmont, CO 80503, Attention:
Chief Executive Officer, or at such other address as any party or the Company
may designate by giving ten (10) days advance written notice to all other
parties.
5.7 No Finder's Fees. Each party represents that it neither is nor
will be obligated for any finder's or broker's fee or commission in connection
with this transaction. Purchaser agrees to indemnify and to hold harmless the
Company for any liability for any commission or compensation in the nature of a
finders' or brokers' fee (and any asserted liability) for which Purchaser or any
of his partners, employees, or representatives is responsible. The
12
<PAGE> 13
Company agrees to indemnify and hold harmless Purchaser from any liability for
any commission or compensation in the nature of a finder's or broker's fee (and
any asserted liability) for which the Company or any of its officers, employees
or representatives is responsible.
5.8 Attorneys' Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the Investors' Rights
Agreement or the Restated Certificate, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
5.9 Costs, Expenses. Each of the parties to this Agreement shall be
responsible for its own fees and expenses in connection with the preparation,
execution and delivery of this Agreement, the issuance of the Purchased Shares
and the other transactions contemplated hereby.
5.10 Amendments and Waivers. This Agreement for the Purchase of
Series C Preferred Stock may be amended or modified only upon the written
consent of the Company and the Purchaser. The obligations of the Company and the
rights of the Purchaser and the Conversion Shares under this Agreement may be
waived only with the written consent of the Purchaser.
5.11 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision(s) shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
5.12 Entire Agreement. This Agreement, together with all exhibits
and schedules hereto, constitutes the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings duties or
obligations between the parties with respect to the subject matter hereof.
5.13 Further Assurances. From and after the date of this Agreement,
upon the request of Purchaser or the Company, the Company and Purchaser shall
execute and deliver such instruments, documents or other writings as may be
reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Series C
Preferred Stock Purchase Agreement as of the date first above written.
CHAPARRAL NETWORK STORAGE, INC.,
a Delaware corporation
by:
---------------------------- ---------------------------
Gary L. Allison, Chairman & CEO (Purchaser)
14
<PAGE> 15
[CHAPPARAL LOGO]
THE SECURITIES TO WHICH THIS AGREEMENT RELATES HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
ANY STATE SECURITIES LAWS, AND ARE BEING OFFERED AND SOLD PURSUANT TO RULE 701,
REGULATION D, OR OTHER APPLICABLE EXEMPTIONS UNDER THE SECURITIES ACT. THESE
SECURITIES MAY NOT BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION UNDER THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
CHAPARRAL NETWORK STORAGE, INC.
(SERIES C PREFERRED STOCK)
Ladies and Gentlemen:
The undersigned, (purchaser) (the "Purchaser"), hereby irrevocably
subscribes for and agrees to purchase (number of shares) shares of Series C
Preferred Stock, $.001 par value (the "Preferred Stock") of Chaparral Network
Storage, Inc., a Delaware corporation (the "Company"), at a purchase price of
(purchase price) or $(price per share) per share (the "Purchase Price").
The Purchaser's subscription pursuant to this agreement constitutes a
binding subscription for and offer to purchase the amount of Preferred Stock
referred to herein at the aggregate price referred to herein.
1. DELIVERY AND PAYMENT. The Company will deliver to Purchaser a
certificate or certificates representing the number of shares of Preferred
Stock that Purchaser has agreed to purchase hereunder against delivery to
the Company by Purchaser of the Purchase Price, paid by (a) check payable
to the Company's order, (b) wire transfer of funds to the Company, (c)
cancellation of indebtedness of the Company to Purchaser or (d) any
combination of the foregoing. Purchaser also agrees to deliver to the
Company:
(a) one completed and duly signed copy of this Purchase Agreement;
(b) one completed and duly signed copy of the Investors' Rights Agreement,
as amended;
and
(c) all other documentation as may be required by applicable securities
laws.
2. CLOSING. Delivery of a certificate for the Preferred Stock will be
completed, against payment of the purchase price as set out above, upon delivery
to the Company of the signed agreement and Investor Questionnaire (the "Closing
Date").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER. The
Purchaser makes the following representations, warranties, acknowledgments and
covenants to and for the benefit of the Company:
(a) the Purchaser acknowledges and understands that the Preferred Stock has
not been registered under the Securities Act or any other applicable
securities laws, that the Company has
Subscription Agreement (Pub. 1/18/00) CONFIDENTIAL Page 1 of 6
<PAGE> 16
no obligation to register the Preferred Stock under the Securities Act or
any other applicable securities laws, and that the Preferred Stock may not
be offered, sold or otherwise transferred except in compliance with the
registration requirements of the Securities Act and any other applicable
securities laws or pursuant to an exemption therefrom and in each case in
compliance with the conditions for transfer set in Section 3(o);
(b) the Purchaser is purchasing the Preferred Stock as a principal for the
Purchaser's own account and not for the benefit of any other person;
(c) the Purchaser is a resident of the jurisdiction included in its address
on the signature page of this agreement;
(d) the Purchaser has attained the age of majority and is legally competent
to execute this agreement and to take all actions pursuant hereto;
(e) the Purchaser will execute and deliver all documentation as may be
required by all applicable securities laws to permit the purchase of the
Preferred Stock hereunder on the terms as set forth herein;
(f) the Purchaser is purchasing the Preferred Stock for investment only and
not with a view to resale or distribution;
(g) the Purchaser has such knowledge and experience in financial and
business affairs as to be capable of evaluating the merits and risks of
this investment;
(h) the Purchaser's decision to enter into this agreement and to purchase
Preferred Stock pursuant hereto has not been based upon any oral or written
representation as to fact or otherwise by the Company or any other person
other than as set forth herein, and the Purchaser has not received and is
not relying on any document; the Purchaser has had access to any financial
and other information concerning the Company and the Preferred Stock as it
has deemed necessary in connection with its decision to purchase the
Preferred Stock, including an opportunity to ask questions of and request
information of the Company;
(i) the Purchaser acknowledges and understands that there is no public
market for the Preferred Stock and there is no certainty that such a market
will ever develop;
(j) the Purchaser recognizes that the Company has a history of financial
losses and that an investment in the Company involves substantial risks,
and the Purchaser has taken full cognizance of and understands all of the
risk factors related to the purchase of the Preferred Stock; the Purchaser
acknowledges and understands that no governmental agency has made any
finding or determination as to the fairness of this offering for
investment, nor any recommendation or endorsement of the Preferred Stock;
(k) the Purchaser has carefully considered and has, to the extent the
Purchaser believes such discussion necessary, discussed with the
Purchaser's professional legal, tax and financial advisors the suitability
of an investment in the Company for the Purchaser's particular tax and
financial situation and the Purchaser has determined that the Preferred
Stock is a suitable investment for the Purchaser; the Purchaser understands
and acknowledges that there can be no assurance as to the tax results of an
investment in the Preferred Stock;
(l) the Purchaser shall indemnify and hold harmless the Company or any of
its officers, employees, registered representatives, directors, control
persons or agents 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 or arising
from any actual or alleged misrepresentation or misstatement of facts or
omission to represent or state
Subscription Agreement (Pub. 1/18/00) CONFIDENTIAL Page 2 of 6
<PAGE> 17
facts made by the Purchaser to the Company concerning itself or its
financial position in connection with the offering or sale of the Preferred
Stock that is not remedied by timely notice to the Company, against losses,
liabilities and expenses for which the Company or any of its officers,
employees, registered representatives, directors, control persons or agents
have not otherwise been reimbursed (including attorneys fees, judgments,
fines and amounts paid in settlement) as actually and reasonably incurred
by such person or entity in connection with such action, suit or
proceeding;
(m) the Purchaser understands and acknowledges that upon issuance thereof,
and until such time as the same is no longer required under applicable
securities laws, the Preferred Stock will bear a legend in the form
attached hereto as Exhibit A;
(n) the Purchaser acknowledges that it has not purchased the Preferred
Stock as a result of any general solicitation or general advertising (as
those terms are used in Regulation D under the Securities Act), including
advertisements, articles, notices or other communications published in any
newspaper, magazine or similar media or broadcast over radio or television,
or any seminar or meeting whose attendees have been invited by general
solicitation or general advertising; and
(o) the Purchaser acknowledges that it will not offer, sell or otherwise
transfer the Preferred Stock, directly or indirectly, unless:
(i) the sale is made pursuant to the exemption from the registration
requirements under the Securities Act provided by Rule 144 thereunder,
if available, and in accordance with any applicable U.S. state
securities or `blue sky' laws;
(ii) the Preferred Stock is sold in a transaction that does not
require registration under the Securities Act or any applicable U.S.
state laws and regulations governing the offer and sale of securities;
or
(iii) the sale is made outside of the United States in a transaction
meeting the requirements of Rule 904 of Regulation S under the
Securities Act and in compliance with applicable local laws and
regulations.
In each such case, the Purchaser agrees to furnish to the Company, prior to
such sale, an opinion of counsel reasonably satisfactory to the Company
with respect to the matters set forth above; and
(p) the Purchaser is an "accredited investor" as defined in Rule 501(a)
under the Securities Act; the undersigned has previously completed the
Investor Questionnaire attached hereto as Exhibit B and the information set
forth therein remains true and accurate in all material respects.
Purchaser acknowledges that the foregoing representations, warranties and
covenants are made by Purchaser with the intent that they may be relied upon in
determining Purchaser's suitability as a purchaser of Preferred Stock. Purchaser
further agrees that by accepting Preferred Stock at the Closing Date, Purchaser
shall be representing and warranting that the foregoing representations and
warranties are true as at the Closing Date, as if they had been made by
Purchaser at that time.
5. SURVIVAL. This Purchase Agreement, including without limitation the
representations, warranties and covenants contained herein, shall survive and
continue in full force and effect and be binding upon the Purchaser
notwithstanding the completion of the purchase of the Preferred Stock by the
Purchaser hereto and any subsequent disposition by the Purchaser of the
Preferred Stock.
6. GOVERNING LAW. This Purchase Agreement shall be enforced, governed and
construed in all respects in accordance with the laws of the State of Colorado,
as such laws are applied by Colorado courts.
Subscription Agreement (Pub. 1/18/00) CONFIDENTIAL Page 3 of 6
<PAGE> 18
7. ASSIGNMENT. This Purchase Agreement shall be binding upon the Purchaser,
the Purchaser's heirs, estate, legal representatives, successors and assigns,
and shall inure to the benefit of the Company and its successors and assigns.
This Purchase Agreement is not transferable or assignable by the Purchaser.
8. FACSIMILE SUBSCRIPTIONS. The Company will be entitled to rely upon
delivery by facsimile machine of an executed copy of this Purchase Agreement and
acceptance of the Company of such facsimile copy will be legally effective to
create a valid and binding agreement between the Purchaser and the Company in
accordance with the terms hereof.
9. ENTIRE AGREEMENT. This Purchase Agreement contains the entire agreement
of the parties hereto relating to the subject matter hereof and there are no
representations, covenants or other agreements relating to the subject matter
hereof except as stated or referred to herein. This Purchase Agreement may be
amended only by a writing executed by all parties hereto.
10. DETAILS OF SUBSCRIPTION. The Purchaser subscribes for Preferred Stock
as set forth below:
NUMBER OF SHARES OF PREFERRED STOCK SUBSCRIBED FOR:
TOTAL AMOUNT OF SUBSCRIPTION:
NAME & ADDRESS OF PURCHASER:
---------------------------------
(Street Address)
---------------------------------
(City, Province and Postal Code)
DELIVERY INSTRUCTIONS: The name and address (including contact name and
telephone number) of the person to whom the certificate representing the
Preferred Stock is to be delivered, if other than the Purchaser:
Name:
Contact Name:
Telephone No.:
Address:
Subscription Agreement (Pub. 1/18/00) CONFIDENTIAL Page 4 of 6
<PAGE> 19
IN WITNESS WHEREOF the Purchaser has executed, or caused its duly
authorized representative to execute, on its own behalf, this Subscription
Agreement as of the (date).
- --------------------------- ----------------------------------
Signature of Purchaser Name of Purchaser
(if an individual) (if not an individual)
Per:
- --------------------------- ----------------------------------
Name of Purchaser (signature of authorized representative)
(if an individual) Name:
--------------------------------
Title:
--------------------------------
* * *
This Subscription Agreement is confirmed and accepted by the Company as of
the (date).
CHAPARRAL NETWORK STORAGE, INC.
- ------------------------------------
Gary L. Allison, Chairman & CEO
Subscription Agreement (Pub. 1/18/00) CONFIDENTIAL Page 5 of 6
<PAGE> 20
EXHIBIT A
LEGEND FOR PREFERRED STOCK
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN
STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT
AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER
OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS
IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE SHARES EVIDENCED BY THIS CERTIFICATE: (1) ARE CONVERTIBLE INTO SHARES OF
COMMON STOCK OF THE COMPANY AT THE OPTION OF THE HOLDER AT ANY TIME PRIOR TO
AUTOMATIC CONVERSION THEREOF; AND (2) AUTOMATICALLY CONVERT INTO COMMON STOCK OF
THE COMPANY IN THE EVENT OF A PUBLIC OFFERING MEETING CERTAIN REQUIREMENTS OR
UPON CERTAIN CONSENTS OF THE HOLDERS OF THE COMPANY'S PREFERRED STOCK; ALL
PURSUANT TO AND UPON THE TERMS AND CONDITIONS SPECIFIED IN THE COMPANY'S
CERTIFICATE OF INCORPORATION. A COPY OF SUCH CERTIFICATE OF INCORPORATION MAY BE
OBTAINED, WITHOUT CHARGE, AT THE COMPANY'S PRINCIPAL OFFICE.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO TRANSFER AND OTHER
RESTRICTIONS IN ACCORDANCE WITH THE TERMS OF AN INVESTORS' RIGHTS AGREEMENT, AS
AMENDED FROM TIME TO TIME, BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
Subscription Agreement (Pub. 1/18/00) CONFIDENTIAL Page 6 of 6
<PAGE> 1
[CHAPARRAL NETWORK STORAGE, INC. LOGO] EXHIBIT 10.30
COMMON STOCK PURCHASE AGREEMENT
(Option Exercise)
This Common Stock Purchase Agreement (the "Agreement") is made as of
the ____ day of _________, 1999, by and between CHAPARRAL NETWORK STORAGE, INC.,
a Delaware corporation (the "Company"), __________________ ("Purchaser") and
_____________ or other designated escrow agent (as Escrow Agent under Section 4
of this Agreement).
The parties agree as follows:
1. Common Stock Purchase.
1.1 Purchase. Subject to the terms and conditions of this
Agreement, the Company hereby agrees to sell to Purchaser, and
Purchaser hereby agrees to purchase from the Company, on the Closing
Date (as defined herein) ______________ shares of the Company's Common
Stock (the "Shares"), at a price of $_________________ per share
("Original Issuance Price") and an aggregate purchase price of
$_____________________. The term "Shares" refers to the purchased
Shares, all securities or property received in replacement of Shares,
all securities or property distributed with respect to Shares, in any
case by way of stock dividends, splits or consolidations, or pursuant
to any re-capitalization, consolidation, merger, reorganization, or the
like.
1.2 Payment. The aggregate purchase price shall be paid by
Purchaser by check or wire transfer of funds.
2. Closing; Delivery
2.1 Closing. The purchase and sale of the Shares shall occur
at a closing (the "Closing") to be held at the principal office of the
Company simultaneously with the execution of this Agreement by the
parties, or on such other date as they may agree (the "Closing Date").
2.2 Delivery. At the Closing, the Company will deliver to
Purchaser a certificate representing the Shares to be purchased by him
(which shall be issued in Purchaser's name) against payment of the
purchase price therefor. The purchase price for the Shares shall be paid
on the Closing Date by delivery of the consideration referenced in
Section 1.2 above.
3. Limitations on Transfer. In addition to any other limitation
on transfer created by applicable securities laws, Purchaser shall not
assign, encumber, or dispose of any interest in the Shares except as
provided in this Section 3.
3.1 Right of First Refusal.
(a) In the event Purchaser or his transferee desires
(or is required) to sell or transfer in any manner any of the
Shares, Purchaser shall first offer such Shares for sale to
the Company upon the terms and conditions specified herein
("Right of First Refusal") by delivering a notice (the
"Notice") to the Company stating
(i) his bona fide intention to sell or
otherwise transfer such Shares,
(ii) the number of such Shares to be
sold to otherwise transferred,
(iii) the price for which Purchaser
proposes to sell such Shares,
(iv) the name of the proposed buyer or
transferee, and
(v) all additional terms and conditions,
if any, of the proposed sale or transfer.
Purchaser shall attach to the Notice a copy
of the written offer, if any, reflecting the terms and
conditions of the proposed sale or transfer of the Shares to
the third party. In the
CONFIDENTIAL Page 1 of 10
<PAGE> 2
event of a transfer not involving a sale of the Shares for a
specific sum of money, or if, in the sole judgement of the
Company's Board of Directors, the proposed transfer does not
involve a price for the Shares negotiated by Purchaser and its
proposed buyer or transferee in a bona fide "arm's length
transaction", the price of the Shares shall be determined by
the Company's Board of Directors in the manner specified in
Section 3.3 below.
(b) Within sixty (60) days following receipt by the
Company of the Notice ("Acceptance Period"), the Company (or
is assignee) may elect to purchase all or a portion of the
Shares to which the Notice refers, at the price per Share and
on the same terms and conditions (or terms and conditions as
reasonably similar as possible) as set forth in the Notice, or
at the price per Share determined pursuant to Section 3.3 in
the event that the price of the Shares is to be determined by
the Company's Board of Directors under Section 3.1 (a).
(c) If the Company (or its assignee) elects to
purchase such Shares hereunder, it shall notify Purchaser, in
writing, of its intention to purchase such Shares hereunder
and either (1) set a date for the closing of the transaction
at a place specified by the Company not later than thirty (30)
days from the date of such notice, at which time the Company
(or its assignee) shall tender payment for the Shares, or (2)
include payment for the Shares with the Company's notice to
Purchaser. At such closing, the certificate(s) representing
the Shares so purchased shall be delivered to the Company and
canceled (and the Shares transferred to the Company's
assignee, if applicable) as of the date of the mailing of the
Company's notice and, thereafter, shall be promptly returned
by Purchaser to the Company by certified or registered mail.
(d) If the Company (or its assignee) does not elect
to purchase all of the Shares to which the Notice refers,
Purchaser may sell or otherwise transfer the Shares not
purchased to the third party named in the Notice at the price
and on the terms and conditions specified in the Notice, or at
a higher price; provided that such sale or transfer is
consummated within sixty (60) days from the earlier of
(i) the lapse of the Acceptance Period, or
(ii) the date of the Company's notice,
whether written or oral, advising Purchaser that the
Company does not intend to purchase the Shares
hereunder; provided, further, that any such sale or
transfer is made in accordance with all of the terms
and conditions set forth in this Agreement.
In the event the Shares are not disposed of by
Purchaser within such sixty (60) day period, such Shares shall
once again be subject to the Right of First Refusal.
3.2 Involuntary Transfer.
(a) In the event of any transfer by operation of law
or other involuntary transfer, of all, or a portion, of the
Shares, the Company shall have an option to purchase all of
the Shares transferred (the "Involuntary Transfer Option") at
a price set pursuant to Section 3.3. Upon such a transfer, the
person acquiring the Shares shall promptly notify the
Secretary of the Company of such transfer.
(b) The Company (or its assignee) shall notify
Purchaser and the person acquiring the Shares as to whether
the Company (or its assignee) wishes to purchase the shares
pursuant to the Involuntary Transfer Option within forty-five
(45) days following the date on which the Company was notified
of the transfer. If the Company (or its assignee) elects to
purchase such Shares hereunder it shall set a date for the
closing of the transaction at a place specified by the Company
not later than thirty (30) days from the date of the Company's
notice to Purchaser and the person acquiring the Shares. At
such closing, the Company (or its assignee) shall tender
payment for the shares in the form of a check, cancellation of
Purchaser's indebtedness to the Company, or some combination
thereof, and the certificate(s) representing the Shares so
purchased shall be canceled.
3.3 Determination of Price by Board. With respect to the
Shares to be transferred pursuant to the Right of First Refusal or the
Involuntary Transfer Option where the price per Share is to be
determined pursuant to this Section 3.3, the price per Share shall be
a price set by the Board of Directors of the Company that is
determined by the Board to reflect the then current value of such
Shares. The
CONFIDENTIAL Page 2 of 10
<PAGE> 3
Company shall notify Purchaser, his representative, or the person
acquiring the Shares under Section 3.2 of the price so determined
within forty-five (45) days after receipt by the Company of written
notice of the transfer or proposed transfer of the Shares.
3.4 Restriction on Alienation. Any sale, transfer, or
disposition or purported sale, transfer, or disposition or any of the
shares by Purchaser shall be null and void unless the terms,
conditions, and provisions of this Agreement are strictly complied
with. Purchaser hereby authorizes and directs the Transfer Agent of the
Company to transfer the Shares as to which the Right of First Refusal
or Involuntary Transfer Option has been exercised from Purchaser to the
Company (or its assignee). Purchaser further authorizes the Company to
refuse, or to cause its Transfer Agent to refuse, to transfer, or
record any Shares to be transferred in violation of this Agreement.
3.5 Assignment by Company. The Company's Right of First
Refusal, and Involuntary Transfer Option may be assigned, in whole or
in part, to any shareholder or shareholders of the Company.
3.6 Obligations Binding Upon Transferees. All transferees of
Shares or any interest therein will receive and hold such Shares or
interests subject to the provisions of this Agreement, including,
insofar as applicable, the Company's Right of First Refusal, and
Involuntary Transfer Option under this Section 3. Any sale or transfer
of the Shares shall be void unless the provisions of this Agreement are
met.
3.7 Termination of Rights. The Right of First Refusal, and the
Involuntary Transfer Option granted by this Section 3 shall terminate
(a) on the occurrence of the merger or consolidation of the Company
into, or the sale of all or substantially all of the Company's assets,
to another entity, except that these restrictions on transfer shall not
terminate if immediately after such merger, consolidation, or sale of
assets, at least fifty-one percent (51%) of the capital stock of such
other corporation is owned by persons who are holders of Shares of
capital stock of the Company immediately before such merger,
consolidation, or sale, or (b) at such time as a public market exists
for the Company's Common 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 the Common Stock is listed on a national securities exchange (as
that term is used in the Securities Exchange Act of 1934), or the
Common Stock is traded on the over-the-counter market and prices are
published daily on business days in a recognized financial journal.
3.8 Replacement Certificate. In the event the restrictions
imposed by this Agreement shall be terminated as provided in this
Section 3, a new certificate or certificates representing the Shares
shall be issued, on request, without the legend referred to in Section
6.1 (b) herein.
3.9 Excluded Transfers. The restrictions on transfer of this
Section 3 shall not apply to an inter-vivos transfer to Purchaser's
ancestors or descendants or spouse or to a Trustee for their benefit,
provided that such transferee shall take such Shares subject to all the
terms of this Agreement, including restrictions on further transfer.
3.10 Indebtedness. Notwithstanding any provision to the
contrary in this Agreement, any payment by the Company for purchase of
Shares from Purchaser may be made by cancellation of any indebtedness
to the Company from Purchaser.
3.11 Market Standoff Agreement. Purchaser, if requested by the
Company and an underwriter of Common Stock (or other securities) of
the Company, agrees not to sell or otherwise transfer or dispose of
any Common Stock (or other securities) of the Company held by
Purchaser during the period not to exceed one hundred and eighty (180)
days as requested by the managing underwriter following the effective
date of a registration statement of the Company filed under the
Securities Act (as hereafter defined), provided that all officers and
directors of the Company are required to enter into similar
agreements. Such agreement shall be in writing in the form
satisfactory to the Company and such underwriter. The Company may
impose stop transfer instructions with respect to the shares (or other
securities) subject to the foregoing restriction until the end of such
period.
4. Escrow; Escrow Instructions. As security for Purchaser's faithful
performance of the terms and provisions of this Agreement, and to
insure the availability for delivery of the Shares upon the Company's
(or its assignee's) exercise of the Right of First Refusal, or
Involuntary Transfer Option, Purchaser shall, at the Closing Date,
deliver and deposit with _________________ or such other person
designated by the Company
CONFIDENTIAL Page 3 of 10
<PAGE> 4
as Escrow Agent in this transaction, the share certificate(s)
representing the Shares, together with a stock assignment duly
endorsed in blank (in the form of Exhibit A to this Agreement). The
Escrow Agent is hereby authorized and directed to hold the documents
delivered to the Escrow Agent pursuant to the terms of this Agreement,
including the stock certificate(s), evidencing the Shares and the
stock assignment in accordance with the following terms of this
Section 4.
4.1 Rights Exercise. In the event the Company (or its
assignee) shall elect to exercise the Right of First Refusal, or
Involuntary Transfer Option set forth in Section 3 of this Agreement
(collectively the "Rights") in whole or in part, the Company (or its
assignee) shall give to Purchaser and to Escrow Agent a written notice
specifying a time, place, and/or manner for a closing hereunder.
4.2 Closing Instructions. Purchaser and the Company hereby
irrevocably authorize and direct Escrow Agent to take all such actions
as may be necessary or proper to close the transaction contemplated by
such notice in accordance with the terms of such notice. At the
closing, Escrow Agent is directed to
(a) date such stock assignment as shall be necessary
for the specific transfer,
(b) fill in the number of Shares being transferred,
and
(c) deliver the same, together with the
certificate(s) evidencing the Shares to be transferred, to the
Company (or its assignee) as provided in this Agreement
against the simultaneous delivery to Escrow Agent of the
purchase price for the number of Shares being purchased
pursuant to this Agreement.
4.3 Additional Share Deposit. Purchaser irrevocably authorizes
the Company to deposit with Escrow Agent any securities (including
additional shares of the Company's Common Stock) or other property
(including cash) which Purchaser would be entitled to receive on
account of any Shares held by Escrow Agent hereunder. To facilitate the
performance of this Agreement, Purchaser irrevocably constitutes and
appoints Escrow Agent as his attorney-in-fact and agent for the term of
the escrow to execute with respect to such Shares all stock
certificates, stock assignments, or other instruments, which shall be
necessary or appropriate to make such securities negotiable and to
complete any transaction contemplated under this Agreement, including
but not limited to any filings to comply with state or federal
securities laws.
4.4 Share Release. Upon written request from the Company and
Purchaser, Escrow Agent is authorized to release from escrow the number
of Shares indicted in that written request pursuant to this Agreement.
4.5 Escrow Termination. The escrow shall terminate upon the
termination of the Company's Rights under Section 3 of this Agreement.
Upon termination of this escrow, Escrow Agent shall deliver to
Purchaser all documents, securities, or other property belonging to
Purchaser that are still in Escrow Agent's possession, and Escrow Agent
shall be discharged of all further obligations under Section 4.
4.6 Escrow Amendment. Escrow Agent's duties hereunder may be
altered, amended, modified, or revoked only by a writing signed by all
of the parties to this Agreement and approved by Escrow Agent.
4.7 Escrow Agent Liability. Escrow Agent shall not be
personally liable for any act Escrow Agent may do or omit to do
hereunder as Escrow Agent or attorney-in-fact for Purchaser while
acting in good faith and in the exercise of Escrow Agent's own good
judgement and any act done or omitted by Escrow Agent pursuant to the
advice of Escrow Agent's own attorneys shall be conclusive evidence of
such good faith. Escrow Agent shall not be liable in any respect on
account of the identities, authorities, or rights of the parties
executing or delivering or purporting to execute or deliver this
Agreement or any documents or papers deposited or called for hereunder.
Escrow Agent shall not be liable for the termination of any rights
under any applicable statute of limitations with respect to the
provisions of this Section 4 or any documents deposited with Escrow
Agent.
4.8 Court Orders. Escrow Agent is 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 is hereby expressly authorized to comply with and
obey orders, judgements, or decrees of any court. In case Escrow Agent
obeys or complies with any such order,
CONFIDENTIAL Page 4 of 10
<PAGE> 5
judgement, or decree of any court, Escrow Agent shall not be liable to
any of the parties hereto or to any other person, firm, or corporation
by reason of such compliance, notwithstanding that any such order,
judgement, or decree shall be subsequently reversed, modified,
annulled, set aside, vacated, or found to have been entered without
jurisdiction.
4.9 Execution Effect. By signing this Agreement, the Escrow
Agent becomes a party hereto only for the purpose of Section 4. and
for no other provisions of this Agreement.
4.10 Escrow Agent Successors. If, prior to the termination of
this Escrow, ____________ shall die or shall cease to be Escrow Agent
of the Company, any other officer of the Company may, from time to
time, at the request of the Company's Board of Directors, discharge any
of the duties and perform any of the acts to be performed by
__________________ as Escrow Agent.
5. Investment Representations. In connection with the
acquisition of the Shares, Purchaser represents to the Company the
following:
5.1 Investment. Purchaser is acquiring the Shares to be issued
to Purchaser for investment for Purchaser's own account and not with
the view to, or for resale in connection with, any distribution,
assignment, or resale within the meaning of the Securities Act of 1933
(the "Securities Act"), or the Delaware Corporate Securities Law, as
amended ("Delaware Securities Law") to others and no other person has a
direct or indirect beneficial interest, in whole or in part, in such
Shares. Purchaser understands that the Shares to be issued to Purchaser
have not been and will not be registered under the Securities Act or
qualified under the Delaware Securities Law, or under the laws of any
other state of the United States in reliance upon specific exemptions
therefrom which depend upon, among other things, the bona fide nature
of the investment intent as expressed herein, and in any other
representations, warranties, or information provided by Purchaser to
the Company under this Agreement.
5.2 Restrictions on Transfer. Purchaser acknowledges that the
Shares to be issued to Purchaser must be held indefinitely unless
subsequently registered and qualified under the Securities Act, or
unless an exemption from registration and qualification is otherwise
available. Purchaser further understands that the Company is under no
obligation to register or qualify the Shares.
5.3 Rule 144. Purchaser is aware of the provisions of Rule
144, promulgated under the Securities Act, which permits limited public
resale of "restricted securities" acquired, directly or indirectly,
from the issuer thereof (or from an affiliate of such issuer), in a
non-public offering subject to the satisfaction of certain conditions.
5.4 Exemption from Registration. Purchaser further
acknowledges that, in the event all of the applicable requirements of
Rule 144 are not satisfied, registration under the Securities Act,
compliance with Regulation A, or some other registration exemption will
be required.
5.5 Relationship to Company; Experience. Purchaser either has
a preexisting business or personal relationship with the Company or any
of its officers, directors, or controlling persons or, by reason of
Purchaser's business or financial experience, has the capacity to
protect Purchaser's own interests in connection with Purchaser's
acquisition of the Shares to be issued to Purchaser hereunder.
Purchaser has such knowledge and experience in financial, tax, and
business matters to enable Purchaser to utilize the information made
available to Purchaser in connection with the acquisition of the Shares
to evaluate the merits and risks of the prospective investment and to
make an informed investment decision with respect thereto.
5.6 Purchaser's Liquidity. In reaching the decision to invest
in the Shares, Purchaser has carefully evaluated Purchaser's financial
resources and investment position and the risks associated with this
investment, and Purchaser acknowledges that Purchaser is able to bear
the economic risks of the investment. Purchaser
(a) has adequate means of providing for
Purchaser's current needs and possible personal contingencies,
(b) has no need for liquidity in Purchaser's
investment,
(c) is able to bear the substantial economic
risks of an investment in the Shares for an indefinite period,
and
CONFIDENTIAL Page 5 of 10
<PAGE> 6
(d) at the present time, can afford a complete loss
of such investment. Purchaser's commitment to investments
which are not readily marketable is not disproportionate to
Purchaser's net worth, and Purchasers investment in the Shares
will not cause Purchaser's overall commitment to become
excessive.
5.7 Offer and Sale. Purchaser understands that the offer and
sale of the Shares have not been registered under the Securities Act in
reliance upon exemption therefrom. Purchaser was not offered or sold
the Shares, directly or indirectly, by means of any form of general
solicitation or general advertisement, including the following:
(a) any advertisement, article, notice, or other
communication published in any newspaper, magazine, or
similar medium, or broadcast over television or radio; or
(b) any seminar or meeting whose attendees had been
invited by general solicitation or general advertising.
5.8 Access to Data. Purchaser is aware of the Company's
business affairs and financial condition, and has acquired sufficient
information about the Company to reach an informed and knowledgeable
decision to acquire the Shares. Purchaser acknowledges that during the
course of this transaction and before deciding to acquire the Shares,
Purchaser has been provided with financial and other written
information about the Company. Purchaser has been given the opportunity
by the Company to obtain any information and ask questions concerning
the Company, the Shares, and Purchaser's investment that Purchaser felt
necessary; and to the extent Purchaser availed himself of that
opportunity, Purchaser has received satisfactory information and
answers.
5.9 Risks. Purchaser acknowledges and understands that
(a) any investment in the Company constitutes a high
risk,
(b) the Shares are highly speculative, and
(c) there can be no assurance as to what return, if
any, there may be.
Purchaser is aware that the Company may issue
additional securities in the future which could result in the dilution
of Purchaser's ownership interest in the Company.
5.10 Valid Agreement. This Agreement, when executed and
delivered by Purchaser, shall constitute a valid and legally binding
obligation of Purchaser which is enforceable in accordance with its
terms.
5.11 Residence. The address set forth on the signature page of
this Agreement is Purchaser's current address and accurately sets forth
Purchaser's place of residence.
6. Securities Compliance.
6.1 Legends. The certificate or certificates representing the
Shares shall bear legends in substantially the following form (in
addition to any other legend imposed by applicable blue sky laws or the
Articles or Bylaws of the Company):
(a) THE SHARES REPRESENTED BY THIS
CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, OR AN
OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT OF 1993.
(b) THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO TRANSFER RESTRICTIONS IN ACCORDANCE
WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY.
(c) THE SECURITIES EVIDENCED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN
CONFIDENTIAL Page 6 of 10
<PAGE> 7
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH
SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR
RULE 701 UNDER SUCH ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
6.2 No Qualification. THE SALE OF THE SECURITIES WHICH ARE THE
SUBJECT OF THIS AGREEMENT, IF NOT YET QUALIFIED WITH THE DELAWARE
CORPORATION COMMISSIONER, IS SUBJECT TO SUCH QUALIFICATION OR AN
EXEMPTION BEING AVAILABLE, AND THE ISSUANCE OF SUCH SECURITIES, OR THE
RECEIPT OF ANY PART OF THE CONSIDERATION PRIOR TO SUCH QUALIFICATION IS
UNLAWFUL. THE RIGHTS OF THE PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION
BEING AVAILABLE.
6.3 Transfers. In addition to the restrictions imposed under
Section 3, all transfers of Shares or any interest in any such Shares
shall be made in strict compliance with applicable state and federal
securities laws and the Articles and Bylaws of the Company.
7. Tax Considerations. Purchaser understands that the tax consequences
to the Purchaser as a result of this transaction depend on Purchaser's
individual circumstances and the characterization of this transaction.
Further, Purchaser will be responsible for any personal tax liability,
whether federal, state, or local, as a result of this transaction and
Purchaser's ownership of the Shares. Purchaser has consulted with
Purchaser's own advisor(s) with respect to this transaction and has not
relied on any advice from the Company or any of its officers,
directors, agents, or representations.
8. Miscellaneous.
8.1 Amendment. This Agreement may only be amended by written
agreement between Company and Purchaser (or, with respect to Section 4,
by written agreement among the Company, Purchaser, and the Escrow
Agent).
8.2 Notices. Any notice, demand, request, or other
communications hereunder shall be deemed sufficient when delivered
personally or sent by courier or upon deposit in the United State mail,
as certified, registered, or first class mail, with postage prepaid,
and addressed, if to the Company, at it principal place of business,
Attention: the President, if to Purchaser, at his address as shown on
the stock records of the Company, or if to Escrow Agent, at
________________________. The address to which notice is to be given
hereunder may be changed from time to time by the parties entitled to
notice by notice given to all other parties as provided herein.
8.3 Successors and Assigns. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by, the
Company's successors and assigns. The rights and obligations of
Purchaser under this Agreement may only be assigned with the prior
written consent of the Company.
8.4 Further Actions. Both parties agree to execute any
additional documents and take such further action as may be reasonably
necessary to carry out the purposes of this Agreement.
8.5 Shareholder Rights. Subject to the provisions of this
Agreement, Purchaser shall, during this term of this Agreement,
exercise all rights and privileges of a shareholder of the Company
with respect to the shares.
8.6 Injunctive Relief. Purchaser agrees that the Company
and/or other shareholders shall be entitled to a decree of specific
performance of the terms hereof or an injunction restraining violations
of this Agreement, such right to be in addition to any of the remedies
of the Company. No remedy provided herein is intended to be exclusive
of any other remedy, and each and every remedy shall be cumulative and
shall be in addition to every other remedy given hereunder, or now or
hereafter existing at law or in equity.
8.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado, other
than the conflict of laws and except for matters of corporate
governance which shall be governed by and construed according to the
laws of the State of Delaware.
CONFIDENTIAL Page 7 of 10
<PAGE> 8
8.8 Severability. If any provision of this Agreement is held
by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remaining provisions shall nevertheless continue in
full force and effect without being impaired or invalidated in any way
and shall be construed in accordance with the purposes, tenor, and
effect of this Agreement.
8.9 No Employment Effect. Nothing contained herein shall
confer upon Purchaser any right to continue in the employ of, or
consulting relationship with, the Company, and the Company reserves all
rights to discharge Purchaser for any reason whatsoever, with or
without cause.
8.10 Expenses. Each party hereto shall pay his own expenses
incurred (including, with limitation, the fees of counsel) on his
behalf in connection with this Agreement or any transactions
contemplated by this Agreement.
8.11 Entire Agreement. This Agreement embodies the entire
agreement and understanding of the parties hereto in respect of the
subject matter hereof and supersedes all prior and contemporaneous
written or oral communications or agreements between the Company and
Purchaser regarding the subject matter hereof, and no amendment or
addition hereto shall be deemed effective unless agreed to, in writing,
by the parties hereto.
8.12 Waivers. No waiver of any provision of this Agreement or
any rights or obligations of any party hereunder shall be effective,
except pursuant to a written instrument signed by the party or parties
waiving compliance, and any such waiver shall be effective only in the
specific instance and for the specific purpose stated in such writing.
8.13 Counterparts. This Agreement may be executed in one or
more counterparts each of which shall be an original and all of which
together shall constitute one and the same instrument.
8.14 Attorneys' Fees. If any legal action or any arbitration
or other proceeding is brought for the enforcement of this Agreement,
or because of an alleged dispute, breach, default, or misrepresentation
in connection with any provision of this Agreement, the successful or
prevailing party shall be entitled to recover reasonable attorneys'
fees and other costs incurred in that action or proceeding, in addition
to any other relief to which it may be entitled.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first set forth above.
CHAPARRAL NETWORK STORAGE, INC. PURCHASER
- --------------------------------------- ---------------------------
Gary L.. Allison, Chairman & CEO Purchaser
1951 South Fordham Street Street
Longmont, CO 80503 City, State, Zip
For purposes of Section 4 only:
Escrow Agent
- ---------------------------------------
CONFIDENTIAL Page 8 of 10
<PAGE> 9
SPOUSE'S CONSENT
I acknowledge that I have read the foregoing Common Stock Purchase
Agreement and that I know its content. I am aware that by its provisions my
spouse agrees to sell all his or her shares, including any community property
interest I may have, on the occurrence of certain events. I hereby consent to
the sale, approve the provisions of the Agreement, and agree that these Shares
and any interest I may have in them are subject to the provisions of the Common
Stock Purchase Agreement and that I will take no action at any time to hinder
the operation of the Common Stock Purchase Agreement on these Shares or any
interest I may have in them.
Spouse of Purchaser
Signature Date
--------------------------------- ----------------------------
Spouse
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ____________ hereby sells, assigns, and transfers unto
CHAPARRAL NETWORK STORAGE, INC. (__________) shares of the Common Stock (the
"Shares") of CHAPARRAL NETWORK STORAGE, INC., a Delaware corporation (the
"Company"), standing in the undersigned's name on the books of the Company
represented by Certificate No. ________ herewith, and does hereby irrevocably
constitute and appoint __________________________________________ attorney to
transfer such Shares on the books of the Company with full power of substitution
in the premises.
Signature Date
----------------------------------- --------------------------
Purchaser
THIS ASSIGNMENT MAY ONLY BE USED IN CONNECTION WITH THE RIGHTS OF THE COMPANY
UNDER A COMMON STOCK PURCHASE AGREEMENT WITH THE SIGNATORY OF THIS ASSIGNMENT.
CONFIDENTIAL Page 9 of 10
<PAGE> 10
STOCK CERTIFICATE AND ESCROW RECEIPT
The undersigned Purchaser acknowledges receipt of a copy of Certificate
No. ____ for ___________ shares of Common Stock of CHAPARRAL NETWORK STORAGE,
INC.
The undersigned understands that the original of the stock certificate
has been deposited into escrow in accordance with Section 4 of the Common Stock
Purchase Agreement, and is being held by the Escrow Agent at the principal
offices of CHAPARRAL NETWORK STORAGE, INC.
The undersigned acknowledges that the certificate contains legends
restricting transfer as specified in Section 6 of the Common Stock Purchase
Agreement.
Signature Date
-------------------------------- ------------------------------
Purchaser
CONFIDENTIAL Page 10 of 10
<PAGE> 1
EXHIBIT 10.31
NOTE #003-99
PROMISSORY NOTE
$75,000.00 Longmont, Colorado
February 3, 1999
For value received, the undersigned, on behalf of Chaparral
Technologies Inc. promises to pay to Grant Saviers, at the offices of Chaparral
Technologies Inc. at 1951 South Fordham St. Longmont, CO, 80503, the principal
sum of $75,000.00 on demand, together with interest thereon from February 3,
1999, at the rate of 8% per annum. This note is due March 31, 1999.
Additionally, a fee of 10% ($7,500) in cash, or warrants to purchase shares of
Chaparral's common stock at a per share price of 50% of the share price paid at
the next round of financing, will be paid in the form requested when the
principal and interest is paid.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Chaparral Technologies Inc. shall be in partial default if payment of
any part of the principal or interest owed is not paid when due. If this note is
not paid when due, the undersigned promises to pay in addition all costs of
collection and reasonable attorney's fees incurred by the holder hereof on
account of such collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 3rd day of February, 1999, at Longmont, Colorado.
By: /s/ Douglas Lehrmann
----------------------------
Douglas J. Lehrmann,
Vice President, Finance
Chaparral Technologies Inc.
Extended to June 30, 1999 /s/ Grant Saviers
--------------------
Grant Saviers
<PAGE> 2
NOTE #00001
PROMISSORY NOTE
$200,000.00 Longmont, Colorado
January 13, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Technologies, Inc., at 1951 South Fordham St.
Longmont, CO, 80503, the principal sum of $200,000.00 on demand, together with
interest thereon from January 13, 1998, at the rate of 8% per annum. This note
is due February 28, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 13th day of January, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
----------------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 3
NOTE #00001b
PROMISSORY NOTE
$200,000.00 Longmont, Colorado
March 31, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Technologies, Inc., at 1951 South Fordham St.
Longmont, CO, 80503, the principal sum of $200,000.00 on demand, together with
interest thereon from March 31, 1999, at the rate of 8% per annum. This note is
due May 31, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 31st day of March, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
-----------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 4
NOTE #00002
PROMISSORY NOTE
$100,000.00 Longmont, Colorado
February 2, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Technologies, Inc., at 1951 South Fordham St.
Longmont, CO, 80503, the principal sum of $100,000.00 on demand, together with
interest thereon from February 2, 1998, at the rate of 8% per annum. This note
is due February 28, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 2nd day of February, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
-----------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 5
NOTE #00003
PROMISSORY NOTE
$75,000.00 Longmont, Colorado
February 27, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Technologies, Inc., at 1951 South Fordham St.
Longmont, CO, 80503, the principal sum of $75,000.00 on demand, together with
interest thereon from February 27, 1998, at the rate of 8% per annum. This note
is due March 27, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 27th day of February, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
-----------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 6
NOTE #00005
PROMISSORY NOTE
$200,000.00 Longmont, Colorado
March 31, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Technologies, Inc., at 1951 South Fordham St.
Longmont, CO, 80503, the principal sum of $200,000.00 on demand, together with
interest thereon from March 31, 1999, at the rate of 8% per annum. This note is
due June 1, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 31st day of March, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
-----------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 7
NOTE #00006
PROMISSORY NOTE
$150,000.00 Longmont, Colorado
MAY 17, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Technologies, Inc., at 1951 South Fordham St.
Longmont, CO, 80503, the principal sum of $150,000.00 on demand, together with
interest thereon from May 17, 1999, at the rate of 8% per annum. This note is
due July 16, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 17th day of May, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
-------------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 8
NOTE #00007
PROMISSORY NOTE
$25,000.00 Longmont, Colorado
May 24, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Technologies, Inc., at 1951 South Fordham St.
Longmont, CO, 80503, the principal sum of $25,000.00 on demand, together with
interest thereon from May 24, 1999, at the rate of 8% per annum. This note is
due July 24, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 24th day of May, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
-------------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 9
NOTE #00008
PROMISSORY NOTE
$25,000.00 Longmont, Colorado
May 28, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Technologies, Inc., at 1951 South Fordham St.
Longmont, CO, 80503, the principal sum of $25,000.00 on demand, together with
interest thereon from May 28, 1999, at the rate of 8% per annum. This note is
due July 28, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 28th day of May, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
-------------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 10
NOTE #00009
PROMISSORY NOTE
$130,000.00 Longmont, Colorado
June 10, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Technologies, Inc., at 1951 South Fordham St.
Longmont, CO, 80503, the principal sum of $130,000.00 on demand, together with
interest thereon from June 10, 1999, at the rate of 8% per annum. This note is
due August 10, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 10th day of June, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
-------------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 11
NOTE #00010
PROMISSORY NOTE
$80,000.00 Longmont, Colorado
June 15, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Technologies, Inc., at 1951 South Fordham St.
Longmont, CO, 80503, the principal sum of $80,000.00 on demand, together with
interest thereon from June 15, 1999, at the rate of 8% per annum. This note is
due August 15, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 15th day of June, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
-----------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 12
NOTE #00011
PROMISSORY NOTE
$7,000.00 Longmont, Colorado
June 16, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Technologies, Inc., at 1951 South Fordham St.
Longmont, CO, 80503, the principal sum of $7,000.00 on demand, together with
interest thereon from June 16, 1999, at the rate of 8% per annum. This note is
due August 16, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 16th day of June, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
---------------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 13
NOTE #00012
PROMISSORY NOTE
$100,000.00 Longmont, Colorado
June 30, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Technologies, Inc., at 1951 South Fordham St.
Longmont, CO, 80503, the principal sum of $100,000.00 on demand, together with
interest thereon from June 30, 1999, at the rate of 8% per annum. This note is
due August 30, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 30th day of June, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
-------------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 14
NOTE #00013
PROMISSORY NOTE
$280,000.00 LONGMONT, COLORADO
JULY 8, 1999
For value received, the undersigned, on behalf of the Woodcarvers
Limited, LLC promises to pay to Chaparral Technologies, Inc., at 1951 South
Fordham St. Longmont, CO 80503, the principal sum of $280,000.00 on demand,
together with interest thereon from July 8, 1999, at the rate of 8% per annum.
This note is due September 8, 1999.
This Promissory note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest is not paid when due. If this note is not paid when
due, the undersigned promises to pay in addition all costs of collection and
reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consent to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 8th day of July, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
------------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 15
NOTE #00014
PROMISSORY NOTE
$100,000.00 Longmont, Colorado
July 15, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Technologies, Inc., at 1951 South Fordham St.
Longmont, CO, 80503, the principal sum of $100,000.00 on demand, together with
interest thereon from July 9, 1999, at the rate of 8% per annum. This note is
due September 9, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 15th day of July, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
-----------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 16
NOTE #00015
PROMISSORY NOTE
$150,000.00 Longmont, Colorado
July 15, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Technologies, Inc., at 1951 South Fordham St.
Longmont, CO, 80503, the principal sum of $150,000.00 on demand, together with
interest thereon from July 9, 1999, at the rate of 8% per annum. This note is
due September 9, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 15th day of July, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
-----------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 17
NOTE #00016
PROMISSORY NOTE
$146,000.00 Longmont, Colorado
July 15, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Technologies, Inc., at 1951 South Fordham St.
Longmont, CO, 80503, the principal sum of $146,000.00 on demand, together with
interest thereon from July 15, 1999, at the rate of 8% per annum. This note is
due September 15, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 15th day of July, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
-------------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 18
NOTE #00017
PROMISSORY NOTE
$300,000.00 LONGMONT, COLORADO
JULY 20, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Technologies, Inc, at 1951 South Fordham St.
Longmont, CO, 80503, the principal sum of $300,000.00 on demand, together with
interest thereon from July 20, 1999, at the rate of 8% per annum. This note is
due September 20, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers, Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 20th day of July, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
------------------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 19
NOTE #00018
PROMISSORY NOTE
$150,000.00 Longmont, Colorado
July 23, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Technologies, Inc., at 1951 South Fordham St.
Longmont, CO, 80503, the principal sum of $150,000.00 on demand, together with
interest thereon from July 22, 1999, at the rate of 8% per annum. This note is
due September 22, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 22th day of July, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
-------------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 20
NOTE #00020
PROMISSORY NOTE
$300,000.00 Longmont, Colorado
August 10, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Network Storage, Inc., at 1951 South Fordham
St. Longmont, CO, 80503, the principal sum of $300,000.00 on demand, together
with interest thereon from August 10, 1999, at the rate of 8% per annum. This
note is due October 10, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 10th day of August, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
-------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 21
NOTE #00021
PROMISSORY NOTE
$100,000.00 Longmont, Colorado
August 12, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Network Storage, Inc., at 1951 South Fordham
St. Longmont, CO, 80503, the principal sum of $100,000.00 on demand, together
with interest thereon from August 12, 1999, at the rate of 8% per annum. This
note is due October 12, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 12th day of August, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
-------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 22
NOTE #00022
PROMISSORY NOTE
$100,000.00 Longmont, Colorado
August 18, 1999
For value received, the undersigned, on behalf of Woodcarvers Limited,
LLC promises to pay to Chaparral Network Storage, Inc., at 1951 South Fordham
St. Longmont, CO, 80503, the principal sum of $100,000.00 on demand, together
with interest thereon from August 18, 1999, at the rate of 8% per annum. This
note is due October 18, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Woodcarvers Limited shall be in partial default if payment of any part
of the principal or interest owed is not paid when due. If this note is not paid
when due, the undersigned promises to pay in addition all costs of collection
and reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 18th day of August, 1999, at Longmont, Colorado.
By: /s/ Robert T. Harvey
-------------------------
Robert T. Harvey
Woodcarvers Limited, LLC
27068 LaPaz Box 631
Aliso Viejo, CA 92656
<PAGE> 23
PROMISSORY NOTE
$29,500.00 LONGMONT, COLORADO
DECEMBER 4, 1998
For Value Received, the undersigned hereby unconditionally promises to
pay to the order of Chaparral Technologies, Inc., a Delaware corporation (the
"Company"), at Longmont Colorado, or at such other place as the holder hereof
may designate in writing, in lawful money of the United States of America and in
immediately available funds, the principal sum of Twenty Nine Thousand Five
Hundred and 00/100 ($25,900.00) together with interest accrued from the date
hereof on the unpaid principal at the rate of 0% per annum compounded annually,
or the maximum rate permissible by law (which under the laws of the State of
Colorado shall be deemed to be the laws relating to permissible rates of
interest on commercial loans), whichever is less, as follows:
Principal Repayment. The outstanding amount hereunder shall be due and
payable In full upon the earliest of: (A) the resale of the shares of the
Company's Common Stock; (B) a "Corporate Transaction", as defined below; (C)
within 90 days following termination of your status as an employee, director or
consultant with the Company or an affiliate of the Company; or (D) ten (10)
years from the date hereof; and
Interest Payments shall be due and payable on any principal repayment
date referenced above.
If the undersigned fails to pay any of the principal and accrued
interest when due, the Company, at its sole option, shall have the right to
accelerate this Note, in which event the entire principal balance and all
accrued interest shall become immediately due and payable, and immediately
collectible by the Company pursuant to applicable law.
For purposes of this Note, a "Corporate Transaction" means one or more
of the following shareholder-approved transactions: (a) a merger or
consolidation in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held those
securities immediately prior to such transaction or (b) the sale, transfer or
other disposition of all or substantially ail of the Company's assets in
complete liquidation or dissolution of the Company.
This Note may be prepaid at any time without penalty. All money paid
toward satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery, acceptance, performance, default or endorsement
of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of Colorado, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
/s/ Douglas J. Lehrmann
-----------------------------------
Douglas J. Lehrmann
<PAGE> 24
PROMISSORY NOTE
$11,800.00 Longmont, Colorado
March 25, 1999
For Value Received, the undersigned hereby unconditionally promises to
pay to the order of Chaparral Technologies, Inc., a Delaware corporation (the
"Company"), at Longmont Colorado, or at such other place as the holder hereof
may designate in writing, in lawful money of the United States of America and in
immediately available funds, the principal sum of Eleven Thousand Eight Hundred
Dollars ($11,800.00) together with interest accrued from the date hereof on the
unpaid principal at the rate of 6% per annum compounded annually, or the maximum
rate permissible by law (which under the laws of the State of Colorado shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less, as follows:
Principal Repayment. The outstanding amount hereunder shall be due and
payable in full upon the earliest of: (A) the resale of the shares of the
Company's Common Stock; (B) a "Corporate Transaction", as defined below; (C)
within 90 days following termination of your status as an employee, director or
consultant with the Company or an affiliate of the Company; or (D) ten (10)
years from the date hereof; and
Interest Payments shall be due and payable on any principal repayment
date referenced above.
If the undersigned fails to pay any of the principal and accrued
interest when due, the Company, at its sole option, shall have the right to
accelerate this Note, in which event the entire principal balance and all
accrued interest shall become immediately due and payable, and immediately
collectible by the Company pursuant to applicable law.
For purposes of this Note, a "Corporate Transaction" means one or more
of the following shareholder-approved transactions: (a) a merger or
consolidation in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held those
securities immediately prior to such transaction or (b) the sale, transfer or
other disposition of all or substantially all of the Company's assets in
complete liquidation or dissolution of the Company.
This Note may be prepaid at any time without penalty. All money paid
toward satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery, acceptance, performance, default or endorsement
of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of Colorado, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
/s/ Douglas J. Lehrmann
-------------------------------
Douglas J. Lehrmann
<PAGE> 25
NOTE #004-98
PROMISSORY NOTE
$20,000.00 Longmont, Colorado
December 15, 1998
For value received, the undersigned, on behalf of Harvest Storage
Technology Group LLC promises to pay to Chaparral Technologies Inc., at the
offices of Chaparral Technologies Inc. at 1951 South Fordham St. Longmont, CO,
80503, the principal sum of $20,000.00 on demand, together with interest thereon
from December 15, 1998, at the rate of 8% per annum. This note is due December
15, 2003.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Harvest Storage Technology Group LLC. shall be in partial default if
payment of any part of the principal or interest owed is not paid when due. If
this note is not paid when due, the undersigned promises to pay in addition all
costs of collection and reasonable attorney's fees incurred by the holder hereof
on account of such collection, whether or not suit is filed hereon. This note is
secured by warrants to purchase 111,111 of Chaparral Technologies Inc. common
stock at $.18 per share, which warrants expire December 15, 2003.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 15th day of December, 1998, at Longmont, Colorado.
By: /s/ Robert Harvey
------------------------------------
Robert Harvey
Harvest Storage Technology Group LLC
<PAGE> 26
EXHIBIT 10.32
NOTE #002-99
PROMISSORY NOTE
$25,000.00 Longmont, Colorado
February 3, 1999
For value received, the undersigned, on behalf of Chaparral
Technologies Inc. promises to pay to Gary Allison, at the offices of Chaparral
Technologies Inc. at 1951 South Fordham St. Longmont, CO, 80503, the principal
sum of $25,000.00 on demand, together with interest thereon from February 3
1999, at the rate of 8% per annum. This note is due March 31, 1999.
Additionally, a fee of 10% ($2,500) in cash, or warrants to purchase shares of
Chaparral's common stock at a per share price of 50% of the share price paid at
the next round of financing, will be paid in the form requested when the
principal and interest is paid.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Chaparral Technologies Inc. shall be in partial default if payment of
any part of the principal or interest owed is not paid when due. If this note is
not paid when due, the undersigned promises to pay in addition all costs of
collection and reasonable attorney's fees incurred by the holder hereof on
account of such collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 3rd day of February, 1999, at Longmont, Colorado.
By: /s/ Douglas Lehrmann
----------------------------------
Douglas J. Lehrmann,
Vice President, Finance
Chaparral Technologies Inc.
Extended to June 30, 1999 /s/ Gary Allison
---------------------
Gary Allison
<PAGE> 27
NOTE #00025
PROMISSORY NOTE
$33,753.00 Longmont, Colorado
December 16, 1999
For value received, (30,637 shares of Chaparral Network Storage Common
Stock) the undersigned, Gary Allison, promises to pay to Chaparral Network
Storage, Inc., at 1951 South Fordham St. Longmont, CO, 80503, the principal sum
of $33,753.00 on demand, together with interest thereon from December 16, 1999,
at the rate of 8% per annum. This note is due December 31, 1999.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
George Wilson shall be in partial default if payment of any part of the
principal or interest owed is not paid when due. If this note is not paid when
due, the undersigned promises to pay in addition all costs of collection and
reasonable attorney's fees incurred by the holder hereof on account of such
collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 16th day of December, 1999, at Longmont, Colorado.
By: /s/ Gary Allison
-------------------------
Gary Allison
<PAGE> 28
Note #001-99
PROMISSORY NOTE
$50,000.00 Longmont, Colorado
January 27, 1999
For value received, the undersigned, on behalf of Chaparral
Technologies Inc. promises to pay to William R. Childs, at the offices of
Chaparral Technologies Inc. at 1951 South Fordham St. Longmont, CO, 80503, the
principal sum of $50,000.00 on demand, together with interest thereon from
January 27, 1999, at the rate of 8% per annum. This note is due April 27, 1999.
Additionally, a fee of 10% ($5,000) in cash or warrants to purchase 10,000
shares of Chaparral's stock at $.50 per share will be paid at your option when
the principal and interest is paid.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Chaparral Technologies Inc. shall be in partial default if payment of
any part of the principal or interest owed is not paid when due. If this note is
not paid when due, the undersigned promises to pay in addition all costs of
collection and reasonable attorney's fees incurred by the holder hereof on
account of such collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 27th day of January, 1999, at Longmont, Colorado.
By: /s/ Gary Allison
-----------------------------------
Gary Allison, Chairman & CEO
Chaparral Technologies Inc.
THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT
BY WILLIAM R. CHILDS IN FAVOR OF WELLS FARGO BUSINESS CREDIT, INC. DATED AS
OF JULY 5, 1999
<PAGE> 29
Note #004-99
PROMISSORY NOTE
$400,000.00 Longmont, Colorado
March 1, 1999
For value received, the undersigned, on behalf of Chaparral
Technologies Inc. promises to pay to William R. Childs, at the offices of
Chaparral Technologies Inc. at 1951 South Fordham St. Longmont, CO, 80503, the
principal sum of $400,000.00 on demand, together with interest thereon from
March 1, 1999, at the rate of 2% over prime (9.75%) per annum. This note is due
June 1, 1999. Additionally, a fee of 10% - consisting of 5% in cash or warrants
and 5% in warrants - to purchase shares of Chaparral's stock at $.50 per share
will be issued at your option when the principal and interest is paid.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Chaparral Technologies Inc. shall be in partial default if payment of
any part of the principal or interest owed is not paid when due, subject to
extension by mutual agreement. If this note is not paid when due, the
undersigned promises to pay in addition all costs of collection and reasonable
attorney's fees incurred by the holder hereof on account of such collection,
whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 1st day of March, 1999, at Longmont, Colorado.
By: /s/ Douglas J. Lehrmann
-----------------------------
Douglas J. Lehrmann, CFO
Chaparral Technologies Inc.
THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT
BY WILLIAM R. CHILDS IN FAVOR OF WELLS FARGO BUSINESS CREDIT, INC. DATED AS
OF JULY 5, 1999
EXTENDED TO DECEMBER 31, 1999 By /s/ William R. Childs
------------------------
William R. Childs
<PAGE> 30
NOTE #006-99
PROMISSORY NOTE
$200,000.00 Longmont, Colorado
March 18, 1999
For value received, the undersigned, on behalf of Chaparral
Technologies Inc. promises to pay to William R. Childs, at the offices of
Chaparral Technologies Inc. at 1951 South Fordham St. Longmont, CO, 80503, the
principal sum of $200,000.00 on demand, together with interest thereon from
March 18, 1999, at the rate of 2% over prime (9.75%) per annum. This note is due
June 18, 1999. Additionally, a fee of 10% - consisting of 5% in cash or warrants
and 5% in warrants - to purchase shares of Chaparral's stock at $.50 per share
will be issued at your option when the principal and interest is paid.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Chaparral Technologies Inc. shall be in partial default if payment of
any part of the principal or interest owed is not paid when due, subject to
extension by mutual agreement. If this note is not paid when due, the
undersigned promises to pay in addition all costs of collection and reasonable
attorney's fees incurred by the holder hereof on account of such collection,
whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 18th day of March, 1999, at Longmont, Colorado.
By: /s/ Douglas J. Lehrmann
-------------------------------
Douglas J. Lehrmann, CFO
Chaparral Technologies Inc.
THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT
BY WILLIAM R. CHILDS IN FAVOR OF WELLS FARGO BUSINESS CREDIT, INC. DATED AS
OF JULY 5, 1999
EXTENDED TO DECEMBER 31, 1999 BY /s/ William R. Childs
-------------------------
<PAGE> 31
NOTE #007-99
PROMISSORY NOTE
$200,000.00 Longmont, Colorado
April 1, 1999
For value received, the undersigned, on behalf of Chaparral
Technologies Inc. promises to pay to William R. Childs, at the offices of
Chaparral Technologies Inc. at 1951 South Fordham St. Longmont, CO, 80503, the
principal sum of $200,000.00 on demand, together with interest thereon from
April 1, 1999, at the rate of 2% over prime (9.75%) per annum. This note is due
July 1, 1999. Additionally, a fee of 10% - consisting of 5% in cash or warrants
and 5% in warrants - to purchase shares of Chaparral's stock at $.50 per share
will be issued at your option when the principal and interest is paid.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Chaparral Technologies Inc. shall be in partial default if payment of
any part of the principal or interest owed is not paid when due, subject to
extension by mutual agreement. If this note is not paid when due, the
undersigned promises to pay in addition all costs of collection and reasonable
attorney's fees incurred by the holder hereof on account of such collection,
whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 1st day of April, 1999, at Longmont, Colorado.
By: /s/ Douglas J. Lehrmann
-----------------------------
Douglas J. Lehrmann, CFO
Chaparral Technologies Inc.
THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT
BY WILLIAM R. CHILDS IN FAVOR OF WELLS FARGO BUSINESS CREDIT, INC. DATED AS
OF JULY 5, 1999
EXTENDED TO DECEMBER 31, 1999 BY /s/ William R. Childs
-------------------------
WILLIAM R. CHILDS
<PAGE> 32
NOTE #009-99
PROMISSORY NOTE
$200,000.00 Longmont, Colorado
April 14, 1999
For value received, the undersigned, on behalf of Chaparral
Technologies Inc. promises to pay to William R. Childs, at the offices of
Chaparral Technologies Inc. at 1951 South Fordham St. Longmont, CO, 80503, the
principal sum of $200,000.00 on demand, together with interest thereon from
April 14, 1999, at the rate of 2% over prime (9.75%) per annum. This note is due
July 15, 1999. Additionally, a fee of 10% - consisting of 5% in cash or warrants
and 5% in warrants - to purchase shares of Chaparral's stock at $.50 per share
will be issued at your option when the principal and interest is paid.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Chaparral Technologies Inc. shall be in partial default if payment of
any part of the principal or interest owed is not paid when due, subject to
extension by mutual agreement. If this note is not paid when due, the
undersigned promises to pay in addition all costs of collection and reasonable
attorney's fees incurred by the holder hereof on account of such collection,
whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 14th day of April, 1999, at Longmont, Colorado.
By: /s/ Douglas J. Lehrmann
-----------------------------
Douglas J. Lehrmann, CFO
Chaparral Technologies Inc.
THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT
BY WILLIAM R. CHILDS IN FAVOR OF WELLS FARGO BUSINESS CREDIT, INC. DATED AS
OF JULY 5, 1999
EXTENDED TO DECEMBER 31, 1999 BY /s/ William R. Childs
--------------------------
WILLIAM R. CHILDS
<PAGE> 33
NOTE #001-00
PROMISSORY NOTE
$250,000.00 Longmont, Colorado
June 4, 1999
For value received, the undersigned, on behalf of Chaparral
Technologies Inc. promises to pay to William R. Childs, at the offices of
Chaparral Technologies Inc. at 1951 South Fordham St. Longmont, CO, 80503, the
principal sum of $250,000.00 on demand, together with interest thereon from June
4, 1999, at the rate of 2% over prime (9.75%) per annum. This note is due Sept
3, 1999. Additionally, a fee of 10% - consisting of 5% in cash or warrants and
5% in warrants - to purchase shares of Chaparral's stock at $.50 per share will
be issued at your option when the principal and interest is paid.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Chaparral Technologies Inc. shall be in partial default if payment of
any part of the principal or interest owed is not paid when due, subject to
extension by mutual agreement. If this note is not paid when due, the
undersigned promises to pay in addition all costs of collection and reasonable
attorney's fees incurred by the holder hereof on account of such collection,
whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 4th day of June, 1999, at Longmont, Colorado.
By: /s/ Douglas Lehrmann
-----------------------------
Douglas J. Lehrmann, CFO
Chaparral Technologies Inc.
<PAGE> 34
CONVERTIBLE DEBENTURE
$250,000
CHAPARRAL TECHNOLOGIES, INC.
1951 S. Fordham Street
Longmont, Colorado 80503
August 5, 1998
6-Month 8 Percent Convertible Debenture
Due February 5, 1999
Chaparral Technologies, Inc., a Delaware corporation (the "Corporation"), for
value received, promises to pay to William R. Childs or registered assigns, the
sum of $250,000 on February 5, 1999, upon presentation and surrender of this
Debenture at the office of the Corporation in Longmont, Colorado, and to pay
interest at the rate of 8 interest per annum computed from August 5, 1998 (the
"issue date"), until payment of the principal amount of this Debenture has been
made. Payment of principal and interest shall be made at the offices of the
Corporation, in lawful money of the United States of America, and shall be
mailed to the registered owner hereof at the address appearing on the books of
the Corporation.
1. Conversion. The holder of this Debenture may, at any time
prior to the maturity hereof, convert the principal amount of
this Debenture into common stock of the Corporation at the
conversion ratio of $0.50 of debenture principal for one share
of common stock, or at the adjusted conversion price in effect
at the time of the conversion; provided that if the
Corporation has called this Debenture for redemption, the
right to convert shall terminate at the close of business on
the second business day prior to the day fixed as the date for
the redemption.
To convert this Debenture, the holder must surrender the same
at the office of the Corporation, accompanied by a written
notice of conversion and by a written notice of conversion and
by a written instrument of transfer in a form satisfactory to
the Corporation, properly completed and executed by the
registered holder hereof or a duly authorized attorney.
2. Fractional shares. In lieu of issuing any fraction of a share
or scrip upon the conversion of this Debenture, the
Corporation shall pay to the holder hereof for any fraction of
a share otherwise issuable upon the conversion, cash equal to
the same fraction of the then current per share market price
of the common stock.
3. Adjustments to conversion. If the Corporation at any time
subdivides or combines in a larger or smaller number of shares
its outstanding shares of common stock, then the number of
shares of common stock issuable upon the conversion of this
Debenture shall be proportionally increased in the case of a
subdivision and decreased in the case of a combination,
effective in either case at the close of business on the date
that the subdivision or combination becomes effective.
<PAGE> 35
CONVERTIBLE DEBENTURE
William R. Childs
August 5, 1998
Page 2
If the Corporation is recapitalized, consolidated with or
merged into any other corporation, or sells or conveys to any
other corporation all or substantially all of its property as
an entity, provision shall be made as part of the terms of any
such transaction so that the holder of this Debenture may
receive, in lieu of the common stock otherwise issuable to him
upon conversion hereof, at the same conversion ratio, the same
kind and amount of securities or assets as may be
distributable upon the recapitalization, consolidation,
merger, sale, or conveyance with respect to the common stock.
4. Default. If any of the following events occur ("Event of
Default"), the entire unpaid principal amount of, and accrued
and unpaid interest on, this Debenture shall immediately be
due and payable:
(1) The Corporation fails to pay the principal of this
Debenture at its maturity; or
(2) The Corporation commences any voluntary proceeding
under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, receivership,
dissolution, or liquidation law or statute, of any
jurisdiction, whether now or subsequently in effect;
or the Corporation is adjudicated insolvent or
bankrupt by a court of competent jurisdiction; or the
Corporation petitions or applies for, acquiesces in,
or consents to, the appointment of any receiver or
trustee of the Corporation or for all or
substantially all of its property or assets; or the
Corporation makes an assignment for the benefit of
its creditors; or the Corporation admits in writing
its inability to pay its debts as they mature.
5. Redemption. This Debenture may be redeemed at any time prior
to maturity, as a whole at any time or in part from time to
time, at the office of the Corporation, upon the notice
referred to below, based upon the principal amount, together
with accrued interest to the date of redemption.
6. Notice of redemption. Notice of redemption shall be mailed to
the holder of the Debenture not less than 15 nor more than 30
days prior to the date fixed for redemption at his last
address as it appears upon the records of the Corporation. If
this Debenture is redeemed in part, the Corporation shall,
without charge to the holder hereof, either (1) execute and
deliver to the holder a debenture for the unredeemed balance
of the principal amount hereof, or (2) make not hereon of the
principal amount called for redemption and redeemed, upon
surrender of this Debenture at the office of the Corporation.
Following the date fixed for redemption, interest shall be
payable only on the portion of this Debenture not called for
redemption.
<PAGE> 36
CONVERTIBLE DEBENTURE
William R. Childs
August 5, 1998
Page 3
7. Exchange. The holder of this Debenture may, at any time on or
before the date of its maturity or the date fixed for its
redemption, by surrendering this Debenture to the Corporation
at its office, exchange this Debenture and/or any other of the
Debentures for another debenture or debentures of a like
principal amount and of like tenor, date and maturity in
denominations to be determined.
8. Transfer. This Debenture may be transferred only at the office
of the Corporation by the surrender hereof for cancellation,
and upon the payment of any charge connected with the
transfer. If this Debenture is transferred, a new debenture or
debentures of like tenor, date and maturity shall be issued to
the transferee.
9. Registered owner. The Corporation may treat the person whose
name appears hereon as the absolute owner of this Debenture
for the purpose of receiving payment of or on account of the
principal and interest due on this Debenture and for all other
purposes, and it shall not be affected by any notice to the
contrary.
10. Corporate obligation. The holder of this Debenture shall not
have any recourse for the payment in whole or of any part of
the principal or interest on this Debenture against any
incorporator, or present or future stockholder of the
Corporation by virtue of any law, or by the enforcement of
any assessment, or otherwise, or against any officer or
director of the Corporation by reason of any matter prior to
the delivery of this Debenture, or against any present or
future officer or director of the Corporation. The holder of
this Debenture, by the acceptance hereof and as a part of
the consideration for this Debenture, expressly agrees that
the Debenture is an obligation solely of the Corporation and
expressly releases all claims and waives all liability
against the foregoing persons in connection with this
Debenture.
In Witness Whereof the Corporation has signed and sealed this Convertible
Debenture this 5th day of August, 1998.
CHAPARRAL TECHNOLOGIES, INC.
/s/ Gary L. Allison
-----------------------------------------
Gary L. Allison
Chief Executive
/s/ Robert D. Baker
-----------------------------------------
Robert D. Baker
Secretary
<PAGE> 37
WILLIAM R. CHILDS
LETTER OF INTENT (August 31, 1998)
William R. Childs ("Childs") hereby agrees to purchase a five percent
(5%) equity position in Chaparral Technologies, Inc. ("Chaparral") for One
Million Dollars ($1,000,000) subject to completion of business and legal due
diligence in a manner which is Satisfactory to Childs (due diligence will be
completed within 30 days of the date of this letter).
In consideration of the foregoing, Childs will be issued Series "A"
Preferred Stock which will be convertible to Common Stock authorized by an
Amended and Restated Certificate of Incorporation which will reflect the
relative rights of the stockholders. Upon completion of due diligence which is
satisfactory to Childs the parties will execute a Series "A" Preferred Stock
Agreement.
This Agreement constitutes the entire agreement between the parties
with respect to its subject matter and may only be modified by a writing signed
by each party.
In witness whereof, each party has executed this agreement.
CHAPARRAL TECHNOLOGIES, INC. WILLIAM R. CHILDS
/s/ G.L. Allison /s/ William R. Childs
- ---------------------------------- ---------------------------------
G.L. Allison, Chairman & CEO William R. Childs
<PAGE> 38
NOTE #003-99
PROMISSORY NOTE
$25,000.00 Longmont, Colorado
February 4, 1999
For value received, the undersigned, on behalf of Chaparral
Technologies Inc. promises to pay to Michael Gluck, at the offices of Chaparral
Technologies Inc. at 1951 South Fordham St. Longmont, CO, 80503, the principal
sum of $25,000.00 on demand, together with interest thereon from February 4,
1999, at the rate of 8% per annum. This note is due March 31, 1999.
Additionally, a fee of 10% ($2,500) in cash, or warrants to purchase shares of
Chaparral's common stock at a per share price of 50% of the share price paid at
the next round of financing, will be paid in the form requested when the
principal and interest is paid.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part. Any prepayment of principal shall be accompanied
by a payment of accrued interest in respect of the principal being prepaid.
Chaparral Technologies Inc. shall be in partial default if payment of
any part of the principal or interest owed is not paid when due. If this note is
not paid when due, the undersigned promises to pay in addition all costs of
collection and reasonable attorney's fees incurred by the holder hereof on
account of such collection, whether or not suit is filed hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
This Promissory Note shall be construed in accordance with the laws of
the State of Colorado without regard to its conflict of laws Rules.
Executed this 4th day of February, 1999, at Longmont, Colorado.
By: /s/ Douglas Lehrmann
-------------------------------
Douglas J. Lehrmann,
Vice President, Finance
Chaparral Technologies Inc.
Extended to June 30, 1999 /s/ Mike Gluck
-----------------
Mike Gluck
<PAGE> 39
PROMISSORY NOTE
$24,500.00 LONGMONT, COLORADO
NOVEMBER 25, 1998
For Value Received, the undersigned hereby unconditionally Promises to
pay to the order of Chaparral Technologies, Inc., a Delaware corporation (the
"Company"), at Longmont Colorado, or at such other place as the holder hereof
may designate in writing, in lawful money of the United States of America and in
immediately available funds, the principal sum of Twenty-Four Thousand and Five
Hundred Dollars ($24,500.00) together with interest accrued from the date hereof
on the unpaid principal at the rate of 6% per annum compounded annually, or the
maximum rate permissible by law (which under the laws of the State of Colorado
shall be deemed to be the laws relating to permissible rates of interest an
commercial loans), whichever is less, as follows;
Principal Repayment. The outstanding amount hereunder shall be due and
payable in full upon the earliest of: (A) the resale of the shares of the
Company's Common Stock; (B) a "Corporate Transaction", as defined below; (C)
within 90 days following termination of your status as an employee, director or
consultant with the Company or an affiliate of the Company; or (D) ten (10)
years from the date hereof; and
Interest Payments shall be due and payable on any principal repayment
date referenced above.
If the undersigned falls to pay any of the principal and accrued
interest when due, the Company, at its sole option, shall have the right to
accelerate this Note, in which event the entire principal balance and all
accrued interest shall become immediately due and payable, and immediately
collectible by the Company pursuant to applicable law.
For purposes of this Note, a "Corporate Transaction" means one or more
of the following shareholder-approved transactions: (a) a merger or
consolidation in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from these who hold those
securities immediately prior to such transaction or (b) the sale, transfer or
other disposition of all or substantially all of the Company's assets in
complete liquidation or dissolution of the Company.
This Note may be prepaid at any time without penalty. All money paid
toward satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery, acceptance, performance, default or endorsement
of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of Colorado, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
By: /s/ Brian J. Allison
-------------------------------
Print Name: Brian J. Allison
-----------------------
<PAGE> 40
PROMISSORY NOTE
$98,000.00 LONGMONT, COLORADO
NOVEMBER 15, 1998
For Value Received, the undersigned hereby unconditionally promises to
pay to the order of Chaparral Technologies, Inc, a Delaware corporation (the
"Company"), at Longmont Colorado, or at such other place as the holder hereof
may designate in writing, in lawful money of the United States of America and in
immediately available funds, the principal sum of Ninety Eight Thousand Dollars
($98,000.00) together with interest accrued from the date hereof an the unpaid
principal at the rate of 6% per annum compounded annually, or the maximum rate
permissible by law (which under the laws of the State of Colorado shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less, as follows:
Principal Repayment. The outstanding amount hereunder shall be due and
payable in full upon the earliest of: (A) the resale of the shares of the
Company's Common Stock; (B) a "Corporate Transaction", as defined below; (C)
within 90 days following termination of your status as an employee, director or
consultant with the Company or an affiliate of the Company; or (D) ten (10)
years from the date hereof; and
Interest Payments shall be due and payable on any principal repayment
date referenced above.
If the undersigned fails to pay any of the principal and accrued
interest when due, the Company, at its sole option, shall have the right to
accelerate this Note, in which event the entire principal balance and all
accrued interest shall become immediately due and payable, and immediately
collectible by the Company pursuant to applicable law.
For purposes of this Note, a "Corporate Transaction" means one or more
of the following shareholder-approved transactions: (a) a merger or
consolidation in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held those
securities immediately prior to such transaction or (b) the sale, transfer or
other disposition of all or substantially all of the Company's assets in
complete liquidation or dissolution of the Company.
This Note may be prepaid at any time without penally. All money paid
toward satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery, acceptance, performance, default or endorsement
of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
In accordance with, the laws of the State of Colorado, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
By: /s/ Jerry L. Walker
------------------------------
Print Name: Jerry L. Walker
----------------------
<PAGE> 41
NOTE #CTI001
PROMISSORY NOTE
$6,000.00 Longmont, Colorado
January 20, 1998
For value received, the undersigned, on behalf of Chaparral
Technologies, Inc., promises to pay to Chaparral Systems, Inc., at 618 Manorwood
Court, Louisville, Colorado, 80027, the sum of $6,000.00 with interest thereon
from January 20, 1998, at the rate of 10.5% per annum, upon the demand of the
holder hereof.
If this note is not paid when due, the undersigned promises to pay in
addition all costs of collection and reasonable attorney's fees incurred by the
holder hereof on account of such collection, whether or not suit is filed
hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
Executed this 20th day of January 1998, at Longmont, Colorado.
By: /s/ M. Katherine Sills
-------------------------------
M. Katherine Sills for
Chaparral Technologies, Inc.
Boulder, Colorado
<PAGE> 42
NOTE #CTI002
PROMISSORY NOTE
$7,000.00 Longmont, Colorado
February 10, 1998
For value received, the undersigned, on behalf of Chaparral
Technologies, Inc., promises to pay to Chaparral Systems, Inc., at 618 Manorwood
Court, Louisville, Colorado, 80027, the sum of $7,000.00 with interest thereon
from February 10, 1998, at the rate of 10.5% per annum, upon the demand of the
holder hereof.
If this note is not paid when due, the undersigned promises to pay in
addition all costs of collection and reasonable attorney's fees incurred by the
holder hereof on account of such collection, whether or not suit is filed
hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
Executed this 10th day of February 1998, at Longmont, Colorado.
By: /s/ M. Katherine Sills
-------------------------------
M. Katherine Sills for
Chaparral Technologies, Inc.
P.O. Box 17175
Boulder, Colorado 80308-0175
<PAGE> 43
NOTE #CTI003
PROMISSORY NOTE
$6,000.00 Longmont, Colorado
February 17, 1998
For value received, the undersigned, on behalf of Chaparral
Technologies, Inc., promises to pay to Chaparral Systems, Inc., at 618 Manorwood
Court, Louisville, Colorado, 80027, the sum of $6,000.00 with interest thereon
from February 17, 1998, at the rate of 10.5% per annum, upon the demand of the
holder hereof.
If this note is not paid when due, the undersigned promises to pay in
addition all costs of collection and reasonable attorney's fees incurred by the
holder hereof on account of such collection, whether or not suit is filed
hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
Executed this 17th day of February 1998, at Longmont, Colorado.
By: /s/ M. Katherine Sills
-------------------------------
M. Katherine Sills for
Chaparral Technologies, Inc.
P.O. Box 17175
Boulder, Colorado 80308-0175
<PAGE> 44
NOTE #CTI004
PROMISSORY NOTE
$10,000.00 Longmont, Colorado
February 24, 1998
For value received, the undersigned, on behalf of Chaparral
Technologies, Inc., promises to pay to Chaparral Systems, Inc., at 618 Manorwood
Court, Louisville, Colorado, 80027, the sum of $10,000.00 with interest thereon
from February 24, 1998, at the rate of 10.5% per annum, upon the demand of the
holder hereof.
If this note is not paid when due, the undersigned promises to pay in
addition all costs of collection and reasonable attorney's fees incurred by the
holder hereof on account of such collection, whether or not suit is filed
hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
Executed this 24th day of February 1998, at Longmont, Colorado.
By: /s/ M. Katherine Sills
-------------------------------
M. Katherine Sills for
Chaparral Technologies, Inc.
P.O. Box 17175
Boulder, Colorado 80308-0175
<PAGE> 45
NOTE #CTI005
PROMISSORY NOTE
$30,000.00 Longmont, Colorado
April 3, 1998
For value received, the undersigned, on behalf of Chaparral
Technologies, Inc., promises to pay to Chaparral Systems, Inc., at 618 Manorwood
Court, Louisville, Colorado, 80027, the sum of $30,000.00 with interest thereon
from April 3, 1998, at the rate of 10.5% per annum, upon the demand of the
holder hereof.
If this note is not paid when due, the undersigned promises to pay in
addition all costs of collection and reasonable attorney's fees incurred by the
holder hereof on account of such collection, whether or not suit is filed
hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
Executed this 3rd day of April 1998, at Longmont, Colorado.
By: /s/ M. Katherine Sills
-------------------------------
M. Katherine Sills for
Chaparral Technologies, Inc.
1951 South Fordham Street
Longmont, CO 80503
<PAGE> 46
NOTE #CTI006
PROMISSORY NOTE
$20,000.00 Longmont, Colorado
April 15, 1998
For value received, the undersigned, on behalf of Chaparral
Technologies, Inc., promises to pay to Chaparral Systems, Inc., at 618 Manorwood
Court, Louisville, Colorado, 80027, the sum of $20,000.00 with interest thereon
from April 15, 1998, at the rate of 10.5% per annum, upon the demand of the
holder hereof.
If this note is not paid when due, the undersigned promises to pay in
addition all costs of collection and reasonable attorney's fees incurred by the
holder hereof on account of such collection, whether or not suit is filed
hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
Executed this 15th day of April 1998, at Longmont, Colorado.
By: /s/ M. Katherine Sills
-------------------------------
M. Katherine Sills for
Chaparral Technologies, Inc.
1951 South Fordham Street
Longmont, CO 80503
<PAGE> 47
NOTE #CTI007
PROMISSORY NOTE
$15,000.00 Longmont, Colorado
April 20, 1998
For value received, the undersigned, on behalf of Chaparral
Technologies, Inc., promises to pay to Chaparral Systems, Inc., at 618 Manorwood
Court, Louisville, Colorado, 80027, the sum of $15,000.00 with interest thereon
from April 20, 1998, at the rate of 10.5% per annum, upon the demand of the
holder hereof.
If this note is not paid when due, the undersigned promises to pay in
addition all costs of collection and reasonable attorney's fees incurred by the
holder hereof on account of such collection, whether or not suit is filed
hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
Executed this 20th day of April 1998, at Longmont, Colorado.
By: /s/ M. Katherine Sills
-------------------------------
M. Katherine Sills for
Chaparral Technologies, Inc.
1951 South Fordham Street
Longmont, CO 80503
<PAGE> 48
NOTE #CTI008
PROMISSORY NOTE
$22,500.00 Longmont, Colorado
June 23, 1998
For value received, the undersigned, on behalf of Chaparral
Technologies, Inc., promises to pay to Chaparral Systems, Inc., at 618 Manorwood
Court, Louisville, Colorado, 80027, the sum of $22,500.00 with interest thereon
from June 23, 1998, at the rate of 10.5% per annum, upon the demand of the
holder hereof.
If this note is not paid when due, the undersigned promises to pay in
addition all costs of collection and reasonable attorney's fees incurred by the
holder hereof on account of such collection, whether or not suit is filed
hereon.
Each maker consents to renewals, replacements, and extensions of time
for payments hereof before, at, or after maturity, and waives demand and
protest. All payments made hereunder shall be made in the lawful money of the
United States.
Executed this 23rd day of June 1998, at Longmont, Colorado.
By: /s/ M. Katherine Sills
-------------------------------
M. Katherine Sills for
Chaparral Technologies, Inc.
1951 South Fordham Street
Longmont, CO 80503
<PAGE> 1
EXHIBIT 10.32
NEITHER THIS WARRANT NOR THE SERIES A PREFERRED STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND THIS
WARRANT CANNOT BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF THE SERIES A
PREFERRED STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR
TRANSFERRED, UNLESS AND UNTIL THEY ARE SO REGISTERED OR UNLESS SUCH REGISTRATION
IS NOT THEN REQUIRED UNDER THE CIRCUMSTANCES OF SUCH EXERCISE, SALE OR TRANSFER.
CHAPARRAL NETWORK STORAGE, INC.
WARRANT TO PURCHASE COMMON STOCK
OF CHAPARRAL NETWORK STORAGE, INC.
Void after August 18, 2004
This certifies that, subject to the terms and conditions set forth
herein, for value received, Gary L. Allison, (the "Holder") or its registered
assigns is entitled to purchase from Chaparral Network Storage, Inc., a Delaware
corporation (the "Company") up to twenty thousand (20,000) fully paid and
nonassessable shares of Common Stock, $0.001 par value, of the Company (as
adjusted pursuant to Section 7 hereof, the "Shares") at the purchase price per
share specified in Section 2 below.
1. Definitions. As used in this Warrant, the following terms, unless
the context otherwise requires, have the following meanings:
(a) "Common Stock", when used with reference to stock of the
Company, means all shares, now or hereafter authorized, of the class of Common
Stock, $0.001 par value, of the Company currently authorized and shares of any
other class into which those shares may hereafter be changed.
(b) "Company" means Chaparral Network Storage, Inc. a Delaware
corporation and any corporation which shall succeed to or assume the obligations
of the Company under this Warrant.
(c) "1933 Act" means the Securities Act of 1933, as amended.
(d) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(e) "Convertible equity securities" or "equity securities"
shall mean any of the Company's securities.
(f) "Holder" means Sentinel Consulting, LLC, a Delaware
corporation.
(g) The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with
1
<PAGE> 2
the 1933 Act, and the declaration or ordering of the effectiveness of such
registration statement or document by the SEC.
(h) The term "Registrable Securities" means: (i) the Common
Stock or other equity or convertible equity securities of the Company issued or
issuable upon exercise of this Warrant; and (ii) any Common Stock of the Company
issued (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued) by way of a stock split, stock dividend,
recapitalization, merger or other distribution with respect to, or in exchange
for, or in replacement of, such Common Stock.
2. Warrant Price. The purchase price to be paid upon exercise of this
Warrant is U.S. $0.125 per share of Common Stock. Such price shall be subject to
adjustment pursuant to Section 7 hereof (such price, as adjusted from time to
time, is herein referred to as the "Warrant Price").
3. Exercise Period. This Warrant shall be exercisable by the Holder for
a term beginning on August 19, 1999, (the "Commencement Date") and ending on
August 18, 2004, (the "Expiration Date").
4. Method of Exercise.
(a) The Holder may exercise from time to time, in whole or in
part on or before the Expiration Date, the purchase rights evidenced hereby.
Such exercise shall be effected by:
(i) the surrender of the Warrant, together with a
duly executed copy of the form of subscription attached hereto as Appendix I, to
the Secretary of the Company at its principal offices; and
(ii) the payment to the Company, in cash or by check
payable to the order of the Company, of an amount equal to the aggregate
purchase price for the number of Shares designated for purchase in the completed
subscription form.
(b) In lieu of exercising this Warrant pursuant to Section
4(a), the Holder may elect to receive shares equal to the value of this Warrant
(or any portion thereof remaining unexercised) by surrender of this Warrant at
the principal office of the Company together with the Subscription Form, in
which event the Company shall issue to the Holder a number of Shares computed
using the following formula:
X = Y (A-B)
-------
A
Where X= the number of Shares to be issued to the Holder.
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<PAGE> 3
Y= the number of Shares purchasable under this Warrant (at the date of
such exercise).
A= the fair market value of one Share (at the date of such exercise).
B= the Warrant Price (as adjusted to the date of such exercise).
For purposes of this subsection fair market value of one Share shall mean:
(i) The average of the closing bid and asked prices of the Common Stock
quoted in the NASDAQ National Market System or the Over-the-Counter
market or the closing price quoted on any exchange on which the Common
Stock is listed, whichever is applicable, as published in the Western
Edition of The Wall Street Journal for the five (5) trading days prior
to the date of determination of the fair market value; or
(ii) If the Common Stock is not publicly traded, the per share fair
market value of the Common Stock shall be determined in good faith by
the Company's Board of Directors. If the Holder disagrees with the
determination by the Board of Directors of the fair market value of the
Common Stock then such fair market value shall be determined by an
independent appraiser selected jointly by the Company and the Holder.
The cost of such appraisal shall be paid equally by the Company and the
Holder.
(c) Upon the request of the Company, the Holder shall also
deliver to the Company an instrument, in form and substance reasonably
satisfactory to counsel for the Company, executed by the Holder certifying that
the Shares are being acquired for investment purposes only and not with a view
to their resale or distribution.
(d) In the event of a partial exercise of this Warrant, a new
Warrant shall be issued to the Holder representing the balance of the Shares
purchasable under this Warrant, such new Warrant to be issued within ten (10)
days after delivery of the subscription notice.
5. Certificate for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued in the name of the Holder as soon as practicable
following receipt of the completed subscription form and payment for the Shares
being purchased and in any event within ten (10) days thereafter. The Company
shall not be required to issue any fractional shares upon the exercise of the
Holder's purchaser rights under this Warrant. In lieu of any fractional shares,
the Company shall pay cash equal to such fraction multiplied by the per share
market price of the Common Stock as of the date of exercise.
6. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Series A Preferred
Stock and Common Stock, free from all preemptive rights with respect thereto, as
will be sufficient to permit the exercise of
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this Warrant for the full number of Shares specified herein and the conversion
of the Shares into Common Stock. The Company further covenants that such Shares,
when issued pursuant to the exercise of this Warrant, will, upon issuance, be
duly and validly issued, fully paid and non-assessable and free from all taxes,
liens and charges with respect to the issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number of and
kind of securities purchasable upon exercise of this Warrant and the purchase
price therefor shall be subject to adjustment from time to time as follows:
(a) Stock Splits and Combinations. If the Company shall at any
time subdivide or combine its outstanding shares of the Common Stock, this
Warrant shall, after that subdivision or combination, evidence the right to
purchase the number of shares of Common Stock that would have been issuable as a
result of that change with respect to the shares of the Common Stock which were
purchasable under this Warrant immediately before that subdivision or
combination. If the Company shall at any time subdivide the outstanding shares
of Common Stock, the Warrant Price then in effect immediately before that
subdivision shall be proportionately decreased, and, if the Company shall at any
time combine the outstanding shares of Common Stock, the Warrant Price then in
effect immediately before that combination shall be proportionately increased.
Any adjustment under this Section 7(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(b) Reclassification, Exchange and Substitution. If the Common
Stock issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other series or class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares provided for above), the Holder of this
Warrant shall, on its exercise, be entitled to purchase, in lieu of Common Stock
which the Holder would have become entitled to purchase but for such change, a
number of shares of such other series or class or classes of stock equivalent to
the number of shares of Common Stock that would have been subject to purchase by
the Holder on exercise of this Warrant immediately before that change.
(c) Reorganization, Mergers, Consolidations or Sale of Assets.
If at any time there shall be a capital reorganization of the Company (other
than a combination, reclassification, exchange, or subdivision of shares
provided for elsewhere in this Warrant) or merger or consolidation of the
Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such capital reorganization, merger, consolidation or sale,
lawful provision shall be made so that the Holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified in this Warrant and upon payment of the Warrant Price then in
effect, the number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such merger or
consolidation, to which a holder of the Company's Common Stock deliverable upon
exercise of this Warrant would have been entitled in such capital
reorganization, merger, consolidation or sale if this Warrant had been exercised
immediately before that capital reorganization, merger, consolidation or sale.
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<PAGE> 5
(d) Notice of Adjustments. The Company shall give notice of
each adjustment or readjustment of the number of shares of the Common Stock or
other securities issuable upon exercise of this Warrant and the Warrant Price to
the registered Holder of this Warrant at that Holder's address as shown on the
Company's books within twenty (20) days after the occurrence of the event
resulting in such adjustment.
(e) No Change Necessary. The form of this Warrant need not be
changed because of any adjustment in the number of shares of the Common Stock
purchasable upon its exercise. A Warrant issued after any adjustment upon any
partial exercise or in replacement may continue to express the same number of
shares of Common Stock (appropriately reduced in the case of partial exercise)
as are stated on the face of this Warrant as initially issued, and that number
of shares shall be considered to have been so changed at the close of business
on the date of adjustment.
8. Automatic Termination. In the event of (i) the closing of the
Company's registration statement on a Form S-1 (or any other form equivalent
thereto) pursuant to which any class of the Company's securities is sold to the
public in a public offering registered under the Securities Act of 1933, as
amended; or (ii) the proposed sale of all or substantially all the capital
stock, or substantially all the assets, of the Company in a merger, business
combination, or other form of business transaction with or into a third party in
which the Company's stockholders do not own at least a majority of the
outstanding voting securities of the surviving corporation or business entity
after such transaction (based solely on such Company stockholders' holdings of
the Company prior to the transaction), then the Company shall give the Holder of
this Warrant at least fifteen (15) days written notice of the proposed effective
date and terms of such offering, transaction or agreements, and if the Warrant
has not been exercised at least before the effective date of such offering,
transaction or agreements, then this Warrant and the rights hereunder shall be
automatically terminated.
9. Exercise, Transfer and Exchange Restrictions.
(a) This Warrant, and any rights hereunder, may not be
assigned or transferred, except as provided herein and in accordance with and
subject to the provisions of (i) applicable state securities laws, and (ii) the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (such Act and such rules and regulations being hereinafter
collectively referred to as the "Act"). Any purported transfer or assignment
made other than in accordance with this Section 9 shall be null and void and of
no force and effect.
(b) This Warrant, and any rights hereunder, may be transferred
or assigned only with the prior written consent of the Company, which shall be
granted only upon receipt by the Company of an opinion of counsel satisfactory
to the Company that (i) the transferee is a person to whom this Warrant may be
legally transferred without registration under the Act, and (ii) such transfer
will not violate any applicable law or governmental rule or regulation,
including, without limitation, any applicable federal or state securities law.
Prior to the transfer
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<PAGE> 6
or assignment, the assignor or transferor shall reimburse the Company for its
reasonable expenses, including transfer taxes and attorneys' fees, incurred in
connection with the transfer or assignment.
(c) Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Company at its principal office with an
assignment duly executed and funds sufficient to pay any transfer tax. In such
event, the Company shall, without charge, execute and deliver a new Warrant in
the name of the assignee named in such instrument of assignment and this Warrant
shall be promptly canceled.
10. Registration Rights.
(a) Requested Registration.
(i) Request for Registration. In case the Company
shall receive from the Holder a written request that the Company file a
registration statement under the 1933 Act with respect to shares of Registrable
Securities having an expected aggregate offering price of at least One Million
Dollars ($1,000,000), the Company will, subject to the limitations of Section
9(a)(ii), use its best efforts to effect such registration under the 1933 Act
(including, without limitation, appropriate qualification under applicable blue
sky or other state securities laws and appropriate compliance with applicable
regulations issued under the 1933 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; provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 10(a)(i):
(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 1933 Act;
(B) Prior to the six (6) months after the
closing date of the Company's first registered public offering of its stock
(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 SEC Rule 145 transaction);
(C) During the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and ending
on the date six (6) months immediately following the closing date of, any
initial registration statement pertaining to securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction); provided, however, that the Company is
acting in good
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<PAGE> 7
faith and using all reasonable efforts to cause such initial registration
statement to become effective;
(D) After the Company has effected one (1)
such registration pursuant to a Holder's demand under this Section 10(a)(i),
which registration has been declared effective; or
(E) If the Company shall furnish to 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 and its shareholders for a registration statement to be filed at
such time, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 10(a)(i) shall be deferred for a period not
to exceed one hundred twenty (120) days from the date of receipt of written
request from the Holder; provided, however, that the Company may not make such
certification more than once every twelve (12) months.
(ii) Underwriting. In the event that a registration pursuant
to Section 10(a)(i) is for a registered public offering involving an
underwriting, the Company shall so advise the Holder and the right of the Holder
to registration pursuant to Section 10(a)(i) shall be conditioned upon such
Holder's participation in the underwriting arrangements required by this Section
10(a)(ii), and the inclusion of the Holder's Registrable Securities in the
underwriting to the extent requested shall be limited to the extent provided
herein.
The Company shall, together with the Holder, enter into an underwriting
agreement in customary form with a managing underwriter selected for such
underwriting by the Company. Notwithstanding any other provision of this Section
10(a), if the managing underwriter advises the Holder in writing that market
factors require a limitation of the number of shares to be underwritten, then
the number of shares of Registrable Securities that may be included in the
registration shall be so limited.
(b) Piggy-back Registration Rights.
(i) Piggy-back Registration Rights. If (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holder) any of its securities under the 1933 Act in connection with the public
offering of such securities solely for cash (other than a registration (i) on
Form S-8 or any form which does not include substantially the same information
as would be required to be included in a registration statement covering the
sale of the Registrable Securities, or (ii) with respect to an employee benefit
plan, or (iii) solely in connection with a Rule 145 transaction under the 1933
Act), the Company shall, each such time, promptly give the Holder written notice
of such registration together with a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under applicable state
securities laws. Upon the written request of the Holder given within twenty (20)
business days after delivery of such written notice by the Company, the Company
shall, subject to the provisions of Section 10(b)(ii),
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<PAGE> 8
use its best efforts to cause to be registered under the 1933 Act all of the
Registrable Securities that the Holder has requested to be registered. The
Company shall be required to effect not more than three (3) such registrations
of Registrable Securities pursuant to the request of the Holder under this
Section 10(b).
(ii) Underwriting Requirements in Piggy-back Registration. The
right of the Holder to registration pursuant to Section 10(b)(i) shall be
conditioned upon the Holder's participation in such underwriting and the
inclusion of the Holder's Registrable Securities in the underwriting to the
extent provided herein. The Holder shall (together with the Company and any
other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
Section 10(b)(i) and this Section 10(b)(ii), if the underwriter determines that
market factors require a limitation of the number of shares to be underwritten,
the underwriter may (subject to the allocation priority set forth below) exclude
some or all Registrable Securities from such registration and underwriting.
(c) Obligations of the Company. Whenever required under this Section 9
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holder, keep such registration statement effective for up to one hundred twenty
(120) days.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(iii) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by it.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably appropriate for the distribution of
the securities covered by the registration statement; provided, however, 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 jurisdiction, and further provided that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling shareholders, then such
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<PAGE> 9
expenses shall be payable by the Holder, to the extent required by such
jurisdiction if the Holder does elect to withdraw from the registration after
notice of such requirement.
(v) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing underwriter of such offering. The Holder
shall also enter into and perform its obligations under such an agreement.
(vi) Notify the Holder, at any time when a prospectus relating
thereto is required to be delivered under the 1933 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 light of the circumstances then
existing. In such instance, Company shall use its best efforts to cure any such
statement or omission so as to render such statement or omission not misleading.
(d) Furnish Information. In connection with any action pursuant to this
Section 10, the Holder shall furnish to the Company such information regarding
itself, the Registrable Securities held by it, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities. In that connection, the Holder shall be
required to represent to the Company that all such information which is given is
both complete and accurate in all material respects when made.
(e) Definition of Expenses.
(i) "Registration Expenses" shall mean all expenses incurred
by the Company in complying with Section 10 hereof, including, without
limitation, all registration, filing and qualification fees, underwriters'
expense allowances, printing expenses, fees and disbursements of counsel for the
Company, reasonable fees and expenses of one special counsel retained in
connection with each such registration by the Holder, blue sky fees and
disbursements, and the expense of any special audits incident to or required by
any registration pursuant to Section 10(a) (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company).
(ii) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of the Registrable Securities in
the registration, all stock transfer taxes and all fees and disbursements of any
additional special counsel (other than the special counsel provided for in
Section 10(e)(i) above) retained in connection with each such registration by
the Holder.
(f) Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with (i) any registration, qualification or
compliance pursuant to Section 10(a), and (ii) no more than three (3)
registrations pursuant to Section 10(b). All Selling Expenses shall be borne by
the Holder.
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(g) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 10:
(i) To the extent permitted by law, the Company will indemnify
and hold harmless the Holder, the officers, directors and partners of the
Holder, any underwriter (as defined in the 1933 Act) for the Holder and each
person, if any, who controls the Holder or underwriter within the meaning of the
1933 Act or the 1934 Act, against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the 1933 Act, the 1934
Act or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto; (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading; or (iii) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, the 1934 Act or any state securities
law; and the Company will reimburse the Holder, officer, director or partner,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
Company's indemnity contained in this Section 10(g) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished in writing and expressly stated
for use in connection with such registration by the Holder, or the Holder's
officers, directors or partners, underwriter, or controlling person. The Company
shall not be required to indemnify any person against any liability arising (i)
from any untrue or misleading statement or omission contained in any preliminary
prospectus if such deficiency is corrected in the final prospectus or (ii) out
of the failure of any person to deliver a prospectus as required by the 1993
Act. The indemnity provided for in this Section 10(g) shall remain in full force
and effect regardless of any investigation made by or on behalf of such seller,
underwriter, participating person or controlling person and shall survive
transfer of such securities by such seller.
(ii) To the extent permitted by law, the Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the registration statement, each person, if any, who controls the
Company within the meaning of the 1933 Act, any underwriter (within the meaning
of the 1933 Act) for the Company, any person who controls such underwriter, and
any other security holder in such registration statement or any of its partners,
directors or officers or any person who controls such security holder, against
any losses, claims, damages or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the 1933 Act, the 1934 Act or
other federal or state law, insofar as such
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<PAGE> 11
losses, claims, damages, or liabilities (or actions in respect thereto) arise
out of or are based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by the Holder expressly stated in a writing for
use in connection with such registration; and the Holder will reimburse any
legal or other expenses, as incurred, where same are reasonably incurred by any
person intended to be indemnified pursuant to this Section 10(g), in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 10(g) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, the liability of each Holder under this Section
10(g) shall be limited to an amount equal to the public offering price of the
shares sold by the Holder.
(iii) Promptly after receipt by an indemnified party under
this Section 10(g) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 10(g), notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party shall have the right to participate in and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
to be paid by the indemnifying party if the indemnified party reasonably
determines that representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 10(g), but the omission so to notify the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 10(g).
(iv) In order to provide for just and equitable contribution
to joint liability under the 1933 Act in any case in which either (i) any
indemnified party makes a claim under this Section 10(g) or any controlling
person of such indemnified party makes such a claim but is judicially determined
(by entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 10(g) provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of any such person
seeking indemnity under the terms of this Section 10(g); then, and in each such
case, the Company and such person will contribute to the aggregate losses,
claims, damages, or liabilities to which they may be subject (after contribution
from others) 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
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<PAGE> 12
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
person shall be required to contribute any amount in excess of the public
offering price of all such Registrable Securities sold by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(h) Investor Rights Agreement. The Holder acknowledges and agrees that
(i) the Company and certain investors have entered into an Investor Rights
Agreement dated November, 1998 (the "Investor Rights Agreement"), (ii) the
Holder may include his securities in a demand registration under the Investor
Rights Agreement only to the extent that the inclusion of his securities will
not reduce the amount of securities to be registered for parties to the Investor
Rights Agreement and (iii) the Holder shall not make a demand registration which
could result in such registration statement being declared effective prior six
months after the effective date of the Company's initial public offering of
securities pursuant to a registration filed under the 1933 Act or within one
hundred twenty (120) days of the effective date of any demand registration
pursuant to the Investor Rights Agreement.
(i) Termination of Registration Rights.
(i) The Company shall have no obligations pursuant to Section
10 with respect to any request or requests made by the Holder after the date
which is five (5) years following the date of the consummation of the first sale
of securities pursuant to a registration statement filed by the Company under
the 1933 Act in connection with the initial firm commitment underwritten
offering of its securities to the general public.
(ii) Notwithstanding any contrary provision of this Section
10(i), the Company shall not be required to effect any registrations under the
1933 Act or under any state securities laws on behalf of the Holder if, in the
opinion of counsel to the Company, the offering or transfer by such Holder in
the manner proposed (including, without limitation, the number of shares
proposed to be offered or transferred, the time of sale, and the method of
offering or transfer) is exempt from the registration requirements of the 1933
Act and the securities laws of applicable states and the Company consents to
such transfer, if required.
11. "Market Stand-off" Agreement. The Holder agrees, so long as the
Holder holds at least one percent (1%) of the Company's outstanding voting
equity securities, in connection with the Company's initial underwritten public
offering of the Company's securities that, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Common Stock of the Company (other than those Common
Stock
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shares included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed one hundred eighty (180) days) from the closing date of such
registration as may be requested by the underwriters; provided, however, that
such covenants shall apply only if (i) all of the officers and directors of the
Company who own stock of the Company and (ii) each shareholder owning more than
two percent (2%) of the Company's shares also agree to such restrictions on any
shares not being registered in such offering. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Registrable Securities of the Holder (and the shares of securities of every
other person subject to the foregoing restriction) until the end of such period.
12. Miscellaneous Provisions.
(a) Listing. If any shares of the Common Stock required to be
reserved for issuance upon the exercise of this Warrant require registration
with or approval of any governmental authority under any Federal or state law
(other than the Securities Act, as then in effect, or any similar Federal law
then in effect), or listing on any domestic securities exchange, before such
shares may be issued upon such exercise, the Company shall, at its expense and
as expeditiously as possible, use its best efforts to cause such shares to be
duly registered or approved or listed on the relevant domestic securities
exchange, as the case may be.
(b) Replacement. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of any
indemnity agreement or bond reasonably satisfactory in form and amount to the
Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense will execute and deliver, in lieu of this
Warrant a new Warrant of like tenor.
(c) No Rights as Stockholder. Prior to the exercise of this
Warrant, no Holder of this Warrant, as such, shall be entitled to vote or
receive dividends or be considered a stockholder of the Company for any purpose,
nor shall anything in this Warrant be construed to confer on any Holder of this
Warrant, as such, any rights of a shareholder of the Company or any right to
vote, give or withhold consent to any corporate action, to receive notice of
meetings of stockholders (except as set forth in this Warrant), to receive
dividends or subscription rights or otherwise.
(d) Governing Law. This Warrant shall be governed by and
construed and enforced in accordance with the laws of the State of California
applicable to contracts entered into and wholly to be performed in California by
California residents.
(e) Notices. All notices from the Company to the holder of
this Warrant shall be in writing and shall be (i) personally delivered, (ii)
transmitted by mail, postage prepaid, registered or certified, return receipt
requested, or by air mail in the event of mailing for delivery outside of the
country in which mailed, (iii) transmitted by an overnight courier of recognized
13
<PAGE> 14
reputation or of recognized international reputation in the event of an
international delivery or (iv) transmitted by telecopier (with confirmation by
air mail or courier), to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in accordance with the provisions of this Section 11(e). Except as otherwise
specified herein, communications shall be deemed to have been duly given on (A)
the date of receipt if delivered personally, (B) the date seven (7) days after
posting if transmitted by mail, (C) the date three (3) days after delivery to
the courier if sent by recognized or internationally recognized courier service,
or (D) the date on which written confirmation would be deemed to have been given
as provided above, whether by mail or by courier, as applicable, if transmitted
by telecopier, whichever shall first occur.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer.
Dated: August 19, 1999.
CHAPARRAL NETWORK STORAGE, INC.
By: /s/ Douglas J. Lehrmann
------------------------
Name: Douglas J. Lehrmann
Title: Vice President Finance
Acknowledged and Agreed:
Gary L. Allison
/s/ Gary L. Allison
- ---------------------
14
<PAGE> 15
NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND THIS WARRANT CANNOT
BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF THE COMMON STOCK ISSUABLE
UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR TRANSFERRED, UNLESS AND UNTIL
THEY ARE SO REGISTERED OR UNLESS SUCH REGISTRATION IS NOT THEN REQUIRED UNDER
THE CIRCUMSTANCES OF SUCH EXERCISE, SALE OR TRANSFER.
CHAPARRAL NETWORK STORAGE, INC.
WARRANT TO PURCHASE COMMON STOCK
OF CHAPARRAL NETWORK STORAGE, INC.
Void after 3:00 p.m. M.S.T., December 13, 2000
1. Basic Terms. This certifies that, for value received, Bill Childs.
(hereinafter the "Registered Owner") is entitled, subject to the terms and
conditions of this Warrant, until the expiration date of 3:00 p.m. M.S.T.,
December 13, 2000, to purchase up to and including One Hundred Five thousand
(105,000) shares of the Common Stock, par value $0.001 ("the Common Stock") (as
may be adjusted herein), of Chaparral Network Storage, Inc. (the "Corporation")
from the Corporation at the purchase price of one dollar ($1.00) a share, upon
delivery of this Warrant to the Corporation along with the Subscription Form
duly executed and payment of the aggregate purchase price (in cash or by
certified or bank cashier's check payable to the order of the Corporation) for
each share purchased, and as more fully set forth herein.
Registered Owner of Warrant: Bill Childs
Purchase Price: One dollar ($1.00) per share of common
stock
Expiration Date of Warrant: 3:00 p.m. M.S.T., December 13, 2000.
2. Corporation's Covenants as to Common Stock. Shares deliverable on
the exercise of this Warrant shall, at delivery, be fully paid and
non-assessable, free from taxes, liens, and charges with respect to their
purchase. The Corporation shall at all times reserve and hold available
sufficient shares of Common Stock to satisfy all conversion and purchase rights
of outstanding convertible securities, options and warrants.
3. Automatic Termination. In the event of (i) the closing of the
Corporation's registration statement on a Form S-1 (or any other form equivalent
thereto) pursuant to which any class of the Corporation's securities is sold to
the public in a public offering registered under the Securities Act of 1933, as
amended; or (ii) the proposed sale of all or substantially all the capital
stock, or substantially all the assets, of the Corporation in a merger, business
combination, or other form of business transaction, then the Corporation shall
give the Registered Owner of this Warrant at least fifteen (15) days written
notice of the proposed effective date and terms of such offering, transaction or
agreements, and if the Warrant has not
<PAGE> 16
been exercised at least before the effective date of such offering, transaction
or agreements, then this Warrant and the rights hereunder shall be automatically
terminated.
4. Method of Exercise; Fractional Shares. The Registered Owner may
exercise from time to time, in whole or in part on or before the Expiration Date
above noted, the purchase rights evidenced hereby, provided, however, that
purchase rights are not exercisable with respect to a fraction of a share of
Common Stock. Such exercise shall be effected by:
(i) The surrender of the Warrant, together with a duly executed
copy of the form of subscription attached hereto as Appendix I, to the Secretary
of the Corporation at its principal offices; and
(ii) The payment to the Corporation, in cash or by check payable
to the order of the Corporation, of an amount equal to the aggregate purchase
price for the number of shares designated for purchase in the completed
subscription form; and
(iii) Upon the request of the Corporation, the Registered Owner
shall also deliver to the Corporation an instrument, in form and substance
reasonably satisfactory to counsel for the Corporation, executed by the
Registered Owner certifying that the shares are being acquired for investment
purposes only and not with a view to their resale or distribution; and
In the event of a partial exercise of this Warrant, a new Warrant shall be
issued to the Registered Owner representing the balance of the Shares
purchasable under this Warrant, such new Warrant to be issued within ten (10)
days after delivery of the subscription notice. The Corporation shall not be
required to issue any fractional shares upon the exercise of the Registered
Owner's purchaser rights under this Warrant. In lieu of any fractional shares,
the Corporation shall pay cash equal to such fraction multiplied by the per
share market price of the Common Stock as of the date of exercise.
5. Certificate for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of shares so
purchased shall be issued in the name of the Registered Owner as soon as
practicable following receipt of the completed subscription form and payment for
the shares being purchase and in any event within ten (10) days thereafter.
6. Adjustment of Price and Shares Available for Purchase. The number of
shares available for purchase hereunder and the purchase price per share are
subject to adjustment from time to time as specified in this Warrant.
7. Limited Rights of Registered Owner. This Warrant does not entitle
the Registered Owner to any voting rights or other rights as a Stockholder of
the Corporation, or to any other rights whatsoever except the rights herein
expressed. No dividends are payable or will accrue on this Warrant or the shares
available for purchase hereunder until, and except to the extent that, this
Warrant is exercised.
8. Exchange for Other Denominations. This Warrant is exchangeable, on
its surrender by the Registered Owner to the Corporation, for new Warrants of
like tenor and date
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<PAGE> 17
representing in the aggregate the right to purchase the number of shares
available for purchase hereunder in denominations designated by the Registered
Owner at the time of surrender.
9. Transfer.
(a) This Warrant, and any rights hereunder, may not be assigned or
transferred, except as provided herein and in accordance with and subject to the
provisions of (i) applicable state securities laws, and (ii) the Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder (such
Act and such rules and regulations being hereinafter collectively referred to as
the "Act"). Any purported transfer or assignment made other than in accordance
with this Section 9 shall be null and void and of no force and effect.
(b) This Warrant, and any rights hereunder, may be transferred or
assigned only with the prior written consent of the Corporation, which shall be
granted only upon receipt by the Corporation of an opinion of counsel
satisfactory to the Corporation that (i) the transferee is a person to whom this
Warrant may be legally transferred without registration under the Act, and (ii)
such transfer will not violate any applicable law or governmental rule or
regulation, including, without limitation, any applicable federal or state
securities law. Prior to the transfer or assignment, the assignor or transferor
shall reimburse the Corporation for its reasonable expenses, including transfer
taxes and attorneys' fees, incurred in connection with the transfer or
assignment.
(c) Any assignment permitted hereunder shall be made by surrender of
this Warrant to the Corporation at its principal office with an assignment in a
form satisfactory to the Corporation duly executed and funds sufficient to pay
any transfer tax. In such event, the Corporation shall, without charge, execute
and deliver a new Warrant in the name of the assignee named in such instrument
of assignment and this Warrant shall be promptly canceled.
10. Recognition of Registered Owner. Prior to due presentment for
registration of transfer of this Warrant, the Corporation may treat the
Registered Owner as the person exclusively entitled to receive notices and
otherwise to exercise rights hereunder.
11. Effect of Stock Split, Etc. If the Corporation, by stock dividend,
split, reverse split, reclassification of shares, or otherwise, changes as a
whole the outstanding Common Stock into a different number or class of shares,
then:
(a) the number and class of shares so changed shall, for the
purposes of this Warrant, replace the shares outstanding immediately prior to
the change; and
(b) the Warrant purchase price in effect, and the number of shares
available for purchase under this Warrant, immediately prior to the date upon
which the change becomes effective, shall be proportionately adjusted (the price
to the nearest cent). Irrespective of any adjustment or change in the Warrant
purchase price or the number of shares purchasable under this or any other
Warrant of like tenor, the Warrants theretofore and thereafter issued may
continue to express the Warrant purchase price per share and the number of
shares available for purchase as the Warrant purchase price per share and the
number of shares available for purchase were expressed in the Warrants when
initially issued.
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<PAGE> 18
12. Notice of Adjustment. On the happening of an event requiring an
adjustment of the Warrant purchase price or the shares available for purchase
hereunder, the Corporation shall forthwith give written notice to the registered
owner stating the adjusted Warrant purchase price and the adjusted number and
kind of securities or other property available for purchase hereunder resulting
from the event and setting forth in reasonable detail the method of calculation
and the facts upon which the calculation is based. The Board of Directors of the
Corporation, acting in good faith, shall determine the calculation.
13. Notice and Effect of Dissolution, Etc. In case a voluntary or
involuntary dissolution, liquidation, or winding up of the Corporation is at any
time proposed, the Corporation shall give at least a 30-day written notice to
the registered owner. Such notice shall contain: (a) the date on which the
transaction is to take place; (b) the record date (which shall be at least 30
days after the giving of the notice) as of which holders of Common Shares will
be entitled to receive distributions as a result of the transaction; (c) a brief
description of the transaction; (d) a brief description of the distributions to
be made to holders of Common Stock as a result of the transaction; and (e) an
estimate of the fair value of the distributions. On the date of the transaction,
if it actually occurs, this Warrant and all rights hereunder shall terminate.
14. Method of Giving Notice; Extent Required. Notices shall be given by
first class mail, postage prepaid, addressed to the Registered Owner at the
address of the owner appearing in the records of the Corporation. No notice to
warrant holders is required except as specified herein.
15. "Market Stand-off" Agreement. Subject to the terms and conditions
of paragraph 3 hereof, the Registered Owner agrees, so long as the Registered
Owner holds at least one percent (1%) of the Corporation's outstanding voting
equity securities, in connection with the Corporation's initial underwritten
public offering of the Corporation's securities that, upon request of the
Corporation or the underwriters managing any underwritten offering of the
company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Common Stock of the
Corporation without the prior written consent of the Corporation or such
underwriters, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days) from the closing date of such registration as may be
requested by the underwriters; provided, however, that such covenants shall
apply on if (i) all of the officers and directors of the Corporation who own
stock of the Corporation and (ii) each shareholder owning more than two percent
(2%) of the Corporation's shares also agree to such restrictions on any shares
not being registered in such offering. In order to enforce the foregoing
covenant, the Corporation may impose stop-transfer instructions with respect to
the shares of the Registered Owner (and the shares of securities of every other
person subject to the foregoing restriction) until the end of such period.
16. Governing Law. This Warrant shall be governed by and construed and
enforced in accordance with the laws of the State of Colorado applicable to
contracts entered into and wholly to be performed in Colorado by Colorado
residents.
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<PAGE> 19
IN WITNESS WHEREOF, the Corporation has caused the Warrant to be
executed by a duly authorized Officer.
Dated December 13, 1999.
CHAPARRAL NETWORK STORAGE, INC.
By: /s/ DOUGLAS J. LEHRMANN
---------------------------------
Name: Douglas J. Lehrmann
-------------------------------
Title: Vice President Finance
------------------------------
Acknowledged and Agreed:
By: /s/ William R. Childs
-----------------------------
Name: Bill Childs
---------------------------
Title:
--------------------------
5
<PAGE> 20
NEITHER THIS WARRANT NOR THE SERIES A PREFERRED STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND THIS
WARRANT CANNOT BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF THE SERIES A
PREFERRED STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR
TRANSFERRED, UNLESS AND UNTIL THEY ARE SO REGISTERED OR UNLESS SUCH REGISTRATION
IS NOT THEN REQUIRED UNDER THE CIRCUMSTANCES OF SUCH EXERCISE, SALE OR TRANSFER.
CHAPARRAL NETWORK STORAGE, INC.
WARRANT TO PURCHASE COMMON STOCK
OF CHAPARRAL NETWORK STORAGE, INC.
Void after August 12, 2004
This certifies that, subject to the terms and conditions set forth
herein, for value received, William R. Childs, (the "Holder") or its registered
assigns is entitled to purchase from Chaparral Network Storage, Inc., a Delaware
corporation (the "Company") up to twenty five thousand (25,000) fully paid and
nonassessable shares of Common Stock, $0.001 par value, of the Company (as
adjusted pursuant to Section 7 hereof, the "Shares") at the purchase price per
share specified in Section 2 below.
1. Definitions. As used in this Warrant, the following terms, unless
the context otherwise requires, have the following meanings:
(a) "Common Stock", when used with reference to stock of the
Company, means all shares, now or hereafter authorized, of the class of Common
Stock, $0.001 par value, of the Company currently authorized and shares of any
other class into which those shares may hereafter be changed.
(b) "Company" means Chaparral Network Storage, Inc. a Delaware
corporation and any corporation which shall succeed to or assume the obligations
of the Company under this Warrant.
(c) "1933 Act" means the Securities Act of 1933, as amended.
(d) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(e) "Convertible equity securities" or "equity securities"
shall mean any of the Company's securities.
(f) "Holder" means Sentinel Consulting, LLC, a Delaware
corporation.
(g) The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with
1
<PAGE> 21
the 1933 Act, and the declaration or ordering of the effectiveness of such
registration statement or document by the SEC.
(h) The term "Registrable Securities" means: (i) the Common
Stock or other equity or convertible equity securities of the Company issued or
issuable upon exercise of this Warrant; and (ii) any Common Stock of the Company
issued (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued) by way of a stock split, stock dividend,
recapitalization, merger or other distribution with respect to, or in exchange
for, or in replacement of, such Common Stock.
2. Warrant Price. The purchase price to be paid upon exercise of this
Warrant is U.S. $0.50 per share of Common Stock. Such price shall be subject to
adjustment pursuant to Section 7 hereof (such price, as adjusted from time to
time, is herein referred to as the "Warrant Price").
3. Exercise Period. This Warrant shall be exercisable by the Holder for
a term beginning on August 13, 1999, (the "Commencement Date") and ending on
August 12, 2004, (the "Expiration Date").
4. Method of Exercise.
(a) The Holder may exercise from time to time, in whole or in
part on or before the Expiration Date, the purchase rights evidenced hereby.
Such exercise shall be effected by:
(i) the surrender of the Warrant, together with a
duly executed copy of the form of subscription attached hereto as Appendix I, to
the Secretary of the Company at its principal offices; and
(ii) the payment to the Company, in cash or by check
payable to the order of the Company, of an amount equal to the aggregate
purchase price for the number of Shares designated for purchase in the completed
subscription form.
(b) In lieu of exercising this Warrant pursuant to Section
4(a), the Holder may elect to receive shares equal to the value of this Warrant
(or any portion thereof remaining unexercised) by surrender of this Warrant at
the principal office of the Company together with the Subscription Form, in
which event the Company shall issue to the Holder a number of Shares computed
using the following formula:
X = Y (A-B)
-------
A
Where X= the number of Shares to be issued to the Holder.
2
<PAGE> 22
Y= the number of Shares purchasable under this Warrant (at the date of
such exercise).
A= the fair market value of one Share (at the date of such exercise).
B= the Warrant Price (as adjusted to the date of such exercise).
For purposes of this subsection fair market value of one Share shall mean:
(i) The average of the closing bid and asked prices of the Common Stock
quoted in the NASDAQ National Market System or the Over-the-Counter
market or the closing price quoted on any exchange on which the Common
Stock is listed, whichever is applicable, as published in the Western
Edition of The Wall Street Journal for the five (5) trading days prior
to the date of determination of the fair market value; or
(ii) If the Common Stock is not publicly traded, the per share fair
market value of the Common Stock shall be determined in good faith by
the Company's Board of Directors. If the Holder disagrees with the
determination by the Board of Directors of the fair market value of the
Common Stock then such fair market value shall be determined by an
independent appraiser selected jointly by the Company and the Holder.
The cost of such appraisal shall be paid equally by the Company and the
Holder.
(c) Upon the request of the Company, the Holder shall also
deliver to the Company an instrument, in form and substance reasonably
satisfactory to counsel for the Company, executed by the Holder certifying that
the Shares are being acquired for investment purposes only and not with a view
to their resale or distribution.
(c) In the event of a partial exercise of this Warrant, a new
Warrant shall be issued to the Holder representing the balance of the Shares
purchasable under this Warrant, such new Warrant to be issued within ten (10)
days after delivery of the subscription notice.
5. Certificate for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued in the name of the Holder as soon as practicable
following receipt of the completed subscription form and payment for the Shares
being purchased and in any event within ten (10) days thereafter. The Company
shall not be required to issue any fractional shares upon the exercise of the
Holder's purchaser rights under this Warrant. In lieu of any fractional shares,
the Company shall pay cash equal to such fraction multiplied by the per share
market price of the Common Stock as of the date of exercise.
6. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Series A Preferred
Stock and Common Stock, free from all preemptive rights with respect thereto, as
will be sufficient to permit the exercise of this Warrant for the full number of
Shares specified herein and the conversion of the Shares into
3
<PAGE> 23
Common Stock. The Company further covenants that such Shares, when issued
pursuant to the exercise of this Warrant, will, upon issuance, be duly and
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges with respect to the issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number of and
kind of securities purchasable upon exercise of this Warrant and the purchase
price therefor shall be subject to adjustment from time to time as follows:
(a) Stock Splits and Combinations. If the Company shall at any
time subdivide or combine its outstanding shares of the Common Stock, this
Warrant shall, after that subdivision or combination, evidence the right to
purchase the number of shares of Common Stock that would have been issuable as a
result of that change with respect to the shares of the Common Stock which were
purchasable under this Warrant immediately before that subdivision or
combination. If the Company shall at any time subdivide the outstanding shares
of Common Stock, the Warrant Price then in effect immediately before that
subdivision shall be proportionately decreased, and, if the Company shall at any
time combine the outstanding shares of Common Stock, the Warrant Price then in
effect immediately before that combination shall be proportionately increased.
Any adjustment under this Section 7(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(b) Reclassification, Exchange and Substitution. If the Common
Stock issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other series or class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares provided for above), the Holder of this
Warrant shall, on its exercise, be entitled to purchase, in lieu of Common Stock
which the Holder would have become entitled to purchase but for such change, a
number of shares of such other series or class or classes of stock equivalent to
the number of shares of Common Stock that would have been subject to purchase by
the Holder on exercise of this Warrant immediately before that change.
(c) Reorganization, Mergers, Consolidations or Sale of Assets.
If at any time there shall be a capital reorganization of the Company (other
than a combination, reclassification, exchange, or subdivision of shares
provided for elsewhere in this Warrant) or merger or consolidation of the
Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such capital reorganization, merger, consolidation or sale,
lawful provision shall be made so that the Holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified in this Warrant and upon payment of the Warrant Price then in
effect, the number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such merger or
consolidation, to which a holder of the Company's Common Stock deliverable upon
exercise of this Warrant would have been entitled in such capital
reorganization, merger, consolidation or sale if this Warrant had been exercised
immediately before that capital reorganization, merger, consolidation or sale.
4
<PAGE> 24
(d) Notice of Adjustments. The Company shall give notice of
each adjustment or readjustment of the number of shares of the Common Stock or
other securities issuable upon exercise of this Warrant and the Warrant Price to
the registered Holder of this Warrant at that Holder's address as shown on the
Company's books within twenty (20) days after the occurrence of the event
resulting in such adjustment.
(e) No Change Necessary. The form of this Warrant need not be
changed because of any adjustment in the number of shares of the Common Stock
purchasable upon its exercise. A Warrant issued after any adjustment upon any
partial exercise or in replacement may continue to express the same number of
shares of Common Stock (appropriately reduced in the case of partial exercise)
as are stated on the face of this Warrant as initially issued, and that number
of shares shall be considered to have been so changed at the close of business
on the date of adjustment.
8. Automatic Termination. In the event of (i) the closing of the
Company's registration statement on a Form S-1 (or any other form equivalent
thereto) pursuant to which any class of the Company's securities is sold to the
public in a public offering registered under the Securities Act of 1933, as
amended; or (ii) the proposed sale of all or substantially all the capital
stock, or substantially all the assets, of the Company in a merger, business
combination, or other form of business transaction with or into a third party in
which the Company's stockholders do not own at least a majority of the
outstanding voting securities of the surviving corporation or business entity
after such transaction (based solely on such Company stockholders' holdings of
the Company prior to the transaction), then the Company shall give the Holder of
this Warrant at least fifteen (15) days written notice of the proposed effective
date and terms of such offering, transaction or agreements, and if the Warrant
has not been exercised at least before the effective date of such offering,
transaction or agreements, then this Warrant and the rights hereunder shall be
automatically terminated.
9. Exercise, Transfer and Exchange Restrictions.
(a) This Warrant, and any rights hereunder, may not be
assigned or transferred, except as provided herein and in accordance with and
subject to the provisions of (i) applicable state securities laws, and (ii) the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (such Act and such rules and regulations being hereinafter
collectively referred to as the "Act"). Any purported transfer or assignment
made other than in accordance with this Section 9 shall be null and void and of
no force and effect.
(b) This Warrant, and any rights hereunder, may be transferred
or assigned only with the prior written consent of the Company, which shall be
granted only upon receipt by the Company of an opinion of counsel satisfactory
to the Company that (i) the transferee is a person to whom this Warrant may be
legally transferred without registration under the Act, and (ii) such transfer
will not violate any applicable law or governmental rule or regulation,
including, without limitation, any applicable federal or state securities law.
Prior to the transfer or assignment, the assignor or transferor shall reimburse
the Company for its reasonable
5
<PAGE> 25
expenses, including transfer taxes and attorneys' fees, incurred in connection
with the transfer or assignment.
(c) Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Company at its principal office with an
assignment duly executed and funds sufficient to pay any transfer tax. In such
event, the Company shall, without charge, execute and deliver a new Warrant in
the name of the assignee named in such instrument of assignment and this Warrant
shall be promptly canceled.
10. Registration Rights.
(a) Requested Registration.
(i) Request for Registration. In case the Company
shall receive from the Holder a written request that the Company file a
registration statement under the 1933 Act with respect to shares of Registrable
Securities having an expected aggregate offering price of at least One Million
Dollars ($1,000,000), the Company will, subject to the limitations of Section
9(a)(ii), use its best efforts to effect such registration under the 1933 Act
(including, without limitation, appropriate qualification under applicable blue
sky or other state securities laws and appropriate compliance with applicable
regulations issued under the 1933 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; provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 10(a)(i):
(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 1933 Act;
(B) Prior to the six (6) months after the
closing date of the Company's first registered public offering of its stock
(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 SEC Rule 145 transaction);
(C) During the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and ending
on the date six (6) months immediately following the closing date of, any
initial registration statement pertaining to securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction); provided, however, that the Company is
acting in good faith and using all reasonable efforts to cause such initial
registration statement to become effective;
6
<PAGE> 26
(D) After the Company has effected one (1)
such registration pursuant to a Holder's demand under this Section 10(a)(i),
which registration has been declared effective; or
(E) If the Company shall furnish to 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 and its shareholders for a registration statement to be filed at
such time, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 10(a)(i) shall be deferred for a period not
to exceed one hundred twenty (120) days from the date of receipt of written
request from the Holder; provided, however, that the Company may not make such
certification more than once every twelve (12) months.
(ii) Underwriting. In the event that a registration pursuant
to Section 10(a)(i) is for a registered public offering involving an
underwriting, the Company shall so advise the Holder and the right of the Holder
to registration pursuant to Section 10(a)(i) shall be conditioned upon such
Holder's participation in the underwriting arrangements required by this Section
10(a)(ii), and the inclusion of the Holder's Registrable Securities in the
underwriting to the extent requested shall be limited to the extent provided
herein.
The Company shall, together with the Holder, enter into an underwriting
agreement in customary form with a managing underwriter selected for such
underwriting by the Company. Notwithstanding any other provision of this Section
10(a), if the managing underwriter advises the Holder in writing that market
factors require a limitation of the number of shares to be underwritten, then
the number of shares of Registrable Securities that may be included in the
registration shall be so limited.
(b) Piggy-back Registration Rights.
(i) Piggy-back Registration Rights. If (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holder) any of its securities under the 1933 Act in connection with the public
offering of such securities solely for cash (other than a registration (i) on
Form S-8 or any form which does not include substantially the same information
as would be required to be included in a registration statement covering the
sale of the Registrable Securities, or (ii) with respect to an employee benefit
plan, or (iii) solely in connection with a Rule 145 transaction under the 1933
Act), the Company shall, each such time, promptly give the Holder written notice
of such registration together with a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under applicable state
securities laws. Upon the written request of the Holder given within twenty (20)
business days after delivery of such written notice by the Company, the Company
shall, subject to the provisions of Section 10(b)(ii), use its best efforts to
cause to be registered under the 1933 Act all of the Registrable Securities that
the Holder has requested to be registered. The Company shall be required to
effect not more than three (3) such registrations of Registrable Securities
pursuant to the request of the Holder under this Section 10(b).
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<PAGE> 27
(ii) Underwriting Requirements in Piggy-back Registration. The
right of the Holder to registration pursuant to Section 10(b)(i) shall be
conditioned upon the Holder's participation in such underwriting and the
inclusion of the Holder's Registrable Securities in the underwriting to the
extent provided herein. The Holder shall (together with the Company and any
other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
Section 10(b)(i) and this Section 10(b)(ii), if the underwriter determines that
market factors require a limitation of the number of shares to be underwritten,
the underwriter may (subject to the allocation priority set forth below) exclude
some or all Registrable Securities from such registration and underwriting.
(c) Obligations of the Company. Whenever required under this Section 9
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holder, keep such registration statement effective for up to one hundred twenty
(120) days.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(iii) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by it.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably appropriate for the distribution of
the securities covered by the registration statement; provided, however, 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 jurisdiction, and further provided that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling shareholders, then such
expenses shall be payable by the Holder, to the extent required by such
jurisdiction if the Holder does elect to withdraw from the registration after
notice of such requirement.
(v) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing
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<PAGE> 28
underwriter of such offering. The Holder shall also enter into and perform its
obligations under such an agreement.
(vi) Notify the Holder, at any time when a prospectus relating
thereto is required to be delivered under the 1933 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 light of the circumstances then
existing. In such instance, Company shall use its best efforts to cure any such
statement or omission so as to render such statement or omission not misleading.
(d) Furnish Information. In connection with any action pursuant to this
Section 10, the Holder shall furnish to the Company such information regarding
itself, the Registrable Securities held by it, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities. In that connection, the Holder shall be
required to represent to the Company that all such information which is given is
both complete and accurate in all material respects when made.
(e) Definition of Expenses.
(i) "Registration Expenses" shall mean all expenses incurred
by the Company in complying with Section 10 hereof, including, without
limitation, all registration, filing and qualification fees, underwriters'
expense allowances, printing expenses, fees and disbursements of counsel for the
Company, reasonable fees and expenses of one special counsel retained in
connection with each such registration by the Holder, blue sky fees and
disbursements, and the expense of any special audits incident to or required by
any registration pursuant to Section 10(a) (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company).
(ii) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of the Registrable Securities in
the registration, all stock transfer taxes and all fees and disbursements of any
additional special counsel (other than the special counsel provided for in
Section 10(e)(i) above) retained in connection with each such registration by
the Holder.
(f) Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with (i) any registration, qualification or
compliance pursuant to Section 10(a), and (ii) no more than three (3)
registrations pursuant to Section 10(b). All Selling Expenses shall be borne by
the Holder.
(g) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 10:
(i) To the extent permitted by law, the Company will indemnify
and hold harmless the Holder, the officers, directors and partners of the
Holder, any underwriter (as
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<PAGE> 29
defined in the 1933 Act) for the Holder and each person, if any, who controls
the Holder or underwriter within the meaning of the 1933 Act or the 1934 Act,
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the 1933 Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading; or (iii) any
violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the 1933 Act,
the 1934 Act or any state securities law; and the Company will reimburse the
Holder, officer, director or partner, underwriter or controlling person for any
legal or other expenses reasonably incurred by them, as incurred, in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the Company's indemnity contained in this
Section 10(g) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished in writing and expressly stated for use in connection with
such registration by the Holder, or the Holder's officers, directors or
partners, underwriter, or controlling person. The Company shall not be required
to indemnify any person against any liability arising (i) from any untrue or
misleading statement or omission contained in any preliminary prospectus if such
deficiency is corrected in the final prospectus or (ii) out of the failure of
any person to deliver a prospectus as required by the 1993 Act. The indemnity
provided for in this Section 10(g) shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller,
underwriter, participating person or controlling person and shall survive
transfer of such securities by such seller.
(ii) To the extent permitted by law, the Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the registration statement, each person, if any, who controls the
Company within the meaning of the 1933 Act, any underwriter (within the meaning
of the 1933 Act) for the Company, any person who controls such underwriter, and
any other security holder in such registration statement or any of its partners,
directors or officers or any person who controls such security holder, against
any losses, claims, damages or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the 1933 Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by the Holder expressly stated in a writing for use in connection with
such registration; and the Holder will reimburse any legal or other expenses, as
incurred, where same are reasonably incurred by any person intended to be
indemnified pursuant to this Section 10(g), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity
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<PAGE> 30
agreement contained in this Section 10(g) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, the liability of
each Holder under this Section 10(g) shall be limited to an amount equal to the
public offering price of the shares sold by the Holder.
(iii) Promptly after receipt by an indemnified party under
this Section 10(g) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 10(g), notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party shall have the right to participate in and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
to be paid by the indemnifying party if the indemnified party reasonably
determines that representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 10(g), but the omission so to notify the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 10(g).
(iv) In order to provide for just and equitable contribution
to joint liability under the 1933 Act in any case in which either (i) any
indemnified party makes a claim under this Section 10(g) or any controlling
person of such indemnified party makes such a claim but is judicially determined
(by entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 10(g) provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of any such person
seeking indemnity under the terms of this Section 10(g); then, and in each such
case, the Company and such person will contribute to the aggregate losses,
claims, damages, or liabilities to which they may be subject (after contribution
from others) 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. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
person shall be required to contribute any amount in excess of the public
offering price of all such Registrable Securities sold by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
11
<PAGE> 31
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(h) Investor Rights Agreement. The Holder acknowledges and agrees that
(i) the Company and certain investors have entered into an Investor Rights
Agreement dated November, 1998 (the "Investor Rights Agreement"), (ii) the
Holder may include his securities in a demand registration under the Investor
Rights Agreement only to the extent that the inclusion of his securities will
not reduce the amount of securities to be registered for parties to the Investor
Rights Agreement and (iii) the Holder shall not make a demand registration which
could result in such registration statement being declared effective prior six
months after the effective date of the Company's initial public offering of
securities pursuant to a registration filed under the 1933 Act or within one
hundred twenty (120) days of the effective date of any demand registration
pursuant to the Investor Rights Agreement.
(i) Termination of Registration Rights.
(i) The Company shall have no obligations pursuant to Section
10 with respect to any request or requests made by the Holder after the date
which is five (5) years following the date of the consummation of the first sale
of securities pursuant to a registration statement filed by the Company under
the 1933 Act in connection with the initial firm commitment underwritten
offering of its securities to the general public.
(ii) Notwithstanding any contrary provision of this Section
10(i), the Company shall not be required to effect any registrations under the
1933 Act or under any state securities laws on behalf of the Holder if, in the
opinion of counsel to the Company, the offering or transfer by such Holder in
the manner proposed (including, without limitation, the number of shares
proposed to be offered or transferred, the time of sale, and the method of
offering or transfer) is exempt from the registration requirements of the 1933
Act and the securities laws of applicable states and the Company consents to
such transfer, if required.
11. "Market Stand-off" Agreement. The Holder agrees, so long as the
Holder holds at least one percent (1%) of the Company's outstanding voting
equity securities, in connection with the Company's initial underwritten public
offering of the Company's securities that, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Common Stock of the Company (other than those Common
Stock shares included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed one hundred eighty (180) days) from the closing date of such
registration as may be requested by the underwriters; provided, however, that
such covenants shall apply only if (i) all of the officers and directors of the
Company who own stock of the Company and (ii) each shareholder owning more than
two percent (2%) of the Company's shares also agree to such restrictions on any
shares not being registered in such offering. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Registrable Securities of the Holder (and the shares
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<PAGE> 32
of securities of every other person subject to the foregoing restriction) until
the end of such period.
12. Miscellaneous Provisions.
(a) Listing. If any shares of the Common Stock required to be
reserved for issuance upon the exercise of this Warrant require registration
with or approval of any governmental authority under any Federal or state law
(other than the Securities Act, as then in effect, or any similar Federal law
then in effect), or listing on any domestic securities exchange, before such
shares may be issued upon such exercise, the Company shall, at its expense and
as expeditiously as possible, use its best efforts to cause such shares to be
duly registered or approved or listed on the relevant domestic securities
exchange, as the case may be.
(b) Replacement. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of any
indemnity agreement or bond reasonably satisfactory in form and amount to the
Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense will execute and deliver, in lieu of this
Warrant a new Warrant of like tenor.
(c) No Rights as Stockholder. Prior to the exercise of this
Warrant, no Holder of this Warrant, as such, shall be entitled to vote or
receive dividends or be considered a stockholder of the Company for any purpose,
nor shall anything in this Warrant be construed to confer on any Holder of this
Warrant, as such, any rights of a shareholder of the Company or any right to
vote, give or withhold consent to any corporate action, to receive notice of
meetings of stockholders (except as set forth in this Warrant), to receive
dividends or subscription rights or otherwise.
(d) Governing Law. This Warrant shall be governed by and
construed and enforced in accordance with the laws of the State of California
applicable to contracts entered into and wholly to be performed in California by
California residents.
(e) Notices. All notices from the Company to the holder of
this Warrant shall be in writing and shall be (i) personally delivered, (ii)
transmitted by mail, postage prepaid, registered or certified, return receipt
requested, or by air mail in the event of mailing for delivery outside of the
country in which mailed, (iii) transmitted by an overnight courier of recognized
reputation or of recognized international reputation in the event of an
international delivery or (iv) transmitted by telecopier (with confirmation by
air mail or courier), to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in accordance with the provisions of this Section 11(e). Except as otherwise
specified herein, communications shall be deemed to have been duly given on (A)
the date of receipt if delivered personally, (B) the date seven (7) days after
posting if transmitted by mail, (C) the date three (3) days after delivery to
the courier if sent by recognized or internationally recognized courier service,
or (D) the date on which written confirmation would be deemed to
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<PAGE> 33
have been given as provided above, whether by mail or by courier, as applicable,
if transmitted by telecopier, whichever shall first occur.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer.
Dated: August 13, 1999.
CHAPARRAL NETWORK STORAGE, INC.
By: /s/ Douglas J. Lehrmann
------------------------
Name: Douglas J. Lehrmann
Title: Vice President Finance
Acknowledged and Agreed:
William R. Childs
/s/ William R. Childs
- ---------------------
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<PAGE> 34
NEITHER THIS WARRANT NOR THE SERIES A PREFERRED STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND THIS
WARRANT CANNOT BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF THE SERIES A
PREFERRED STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR
TRANSFERRED, UNLESS AND UNTIL THEY ARE SO REGISTERED OR UNLESS SUCH REGISTRATION
IS NOT THEN REQUIRED UNDER THE CIRCUMSTANCES OF SUCH EXERCISE, SALE OR TRANSFER.
CHAPARRAL NETWORK STORAGE, INC.
WARRANT TO PURCHASE COMMON STOCK
OF CHAPARRAL NETWORK STORAGE, INC.
Void after August 18, 2004
This certifies that, subject to the terms and conditions set forth
herein, for value received, Michael J. Gluck, (the "Holder") or its registered
assigns is entitled to purchase from Chaparral Network Storage, Inc., a Delaware
corporation (the "Company") up to twenty thousand (20,000) fully paid and
nonassessable shares of Common Stock, $0.001 par value, of the Company (as
adjusted pursuant to Section 7 hereof, the "Shares") at the purchase price per
share specified in Section 2 below.
1. Definitions. As used in this Warrant, the following terms, unless
the context otherwise requires, have the following meanings:
(a) "Common Stock", when used with reference to stock of the
Company, means all shares, now or hereafter authorized, of the class of Common
Stock, $0.001 par value, of the Company currently authorized and shares of any
other class into which those shares may hereafter be changed.
(b) "Company" means Chaparral Network Storage, Inc. a Delaware
corporation and any corporation which shall succeed to or assume the obligations
of the Company under this Warrant.
(c) "1933 Act" means the Securities Act of 1933, as amended.
(d) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(e) "Convertible equity securities" or "equity securities"
shall mean any of the Company's securities.
(f) "Holder" means Sentinel Consulting, LLC, a Delaware
corporation.
(g) The terms "register", "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with
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<PAGE> 35
the 1933 Act, and the declaration or ordering of the effectiveness of such
registration statement or document by the SEC.
(h) The term "Registrable Securities" means: (i) the Common
Stock or other equity or convertible equity securities of the Company issued or
issuable upon exercise of this Warrant; and (ii) any Common Stock of the Company
issued (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued) by way of a stock split, stock dividend,
recapitalization, merger or other distribution with respect to, or in exchange
for, or in replacement of, such Common Stock.
2. Warrant Price. The purchase price to be paid upon exercise of this
Warrant is U.S. $0.125 per share of Common Stock. Such price shall be subject to
adjustment pursuant to Section 7 hereof (such price, as adjusted from time to
time, is herein referred to as the "Warrant Price").
3. Exercise Period. This Warrant shall be exercisable by the Holder
fora term beginning on August 19, 1999, (the "Commencement Date") and ending on
August 18, 2004, (the "Expiration Date").
4. Method of Exercise.
(a) The Holder may exercise from time to time, in whole or in
part on or before the Expiration Date, the purchase rights evidenced hereby.
Such exercise shall be effected by:
(i) the surrender of the Warrant, together with a duly
executed copy of the form of subscription attached hereto as Appendix I, to the
Secretary of the Company at its principal offices; and
(ii) the payment to the Company, in cash or by check
payable to the order of the Company, of an amount equal to the aggregate
purchase price for the number of Shares designated for purchase in the completed
subscription form.
(b) In lieu of exercising this Warrant pursuant to Section
4(a), the Holder may elect to receive shares equal to the value of this Warrant
(or any portion thereof remaining unexercised) by surrender of this Warrant at
the principal office of the Company together with the Subscription Form, in
which event the Company shall issue to the Holder a number of Shares computed
using the following formula:
X = Y (A-B)
-------
A
Where X= the number of Shares to be issued to the Holder.
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<PAGE> 36
Y= the number of Shares purchasable under this Warrant (at the date of
such exercise).
A= the fair market value of one Share (at the date of such exercise).
B= the Warrant Price (as adjusted to the date of such exercise).
For purposes of this subsection fair market value of one Share shall mean:
(i) The average of the closing bid and asked prices of the Common Stock
quoted in the NASDAQ National Market System or the Over-the-Counter
market or the closing price quoted on any exchange on which the Common
Stock is listed, whichever is applicable, as published in the Western
Edition of The Wall Street Journal for the five (5) trading days prior
to the date of determination of the fair market value; or
(ii) If the Common Stock is not publicly traded, the per share fair
market value of the Common Stock shall be determined in good faith by
the Company's Board of Directors. If the Holder disagrees with the
determination by the Board of Directors of the fair market value of the
Common Stock then such fair market value shall be determined by an
independent appraiser selected jointly by the Company and the Holder.
The cost of such appraisal shall be paid equally by the Company and the
Holder.
(c) Upon the request of the Company, the Holder shall also
deliver to the Company an instrument, in form and substance reasonably
satisfactory to counsel for the Company, executed by the Holder certifying that
the Shares are being acquired for investment purposes only and not with a view
to their resale or distribution.
(d) In the event of a partial exercise of this Warrant, a new
Warrant shall be issued to the Holder representing the balance of the Shares
purchasable under this Warrant, such new Warrant to be issued within ten (10)
days after delivery of the subscription notice.
5. Certificate for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued in the name of the Holder as soon as practicable
following receipt of the completed subscription form and payment for the Shares
being purchased and in any event within ten (10) days thereafter. The Company
shall not be required to issue any fractional shares upon the exercise of the
Holder's purchaser rights under this Warrant. In lieu of any fractional shares,
the Company shall pay cash equal to such fraction multiplied by the per share
market price of the Common Stock as of the date of exercise.
6. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Series A Preferred
Stock and Common Stock, free from all preemptive rights with respect thereto, as
will be sufficient to permit the exercise of this Warrant for the full number of
Shares specified herein and the conversion of the Shares into
3
<PAGE> 37
Common Stock. The Company further covenants that such Shares, when issued
pursuant to the exercise of this Warrant, will, upon issuance, be duly and
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges with respect to the issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number of
and kind of securities purchasable upon exercise of this Warrant and the
purchase price therefor shall be subject to adjustment from time to time as
follows:
(a) Stock Splits and Combinations. If the Company shall at any
time subdivide or combine its outstanding shares of the Common Stock, this
Warrant shall, after that subdivision or combination, evidence the right to
purchase the number of shares of Common Stock that would have been issuable as a
result of that change with respect to the shares of the Common Stock which were
purchasable under this Warrant immediately before that subdivision or
combination. If the Company shall at any time subdivide the outstanding shares
of Common Stock, the Warrant Price then in effect immediately before that
subdivision shall be proportionately decreased, and, if the Company shall at any
time combine the outstanding shares of Common Stock, the Warrant Price then in
effect immediately before that combination shall be proportionately increased.
Any adjustment under this Section 7(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(b) Reclassification, Exchange and Substitution. If the Common
Stock issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other series or class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares provided for above), the Holder of this
Warrant shall, on its exercise, be entitled to purchase, in lieu of Common Stock
which the Holder would have become entitled to purchase but for such change, a
number of shares of such other series or class or classes of stock equivalent to
the number of shares of Common Stock that would have been subject to purchase by
the Holder on exercise of this Warrant immediately before that change.
(c) Reorganization, Mergers, Consolidations or Sale of Assets.
If at any time there shall be a capital reorganization of the Company (other
than a combination, reclassification, exchange, or subdivision of shares
provided for elsewhere in this Warrant) or merger or consolidation of the
Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such capital reorganization, merger, consolidation or sale,
lawful provision shall be made so that the Holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified in this Warrant and upon payment of the Warrant Price then in
effect, the number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such merger or
consolidation, to which a holder of the Company's Common Stock deliverable upon
exercise of this Warrant would have been entitled in such capital
reorganization, merger, consolidation or sale if this Warrant had been exercised
immediately before that capital reorganization, merger, consolidation or sale.
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<PAGE> 38
(d) Notice of Adjustments. The Company shall give notice of
each adjustment or readjustment of the number of shares of the Common Stock or
other securities issuable upon exercise of this Warrant and the Warrant Price to
the registered Holder of this Warrant at that Holder's address as shown on the
Company's books within twenty (20) days after the occurrence of the event
resulting in such adjustment.
(e) No Change Necessary. The form of this Warrant need not be
changed because of any adjustment in the number of shares of the Common Stock
purchasable upon its exercise. A Warrant issued after any adjustment upon any
partial exercise or in replacement may continue to express the same number of
shares of Common Stock (appropriately reduced in the case of partial exercise)
as are stated on the face of this Warrant as initially issued, and that number
of shares shall be considered to have been so changed at the close of business
on the date of adjustment.
8. Automatic Termination. In the event of (i) the closing of the
Company's registration statement on a Form S-1 (or any other form equivalent
thereto) pursuant to which any class of the Company's securities is sold to the
public in a public offering registered under the Securities Act of 1933, as
amended; or (ii) the proposed sale of all or substantially all the capital
stock, or substantially all the assets, of the Company in a merger, business
combination, or other form of business transaction with or into a third party in
which the Company's stockholders do not own at least a majority of the
outstanding voting securities of the surviving corporation or business entity
after such transaction (based solely on such Company stockholders' holdings of
the Company prior to the transaction), then the Company shall give the Holder of
this Warrant at least fifteen (15) days written notice of the proposed effective
date and terms of such offering, transaction or agreements, and if the Warrant
has not been exercised at least before the effective date of such offering,
transaction or agreements, then this Warrant and the rights hereunder shall be
automatically terminated.
9. Exercise, Transfer and Exchange Restrictions.
(a) This Warrant, and any rights hereunder, may not be
assigned or transferred, except as provided herein and in accordance with and
subject to the provisions of (i) applicable state securities laws, and (ii) the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (such Act and such rules and regulations being hereinafter
collectively referred to as the "Act"). Any purported transfer or assignment
made other than in accordance with this Section 9 shall be null and void and of
no force and effect.
(b) This Warrant, and any rights hereunder, may be transferred
or assigned only with the prior written consent of the Company, which shall be
granted only upon receipt by the Company of an opinion of counsel satisfactory
to the Company that (i) the transferee is a person to whom this Warrant may be
legally transferred without registration under the Act, and (ii) such transfer
will not violate any applicable law or governmental rule or regulation,
including, without limitation, any applicable federal or state securities law.
Prior to the transfer or assignment, the assignor or transferor shall reimburse
the Company for its reasonable
5
<PAGE> 39
expenses, including transfer taxes and attorneys' fees, incurred in connection
with the transfer or assignment.
(c) Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Company at its principal office with an
assignment duly executed and funds sufficient to pay any transfer tax. In such
event, the Company shall, without charge, execute and deliver a new Warrant in
the name of the assignee named in such instrument of assignment and this Warrant
shall be promptly canceled.
10. Registration Rights.
(a) Requested Registration.
(i) Request for Registration. In case the Company shall
receive from the Holder a written request that the Company file a registration
statement under the 1933 Act with respect to shares of Registrable Securities
having an expected aggregate offering price of at least One Million Dollars
($1,000,000), the Company will, subject to the limitations of Section 9(a)(ii),
use its best efforts to effect such registration under the 1933 Act (including,
without limitation, appropriate qualification under applicable blue sky or other
state securities laws and appropriate compliance with applicable regulations
issued under the 1933 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; provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 10(a)(i):
(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 1933 Act;
(B) Prior to the six (6) months after the closing
date of the Company's first registered public offering of its stock (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
SEC Rule 145 transaction);
(C) During the period starting with the date sixty
(60)days prior to the Company's estimated date of filing of, and ending on the
date six (6) months immediately following the closing date of, any initial
registration statement pertaining to securities of the Company (other than a
registration statement relating either to the sale of securities to employees of
the Company pursuant to a stock option, stock purchase or similar plan or a SEC
Rule 145 transaction); provided, however, that the Company is acting in good
faith and using all reasonable efforts to cause such initial registration
statement to become effective;
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<PAGE> 40
(D) After the Company has effected one (1) such
registration pursuant to a Holder's demand under this Section 10(a)(i), which
registration has been declared effective; or
(E) If the Company shall furnish to 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 and its shareholders for a registration statement to be filed at
such time, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 10(a)(i) shall be deferred for a period not
to exceed one hundred twenty (120) days from the date of receipt of written
request from the Holder; provided, however, that the Company may not make such
certification more than once every twelve (12) months.
(ii) Underwriting. In the event that a registration
pursuant to Section 10(a)(i) is for a registered public offering involving an
underwriting, the Company shall so advise the Holder and the right of the Holder
to registration pursuant to Section 10(a)(i) shall be conditioned upon such
Holder's participation in the underwriting arrangements required by this Section
10(a)(ii), and the inclusion of the Holder's Registrable Securities in the
underwriting to the extent requested shall be limited to the extent provided
herein.
The Company shall, together with the Holder, enter into an underwriting
agreement in customary form with a managing underwriter selected for such
underwriting by the Company. Notwithstanding any other provision of this Section
10(a), if the managing underwriter advises the Holder in writing that market
factors require a limitation of the number of shares to be underwritten, then
the number of shares of Registrable Securities that may be included in the
registration shall be so limited.
(b) Piggy-back Registration Rights.
(i) Piggy-back Registration Rights. If (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holder) any of its securities under the 1933 Act in connection with the public
offering of such securities solely for cash (other than a registration (i) on
Form S-8 or any form which does not include substantially the same information
as would be required to be included in a registration statement covering the
sale of the Registrable Securities, or (ii) with respect to an employee benefit
plan, or (iii) solely in connection with a Rule 145 transaction under the 1933
Act), the Company shall, each such time, promptly give the Holder written notice
of such registration together with a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under applicable state
securities laws. Upon the written request of the Holder given within twenty (20)
business days after delivery of such written notice by the Company, the Company
shall, subject to the provisions of Section 10(b)(ii), use its best efforts to
cause to be registered under the 1933 Act all of the Registrable Securities that
the Holder has requested to be registered. The Company shall be required to
effect not more than three (3) such registrations of Registrable Securities
pursuant to the request of the Holder under this Section 10(b).
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<PAGE> 41
(ii) Underwriting Requirements in Piggy-back Registration.
The right of the Holder to registration pursuant to Section 10(b)(i) shall be
conditioned upon the Holder's participation in such underwriting and the
inclusion of the Holder's Registrable Securities in the underwriting to the
extent provided herein. The Holder shall (together with the Company and any
other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
Section 10(b)(i) and this Section 10(b)(ii), if the underwriter determines that
market factors require a limitation of the number of shares to be underwritten,
the underwriter may (subject to the allocation priority set forth below) exclude
some or all Registrable Securities from such registration and underwriting.
(c) Obligations of the Company. Whenever required under this
Section 9 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holder, keep such registration statement effective for up to one hundred
twenty (120) days.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(iii) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by it.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably appropriate for the distribution of
the securities covered by the registration statement; provided, however, 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 jurisdiction, and further provided that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling shareholders, then such
expenses shall be payable by the Holder, to the extent required by such
jurisdiction if the Holder does elect to withdraw from the registration after
notice of such requirement.
(v) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement with
terms generally satisfactory to the managing underwriter of such offering. The
Holder shall also enter into and perform its obligations under such an
agreement.
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<PAGE> 42
(vi) Notify the Holder, at any time when a prospectus
relating thereto is required to be delivered under the 1933 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 light of the
circumstances then existing. In such instance, Company shall use its best
efforts to cure any such statement or omission so as to render such statement or
omission not misleading.
(d) Furnish Information. In connection with any action pursuant
to this Section 10, the Holder shall furnish to the Company such information
regarding itself, the Registrable Securities held by it, and the intended method
of disposition of such securities as shall be required to effect the
registration of their Registrable Securities. In that connection, the Holder
shall be required to represent to the Company that all such information which is
given is both complete and accurate in all material respects when made.
(e) Definition of Expenses.
(i) "Registration Expenses" shall mean all expenses
incurred by the Company in complying with Section 10 hereof, including, without
limitation, all registration, filing and qualification fees, underwriters'
expense allowances, printing expenses, fees and disbursements of counsel for the
Company, reasonable fees and expenses of one special counsel retained in
connection with each such registration by the Holder, blue sky fees and
disbursements, and the expense of any special audits incident to or required by
any registration pursuant to Section 10(a) (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company).
(ii) "Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale of the Registrable
Securities in the registration, all stock transfer taxes and all fees and
disbursements of any additional special counsel (other than the special counsel
provided for in Section 10(e)(i) above) retained in connection with each such
registration by the Holder.
(f) Expenses of Registration. The Company shall bear all
Registration Expenses incurred in connection with (i) any registration,
qualification or compliance pursuant to Section 10(a), and (ii) no more than
three (3) registrations pursuant to Section 10(b). All Selling Expenses shall be
borne by the Holder.
(g) Indemnification. In the event any Registrable
Securities are included in a registration statement under this Section 10:
(i) To the extent permitted by law, the Company will
indemnify and hold harmless the Holder, the officers, directors and partners of
the Holder, any underwriter (as
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<PAGE> 43
defined in the 1933 Act) for the Holder and each person, if any, who controls
the Holder or underwriter within the meaning of the 1933 Act or the 1934 Act,
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the 1933 Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading; or (iii) any
violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the 1933 Act,
the 1934 Act or any state securities law; and the Company will reimburse the
Holder, officer, director or partner, underwriter or controlling person for any
legal or other expenses reasonably incurred by them, as incurred, in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the Company's indemnity contained in this
Section 10(g) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished in writing and expressly stated for use in connection with
such registration by the Holder, or the Holder's officers, directors or
partners, underwriter, or controlling person. The Company shall not be required
to indemnify any person against any liability arising (i) from any untrue or
misleading statement or omission contained in any preliminary prospectus if such
deficiency is corrected in the final prospectus or (ii) out of the failure of
any person to deliver a prospectus as required by the 1993 Act. The indemnity
provided for in this Section 10(g) shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller,
underwriter, participating person or controlling person and shall survive
transfer of such securities by such seller.
(ii) To the extent permitted by law, the Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the 1933 Act, any underwriter (within
the meaning of the 1933 Act) for the Company, any person who controls such
underwriter, and any other security holder in such registration statement or any
of its partners, directors or officers or any person who controls such security
holder, against any losses, claims, damages or liabilities (joint or several) to
which any of the foregoing persons may become subject, under the 1933 Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by the Holder expressly stated in a writing for use in connection with
such registration; and the Holder will reimburse any legal or other expenses, as
incurred, where same are reasonably incurred by any person intended to be
indemnified pursuant to this Section 10(g), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity
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<PAGE> 44
agreement contained in this Section 10(g) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, the liability of
each Holder under this Section 10(g) shall be limited to an amount equal to the
public offering price of the shares sold by the Holder.
(iii) Promptly after receipt by an indemnified party under
this Section 10(g) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 10(g), notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party shall have the right to participate in and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
to be paid by the indemnifying party if the indemnified party reasonably
determines that representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 10(g), but the omission so to notify the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 10(g).
(iv) In order to provide for just and equitable
contribution to joint liability under the 1933 Act in any case in which either
(i) any indemnified party makes a claim under this Section 10(g) or any
controlling person of such indemnified party makes such a claim but is
judicially determined (by entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 10(g) provides for indemnification in
such case, or (ii) contribution under the 1933 Act may be required on the part
of any such person seeking indemnity under the terms of this Section 10(g);
then, and in each such case, the Company and such person will contribute to the
aggregate losses, claims, damages, or liabilities to which they may be subject
(after contribution from others) 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. The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
person shall be required to contribute any amount in excess of the public
offering price of all such Registrable Securities sold by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
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<PAGE> 45
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(h) Investor Rights Agreement. The Holder acknowledges and
agrees that (i) the Company and certain investors have entered into an Investor
Rights Agreement dated November, 1998 (the "Investor Rights Agreement"), (ii)
the Holder may include his securities in a demand registration under the
Investor Rights Agreement only to the extent that the inclusion of his
securities will not reduce the amount of securities to be registered for parties
to the Investor Rights Agreement and (iii) the Holder shall not make a demand
registration which could result in such registration statement being declared
effective prior six months after the effective date of the Company's initial
public offering of securities pursuant to a registration filed under the 1933
Act or within one hundred twenty (120) days of the effective date of any demand
registration pursuant to the Investor Rights Agreement.
(i) Termination of Registration Rights.
(i) The Company shall have no obligations pursuant to
Section 10 with respect to any request or requests made by the Holder after the
date which is five (5) years following the date of the consummation of the first
sale of securities pursuant to a registration statement filed by the Company
under the 1933 Act in connection with the initial firm commitment underwritten
offering of its securities to the general public.
(ii) Notwithstanding any contrary provision of this
Section 10(i), the Company shall not be required to effect any registrations
under the 1933 Act or under any state securities laws on behalf of the Holder
if, in the opinion of counsel to the Company, the offering or transfer by such
Holder in the manner proposed (including, without limitation, the number of
shares proposed to be offered or transferred, the time of sale, and the method
of offering or transfer) is exempt from the registration requirements of the
1933 Act and the securities laws of applicable states and the Company consents
to such transfer, if required.
11. "Market Stand-off" Agreement. The Holder agrees, so long as the
Holder holds at least one percent (1%) of the Company's outstanding voting
equity securities, in connection with the Company's initial underwritten public
offering of the Company's securities that, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Common Stock of the Company (other than those Common
Stock shares included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed one hundred eighty (180) days) from the closing date of such
registration as may be requested by the underwriters; provided, however, that
such covenants shall apply only if (i) all of the officers and directors of the
Company who own stock of the Company and (ii) each shareholder owning more than
two percent (2%) of the Company's shares also agree to such restrictions on any
shares not being registered in such offering. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Registrable Securities of the Holder (and the shares
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<PAGE> 46
of securities of every other person subject to the foregoing restriction) until
the end of such period.
12. Miscellaneous Provisions.
(a) Listing. If any shares of the Common Stock required to be
reserved for issuance upon the exercise of this Warrant require registration
with or approval of any governmental authority under any Federal or state law
(other than the Securities Act, as then in effect, or any similar Federal law
then in effect), or listing on any domestic securities exchange, before such
shares may be issued upon such exercise, the Company shall, at its expense and
as expeditiously as possible, use its best efforts to cause such shares to be
duly registered or approved or listed on the relevant domestic securities
exchange, as the case may be.
(b) Replacement. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of any
indemnity agreement or bond reasonably satisfactory in form and amount to the
Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense will execute and deliver, in lieu of this
Warrant a new Warrant of like tenor.
(c) No Rights as Stockholder. Prior to the exercise of this
Warrant, no Holder of this Warrant, as such, shall be entitled to vote or
receive dividends or be considered a stockholder of the Company for any purpose,
nor shall anything in this Warrant be construed to confer on any Holder of this
Warrant, as such, any rights of a shareholder of the Company or any right to
vote, give or withhold consent to any corporate action, to receive notice of
meetings of stockholders (except as set forth in this Warrant), to receive
dividends or subscription rights or otherwise.
(d) Governing Law. This Warrant shall be governed by and
construed and enforced in accordance with the laws of the State of California
applicable to contracts entered into and wholly to be performed in California by
California residents.
(e) Notices. All notices from the Company to the holder of
this Warrant shall be in writing and shall be (i) personally delivered, (ii)
transmitted by mail, postage prepaid, registered or certified, return receipt
requested, or by air mail in the event of mailing for delivery outside of the
country in which mailed, (iii) transmitted by an overnight courier of recognized
reputation or of recognized international reputation in the event of an
international delivery or (iv) transmitted by telecopier (with confirmation by
air mail or courier), to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in accordance with the provisions of this Section 11(e). Except as otherwise
specified herein, communications shall be deemed to have been duly given on (A)
the date of receipt if delivered personally, (B) the date seven (7) days after
posting if transmitted by mail, (C) the date three (3) days after delivery to
the courier if sent by recognized or internationally recognized courier service,
or (D) the date on which written confirmation would be deemed to
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<PAGE> 47
have been given as provided above, whether by mail or by courier, as applicable,
if transmitted by telecopier, whichever shall first occur.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer.
Dated: August 19, 1999.
CHAPARRAL NETWORK STORAGE, INC.
By: /s/ Douglas J. Lehrmann
----------------------------
Name: Douglas J. Lehrmann
Title: Vice President Finance
Acknowledged and Agreed:
Michael J. Gluck
/s/ Michael J. Gluck
- ---------------------
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NEITHER THIS WARRANT NOR THE SERIES A PREFERRED STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND THIS
WARRANT CANNOT BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF THE SERIES A
PREFERRED STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR
TRANSFERRED, UNLESS AND UNTIL THEY ARE SO REGISTERED OR UNLESS SUCH REGISTRATION
IS NOT THEN REQUIRED UNDER THE CIRCUMSTANCES OF SUCH EXERCISE, SALE OR TRANSFER.
CHAPARRAL TECHNOLOGIES, INC.
WARRANT TO PURCHASE COMMON STOCK
OF CHAPARRAL TECHNOLOGIES, INC.
Void after December 15, 2003
This certifies that, subject to the terms and conditions set forth
herein, for value received, Harvest Storage Technology Group LLC., a Delaware
corporation, (the "Holder") or its registered assigns is entitled to purchase
from Chaparral Technologies, Inc., a Delaware corporation (the "Company") up to
one hundred eleven thousand, one hundred eleven (111,111) fully paid and
nonassessable shares of Common Stock, $0.001 par value, of the Company (as
adjusted pursuant to Section 7 hereof, the "Shares") at the purchase price per
share specified in Section 2 below.
1. Definitions. As used in this Warrant, the following terms, unless
the context otherwise requires, have the following meanings:
(a) "Common Stock", when used with reference to stock of the
Company, means all shares, now or hereafter authorized, of the class of Common
Stock, $0.001 par value, of the Company currently authorized and shares of any
other class into which those shares may hereafter be changed.
(b) "Company" means Chaparral Technologies, Inc. a Delaware
corporation and any corporation which shall succeed to or assume the obligations
of the Company under this Warrant.
(c) "1933 Act" means the Securities Act of 1933, as amended.
(d) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(e) "Convertible equity securities" or "equity securities"
shall mean any of the Company's securities.
(f) "Holder" means Harvest Storage Technology Group LLC., a
Delaware corporation.
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(g) The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the 1933 Act, and the
declaration or ordering of the effectiveness of such registration statement or
document by the SEC.
(h) The term "Registrable Securities" means: (i) the Common
Stock or other equity or convertible equity securities of the Company issued or
issuable upon exercise of this Warrant; and (ii) any Common Stock of the Company
issued (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued) by way of a stock split, stock dividend,
recapitalization, merger or other distribution with respect to, or in exchange
for, or in replacement of, such Common Stock.
2. Warrant Price. The purchase price to be paid upon exercise of this
Warrant is U.S. $0.001 per share of Common Stock. Such price shall be subject to
adjustment pursuant to Section 7 hereof (such price, as adjusted from time to
time, is herein referred to as the "Warrant Price").
3. Exercise Period. This Warrant shall be exercisable by the Holder for
a term beginning on December 15, 1998, (the "Commencement Date") and ending on
December 15, 2003, (the "Expiration Date").
4. Method of Exercise.
(a) The Holder may exercise from time to time, in whole or in
part on or before the Expiration Date, the purchase rights evidenced hereby.
Such exercise shall be effected by:
(i) the surrender of the Warrant, together with a
duly executed copy of the form of subscription attached hereto as Appendix I, to
the Secretary of the Company at its principal offices; and
(ii) the payment to the Company, in cash or by check
payable to the order of the Company, of an amount equal to the aggregate
purchase price for the number of Shares designated for purchase in the completed
subscription form.
(b) In lieu of exercising this Warrant pursuant to Section
4(a), the Holder may elect to receive shares equal to the value of this Warrant
(or any portion thereof remaining unexercised) by surrender of this Warrant at
the principal office of the Company together with the Subscription Form, in
which event the Company shall issue to the Holder a number of Shares computed
using the following formula:
X = Y (A-B)
-------
A
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Where X= the number of Shares to be issued to the Holder.
Y= the number of Shares purchasable under this Warrant (at the date of
such exercise).
A= the fair market value of one Share (at the date of such exercise).
B= the Warrant Price (as adjusted to the date of such exercise).
For purposes of this subsection fair market value of one Share shall mean:
(i) The average of the closing bid and asked prices of the Common Stock
quoted in the NASDAQ National Market System or the Over-the-Counter market
or the closing price quoted on any exchange on which the Common Stock is
listed, whichever is applicable, as published in the Western Edition of
The Wall Street Journal for the five (5) trading days prior to the date of
determination of the fair market value; or
(ii) If the Common Stock is not publicly traded, the per share fair market
value of the Common Stock shall be determined in good faith by the
Company's Board of Directors. If the Holder disagrees with the
determination by the Board of Directors of the fair market value of the
Common Stock then such fair market value shall be determined by an
independent appraiser selected jointly by the Company and the Holder. The
cost of such appraisal shall be paid equally by the Company and the
Holder.
(c) Upon the request of the Company, the Holder shall also
deliver to the Company an instrument, in form and substance reasonably
satisfactory to counsel for the Company, executed by the Holder certifying that
the Shares are being acquired for investment purposes only and not with a view
to their resale or distribution.
(c) In the event of a partial exercise of this Warrant, a new
Warrant shall be issued to the Holder representing the balance of the Shares
purchasable under this Warrant, such new Warrant to be issued within ten (10)
days after delivery of the subscription notice.
5. Certificate for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued in the name of the Holder as soon as practicable
following receipt of the completed subscription form and payment for the Shares
being purchased and in any event within ten (10) days thereafter. The Company
shall not be required to issue any fractional shares upon the exercise of the
Holder's purchaser rights under this Warrant. In lieu of any fractional shares,
the Company shall pay cash equal to such fraction multiplied by the per share
market price of the Common Stock as of the date of exercise.
6. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Series A Preferred
Stock and Common Stock, free from all preemptive rights with respect thereto, as
will be sufficient to permit the exercise of
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this Warrant for the full number of Shares specified herein and the conversion
of the Shares into Common Stock. The Company further covenants that such Shares,
when issued pursuant to the exercise of this Warrant, will, upon issuance, be
duly and validly issued, fully paid and non-assessable and free from all taxes,
liens and charges with respect to the issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number of and
kind of securities purchasable upon exercise of this Warrant and the purchase
price therefor shall be subject to adjustment from time to time as follows:
(a) Stock Splits and Combinations. If the Company shall at any
time subdivide or combine its outstanding shares of the Common Stock, this
Warrant shall, after that subdivision or combination, evidence the right to
purchase the number of shares of Common Stock that would have been issuable as a
result of that change with respect to the shares of the Common Stock which were
purchasable under this Warrant immediately before that subdivision or
combination. If the Company shall at any time subdivide the outstanding shares
of Common Stock, the Warrant Price then in effect immediately before that
subdivision shall be proportionately decreased, and, if the Company shall at any
time combine the outstanding shares of Common Stock, the Warrant Price then in
effect immediately before that combination shall be proportionately increased.
Any adjustment under this Section 7(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(b) Reclassification, Exchange and Substitution. If the Common
Stock issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other series or class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares provided for above), the Holder of this
Warrant shall, on its exercise, be entitled to purchase, in lieu of Common Stock
which the Holder would have become entitled to purchase but for such change, a
number of shares of such other series or class or classes of stock equivalent to
the number of shares of Common Stock that would have been subject to purchase by
the Holder on exercise of this Warrant immediately before that change.
(c) Reorganization, Mergers, Consolidations or Sale of Assets.
If at any time there shall be a capital reorganization of the Company (other
than a combination, reclassification, exchange, or subdivision of shares
provided for elsewhere in this Warrant) or merger or consolidation of the
Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such capital reorganization, merger, consolidation or sale,
lawful provision shall be made so that the Holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified in this Warrant and upon payment of the Warrant Price then in
effect, the number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such merger or
consolidation, to which a holder of the Company's Common Stock deliverable upon
exercise of this Warrant would have been entitled in such capital
reorganization, merger, consolidation or sale if this Warrant had been exercised
immediately before that capital reorganization, merger, consolidation or sale.
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(d) Notice of Adjustments. The Company shall give notice of
each adjustment or readjustment of the number of shares of the Common Stock or
other securities issuable upon exercise of this Warrant and the Warrant Price to
the registered Holder of this Warrant at that Holder's address as shown on the
Company's books within twenty (20) days after the occurrence of the event
resulting in such adjustment.
(e) No Change Necessary. The form of this Warrant need not be
changed because of any adjustment in the number of shares of the Common Stock
purchasable upon its exercise. A Warrant issued after any adjustment upon any
partial exercise or in replacement may continue to express the same number of
shares of Common Stock (appropriately reduced in the case of partial exercise)
as are stated on the face of this Warrant as initially issued, and that number
of shares shall be considered to have been so changed at the close of business
on the date of adjustment.
8. Automatic Termination. In the event of (i) the closing of the
Company's registration statement on a Form S-1 (or any other form equivalent
thereto) pursuant to which any class of the Company's securities is sold to the
public in a public offering registered under the Securities Act of 1933, as
amended; or (ii) the proposed sale of all or substantially all the capital
stock, or substantially all the assets, of the Company in a merger, business
combination, or other form of business transaction with or into a third party in
which the Company's stockholders do not own at least a majority of the
outstanding voting securities of the surviving corporation or business entity
after such transaction (based solely on such Company stockholders' holdings of
the Company prior to the transaction), then the Company shall give the Holder of
this Warrant at least fifteen (15) days written notice of the proposed effective
date and terms of such offering, transaction or agreements, and if the Warrant
has not been exercised at least before the effective date of such offering,
transaction or agreements, then this Warrant and the rights hereunder shall be
automatically terminated.
9. Exercise, Transfer and Exchange Restrictions.
(a) This Warrant, and any rights hereunder, may not be
assigned or transferred, except as provided herein and in accordance with and
subject to the provisions of (i) applicable state securities laws, and (ii) the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (such Act and such rules and regulations being hereinafter
collectively referred to as the "Act"). Any purported transfer or assignment
made other than in accordance with this Section 9 shall be null and void and of
no force and effect.
(b) This Warrant, and any rights hereunder, may be transferred
or assigned only with the prior written consent of the Company, which shall be
granted only upon receipt by the Company of an opinion of counsel satisfactory
to the Company that (i) the transferee is a person to whom this Warrant may be
legally transferred without registration under the Act, and (ii) such transfer
will not violate any applicable law or governmental rule or regulation,
including, without limitation, any applicable federal or state securities law.
Prior to the transfer
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<PAGE> 53
or assignment, the assignor or transferor shall reimburse the Company for its
reasonable expenses, including transfer taxes and attorneys' fees, incurred in
connection with the transfer or assignment.
(c) Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Company at its principal office with an
assignment duly executed and funds sufficient to pay any transfer tax. In such
event, the Company shall, without charge, execute and deliver a new Warrant in
the name of the assignee named in such instrument of assignment and this Warrant
shall be promptly canceled.
10. Registration Rights.
(a) Requested Registration.
(i) Request for Registration. In case the Company
shall receive from the Holder a written request that the Company file a
registration statement under the 1933 Act with respect to shares of Registrable
Securities having an expected aggregate offering price of at least One Million
Dollars ($1,000,000), the Company will, subject to the limitations of Section
9(a)(ii), use its best efforts to effect such registration under the 1933 Act
(including, without limitation, appropriate qualification under applicable blue
sky or other state securities laws and appropriate compliance with applicable
regulations issued under the 1933 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; provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 10(a)(i):
(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 1933 Act;
(B) Prior to the six (6) months after the
closing date of the Company's first registered public offering of its stock
(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 SEC Rule 145 transaction);
(C) During the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and ending
on the date six (6) months immediately following the closing date of, any
initial registration statement pertaining to securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction); provided, however, that the Company is
acting in good
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<PAGE> 54
faith and using all reasonable efforts to cause such initial registration
statement to become effective;
(D) After the Company has effected one (1)
such registration pursuant to a Holder's demand under this Section 10(a)(i),
which registration has been declared effective; or
(E) If the Company shall furnish to 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 and its shareholders for a registration statement to be filed at
such time, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 10(a)(i) shall be deferred for a period not
to exceed one hundred twenty (120) days from the date of receipt of written
request from the Holder; provided, however, that the Company may not make such
certification more than once every twelve (12) months.
(ii) Underwriting. In the event that a registration pursuant
to Section 10(a)(i) is for a registered public offering involving an
underwriting, the Company shall so advise the Holder and the right of the Holder
to registration pursuant to Section 10(a)(i) shall be conditioned upon such
Holder's participation in the underwriting arrangements required by this Section
10(a)(ii), and the inclusion of the Holder's Registrable Securities in the
underwriting to the extent requested shall be limited to the extent provided
herein.
The Company shall, together with the Holder, enter into an underwriting
agreement in customary form with a managing underwriter selected for such
underwriting by the Company. Notwithstanding any other provision of this Section
10(a), if the managing underwriter advises the Holder in writing that market
factors require a limitation of the number of shares to be underwritten, then
the number of shares of Registrable Securities that may be included in the
registration shall be so limited.
(b) Piggy-back Registration Rights.
(i) Piggy-back Registration Rights. If (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holder) any of its securities under the 1933 Act in connection with the public
offering of such securities solely for cash (other than a registration (i) on
Form S-8 or any form which does not include substantially the same information
as would be required to be included in a registration statement covering the
sale of the Registrable Securities, or (ii) with respect to an employee benefit
plan, or (iii) solely in connection with a Rule 145 transaction under the 1933
Act), the Company shall, each such time, promptly give the Holder written notice
of such registration together with a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under applicable state
securities laws. Upon the written request of the Holder given within twenty (20)
business days after delivery of such written notice by the Company, the Company
shall, subject to the provisions of Section 10(b)(ii),
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<PAGE> 55
use its best efforts to cause to be registered under the 1933 Act all of the
Registrable Securities that the Holder has requested to be registered. The
Company shall be required to effect not more than three (3) such registrations
of Registrable Securities pursuant to the request of the Holder under this
Section 10(b).
(ii) Underwriting Requirements in Piggy-back Registration. The
right of the Holder to registration pursuant to Section 10(b)(i) shall be
conditioned upon the Holder's participation in such underwriting and the
inclusion of the Holder's Registrable Securities in the underwriting to the
extent provided herein. The Holder shall (together with the Company and any
other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
Section 10(b)(i) and this Section 10(b)(ii), if the underwriter determines that
market factors require a limitation of the number of shares to be underwritten,
the underwriter may (subject to the allocation priority set forth below) exclude
some or all Registrable Securities from such registration and underwriting.
(c) Obligations of the Company. Whenever required under this Section 9
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holder, keep such registration statement effective for up to one hundred twenty
(120) days.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(iii) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by it.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably appropriate for the distribution of
the securities covered by the registration statement; provided, however, 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 jurisdiction, and further provided that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling shareholders, then such
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<PAGE> 56
expenses shall be payable by the Holder, to the extent required by such
jurisdiction if the Holder does elect to withdraw from the registration after
notice of such requirement.
(v) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing underwriter of such offering. The Holder
shall also enter into and perform its obligations under such an agreement.
(vi) Notify the Holder, at any time when a prospectus
relating thereto is required to be delivered under the 1933 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 light of the
circumstances then existing. In such instance, Company shall use its best
efforts to cure any such statement or omission so as to render such statement or
omission not misleading.
(d) Furnish Information. In connection with any action pursuant to this
Section 10, the Holder shall furnish to the Company such information regarding
itself, the Registrable Securities held by it, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities. In that connection, the Holder shall be
required to represent to the Company that all such information which is given is
both complete and accurate in all material respects when made.
(e) Definition of Expenses.
(i) "Registration Expenses" shall mean all expenses incurred
by the Company in complying with Section 10 hereof, including, without
limitation, all registration, filing and qualification fees, underwriters'
expense allowances, printing expenses, fees and disbursements of counsel for the
Company, reasonable fees and expenses of one special counsel retained in
connection with each such registration by the Holder, blue sky fees and
disbursements, and the expense of any special audits incident to or required by
any registration pursuant to Section 10(a) (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company).
(ii) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of the Registrable Securities in
the registration, all stock transfer taxes and all fees and disbursements of any
additional special counsel (other than the special counsel provided for in
Section 10(e)(i) above) retained in connection with each such registration by
the Holder.
(f) Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with (i) any registration, qualification or
compliance pursuant to Section 10(a), and (ii) no more than three (3)
registrations pursuant to Section 10(b). All Selling Expenses shall be borne by
the Holder.
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(g) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 10:
(i) To the extent permitted by law, the Company will indemnify
and hold harmless the Holder, the officers, directors and partners of the
Holder, any underwriter (as defined in the 1933 Act) for the Holder and each
person, if any, who controls the Holder or underwriter within the meaning of the
1933 Act or the 1934 Act, against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the 1933 Act, the 1934
Act or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto; (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading; or (iii) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, the 1934 Act or any state securities
law; and the Company will reimburse the Holder, officer, director or partner,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
Company's indemnity contained in this Section 10(g) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished in writing and expressly stated
for use in connection with such registration by the Holder, or the Holder's
officers, directors or partners, underwriter, or controlling person. The Company
shall not be required to indemnify any person against any liability arising (i)
from any untrue or misleading statement or omission contained in any preliminary
prospectus if such deficiency is corrected in the final prospectus or (ii) out
of the failure of any person to deliver a prospectus as required by the 1993
Act. The indemnity provided for in this Section 10(g) shall remain in full force
and effect regardless of any investigation made by or on behalf of such seller,
underwriter, participating person or controlling person and shall survive
transfer of such securities by such seller.
(ii) To the extent permitted by law, the Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the registration statement, each person, if any, who controls the
Company within the meaning of the 1933 Act, any underwriter (within the meaning
of the 1933 Act) for the Company, any person who controls such underwriter, and
any other security holder in such registration statement or any of its partners,
directors or officers or any person who controls such security holder, against
any losses, claims, damages or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the 1933 Act, the 1934 Act or
other federal or state law, insofar as such
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losses, claims, damages, or liabilities (or actions in respect thereto) arise
out of or are based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by the Holder expressly stated in a writing for
use in connection with such registration; and the Holder will reimburse any
legal or other expenses, as incurred, where same are reasonably incurred by any
person intended to be indemnified pursuant to this Section 10(g), in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 10(g) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, the liability of each Holder under this Section
10(g) shall be limited to an amount equal to the public offering price of the
shares sold by the Holder.
(iii) Promptly after receipt by an indemnified party under
this Section 10(g) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 10(g), notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party shall have the right to participate in and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
to be paid by the indemnifying party if the indemnified party reasonably
determines that representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 10(g), but the omission so to notify the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 10(g).
(iv) In order to provide for just and equitable contribution
to joint liability under the 1933 Act in any case in which either (i) any
indemnified party makes a claim under this Section 10(g) or any controlling
person of such indemnified party makes such a claim but is judicially determined
(by entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 10(g) provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of any such person
seeking indemnity under the terms of this Section 10(g); then, and in each such
case, the Company and such person will contribute to the aggregate losses,
claims, damages, or liabilities to which they may be subject (after contribution
from others) 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
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equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
person shall be required to contribute any amount in excess of the public
offering price of all such Registrable Securities sold by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(h) Investor Rights Agreement. The Holder acknowledges and agrees that
(i) the Company and certain investors have entered into an Investor Rights
Agreement dated November 25, 1998 (the "Investor Rights Agreement"), (ii) the
Holder may include his securities in a demand registration under the Investor
Rights Agreement only to the extent that the inclusion of his securities will
not reduce the amount of securities to be registered for parties to the Investor
Rights Agreement and (iii) the Holder shall not make a demand registration which
could result in such registration statement being declared effective prior six
months after the effective date of the Company's initial public offering of
securities pursuant to a registration filed under the 1933 Act or within one
hundred twenty (120) days of the effective date of any demand registration
pursuant to the Investor Rights Agreement.
(i) Termination of Registration Rights.
(i) The Company shall have no obligations pursuant to Section
10 with respect to any request or requests made by the Holder after the date
which is five (5) years following the date of the consummation of the first sale
of securities pursuant to a registration statement filed by the Company under
the 1933 Act in connection with the initial firm commitment underwritten
offering of its securities to the general public.
(ii) Notwithstanding any contrary provision of this Section
10(i), the Company shall not be required to effect any registrations under the
1933 Act or under any state securities laws on behalf of the Holder if, in the
opinion of counsel to the Company, the offering or transfer by such Holder in
the manner proposed (including, without limitation, the number of shares
proposed to be offered or transferred, the time of sale, and the method of
offering or transfer) is exempt from the registration requirements of the 1933
Act and the securities laws of applicable states and the Company consents to
such transfer, if required.
11. "Market Stand-off" Agreement. The Holder agrees, so long as the
Holder holds at least one percent (1%) of the Company's outstanding voting
equity securities, in connection with the Company's initial underwritten public
offering of the Company's securities that, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Common Stock of the Company (other than those Common
Stock
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shares included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed one hundred eighty (180) days) from the closing date of such
registration as may be requested by the underwriters; provided, however, that
such covenants shall apply only if (i) all of the officers and directors of the
Company who own stock of the Company and (ii) each shareholder owning more than
two percent (2%) of the Company's shares also agree to such restrictions on any
shares not being registered in such offering. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Registrable Securities of the Holder (and the shares of securities of every
other person subject to the foregoing restriction) until the end of such period.
12. Miscellaneous Provisions.
(a) Listing. If any shares of the Common Stock required to be
reserved for issuance upon the exercise of this Warrant require registration
with or approval of any governmental authority under any Federal or state law
(other than the Securities Act, as then in effect, or any similar Federal law
then in effect), or listing on any domestic securities exchange, before such
shares may be issued upon such exercise, the Company shall, at its expense and
as expeditiously as possible, use its best efforts to cause such shares to be
duly registered or approved or listed on the relevant domestic securities
exchange, as the case may be.
(b) Replacement. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of any
indemnity agreement or bond reasonably satisfactory in form and amount to the
Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense will execute and deliver, in lieu of this
Warrant a new Warrant of like tenor.
(c) No Rights as Stockholder. Prior to the exercise of this
Warrant, no Holder of this Warrant, as such, shall be entitled to vote or
receive dividends or be considered a stockholder of the Company for any purpose,
nor shall anything in this Warrant be construed to confer on any Holder of this
Warrant, as such, any rights of a shareholder of the Company or any right to
vote, give or withhold consent to any corporate action, to receive notice of
meetings of stockholders (except as set forth in this Warrant), to receive
dividends or subscription rights or otherwise.
(d) Governing Law. This Warrant shall be governed by and
construed and enforced in accordance with the laws of the State of California
applicable to contracts entered into and wholly to be performed in California by
California residents.
(e) Notices. All notices from the Company to the holder of
this Warrant shall be in writing and shall be (i) personally delivered, (ii)
transmitted by mail, postage prepaid, registered or certified, return receipt
requested, or by air mail in the event of mailing for delivery outside of the
country in which mailed, (iii) transmitted by an overnight courier of recognized
13
<PAGE> 61
reputation or of recognized international reputation in the event of an
international delivery or (iv) transmitted by telecopier (with confirmation by
air mail or courier), to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in accordance with the provisions of this Section 11(e). Except as otherwise
specified herein, communications shall be deemed to have been duly given on (A)
the date of receipt if delivered personally, (B) the date seven (7) days after
posting if transmitted by mail, (C) the date three (3) days after delivery to
the courier if sent by recognized or internationally recognized courier service,
or (D) the date on which written confirmation would be deemed to have been given
as provided above, whether by mail or by courier, as applicable, if transmitted
by telecopier, whichever shall first occur.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer.
Dated: December 15, 1998.
CHAPARRAL TECHNOLOGIES, INC.
By: /s/ Douglas J. Lehrmann
-----------------------------
Name: Douglas J. Lehrmann
Title: Vice President, Finance
Acknowledged and Agreed:
Harvest Storage Technology Group LLC.
By: /s/ Robert Harvey
-------------------------------
Name: Robert Harvey
Title: Manager
14
<PAGE> 62
NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND THIS WARRANT
CANNOT BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF THE COMMON STOCK
ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR TRANSFERRED, UNLESS
AND UNTIL THEY ARE SO REGISTERED OR UNLESS SUCH REGISTRATION IS NOT THEN
REQUIRED UNDER THE CIRCUMSTANCES OF SUCH EXERCISE, SALE OR TRANSFER.
CHAPARRAL NETWORK STORAGE, INC.
WARRANT TO PURCHASE 300,000 SHARES OF COMMON STOCK OF
CHAPARRAL NETWORK STORAGE, INC.
VOID AFTER MAY 31, 2001
This Warrant (the "Warrant") certifies that, subject to the terms and
conditions set forth herein, for value received, ADAPTEC, INC., a Delaware
corporation (the "Holder"), is entitled to purchase from CHAPARRAL NETWORK
STORAGE, INC., a Delaware corporation (the "Company"), up to three hundred
thousand (300,000) fully paid and nonassessable shares of Common Stock, $0.001
par value, of the Company at the purchase price per share specified in Section
2 below, with the Common Stock issuable upon exercise of this Warrant referred
to herein as the "Shares".
1. Definitions. As used in this Warrant, the following terms, unless
the context otherwise requires, have the following meanings:
(a) "1933 Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
(b) "Common Stock", when used with reference to stock of the
Company, means all shares, now or hereafter authorized, of the class of common
stock, $0.001 par value, of the Company currently authorized and shares of any
other class into which those shares may hereafter be changed.
(c) "Company" means Chaparral Network Storage, Inc., a Delaware
corporation and any corporation which shall succeed to or assume the
obligations of the Company under this Warrant.
(d) "Fair Market Value" of a share of Common Stock as of a
particular date means (a) if traded on an exchange or the over-the-counter
market, quoted on the Nasdaq National Market or reported by the National
Quotation Bureau, then the average of the reported closing or bid price for the
fifteen (15) trading days immediately preceding the date on which "Fair Market
Value" is being determined, appropriately adjusted to reflect any stock split,
combination, dividend or distribution, if any, occurring after such date, (b)
if conversion or exercise is simultaneous with an
<PAGE> 63
underwritten public offering registered under the 1933 Act, the public offering
price (before deducting commissions, discounts or expenses) per share sold in
such offer, and (c) otherwise, the price, not less than book value, determined
in good faith and in such reasonable manner as prescribed by a majority of the
disinterested members of the Company"s Board of Directors who are not Company
officers or employees.
(e) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 and the rules and regulations thereunder.
(f) "Holder" means Adaptec, Inc., a Delaware corporation, and its
permitted successors and assigns .
(g) "SEC" means the Securities and Exchange Commission.
(h) "Subscription Notice" means a Subscription Notice substantially
in the form of Appendix I attached hereto, for execution upon exercise of the
purchase right represented by this Warrant.
2. Warrant Price. The purchase price to be paid upon exercise of this
Warrant is U.S. $20.00 per Share, subject to adjustment pursuant to Section 7
hereof (such price, as adjusted from time to time, is herein referred ---------
to as the "Warrant Price").
3. Exercise Period. This Warrant shall be exercisable by the Holder
for a term (the "Exercise Period") beginning at 8:00 a.m. Mountain Standard
Time on December 1, 2000 (the "Commencement Date") and ending at 5:00 p.m.
Mountain Standard Time on May 31, 2001 (the "Expiration Date").
4. Method of Exercise.
(a) The Holder may exercise the purchase rights evidenced hereby, in
whole or in part, during the Exercise Period. Such exercise shall be effected
by:
(i) the surrender of the Warrant, together with a duly
executed copy of the Subscription Notice, to the Secretary of the
Company at its principal office; and
(ii) the payment to the Company, by wire transfer of
immediately available funds to an account designated by the Company
at least two (2) days prior to the Commencement Date of an
aggregate amount equal to the number of Shares designated for
purchase in the completed Subscription Notice multiplied by the
Warrant Price.
(b) If the Holder believes that the exercise of this Warrant will
necessitate a filing under the HSR Act, the Holder shall give the Company at
least thirty (30) but not more than ninety
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<PAGE> 64
(90) days written notice of Holder"s intent to exercise this Warrant. As
promptly as practicable after the giving of such notice, the Company and the
Holder shall make all filings required by the HSR Act.
(c) Upon the request of the Company, the Holder shall also deliver to
the Company an instrument, in form and substance reasonably satisfactory to
counsel for the Company, executed by the Holder certifying that the Shares are
being acquired for investment purposes only and not with a view to their resale
or distribution.
(d) This Warrant and all rights of the Holder to purchase Shares
hereunder shall terminate and become void at the Expiration Date.
(e) Net Exercise Election. The Holder may elect to convert all or a
portion of this Warrant, without the payment by the Holder of any additional
consideration, by the surrender of this Warrant or such portion of this Warrant
to the Company, with the net exercise election selected in the Notice of
Exercise attached hereto as Appendix II duly executed by the Holder, into up to
the number of Shares that is obtained under the following formula:
X = Y (A-B)
--------
A
where X = the number of shares to be issued to the Holder.
Y = the number of Shares as to which this Warrant is being
exercised.
A = the fair market value of one Share, as determined in good
faith by the Company's Board of Directors, as at the time
the net exercise election is made.
B = the Warrant Price.
The Company will promptly respond in writing to an inquiry by the
Holder as to the then current fair market value of one Share.
For purposes of the above calculation, fair market value of one Share
shall be determined by the Company's Board of Directors in good faith;
provided, however, that where there exists a public market for the Company's
Common Stock at the time of such exercise, the fair market value per share
shall be the average of the closing bid and asked prices of the Common Stock
quoted in the Over-The-Counter Market Summary or the last reported sale price
of the Common Stock or the closing price quoted on the Nasdaq National Market
or on any exchange on which the Common Stock is listed, whichever is
applicable, as published in the Western Edition of The Wall Street Journal for
the three (3) trading days prior to the date of determination of fair market
value.
-3-
<PAGE> 65
5. Certificate for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued in the name of the Holder as soon as practicable, and
in any event within ten (10) days, after receipt by the Company of the
completed Subscription Notice and payment for the Shares being purchased. The
Company shall not be required to issue any fractional shares upon the exercise
of the Holder"s purchase rights under this Warrant. In lieu of any fractional
shares, the Company shall pay cash equal to such fraction multiplied by the per
share Fair Market Value of the Common Stock as of the date of exercise.
6. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Common Stock, free
from all preemptive rights with respect thereto, as will be sufficient to
permit the exercise of this Warrant for the purchase of the full number of
Shares specified herein. The Company further covenants that such Shares, when
issued pursuant to the exercise of this Warrant, will, upon issuance, be duly
and validly issued, fully paid and non-assessable and free from all taxes,
liens and charges with respect to the issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number of and
kind of securities purchasable upon exercise of this Warrant and the Warrant
Price therefor shall be subject to adjustment from time to time as follows:
(a) Stock Splits, Stock Dividends and Combinations. If the Company
shall at any time subdivide or combine its outstanding shares of the Common
Stock, or shall make or issue a dividend or other distribution payable in
additional shares of Common Stock, this Warrant shall, after that subdivision,
combination or dividend, evidence the right to purchase the number of shares of
Common Stock that would have been issuable as a result of that change with
respect to the shares of the Common Stock which were purchasable under this
Warrant immediately before that subdivision or combination. If the Company
shall at any time subdivide the outstanding shares of Common Stock, or shall
make or issue a dividend or other distribution payable in additional shares of
Common Stock, the Warrant Price then in effect immediately before that
subdivision or dividend shall be proportionately decreased, and, if the Company
shall at any time combine the outstanding shares of Common Stock, the Warrant
Price then in effect immediately before that combination shall be
proportionately increased. Any adjustment under this Section 7(a) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(b) Reclassification, Exchange and Substitution. If the Common Stock
issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other series or class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares provided for above), the Holder of this
Warrant shall, on its exercise, be entitled to purchase, in lieu of Common
Stock which the Holder would have become entitled to purchase but for such
change, a number of shares of such other series or class or classes of stock
equivalent to the number of shares of Common Stock that would have been subject
to purchase by the Holder on exercise of this Warrant immediately before that
change.
-4-
<PAGE> 66
(c) Reorganization. If at any time there shall be a capital
reorganization of the Company (other than a combination, reclassification,
exchange, or subdivision of shares provided for elsewhere in this Warrant),
then, as a part of such capital reorganization, lawful provision shall be made
so that the Holder of this Warrant shall thereafter be entitled to receive upon
exercise of this Warrant, during the period specified in this Warrant and upon
payment of the Warrant Price then in effect, the number of shares of stock or
other securities or property of the Company or its successor to which a holder
of the Company"s Common Stock deliverable upon exercise of this Warrant would
have been entitled in such capital reorganization if this Warrant had been
exercised immediately before that capital reorganization.
(d) Adjustments for Dividends and Other Distributions. If the
Company at any time or from time to time makes or fixes a record date for the
determination of holders of Common Stock entitled to received any distribution
(excluding any repurchases of securities by the Company not made on a pro rata
basis from all holders of any class of the Company securities) payable in
property other than cash or in securities of the Company, then and in each such
event the Holder of this Warrant shall receive at the time of the exercise of
this Warrant, the amount of property or the number of securities of the Company
that the Holder would have received had it exercised this Warrant on such
record date, in addition to the Shares.
(e) Notice of Adjustments. The Company shall give notice of each
adjustment or readjustment of the number of shares of the Common Stock or other
securities issuable upon exercise of this Warrant and the Warrant Price to the
registered Holder of this Warrant at that Holder"s address as shown on the
Company"s books within twenty (20) days after the occurrence of the event
resulting in such adjustment.
(f) No Change Necessary. The form of this Warrant need not be changed
because of any adjustment in the number of shares of the Common Stock
purchasable upon its exercise. A Warrant issued after any adjustment upon any
partial exercise or in replacement may continue to express the same number of
shares of Common Stock (appropriately reduced in the case of partial exercise)
as are stated on the face of this Warrant as initially issued, and that number
of shares shall be considered to have been so changed at the close of business
on the date of adjustment, provided that an appropriate notation to this effect
is made on such Warrant.
8. Merger, Consolidation or Sale of Assets.
(a) If the Company consolidates with or merges into another entity
and is not the survivor, or sells or conveys substantially all of its property,
and in connection therewith, shares of stock, other securities, property, or
cash (collectively, "Merger Consideration") are issuable or deliverable in
exchange for shares of the Company"s capital stock, then the Company shall give
the Holder at least thirty (30) days prior written notice of the consummation
of such transaction and the Holder may thereafter, at its option, (i) exercise
the Warrant, regardless of whether this Warrant is exercisable at the time of
such action, or (ii) require the Company or its successor or purchaser to
-5-
<PAGE> 67
enter into an agreement with the Holder to the effect that the Holder shall
have the right thereafter, upon payment of the Warrant Price in effect
immediately prior to such action, to purchase upon exercise of this Warrant the
Merger Consideration (subject to adjustment as provided in this Warrant) that
the Holder would have received had the Holder exercised this Warrant in its
entirety immediately prior to such merger, sale or conveyance, regardless of
whether this Warrant is exercisable at the time of such action.
(b) If the Company receives notice that a purchase, tender or
exchange offer has been made to the holders of more than 50% of the outstanding
Common Stock (on an as converted basis), the Company shall give the Holder
reasonable notice thereof, and the Holder shall be entitled to exercise this
Warrant immediately, regardless of whether this Warrant is exercisable at the
time of such offer and without giving the Company the notice required by
Section 4(b).
9. Notice of Certain Events. If (a) the Company authorizes the
issuance to all holders of any class of its capital stock rights or warrants to
subscribe for or purchase shares of its capital stock, or any other
subscription rights or warrants; (b) the Company authorizes the distribution to
all holders of any class of its capital stock evidences of indebtedness or
assets; (c) there is any capital reorganization or reclassification of the
Shares or the Company"s Common Stock, other than a subdivision or combination
of the outstanding Common Stock and other than a change in par value of the
Common Stock; (d) the Board of Directors of the Company approves any
liquidation or merger to which the Company is a party and for which approval of
the Company"s stockholders is required, other than a consolidation or merger in
which the Company is the surviving corporation and that does not result in any
reclassification or change of the shares of Common Stock issuable upon the
exercise of this Warrant; (e) the Board of Directors of the Company approves
the conveyance or transfer of the all or substantially all of the Company"s
properties and assets; or (f) the Board of Directors of the Company approves
the Company"s voluntary or involuntary dissolution, liquidation or winding-up
(each of the foregoing being a "Notice Event"); then the Company shall cause to
be mailed by certified mail to the Holder, at least thirty (30) days prior to
the applicable record or effective date hereinafter specified, a notice stating
the dates as of which (x) the holders of capital stock of record to be entitled
to receive any such rights, warrants or distributions or to be entitled to vote
on such Notice Event are to be determined and (y) such Notice Event is expected
to become effective. The Holder of record of this Warrant shall be entitled to
exercise of this Warrant upon the consummation of such Notice Event, regardless
of whether this Warrant is exercisable at the time of such action.
10. Exercise, Transfer and Exchange Restrictions.
(a) This Warrant, and any rights hereunder, may not be sold,
assigned or transferred, except as provided herein and in accordance with and
subject to the provisions of (i) applicable state securities laws, and (ii) the
1933 Act. Any purported transfer or assignment made other than in accordance
with this Section 10 shall be null and void and of no force and effect.
-6-
<PAGE> 68
(b) This Warrant, and any rights hereunder, may be sold,
transferred or assigned only to a direct or indirect subsidiary or affiliate of
the Holder or an entity of which the Holder is a direct or indirect subsidiary
or affiliate, or any 501(c)(3) charitable organization with which Holder is
affiliated, which sale, transfer or assignment shall be effective upon receipt
by the Company of notice thereof. Prior to the transfer or assignment, the
assignor or transferor shall reimburse the Company for its reasonable expenses,
including transfer taxes and reasonable attorneys" fees, incurred in connection
with the transfer or assignment.
(c) Any assignment permitted hereunder shall be made by surrender
of this Warrant to the Company at its principal office with an assignment duly
executed and funds sufficient to pay any transfer tax. In such event, the
Company shall, without charge, execute and deliver a new Warrant in the form
hereof in the name of the assignee named in such instrument of assignment and
this Warrant shall be promptly canceled.
11. Miscellaneous Provisions.
(a) Replacement. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of an indemnity
agreement or bond reasonably satisfactory in form and amount to the Company or,
in the case of mutilation, on surrender and cancellation of this Warrant, the
Company at its expense will execute and deliver, in lieu of this Warrant a new
Warrant of like tenor.
(b) No Rights as Stockholder. Prior to the exercise of this
Warrant, the Holder shall not be entitled to vote or receive dividends or be
considered a stockholder of the Company for any purpose, nor shall anything in
this Warrant be construed to confer on the Holder any rights of a shareholder
of the Company or any right to vote, give or withhold consent to any corporate
action, to receive notice of meetings of stockholders (except as set forth in
this Warrant), to receive dividends or subscription rights or otherwise.
(c) Governing Law. This Warrant shall be governed by and construed
and enforced in accordance with the laws of the State of California applicable
to contracts entered into and wholly to be performed in California by
California residents.
(d) Notices. All notices hereunder shall be in writing and shall be
(i) personally delivered, (ii) transmitted by mail, postage prepaid, registered
or certified, return receipt requested, (iii) transmitted by an overnight
courier of recognized reputation or (iv) transmitted by telecopier (with
confirmation by air mail or courier), to the respective addresses set forth in
writing by the Company and the Holder. Except as otherwise specified herein,
communications shall be deemed to have been duly given on (A) the date of
receipt or refusal of delivery if delivered personally, (B) the date five (5)
days after posting if transmitted by mail, (C) the date three (3) days after
delivery to the courier if sent by recognized courier service, or (D) the date
on which written
-7-
<PAGE> 69
confirmation would be deemed to have been given as provided above, whether by
mail or by courier, as applicable, if transmitted by telecopier, whichever
shall first occur.
(e) Amendments. No amendment or modification of any provision of
this Warrant shall be effective unless the same shall be in writing and signed
by the parties hereto.
(f) No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, intentionally avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Company, but it will at all times in good faith assist in the carrying out of
all of the provisions of this Warrant and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer.
Dated: March 1, 2000.
CHAPARRAL NETWORK STORAGE, INC.
By: /s/ Michael J. Gluck
---------------------------------------
Name: Michael J. Gluck
-------------------------------------
Title: President and Chief Operating Officer
-------------------------------------
Acknowledged and Agreed:
ADAPTEC, INC.
By: /s/ Peter Campagne
------------------------------
Name: Peter Campagne
--------------------------
Title: Vice President, Treasurer
-------------------------
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<PAGE> 70
NEITHER THIS WARRANT NOR THE SERIES A PREFERRED STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND THIS
WARRANT CANNOT BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF THE SERIES A
PREFERRED STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR
TRANSFERRED, UNLESS AND UNTIL THEY ARE SO REGISTERED OR UNLESS SUCH REGISTRATION
IS NOT THEN REQUIRED UNDER THE CIRCUMSTANCES OF SUCH EXERCISE, SALE OR TRANSFER.
CHAPARRAL TECHNOLOGIES, INC.
WARRANT TO PURCHASE COMMON STOCK
OF CHAPARRAL TECHNOLOGIES, INC.
Void after February 8, 2004
This certifies that, subject to the terms and conditions set forth herein,
for value received, Sentinel Consulting LLC., a Delaware corporation, (the
"Holder") or its registered assigns is entitled to purchase from Chaparral
Technologies, Inc., a Delaware corporation (the "Company") up to one hundred
fifty thousand (150,000) fully paid and nonassessable shares of Common Stock,
$0.001 par value, of the Company (as adjusted pursuant to Section 7 hereof, the
"Shares") at the purchase price per share specified in Section 2 below.
1. Definitions. As used in this Warrant, the following terms, unless the
context otherwise requires, have the following meanings:
(a) "Common Stock", when used with reference to stock of the Company,
means all shares, now or hereafter authorized, of the class of Common Stock,
$0.001 par value, of the Company currently authorized and shares of any other
class into which those shares may hereafter be changed.
(b) "Company" means Chaparral Technologies, Inc. a Delaware corporation
and any corporation which shall succeed to or assume the obligations of the
Company under this Warrant.
(c) "1933 Act" means the Securities Act of 1933, as amended.
(d) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(e) "Convertible equity securities" or "equity securities" shall mean
any of the Company's securities.
(f) "Holder" means Sentinel Consulting, LLC, a Delaware corporation.
(g) The terms "register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the 1933 Act, and the declaration or
ordering of the effectiveness of such registration statement or document by the
SEC.
1
<PAGE> 71
(h) The term "Registrable Securities" means: (i) the Common Stock or
other equity or convertible equity securities of the Company issued or issuable
upon exercise of this Warrant; and (ii) any Common Stock of the Company issued
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued) by way of a stock split, stock dividend,
recapitalization, merger or other distribution with respect to, or in exchange
for, or in replacement of, such Common Stock.
2. Warrant Price. The purchase price to be paid upon exercise of this
Warrant is U.S. $0.25 per share of Common Stock. Such price shall be subject to
adjustment pursuant to Section 7 hereof (such price, as adjusted from time to
time, is herein referred to as the "Warrant Price").
3. Exercise Period. This Warrant shall be exercisable by the Holder for a
term beginning on February 8. 1999, (the "Commencement Date") and ending on
February 8, 2004, (the "Expiration Date").
4. Method of Exercise.
(a) The Holder may exercise from time to time, in whole or in part on
or before the Expiration Date, the purchase rights evidenced hereby. Such
exercise shall be effected by:
(i) the surrender of the Warrant, together with a duly executed
copy of the form of subscription attached hereto as Appendix I, to the Secretary
of the Company at its principal offices; and
(ii) the payment to the Company, in cash or by check payable to
the order of the Company, of an amount equal to the aggregate purchase price for
the number of Shares designated for purchase in the completed subscription form.
(b) In lieu of exercising this Warrant pursuant to Section 4(a), the
Holder may elect to receive shares equal to the value of this Warrant (or any
portion thereof remaining unexercised) by surrender of this Warrant at the
principal office of the Company together with the Subscription Form, in which
event the Company shall issue to the Holder a number of Shares computed using
the following formula:
X = Y (A-B)
--------
A
Where X= the number of Shares to be issued to the Holder.
2
<PAGE> 72
Y=the number of Shares purchasable under this Warrant (at the date of such
exercise).
A=the fair market value of one Share (at the date of such exercise).
B=the Warrant Price (as adjusted to the date of such exercise).
For purposes of this subsection fair market value of one Share shall mean:
(i) The average of the closing bid and asked prices of the Common Stock
quoted in the NASDAQ National Market System or the Over-the-Counter market
or the closing price quoted on any exchange on which the Common Stock is
listed, whichever is applicable, as published in the Western Edition of The
Wall Street Journal for the five (5) trading days prior to the date of
determination of the fair market value; or
(ii) If the Common Stock is not publicly traded, the per share fair market
value of the Common Stock shall be determined in good faith by the Company's
Board of Directors. If the Holder disagrees with the determination by the
Board of Directors of the fair market value of the Common Stock then such
fair market value shall be determined by an independent appraiser selected
jointly by the Company and the Holder. The cost of such appraisal shall be
paid equally by the Company and the Holder.
(c) Upon the request of the Company, the Holder shall also deliver to
the Company an instrument, in form and substance reasonably satisfactory to
counsel for the Company, executed by the Holder certifying that the Shares are
being acquired for investment purposes only and not with a view to their resale
or distribution.
(c) In the event of a partial exercise of this Warrant, a new Warrant
shall be issued to the Holder representing the balance of the Shares purchasable
under this Warrant, such new Warrant to be issued within ten (10) days after
delivery of the subscription notice.
5. Certificate for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued in the name of the Holder as soon as practicable
following receipt of the completed subscription form and payment for the Shares
being purchased and in any event within ten (10) days thereafter. The Company
shall not be required to issue any fractional shares upon the exercise of the
Holder's purchaser rights under this Warrant. In lieu of any fractional shares,
the Company shall pay cash equal to such fraction multiplied by the per share
market price of the Common Stock as of the date of exercise.
6. Reservation of Shares. The Company covenants that it will at all times
keep available such number of authorized shares of its Series A Preferred Stock
and Common Stock, free from all preemptive rights with respect thereto, as will
be sufficient to permit the exercise of this Warrant for the full number of
Shares specified herein and the conversion of the Shares into
3
<PAGE> 73
Common Stock. The Company further covenants that such Shares, when issued
pursuant to the exercise of this Warrant, will, upon issuance, be duly and
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges with respect to the issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number of and kind
of securities purchasable upon exercise of this Warrant and the purchase price
therefor shall be subject to adjustment from time to time as follows:
(a) Stock Splits and Combinations. If the Company shall at any time
subdivide or combine its outstanding shares of the Common Stock, this Warrant
shall, after that subdivision or combination, evidence the right to purchase the
number of shares of Common Stock that would have been issuable as a result of
that change with respect to the shares of the Common Stock which were
purchasable under this Warrant immediately before that subdivision or
combination. If the Company shall at any time subdivide the outstanding shares
of Common Stock, the Warrant Price then in effect immediately before that
subdivision shall be proportionately decreased, and, if the Company shall at any
time combine the outstanding shares of Common Stock, the Warrant Price then in
effect immediately before that combination shall be proportionately increased.
Any adjustment under this Section 7(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(b) Reclassification, Exchange and Substitution. If the Common Stock
issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other series or class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares provided for above), the Holder of this
Warrant shall, on its exercise, be entitled to purchase, in lieu of Common Stock
which the Holder would have become entitled to purchase but for such change, a
number of shares of such other series or class or classes of stock equivalent to
the number of shares of Common Stock that would have been subject to purchase by
the Holder on exercise of this Warrant immediately before that change.
(c) Reorganization, Mergers, Consolidations or Sale of Assets. If at
any time there shall be a capital reorganization of the Company (other than a
combination, reclassification, exchange, or subdivision of shares provided for
elsewhere in this Warrant) or merger or consolidation of the Company with or
into another corporation, or the sale of the Company's properties and assets as,
or substantially as, an entirety to any other person, then, as a part of such
capital reorganization, merger, consolidation or sale, lawful provision shall be
made so that the Holder of this Warrant shall thereafter be entitled to receive
upon exercise of this Warrant, during the period specified in this Warrant and
upon payment of the Warrant Price then in effect, the number of shares of stock
or other securities or property of the Company, or of the successor corporation
resulting from such merger or consolidation, to which a holder of the Company's
Common Stock deliverable upon exercise of this Warrant would have been entitled
in such capital reorganization, merger, consolidation or sale if this Warrant
had been exercised immediately before that capital reorganization, merger,
consolidation or sale.
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(d) Notice of Adjustments. The Company shall give notice of each
adjustment or readjustment of the number of shares of the Common Stock or other
securities issuable upon exercise of this Warrant and the Warrant Price to the
registered Holder of this Warrant at that Holder's address as shown on the
Company's books within twenty (20) days after the occurrence of the event
resulting in such adjustment.
(e) No Change Necessary. The form of this Warrant need not be changed
because of any adjustment in the number of shares of the Common Stock
purchasable upon its exercise. A Warrant issued after any adjustment upon any
partial exercise or in replacement may continue to express the same number of
shares of Common Stock (appropriately reduced in the case of partial exercise)
as are stated on the face of this Warrant as initially issued, and that number
of shares shall be considered to have been so changed at the close of business
on the date of adjustment.
8. Automatic Termination. In the event of (i) the closing of the Company's
registration statement on a Form S-1 (or any other form equivalent thereto)
pursuant to which any class of the Company's securities is sold to the public in
a public offering registered under the Securities Act of 1933, as amended; or
(ii) the proposed sale of all or substantially all the capital stock, or
substantially all the assets, of the Company in a merger, business combination,
or other form of business transaction with or into a third party in which the
Company's stockholders do not own at least a majority of the outstanding voting
securities of the surviving corporation or business entity after such
transaction (based solely on such Company stockholders' holdings of the Company
prior to the transaction), then the Company shall give the Holder of this
Warrant at least fifteen (15) days written notice of the proposed effective date
and terms of such offering, transaction or agreements, and if the Warrant has
not been exercised at least before the effective date of such offering,
transaction or agreements, then this Warrant and the rights hereunder shall be
automatically terminated.
9. Exercise, Transfer and Exchange Restrictions.
(a) This Warrant, and any rights hereunder, may not be assigned or
transferred, except as provided herein and in accordance with and subject to the
provisions of (i) applicable state securities laws, and (ii) the Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder (such
Act and such rules and regulations being hereinafter collectively referred to as
the "Act"). Any purported transfer or assignment made other than in accordance
with this Section 9 shall be null and void and of no force and effect.
(b) This Warrant, and any rights hereunder, may be transferred or
assigned only with the prior written consent of the Company, which shall be
granted only upon receipt by the Company of an opinion of counsel satisfactory
to the Company that (i) the transferee is a person to whom this Warrant may be
legally transferred without registration under the Act, and (ii) such transfer
will not violate any applicable law or governmental rule or regulation,
including, without limitation, any applicable federal or state securities law.
Prior to the transfer or assignment, the assignor or transferor shall reimburse
the Company for its reasonable expenses, including transfer taxes and attorneys'
fees, incurred in connection with the transfer or assignment.
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(c) Any assignment permitted hereunder shall be made by surrender of
this Warrant to the Company at its principal office with an assignment duly
executed and funds sufficient to pay any transfer tax. In such event, the
Company shall, without charge, execute and deliver a new Warrant in the name of
the assignee named in such instrument of assignment and this Warrant shall be
promptly canceled.
10. Registration Rights.
(a) Requested Registration.
(i) Request for Registration. In case the Company shall receive
from the Holder a written request that the Company file a registration statement
under the 1933 Act with respect to shares of Registrable Securities having an
expected aggregate offering price of at least One Million Dollars ($1,000,000),
the Company will, subject to the limitations of Section 9(a)(ii), use its best
efforts to effect such registration under the 1933 Act (including, without
limitation, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the 1933 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; provided, however, that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section 10(a)(i):
(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 1933 Act;
(B) Prior to the six (6) months after the closing date of the
Company's first registered public offering of its stock (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 SEC
Rule 145 transaction);
(C) During the period starting with the date sixty (60) days
prior to the Company's estimated date of filing of, and ending on the date six
(6) months immediately following the closing date of, any initial registration
statement pertaining to securities of the Company (other than a registration
statement relating either to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145
transaction); provided, however, that the Company is acting in good faith and
using all reasonable efforts to cause such initial registration statement to
become effective;
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(D) After the Company has effected one (1) such registration
pursuant to a Holder's demand under this Section 10(a)(i), which registration
has been declared effective; or
(E) If the Company shall furnish to 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 and
its shareholders for a registration statement to be filed at such time, then the
Company's obligation to use its best efforts to register, qualify or comply
under this Section 10(a)(i) shall be deferred for a period not to exceed one
hundred twenty (120) days from the date of receipt of written request from the
Holder; provided, however, that the Company may not make such certification more
than once every twelve (12) months.
(ii) Underwriting. In the event that a registration pursuant to
Section 10(a)(i) is for a registered public offering involving an underwriting,
the Company shall so advise the Holder and the right of the Holder to
registration pursuant to Section 10(a)(i) shall be conditioned upon such
Holder's participation in the underwriting arrangements required by this Section
10(a)(ii), and the inclusion of the Holder's Registrable Securities in the
underwriting to the extent requested shall be limited to the extent provided
herein.
The Company shall, together with the Holder, enter into an underwriting
agreement in customary form with a managing underwriter selected for such
underwriting by the Company. Notwithstanding any other provision of this Section
10(a), if the managing underwriter advises the Holder in writing that market
factors require a limitation of the number of shares to be underwritten, then
the number of shares of Registrable Securities that may be included in the
registration shall be so limited.
(b) Piggy-back Registration Rights.
(i) Piggy-back Registration Rights. If (but without any obligation
to do so) the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Holder) any
of its securities under the 1933 Act in connection with the public offering of
such securities solely for cash (other than a registration (i) on Form S-8 or
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities, or (ii) with respect to an employee benefit plan, or
(iii) solely in connection with a Rule 145 transaction under the 1933 Act), the
Company shall, each such time, promptly give the Holder written notice of such
registration together with a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under applicable state securities
laws. Upon the written request of the Holder given within twenty (20) business
days after delivery of such written notice by the Company, the Company shall,
subject to the provisions of Section 10(b)(ii), use its best efforts to cause to
be registered under the 1933 Act all of the Registrable Securities that the
Holder has requested to be registered. The Company shall be required to effect
not more than three (3) such registrations of Registrable Securities pursuant to
the request of the Holder under this Section 10(b).
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(ii) Underwriting Requirements in Piggy-back Registration. The
right of the Holder to registration pursuant to Section 10(b)(i) shall be
conditioned upon the Holder's participation in such underwriting and the
inclusion of the Holder's Registrable Securities in the underwriting to the
extent provided herein. The Holder shall (together with the Company and any
other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
Section 10(b)(i) and this Section 10(b)(ii), if the underwriter determines that
market factors require a limitation of the number of shares to be underwritten,
the underwriter may (subject to the allocation priority set forth below) exclude
some or all Registrable Securities from such registration and underwriting.
(c) Obligations of the Company. Whenever required under this Section 9
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holder,
keep such registration statement effective for up to one hundred twenty (120)
days.
(ii) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by such
registration statement.
(iii) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by it.
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under the securities laws of such
jurisdictions as shall be reasonably appropriate for the distribution of the
securities covered by the registration statement; provided, however, 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 jurisdiction, and further provided that (anything in this Agreement to
the contrary notwithstanding with respect to the bearing of expenses) if any
jurisdiction in which the securities shall be qualified shall require that
expenses incurred in connection with the qualification of the securities in that
jurisdiction be borne by selling shareholders, then such expenses shall be
payable by the Holder, to the extent required by such jurisdiction if the Holder
does elect to withdraw from the registration after notice of such requirement.
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(v) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement with terms generally
satisfactory to the managing underwriter of such offering. The Holder shall also
enter into and perform its obligations under such an agreement.
(vi) Notify the Holder, at any time when a prospectus relating
thereto is required to be delivered under the 1933 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 light of the circumstances then
existing. In such instance, Company shall use its best efforts to cure any such
statement or omission so as to render such statement or omission not misleading.
(d) Furnish Information. In connection with any action pursuant to this
Section 10, the Holder shall furnish to the Company such information regarding
itself, the Registrable Securities held by it, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities. In that connection, the Holder shall be
required to represent to the Company that all such information which is given is
both complete and accurate in all material respects when made.
(e) Definition of Expenses.
(i) "Registration Expenses" shall mean all expenses incurred by
the Company in complying with Section 10 hereof, including, without limitation,
all registration, filing and qualification fees, underwriters' expense
allowances, printing expenses, fees and disbursements of counsel for the
Company, reasonable fees and expenses of one special counsel retained in
connection with each such registration by the Holder, blue sky fees and
disbursements, and the expense of any special audits incident to or required by
any registration pursuant to Section 10(a) (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company).
(ii) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of the Registrable Securities in the
registration, all stock transfer taxes and all fees and disbursements of any
additional special counsel (other than the special counsel provided for in
Section 10(e)(i) above) retained in connection with each such registration by
the Holder.
(f) Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with (i) any registration, qualification or
compliance pursuant to Section 10(a), and (ii) no more than three (3)
registrations pursuant to Section 10(b). All Selling Expenses shall be borne by
the Holder.
(g) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 10:
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(i) To the extent permitted by law, the Company will indemnify and
hold harmless the Holder, the officers, directors and partners of the Holder,
any underwriter (as defined in the 1933 Act) for the Holder and each person, if
any, who controls the Holder or underwriter within the meaning of the 1933 Act
or the 1934 Act, against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the 1933 Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto; (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading; or (iii) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, the 1934 Act or any state securities
law; and the Company will reimburse the Holder, officer, director or partner,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
Company's indemnity contained in this Section 10(g) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished in writing and expressly stated
for use in connection with such registration by the Holder, or the Holder's
officers, directors or partners, underwriter, or controlling person. The Company
shall not be required to indemnify any person against any liability arising (i)
from any untrue or misleading statement or omission contained in any preliminary
prospectus if such deficiency is corrected in the final prospectus or (ii) out
of the failure of any person to deliver a prospectus as required by the 1993
Act. The indemnity provided for in this Section 10(g) shall remain in full force
and effect regardless of any investigation made by or on behalf of such seller,
underwriter, participating person or controlling person and shall survive
transfer of such securities by such seller.
(ii) To the extent permitted by law, the Holder will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who controls the Company
within the meaning of the 1933 Act, any underwriter (within the meaning of the
1933 Act) for the Company, any person who controls such underwriter, and any
other security holder in such registration statement or any of its partners,
directors or officers or any person who controls such security holder, against
any losses, claims, damages or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the 1933 Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by the Holder expressly stated in a writing for use in connection with
such registration; and the Holder will reimburse any legal or other expenses, as
incurred, where same are reasonably incurred by any person intended to be
indemnified pursuant to this Section 10(g), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity
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agreement contained in this Section 10(g) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, the liability of
each Holder under this Section 10(g) shall be limited to an amount equal to the
public offering price of the shares sold by the Holder.
(iii) Promptly after receipt by an indemnified party under this
Section 10(g) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 10(g), notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party shall have the right to participate in and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
to be paid by the indemnifying party if the indemnified party reasonably
determines that representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 10(g), but the omission so to notify the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 10(g).
(iv) In order to provide for just and equitable contribution to
joint liability under the 1933 Act in any case in which either (i) any
indemnified party makes a claim under this Section 10(g) or any controlling
person of such indemnified party makes such a claim but is judicially determined
(by entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 10(g) provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of any such person
seeking indemnity under the terms of this Section 10(g); then, and in each such
case, the Company and such person will contribute to the aggregate losses,
claims, damages, or liabilities to which they may be subject (after contribution
from others) 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. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
person shall be required to contribute any amount in excess of the public
offering price of all such Registrable Securities sold by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
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(h) Investor Rights Agreement. The Holder acknowledges and agrees that
(i) the Company and certain investors have entered into an Investor Rights
Agreement dated November 25, 1998 (the "Investor Rights Agreement"), (ii) the
Holder may include his securities in a demand registration under the Investor
Rights Agreement only to the extent that the inclusion of his securities will
not reduce the amount of securities to be registered for parties to the Investor
Rights Agreement and (iii) the Holder shall not make a demand registration which
could result in such registration statement being declared effective prior six
months after the effective date of the Company's initial public offering of
securities pursuant to a registration filed under the 1933 Act or within one
hundred twenty (120) days of the effective date of any demand registration
pursuant to the Investor Rights Agreement.
(i) Termination of Registration Rights.
(i) The Company shall have no obligations pursuant to Section 10
with respect to any request or requests made by the Holder after the date which
is five (5) years following the date of the consummation of the first sale of
securities pursuant to a registration statement filed by the Company under the
1933 Act in connection with the initial firm commitment underwritten offering of
its securities to the general public.
(ii) Notwithstanding any contrary provision of this Section 10(i),
the Company shall not be required to effect any registrations under the 1933 Act
or under any state securities laws on behalf of the Holder if, in the opinion of
counsel to the Company, the offering or transfer by such Holder in the manner
proposed (including, without limitation, the number of shares proposed to be
offered or transferred, the time of sale, and the method of offering or
transfer) is exempt from the registration requirements of the 1933 Act and the
securities laws of applicable states and the Company consents to such transfer,
if required.
11. "Market Stand-off" Agreement. The Holder agrees, so long as the
Holder holds at least one percent (1%) of the Company's outstanding voting
equity securities, in connection with the Company's initial underwritten public
offering of the Company's securities that, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Common Stock of the Company (other than those Common
Stock shares included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed one hundred eighty (180) days) from the closing date of such
registration as may be requested by the underwriters; provided, however, that
such covenants shall apply only if (i) all of the officers and directors of the
Company who own stock of the Company and (ii) each shareholder owning more than
two percent (2%) of the Company's shares also agree to such restrictions on any
shares not being registered in such offering. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Registrable Securities of the Holder (and the shares of securities of every
other person subject to the foregoing restriction) until the end of such period.
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12. Miscellaneous Provisions.
(a) Listing. If any shares of the Common Stock required to be
reserved for issuance upon the exercise of this Warrant require registration
with or approval of any governmental authority under any Federal or state law
(other than the Securities Act, as then in effect, or any similar Federal law
then in effect), or listing on any domestic securities exchange, before such
shares may be issued upon such exercise, the Company shall, at its expense and
as expeditiously as possible, use its best efforts to cause such shares to be
duly registered or approved or listed on the relevant domestic securities
exchange, as the case may be.
(b) Replacement. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of any indemnity
agreement or bond reasonably satisfactory in form and amount to the Company or,
in the case of mutilation, on surrender and cancellation of this Warrant, the
Company at its expense will execute and deliver, in lieu of this Warrant a new
Warrant of like tenor.
(c) No Rights as Stockholder. Prior to the exercise of this
Warrant, no Holder of this Warrant, as such, shall be entitled to vote or
receive dividends or be considered a stockholder of the Company for any purpose,
nor shall anything in this Warrant be construed to confer on any Holder of this
Warrant, as such, any rights of a shareholder of the Company or any right to
vote, give or withhold consent to any corporate action, to receive notice of
meetings of stockholders (except as set forth in this Warrant), to receive
dividends or subscription rights or otherwise.
(d) Governing Law. This Warrant shall be governed by and construed
and enforced in accordance with the laws of the State of California applicable
to contracts entered into and wholly to be performed in California by California
residents.
(e) Notices. All notices from the Company to the holder of this
Warrant shall be in writing and shall be (i) personally delivered, (ii)
transmitted by mail, postage prepaid, registered or certified, return receipt
requested, or by air mail in the event of mailing for delivery outside of the
country in which mailed, (iii) transmitted by an overnight courier of recognized
reputation or of recognized international reputation in the event of an
international delivery or (iv) transmitted by telecopier (with confirmation by
air mail or courier), to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in accordance with the provisions of this Section 11(e). Except as otherwise
specified herein, communications shall be deemed to have been duly given on (A)
the date of receipt if delivered personally, (B) the date seven (7) days after
posting if transmitted by mail, (C) the date three (3) days after delivery to
the courier if sent by recognized or internationally recognized courier service,
or (D) the date on which written confirmation would be deemed to have been given
as provided above, whether by mail or by courier, as applicable, if transmitted
by telecopier, whichever shall first occur.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer.
Dated: February 8, 1999.
CHAPARRAL TECHNOLOGIES, INC.
By: /s/ Douglas J. Lehrmann
---------------------------
Name: Douglas J. Lehrmann
Title: Vice President, [ILLEGIBLE]
Acknowledged and Agreed:
Sentinel Consulting LLC.
By: /s/ Robert Harvey
--------------------------
Name: Robert Harvey
Title: Manager
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NEITHER THIS WARRANT NOR THE SERIES A PREFERRED STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND THIS
WARRANT CANNOT BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF THE SERIES A
PREFERRED STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR
TRANSFERRED, UNLESS AND UNTIL THEY ARE SO REGISTERED OR UNLESS SUCH REGISTRATION
IS NOT THEN REQUIRED UNDER THE CIRCUMSTANCES OF SUCH EXERCISE, SALE OR TRANSFER.
CHAPARRAL TECHNOLOGIES, INC.
WARRANT TO PURCHASE COMMON STOCK
OF CHAPARRAL TECHNOLOGIES, INC.
Void after March 31, 2004
This certifies that, subject to the terms and conditions set forth
herein, for value received, Sentinel Consulting LLC., a Delaware corporation,
(the "Holder") or its registered assigns is entitled to purchase from Chaparral
Technologies, Inc., a Delaware corporation (the "Company") up to fifty-five
thousand five hundred fifty six (55,556) fully paid and nonassessable shares of
Common Stock, $0.001 par value, of the Company (as adjusted pursuant to Section
7 hereof, the "Shares") at the purchase price per share specified in Section 2
below.
1. Definitions. As used in this Warrant, the following terms, unless
the context otherwise requires, have the following meanings:
(a) "Common Stock", when used with reference to stock of the
Company, means all shares, now or hereafter authorized, of the class of Common
Stock, $0.001 par value, of the Company currently authorized and shares of any
other class into which those shares may hereafter be changed.
(b) "Company" means Chaparral Technologies, Inc. a Delaware
corporation and any corporation which shall succeed to or assume the obligations
of the Company under this Warrant.
(c) "1933 Act" means the Securities Act of 1933, as amended.
(d) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(e) "Convertible equity securities" or "equity securities"
shall mean any of the Company's securities.
(f) "Holder" means Sentinel Consulting, LLC, a Delaware
corporation.
(g) The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with
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the 1933 Act, and the declaration or ordering of the effectiveness of such
registration statement or document by the SEC.
(h) The term "Registrable Securities" means: (i) the Common
Stock or other equity or convertible equity securities of the Company issued or
issuable upon exercise of this Warrant; and (ii) any Common Stock of the Company
issued (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued) by way of a stock split, stock dividend,
recapitalization, merger or other distribution with respect to, or in exchange
for, or in replacement of, such Common Stock.
2. Warrant Price. The purchase price to be paid upon exercise of this
Warrant is U.S. $0.36 per share of Common Stock. Such price shall be subject to
adjustment pursuant to Section 7 hereof (such price, as adjusted from time to
time, is herein referred to as the "Warrant Price").
3. Exercise Period. This Warrant shall be exercisable by the Holder for
a term beginning on March 31. 1999, (the "Commencement Date") and ending on
March 31, 2004, (the "Expiration Date").
4. Method of Exercise.
(a) The Holder may exercise from time to time, in whole or in
part on or before the Expiration Date, the purchase rights evidenced hereby.
Such exercise shall be effected by:
(i) the surrender of the Warrant, together with a
duly executed copy of the form of subscription attached hereto as Appendix I, to
the Secretary of the Company at its principal offices; and
(ii) the payment to the Company, in cash or by check
payable to the order of the Company, of an amount equal to the aggregate
purchase price for the number of Shares designated for purchase in the completed
subscription form.
(b) In lieu of exercising this Warrant pursuant to Section
4(a), the Holder may elect to receive shares equal to the value of this Warrant
(or any portion thereof remaining unexercised) by surrender of this Warrant at
the principal office of the Company together with the Subscription Form, in
which event the Company shall issue to the Holder a number of Shares computed
using the following formula:
X = Y (A-B)
-------
A
Where X= the number of Shares to be issued to the Holder.
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Y= the number of Shares purchasable under this Warrant (at the date of
such exercise).
A= the fair market value of one Share (at the date of such exercise).
B= the Warrant Price (as adjusted to the date of such exercise).
For purposes of this subsection fair market value of one Share shall mean:
(i) The average of the closing bid and asked prices of the Common Stock
quoted in the NASDAQ National Market System or the Over-the-Counter
market or the closing price quoted on any exchange on which the Common
Stock is listed, whichever is applicable, as published in the Western
Edition of The Wall Street Journal for the five (5) trading days prior
to the date of determination of the fair market value; or
(ii) If the Common Stock is not publicly traded, the per share fair
market value of the Common Stock shall be determined in good faith by
the Company's Board of Directors. If the Holder disagrees with the
determination by the Board of Directors of the fair market value of the
Common Stock then such fair market value shall be determined by an
independent appraiser selected jointly by the Company and the Holder.
The cost of such appraisal shall be paid equally by the Company and the
Holder.
(c) Upon the request of the Company, the Holder shall also
deliver to the Company an instrument, in form and substance reasonably
satisfactory to counsel for the Company, executed by the Holder certifying that
the Shares are being acquired for investment purposes only and not with a view
to their resale or distribution.
(d) In the event of a partial exercise of this Warrant, a new
Warrant shall be issued to the Holder representing the balance of the Shares
purchasable under this Warrant, such new Warrant to be issued within ten (10)
days after delivery of the subscription notice.
5. Certificate for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued in the name of the Holder as soon as practicable
following receipt of the completed subscription form and payment for the Shares
being purchased and in any event within ten (10) days thereafter. The Company
shall not be required to issue any fractional shares upon the exercise of the
Holder's purchaser rights under this Warrant. In lieu of any fractional shares,
the Company shall pay cash equal to such fraction multiplied by the per share
market price of the Common Stock as of the date of exercise.
6. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Series A Preferred
Stock and Common Stock, free from all preemptive rights with respect thereto, as
will be sufficient to permit the exercise of this Warrant for the full number of
Shares specified herein and the conversion of the Shares into
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Common Stock. The Company further covenants that such Shares, when issued
pursuant to the exercise of this Warrant, will, upon issuance, be duly and
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges with respect to the issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number of and
kind of securities purchasable upon exercise of this Warrant and the purchase
price therefor shall be subject to adjustment from time to time as follows:
(a) Stock Splits and Combinations. If the Company shall at any
time subdivide or combine its outstanding shares of the Common Stock, this
Warrant shall, after that subdivision or combination, evidence the right to
purchase the number of shares of Common Stock that would have been issuable as a
result of that change with respect to the shares of the Common Stock which were
purchasable under this Warrant immediately before that subdivision or
combination. If the Company shall at any time subdivide the outstanding shares
of Common Stock, the Warrant Price then in effect immediately before that
subdivision shall be proportionately decreased, and, if the Company shall at any
time combine the outstanding shares of Common Stock, the Warrant Price then in
effect immediately before that combination shall be proportionately increased.
Any adjustment under this Section 7(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(b) Reclassification, Exchange and Substitution. If the Common
Stock issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other series or class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares provided for above), the Holder of this
Warrant shall, on its exercise, be entitled to purchase, in lieu of Common Stock
which the Holder would have become entitled to purchase but for such change, a
number of shares of such other series or class or classes of stock equivalent to
the number of shares of Common Stock that would have been subject to purchase by
the Holder on exercise of this Warrant immediately before that change.
(c) Reorganization, Mergers, Consolidations or Sale of Assets.
If at any time there shall be a capital reorganization of the Company (other
than a combination, reclassification, exchange, or subdivision of shares
provided for elsewhere in this Warrant) or merger or consolidation of the
Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such capital reorganization, merger, consolidation or sale,
lawful provision shall be made so that the Holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified in this Warrant and upon payment of the Warrant Price then in
effect, the number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such merger or
consolidation, to which a holder of the Company's Common Stock deliverable upon
exercise of this Warrant would have been entitled in such capital
reorganization, merger, consolidation or sale if this Warrant had been exercised
immediately before that capital reorganization, merger, consolidation or sale.
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(d) Notice of Adjustments. The Company shall give notice of
each adjustment or readjustment of the number of shares of the Common Stock or
other securities issuable upon exercise of this Warrant and the Warrant Price to
the registered Holder of this Warrant at that Holder's address as shown on the
Company's books within twenty (20) days after the occurrence of the event
resulting in such adjustment.
(e) No Change Necessary. The form of this Warrant need not be
changed because of any adjustment in the number of shares of the Common Stock
purchasable upon its exercise. A Warrant issued after any adjustment upon any
partial exercise or in replacement may continue to express the same number of
shares of Common Stock (appropriately reduced in the case of partial exercise)
as are stated on the face of this Warrant as initially issued, and that number
of shares shall be considered to have been so changed at the close of business
on the date of adjustment.
8. Automatic Termination. In the event of (i) the closing of the
Company's registration statement on a Form S-1 (or any other form equivalent
thereto) pursuant to which any class of the Company's securities is sold to the
public in a public offering registered under the Securities Act of 1933, as
amended; or (ii) the proposed sale of all or substantially all the capital
stock, or substantially all the assets, of the Company in a merger, business
combination, or other form of business transaction with or into a third party in
which the Company's stockholders do not own at least a majority of the
outstanding voting securities of the surviving corporation or business entity
after such transaction (based solely on such Company stockholders' holdings of
the Company prior to the transaction), then the Company shall give the Holder of
this Warrant at least fifteen (15) days written notice of the proposed effective
date and terms of such offering, transaction or agreements, and if the Warrant
has not been exercised at least before the effective date of such offering,
transaction or agreements, then this Warrant and the rights hereunder shall be
automatically terminated.
9. Exercise, Transfer and Exchange Restrictions.
(a) This Warrant, and any rights hereunder, may not be
assigned or transferred, except as provided herein and in accordance with and
subject to the provisions of (i) applicable state securities laws, and (ii) the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (such Act and such rules and regulations being hereinafter
collectively referred to as the "Act"). Any purported transfer or assignment
made other than in accordance with this Section 9 shall be null and void and of
no force and effect.
(b) This Warrant, and any rights hereunder, may be transferred
or assigned only with the prior written consent of the Company, which shall be
granted only upon receipt by the Company of an opinion of counsel satisfactory
to the Company that (i) the transferee is a person to whom this Warrant may be
legally transferred without registration under the Act, and (ii) such transfer
will not violate any applicable law or governmental rule or regulation,
including, without limitation, any applicable federal or state securities law.
Prior to the transfer or assignment, the assignor or transferor shall reimburse
the Company for its reasonable
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expenses, including transfer taxes and attorneys' fees, incurred in connection
with the transfer or assignment.
(c) Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Company at its principal office with an
assignment duly executed and funds sufficient to pay any transfer tax. In such
event, the Company shall, without charge, execute and deliver a new Warrant in
the name of the assignee named in such instrument of assignment and this Warrant
shall be promptly canceled.
10. Registration Rights.
(a) Requested Registration.
(i) Request for Registration. In case the Company
shall receive from the Holder a written request that the Company file a
registration statement under the 1933 Act with respect to shares of Registrable
Securities having an expected aggregate offering price of at least One Million
Dollars ($1,000,000), the Company will, subject to the limitations of Section
9(a)(ii), use its best efforts to effect such registration under the 1933 Act
(including, without limitation, appropriate qualification under applicable blue
sky or other state securities laws and appropriate compliance with applicable
regulations issued under the 1933 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; provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 10(a)(i):
(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 1933 Act;
(B) Prior to the six (6) months after the
closing date of the Company's first registered public offering of its stock
(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 SEC Rule 145 transaction);
(C) During the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and ending
on the date six (6) months immediately following the closing date of, any
initial registration statement pertaining to securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction); provided, however, that the Company is
acting in good faith and using all reasonable efforts to cause such initial
registration statement to become effective;
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(D) After the Company has effected one (1)
such registration pursuant to a Holder's demand under this Section 10(a)(i),
which registration has been declared effective; or
(E) If the Company shall furnish to 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 and its shareholders for a registration statement to be filed at
such time, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 10(a)(i) shall be deferred for a period not
to exceed one hundred twenty (120) days from the date of receipt of written
request from the Holder; provided, however, that the Company may not make such
certification more than once every twelve (12) months.
(ii) Underwriting. In the event that a registration pursuant
to Section 10(a)(i) is for a registered public offering involving an
underwriting, the Company shall so advise the Holder and the right of the Holder
to registration pursuant to Section 10(a)(i) shall be conditioned upon such
Holder's participation in the underwriting arrangements required by this Section
10(a)(ii), and the inclusion of the Holder's Registrable Securities in the
underwriting to the extent requested shall be limited to the extent provided
herein.
The Company shall, together with the Holder, enter into an underwriting
agreement in customary form with a managing underwriter selected for such
underwriting by the Company. Notwithstanding any other provision of this Section
10(a), if the managing underwriter advises the Holder in writing that market
factors require a limitation of the number of shares to be underwritten, then
the number of shares of Registrable Securities that may be included in the
registration shall be so limited.
(b) Piggy-back Registration Rights.
(i) Piggy-back Registration Rights. If (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holder) any of its securities under the 1933 Act in connection with the public
offering of such securities solely for cash (other than a registration (i) on
Form S-8 or any form which does not include substantially the same information
as would be required to be included in a registration statement covering the
sale of the Registrable Securities, or (ii) with respect to an employee benefit
plan, or (iii) solely in connection with a Rule 145 transaction under the 1933
Act), the Company shall, each such time, promptly give the Holder written notice
of such registration together with a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under applicable state
securities laws. Upon the written request of the Holder given within twenty (20)
business days after delivery of such written notice by the Company, the Company
shall, subject to the provisions of Section 10(b)(ii), use its best efforts to
cause to be registered under the 1933 Act all of the Registrable Securities that
the Holder has requested to be registered. The Company shall be required to
effect not more than three (3) such registrations of Registrable Securities
pursuant to the request of the Holder under this Section 10(b).
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(ii) Underwriting Requirements in Piggy-back Registration. The
right of the Holder to registration pursuant to Section 10(b)(i) shall be
conditioned upon the Holder's participation in such underwriting and the
inclusion of the Holder's Registrable Securities in the underwriting to the
extent provided herein. The Holder shall (together with the Company and any
other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
Section 10(b)(i) and this Section 10(b)(ii), if the underwriter determines that
market factors require a limitation of the number of shares to be underwritten,
the underwriter may (subject to the allocation priority set forth below) exclude
some or all Registrable Securities from such registration and underwriting.
(c) Obligations of the Company. Whenever required under this Section 9
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holder, keep such registration statement effective for up to one hundred twenty
(120) days.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(iii) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by it.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably appropriate for the distribution of
the securities covered by the registration statement; provided, however, 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 jurisdiction, and further provided that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling shareholders, then such
expenses shall be payable by the Holder, to the extent required by such
jurisdiction if the Holder does elect to withdraw from the registration after
notice of such requirement.
(v) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing
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underwriter of such offering. The Holder shall also enter into and perform its
obligations under such an agreement.
(vi) Notify the Holder, at any time when a prospectus relating
thereto is required to be delivered under the 1933 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 light of the circumstances then
existing. In such instance, Company shall use its best efforts to cure any such
statement or omission so as to render such statement or omission not misleading.
(d) Furnish Information. In connection with any action pursuant to this
Section 10, the Holder shall furnish to the Company such information regarding
itself, the Registrable Securities held by it, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities. In that connection, the Holder shall be
required to represent to the Company that all such information which is given is
both complete and accurate in all material respects when made.
(e) Definition of Expenses.
(i) "Registration Expenses" shall mean all expenses incurred
by the Company in complying with Section 10 hereof, including, without
limitation, all registration, filing and qualification fees, underwriters'
expense allowances, printing expenses, fees and disbursements of counsel for the
Company, reasonable fees and expenses of one special counsel retained in
connection with each such registration by the Holder, blue sky fees and
disbursements, and the expense of any special audits incident to or required by
any registration pursuant to Section 10(a) (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company).
(ii) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of the Registrable Securities in
the registration, all stock transfer taxes and all fees and disbursements of any
additional special counsel (other than the special counsel provided for in
Section 10(e)(i) above) retained in connection with each such registration by
the Holder.
(f) Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with (i) any registration, qualification or
compliance pursuant to Section 10(a), and (ii) no more than three (3)
registrations pursuant to Section 10(b). All Selling Expenses shall be borne by
the Holder.
(g) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 10:
(i) To the extent permitted by law, the Company will indemnify
and hold harmless the Holder, the officers, directors and partners of the
Holder, any underwriter (as
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defined in the 1933 Act) for the Holder and each person, if any, who controls
the Holder or underwriter within the meaning of the 1933 Act or the 1934 Act,
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the 1933 Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading; or (iii) any
violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the 1933 Act,
the 1934 Act or any state securities law; and the Company will reimburse the
Holder, officer, director or partner, underwriter or controlling person for any
legal or other expenses reasonably incurred by them, as incurred, in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the Company's indemnity contained in this
Section 10(g) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished in writing and expressly stated for use in connection with
such registration by the Holder, or the Holder's officers, directors or
partners, underwriter, or controlling person. The Company shall not be required
to indemnify any person against any liability arising (i) from any untrue or
misleading statement or omission contained in any preliminary prospectus if such
deficiency is corrected in the final prospectus or (ii) out of the failure of
any person to deliver a prospectus as required by the 1993 Act. The indemnity
provided for in this Section 10(g) shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller,
underwriter, participating person or controlling person and shall survive
transfer of such securities by such seller.
(ii) To the extent permitted by law, the Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the registration statement, each person, if any, who controls the
Company within the meaning of the 1933 Act, any underwriter (within the meaning
of the 1933 Act) for the Company, any person who controls such underwriter, and
any other security holder in such registration statement or any of its partners,
directors or officers or any person who controls such security holder, against
any losses, claims, damages or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the 1933 Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by the Holder expressly stated in a writing for use in connection with
such registration; and the Holder will reimburse any legal or other expenses, as
incurred, where same are reasonably incurred by any person intended to be
indemnified pursuant to this Section 10(g), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity
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agreement contained in this Section 10(g) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, the liability of
each Holder under this Section 10(g) shall be limited to an amount equal to the
public offering price of the shares sold by the Holder.
(iii) Promptly after receipt by an indemnified party under
this Section 10(g) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 10(g), notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party shall have the right to participate in and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
to be paid by the indemnifying party if the indemnified party reasonably
determines that representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 10(g), but the omission so to notify the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 10(g).
(iv) In order to provide for just and equitable contribution
to joint liability under the 1933 Act in any case in which either (i) any
indemnified party makes a claim under this Section 10(g) or any controlling
person of such indemnified party makes such a claim but is judicially determined
(by entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 10(g) provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of any such person
seeking indemnity under the terms of this Section 10(g); then, and in each such
case, the Company and such person will contribute to the aggregate losses,
claims, damages, or liabilities to which they may be subject (after contribution
from others) 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. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
person shall be required to contribute any amount in excess of the public
offering price of all such Registrable Securities sold by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
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misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(h) Investor Rights Agreement. The Holder acknowledges and agrees that
(i) the Company and certain investors have entered into an Investor Rights
Agreement dated November 25, 1998 (the "Investor Rights Agreement"), (ii) the
Holder may include his securities in a demand registration under the Investor
Rights Agreement only to the extent that the inclusion of his securities will
not reduce the amount of securities to be registered for parties to the Investor
Rights Agreement and (iii) the Holder shall not make a demand registration which
could result in such registration statement being declared effective prior six
months after the effective date of the Company's initial public offering of
securities pursuant to a registration filed under the 1933 Act or within one
hundred twenty (120) days of the effective date of any demand registration
pursuant to the Investor Rights Agreement.
(i) Termination of Registration Rights.
(i) The Company shall have no obligations pursuant to Section
10 with respect to any request or requests made by the Holder after the date
which is five (5) years following the date of the consummation of the first sale
of securities pursuant to a registration statement filed by the Company under
the 1933 Act in connection with the initial firm commitment underwritten
offering of its securities to the general public.
(ii) Notwithstanding any contrary provision of this Section
10(i), the Company shall not be required to effect any registrations under the
1933 Act or under any state securities laws on behalf of the Holder if, in the
opinion of counsel to the Company, the offering or transfer by such Holder in
the manner proposed (including, without limitation, the number of shares
proposed to be offered or transferred, the time of sale, and the method of
offering or transfer) is exempt from the registration requirements of the 1933
Act and the securities laws of applicable states and the Company consents to
such transfer, if required.
11. "Market Stand-off" Agreement. The Holder agrees, so long as the
Holder holds at least one percent (1%) of the Company's outstanding voting
equity securities, in connection with the Company's initial underwritten public
offering of the Company's securities that, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Common Stock of the Company (other than those Common
Stock shares included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed one hundred eighty (180) days) from the closing date of such
registration as may be requested by the underwriters; provided, however, that
such covenants shall apply only if (i) all of the officers and directors of the
Company who own stock of the Company and (ii) each shareholder owning more than
two percent (2%) of the Company's shares also agree to such restrictions on any
shares not being registered in such offering. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Registrable Securities of the Holder (and the shares
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of securities of every other person subject to the foregoing restriction) until
the end of such period.
12. Miscellaneous Provisions.
(a) Listing. If any shares of the Common Stock required to be
reserved for issuance upon the exercise of this Warrant require registration
with or approval of any governmental authority under any Federal or state law
(other than the Securities Act, as then in effect, or any similar Federal law
then in effect), or listing on any domestic securities exchange, before such
shares may be issued upon such exercise, the Company shall, at its expense and
as expeditiously as possible, use its best efforts to cause such shares to be
duly registered or approved or listed on the relevant domestic securities
exchange, as the case may be.
(b) Replacement. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of any
indemnity agreement or bond reasonably satisfactory in form and amount to the
Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense will execute and deliver, in lieu of this
Warrant a new Warrant of like tenor.
(c) No Rights as Stockholder. Prior to the exercise of this
Warrant, no Holder of this Warrant, as such, shall be entitled to vote or
receive dividends or be considered a stockholder of the Company for any purpose,
nor shall anything in this Warrant be construed to confer on any Holder of this
Warrant, as such, any rights of a shareholder of the Company or any right to
vote, give or withhold consent to any corporate action, to receive notice of
meetings of stockholders (except as set forth in this Warrant), to receive
dividends or subscription rights or otherwise.
(d) Governing Law. This Warrant shall be governed by and
construed and enforced in accordance with the laws of the State of California
applicable to contracts entered into and wholly to be performed in California by
California residents.
(e) Notices. All notices from the Company to the holder of
this Warrant shall be in writing and shall be (i) personally delivered, (ii)
transmitted by mail, postage prepaid, registered or certified, return receipt
requested, or by air mail in the event of mailing for delivery outside of the
country in which mailed, (iii) transmitted by an overnight courier of recognized
reputation or of recognized international reputation in the event of an
international delivery or (iv) transmitted by telecopier (with confirmation by
air mail or courier), to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in accordance with the provisions of this Section 11(e). Except as otherwise
specified herein, communications shall be deemed to have been duly given on (A)
the date of receipt if delivered personally, (B) the date seven (7) days after
posting if transmitted by mail, (C) the date three (3) days after delivery to
the courier if sent by recognized or internationally recognized courier service,
or (D) the date on which written confirmation would be deemed to
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<PAGE> 96
have been given as provided above, whether by mail or by courier, as applicable,
if transmitted by telecopier, whichever shall first occur.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer.
Dated: March 31, 1999.
CHAPARRAL TECHNOLOGIES, INC.
By: /s/ Douglas J. Lehrmann
----------------------------
Name: Douglas J. Lehrmann
Title: Vice President, Finance
Acknowledged and Agreed:
Sentinel Consulting LLC.
By: /s/ Robert Harvey
---------------------
Name: Robert Harvey
Title: Manager
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NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND THIS WARRANT CANNOT
BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF THE SERIES A PREFERRED
STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR TRANSFERRED,
UNLESS AND UNTIL THEY ARE SO REGISTERED OR UNLESS SUCH REGISTRATION IS NOT THEN
REQUIRED UNDER THE CIRCUMSTANCES OF SUCH EXERCISE, SALE OR TRANSFER.
CHAPARRAL NETWORK STORAGE, INC.
WARRANT TO PURCHASE COMMON STOCK
OF CHAPARRAL NETWORK STORAGE, INC.
Void after April 27, 2004
This certifies that, subject to the terms and conditions set forth
herein, for value received, Sentinel Consulting LLC., a Delaware corporation,
(the "Holder") or its registered assigns is entitled to purchase from Chaparral
Network Storage, Inc., a Delaware corporation (the "Company") up to fifty-two
thousand six hundred thirty two (52,632) fully paid and nonassessable shares of
Common Stock, $0.001 par value, of the Company (as adjusted pursuant to Section
7 hereof, the "Shares") at the purchase price per share specified in Section 2
below.
1. Definitions. As used in this Warrant, the following terms, unless
the context otherwise requires, have the following meanings:
(a) "Common Stock", when used with reference to stock of the
Company, means all shares, now or hereafter authorized, of the class of Common
Stock, $0.001 par value, of the Company currently authorized and shares of any
other class into which those shares may hereafter be changed.
(b) "Company" means Chaparral Network Storage, Inc. a Delaware
corporation and any corporation which shall succeed to or assume the obligations
of the Company under this Warrant.
(c) "1933 Act" means the Securities Act of 1933, as amended.
(d) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(e) "Convertible equity securities" or "equity securities"
shall mean any of the Company's securities.
(f) "Holder" means Sentinel Consulting, LLC, a Delaware
corporation.
(g) The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the 1933 Act, and the
declaration or ordering of the effectiveness of such registration statement or
document by the SEC.
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(h) The term "Registrable Securities" means: (i) the Common
Stock or other equity or convertible equity securities of the Company issued or
issuable upon exercise of this Warrant; and (ii) any Common Stock of the Company
issued (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued) by way of a stock split, stock dividend,
recapitalization, merger or other distribution with respect to, or in exchange
for, or in replacement of, such Common Stock.
2. Warrant Price. The purchase price to be paid upon exercise of this
Warrant is U.S. $0.38 per share of Common Stock. Such price shall be subject to
adjustment pursuant to Section 7 hereof (such price, as adjusted from time to
time, is herein referred to as the "Warrant Price").
3. Exercise Period. This Warrant shall be exercisable by the Holder for
a term beginning on April 28. 1999, (the "Commencement Date") and ending on
April 27, 2004, (the "Expiration Date").
4. Method of Exercise.
(a) The Holder may exercise from time to time, in whole or in
part on or before the Expiration Date, the purchase rights evidenced hereby.
Such exercise shall be effected by:
(i) the surrender of the Warrant, together with a
duly executed copy of the form of subscription attached hereto as Appendix I, to
the Secretary of the Company at its principal offices; and
(ii) the payment to the Company, in cash or by check
payable to the order of the Company, of an amount equal to the aggregate
purchase price for the number of Shares designated for purchase in the completed
subscription form.
(b) In lieu of exercising this Warrant pursuant to Section
4(a), the Holder may elect to receive shares equal to the value of this Warrant
(or any portion thereof remaining unexercised) by surrender of this Warrant at
the principal office of the Company together with the Subscription Form, in
which event the Company shall issue to the Holder a number of Shares computed
using the following formula:
X = Y (A-B)
-------
A
Where X= the number of Shares to be issued to the Holder.
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Y= the number of Shares purchasable under this Warrant (at the date of
such exercise).
A= the fair market value of one Share (at the date of such exercise).
B= the Warrant Price (as adjusted to the date of such exercise).
For purposes of this subsection fair market value of one Share shall mean:
(i) The average of the closing bid and asked prices of the Common Stock
quoted in the NASDAQ National Market System or the Over-the-Counter
market or the closing price quoted on any exchange on which the Common
Stock is listed, whichever is applicable, as published in the Western
Edition of The Wall Street Journal for the five (5) trading days prior
to the date of determination of the fair market value; or
(ii) If the Common Stock is not publicly traded, the per share fair
market value of the Common Stock shall be determined in good faith by
the Company's Board of Directors. If the Holder disagrees with the
determination by the Board of Directors of the fair market value of the
Common Stock then such fair market value shall be determined by an
independent appraiser selected jointly by the Company and the Holder.
The cost of such appraisal shall be paid equally by the Company and the
Holder.
(c) Upon the request of the Company, the Holder shall also
deliver to the Company an instrument, in form and substance reasonably
satisfactory to counsel for the Company, executed by the Holder certifying that
the Shares are being acquired for investment purposes only and not with a view
to their resale or distribution.
(c) In the event of a partial exercise of this Warrant, a
new Warrant shall be issued to the Holder representing the balance of the Shares
purchasable under this Warrant, such new Warrant to be issued within ten (10)
days after delivery of the subscription notice.
5. Certificate for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued in the name of the Holder as soon as practicable
following receipt of the completed subscription form and payment for the Shares
being purchased and in any event within ten (10) days thereafter. The Company
shall not be required to issue any fractional shares upon the exercise of the
Holder's purchaser rights under this Warrant. In lieu of any fractional shares,
the Company shall pay cash equal to such fraction multiplied by the per share
market price of the Common Stock as of the date of exercise.
6. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Series A Preferred
Stock and Common Stock, free from all preemptive rights with respect thereto, as
will be sufficient to permit the exercise of this Warrant for the full number of
Shares specified herein and the conversion of the Shares into
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<PAGE> 100
Common Stock. The Company further covenants that such Shares, when issued
pursuant to the exercise of this Warrant, will, upon issuance, be duly and
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges with respect to the issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number of and
kind of securities purchasable upon exercise of this Warrant and the purchase
price therefor shall be subject to adjustment from time to time as follows:
(a) Stock Splits and Combinations. If the Company shall at any
time subdivide or combine its outstanding shares of the Common Stock, this
Warrant shall, after that subdivision or combination, evidence the right to
purchase the number of shares of Common Stock that would have been issuable as a
result of that change with respect to the shares of the Common Stock which were
purchasable under this Warrant immediately before that subdivision or
combination. If the Company shall at any time subdivide the outstanding shares
of Common Stock, the Warrant Price then in effect immediately before that
subdivision shall be proportionately decreased, and, if the Company shall at any
time combine the outstanding shares of Common Stock, the Warrant Price then in
effect immediately before that combination shall be proportionately increased.
Any adjustment under this Section 7(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(b) Reclassification, Exchange and Substitution. If the Common
Stock issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other series or class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares provided for above), the Holder of this
Warrant shall, on its exercise, be entitled to purchase, in lieu of Common Stock
which the Holder would have become entitled to purchase but for such change, a
number of shares of such other series or class or classes of stock equivalent to
the number of shares of Common Stock that would have been subject to purchase by
the Holder on exercise of this Warrant immediately before that change.
(c) Reorganization, Mergers, Consolidations or Sale of Assets.
If at any time there shall be a capital reorganization of the Company (other
than a combination, reclassification, exchange, or subdivision of shares
provided for elsewhere in this Warrant) or merger or consolidation of the
Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such capital reorganization, merger, consolidation or sale,
lawful provision shall be made so that the Holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified in this Warrant and upon payment of the Warrant Price then in
effect, the number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such merger or
consolidation, to which a holder of the Company's Common Stock deliverable upon
exercise of this Warrant would have been entitled in such capital
reorganization, merger, consolidation or sale if this Warrant had been exercised
immediately before that capital reorganization, merger, consolidation or sale.
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<PAGE> 101
(d) Notice of Adjustments. The Company shall give notice of
each adjustment or readjustment of the number of shares of the Common Stock or
other securities issuable upon exercise of this Warrant and the Warrant Price to
the registered Holder of this Warrant at that Holder's address as shown on the
Company's books within twenty (20) days after the occurrence of the event
resulting in such adjustment.
(e) No Change Necessary. The form of this Warrant need not be
changed because of any adjustment in the number of shares of the Common Stock
purchasable upon its exercise. A Warrant issued after any adjustment upon any
partial exercise or in replacement may continue to express the same number of
shares of Common Stock (appropriately reduced in the case of partial exercise)
as are stated on the face of this Warrant as initially issued, and that number
of shares shall be considered to have been so changed at the close of business
on the date of adjustment.
8. Automatic Termination. In the event of (i) the closing of the
Company's registration statement on a Form S-1 (or any other form equivalent
thereto) pursuant to which any class of the Company's securities is sold to the
public in a public offering registered under the Securities Act of 1933, as
amended; or (ii) the proposed sale of all or substantially all the capital
stock, or substantially all the assets, of the Company in a merger, business
combination, or other form of business transaction with or into a third party in
which the Company's stockholders do not own at least a majority of the
outstanding voting securities of the surviving corporation or business entity
after such transaction (based solely on such Company stockholders' holdings of
the Company prior to the transaction), then the Company shall give the Holder of
this Warrant at least fifteen (15) days written notice of the proposed effective
date and terms of such offering, transaction or agreements, and if the Warrant
has not been exercised at least before the effective date of such offering,
transaction or agreements, then this Warrant and the rights hereunder shall be
automatically terminated.
9. Exercise, Transfer and Exchange Restrictions.
(a) This Warrant, and any rights hereunder, may not be
assigned or transferred, except as provided herein and in accordance with and
subject to the provisions of (i) applicable state securities laws, and (ii) the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (such Act and such rules and regulations being hereinafter
collectively referred to as the "Act"). Any purported transfer or assignment
made other than in accordance with this Section 9 shall be null and void and of
no force and effect.
(b) This Warrant, and any rights hereunder, may be transferred
or assigned only with the prior written consent of the Company, which shall be
granted only upon receipt by the Company of an opinion of counsel satisfactory
to the Company that (i) the transferee is a person to whom this Warrant may be
legally transferred without registration under the Act, and (ii) such transfer
will not violate any applicable law or governmental rule or regulation,
including, without limitation, any applicable federal or state securities law.
Prior to the transfer or assignment, the assignor or transferor shall reimburse
the Company for its reasonable
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<PAGE> 102
expenses, including transfer taxes and attorneys' fees, incurred in connection
with the transfer or assignment.
(c) Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Company at its principal office with an
assignment duly executed and funds sufficient to pay any transfer tax. In such
event, the Company shall, without charge, execute and deliver a new Warrant in
the name of the assignee named in such instrument of assignment and this Warrant
shall be promptly canceled.
10. Registration Rights.
(a) Requested Registration.
(i) Request for Registration. In case the Company
shall receive from the Holder a written request that the Company file a
registration statement under the 1933 Act with respect to shares of Registrable
Securities having an expected aggregate offering price of at least One Million
Dollars ($1,000,000), the Company will, subject to the limitations of Section
9(a)(ii), use its best efforts to effect such registration under the 1933 Act
(including, without limitation, appropriate qualification under applicable blue
sky or other state securities laws and appropriate compliance with applicable
regulations issued under the 1933 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; provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 10(a)(i):
(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 1933 Act;
(B) Prior to the six (6) months after the
closing date of the Company's first registered public offering of its stock
(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 SEC Rule 145 transaction);
(C) During the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and ending
on the date six (6) months immediately following the closing date of, any
initial registration statement pertaining to securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction); provided, however, that the Company is
acting in good faith and using all reasonable efforts to cause such initial
registration statement to become effective;
6
<PAGE> 103
(D) After the Company has effected one (1)
such registration pursuant to a Holder's demand under this Section 10(a)(i),
which registration has been declared effective; or
(E) If the Company shall furnish to 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 and its shareholders for a registration statement to be filed at
such time, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 10(a)(i) shall be deferred for a period not
to exceed one hundred twenty (120) days from the date of receipt of written
request from the Holder; provided, however, that the Company may not make such
certification more than once every twelve (12) months.
(ii) Underwriting. In the event that a registration pursuant
to Section 10(a)(i) is for a registered public offering involving an
underwriting, the Company shall so advise the Holder and the right of the Holder
to registration pursuant to Section 10(a)(i) shall be conditioned upon such
Holder's participation in the underwriting arrangements required by this Section
10(a)(ii), and the inclusion of the Holder's Registrable Securities in the
underwriting to the extent requested shall be limited to the extent provided
herein.
The Company shall, together with the Holder, enter into an underwriting
agreement in customary form with a managing underwriter selected for such
underwriting by the Company. Notwithstanding any other provision of this Section
10(a), if the managing underwriter advises the Holder in writing that market
factors require a limitation of the number of shares to be underwritten, then
the number of shares of Registrable Securities that may be included in the
registration shall be so limited.
(b) Piggy-back Registration Rights.
(i) Piggy-back Registration Rights. If (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holder) any of its securities under the 1933 Act in connection with the public
offering of such securities solely for cash (other than a registration (i) on
Form S-8 or any form which does not include substantially the same information
as would be required to be included in a registration statement covering the
sale of the Registrable Securities, or (ii) with respect to an employee benefit
plan, or (iii) solely in connection with a Rule 145 transaction under the 1933
Act), the Company shall, each such time, promptly give the Holder written notice
of such registration together with a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under applicable state
securities laws. Upon the written request of the Holder given within twenty (20)
business days after delivery of such written notice by the Company, the Company
shall, subject to the provisions of Section 10(b)(ii), use its best efforts to
cause to be registered under the 1933 Act all of the Registrable Securities that
the Holder has requested to be registered. The Company shall be required to
effect not more than three (3) such registrations of Registrable Securities
pursuant to the request of the Holder under this Section 10(b).
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<PAGE> 104
(ii) Underwriting Requirements in Piggy-back Registration. The
right of the Holder to registration pursuant to Section 10(b)(i) shall be
conditioned upon the Holder's participation in such underwriting and the
inclusion of the Holder's Registrable Securities in the underwriting to the
extent provided herein. The Holder shall (together with the Company and any
other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
Section 10(b)(i) and this Section 10(b)(ii), if the underwriter determines that
market factors require a limitation of the number of shares to be underwritten,
the underwriter may (subject to the allocation priority set forth below) exclude
some or all Registrable Securities from such registration and underwriting.
(c) Obligations of the Company. Whenever required under this Section 9
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holder, keep such registration statement effective for up to one hundred twenty
(120) days.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(iii) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by it.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably appropriate for the distribution of
the securities covered by the registration statement; provided, however, 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 jurisdiction, and further provided that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling shareholders, then such
expenses shall be payable by the Holder, to the extent required by such
jurisdiction if the Holder does elect to withdraw from the registration after
notice of such requirement.
(v) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing
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<PAGE> 105
underwriter of such offering. The Holder shall also enter into and perform its
obligations under such an agreement.
(vi) Notify the Holder, at any time when a prospectus relating
thereto is required to be delivered under the 1933 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 light of the circumstances then
existing. In such instance, Company shall use its best efforts to cure any such
statement or omission so as to render such statement or omission not misleading.
(d) Furnish Information. In connection with any action pursuant to this
Section 10, the Holder shall furnish to the Company such information regarding
itself, the Registrable Securities held by it, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities. In that connection, the Holder shall be
required to represent to the Company that all such information which is given is
both complete and accurate in all material respects when made.
(e) Definition of Expenses.
(i) "Registration Expenses" shall mean all expenses incurred
by the Company in complying with Section 10 hereof, including, without
limitation, all registration, filing and qualification fees, underwriters'
expense allowances, printing expenses, fees and disbursements of counsel for the
Company, reasonable fees and expenses of one special counsel retained in
connection with each such registration by the Holder, blue sky fees and
disbursements, and the expense of any special audits incident to or required by
any registration pursuant to Section 10(a) (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company).
(ii) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of the Registrable Securities in
the registration, all stock transfer taxes and all fees and disbursements of any
additional special counsel (other than the special counsel provided for in
Section 10(e)(i) above) retained in connection with each such registration by
the Holder.
(f) Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with (i) any registration, qualification or
compliance pursuant to Section 10(a), and (ii) no more than three (3)
registrations pursuant to Section 10(b). All Selling Expenses shall be borne by
the Holder.
(g) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 10:
(i) To the extent permitted by law, the Company will indemnify
and hold harmless the Holder, the officers, directors and partners of the
Holder, any underwriter (as
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defined in the 1933 Act) for the Holder and each person, if any, who controls
the Holder or underwriter within the meaning of the 1933 Act or the 1934 Act,
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the 1933 Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading; or (iii) any
violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the 1933 Act,
the 1934 Act or any state securities law; and the Company will reimburse the
Holder, officer, director or partner, underwriter or controlling person for any
legal or other expenses reasonably incurred by them, as incurred, in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the Company's indemnity contained in this
Section 10(g) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished in writing and expressly stated for use in connection with
such registration by the Holder, or the Holder's officers, directors or
partners, underwriter, or controlling person. The Company shall not be required
to indemnify any person against any liability arising (i) from any untrue or
misleading statement or omission contained in any preliminary prospectus if such
deficiency is corrected in the final prospectus or (ii) out of the failure of
any person to deliver a prospectus as required by the 1993 Act. The indemnity
provided for in this Section 10(g) shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller,
underwriter, participating person or controlling person and shall survive
transfer of such securities by such seller.
(ii) To the extent permitted by law, the Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the registration statement, each person, if any, who controls the
Company within the meaning of the 1933 Act, any underwriter (within the meaning
of the 1933 Act) for the Company, any person who controls such underwriter, and
any other security holder in such registration statement or any of its partners,
directors or officers or any person who controls such security holder, against
any losses, claims, damages or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the 1933 Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by the Holder expressly stated in a writing for use in connection with
such registration; and the Holder will reimburse any legal or other expenses, as
incurred, where same are reasonably incurred by any person intended to be
indemnified pursuant to this Section 10(g), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity
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agreement contained in this Section 10(g) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, the liability of
each Holder under this Section 10(g) shall be limited to an amount equal to the
public offering price of the shares sold by the Holder.
(iii) Promptly after receipt by an indemnified party under
this Section 10(g) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 10(g), notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party shall have the right to participate in and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
to be paid by the indemnifying party if the indemnified party reasonably
determines that representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 10(g), but the omission so to notify the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 10(g).
(iv) In order to provide for just and equitable contribution
to joint liability under the 1933 Act in any case in which either (i) any
indemnified party makes a claim under this Section 10(g) or any controlling
person of such indemnified party makes such a claim but is judicially determined
(by entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 10(g) provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of any such person
seeking indemnity under the terms of this Section 10(g); then, and in each such
case, the Company and such person will contribute to the aggregate losses,
claims, damages, or liabilities to which they may be subject (after contribution
from others) 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. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
person shall be required to contribute any amount in excess of the public
offering price of all such Registrable Securities sold by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
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misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(h) Investor Rights Agreement. The Holder acknowledges and agrees that
(i) the Company and certain investors have entered into an Investor Rights
Agreement dated November, 1998 (the "Investor Rights Agreement"), (ii) the
Holder may include his securities in a demand registration under the Investor
Rights Agreement only to the extent that the inclusion of his securities will
not reduce the amount of securities to be registered for parties to the Investor
Rights Agreement and (iii) the Holder shall not make a demand registration which
could result in such registration statement being declared effective prior six
months after the effective date of the Company's initial public offering of
securities pursuant to a registration filed under the 1933 Act or within one
hundred twenty (120) days of the effective date of any demand registration
pursuant to the Investor Rights Agreement.
(i) Termination of Registration Rights.
(i) The Company shall have no obligations pursuant to Section
10 with respect to any request or requests made by the Holder after the date
which is five (5) years following the date of the consummation of the first sale
of securities pursuant to a registration statement filed by the Company under
the 1933 Act in connection with the initial firm commitment underwritten
offering of its securities to the general public.
(ii) Notwithstanding any contrary provision of this Section
10(i), the Company shall not be required to effect any registrations under the
1933 Act or under any state securities laws on behalf of the Holder if, in the
opinion of counsel to the Company, the offering or transfer by such Holder in
the manner proposed (including, without limitation, the number of shares
proposed to be offered or transferred, the time of sale, and the method of
offering or transfer) is exempt from the registration requirements of the 1933
Act and the securities laws of applicable states and the Company consents to
such transfer, if required.
11. "Market Stand-off" Agreement. The Holder agrees, so long as the
Holder holds at least one percent (1%) of the Company's outstanding voting
equity securities, in connection with the Company's initial underwritten public
offering of the Company's securities that, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Common Stock of the Company (other than those Common
Stock shares included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed one hundred eighty (180) days) from the closing date of such
registration as may be requested by the underwriters; provided, however, that
such covenants shall apply only if (i) all of the officers and directors of the
Company who own stock of the Company and (ii) each shareholder owning more than
two percent (2%) of the Company's shares also agree to such restrictions on any
shares not being registered in such offering. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Registrable Securities of the Holder (and the shares of securities of every
other person subject to the foregoing restriction) until the end of such period.
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12. Miscellaneous Provisions.
(a) Listing. If any shares of the Common Stock required to be
reserved for issuance upon the exercise of this Warrant require registration
with or approval of any governmental authority under any Federal or state law
(other than the Securities Act, as then in effect, or any similar Federal law
then in effect), or listing on any domestic securities exchange, before such
shares may be issued upon such exercise, the Company shall, at its expense and
as expeditiously as possible, use its best efforts to cause such shares to be
duly registered or approved or listed on the relevant domestic securities
exchange, as the case may be.
(b) Replacement. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of any
indemnity agreement or bond reasonably satisfactory in form and amount to the
Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense will execute and deliver, in lieu of this
Warrant a new Warrant of like tenor.
(c) No Rights as Stockholder. Prior to the exercise of this
Warrant, no Holder of this Warrant, as such, shall be entitled to vote or
receive dividends or be considered a stockholder of the Company for any purpose,
nor shall anything in this Warrant be construed to confer on any Holder of this
Warrant, as such, any rights of a shareholder of the Company or any right to
vote, give or withhold consent to any corporate action, to receive notice of
meetings of stockholders (except as set forth in this Warrant), to receive
dividends or subscription rights or otherwise.
(d) Governing Law. This Warrant shall be governed by and
construed and enforced in accordance with the laws of the State of California
applicable to contracts entered into and wholly to be performed in California by
California residents.
(e) Notices. All notices from the Company to the holder of
this Warrant shall be in writing and shall be (i) personally delivered, (ii)
transmitted by mail, postage prepaid, registered or certified, return receipt
requested, or by air mail in the event of mailing for delivery outside of the
country in which mailed, (iii) transmitted by an overnight courier of recognized
reputation or of recognized international reputation in the event of an
international delivery or (iv) transmitted by telecopier (with confirmation by
air mail or courier), to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in accordance with the provisions of this Section 11(e). Except as otherwise
specified herein, communications shall be deemed to have been duly given on (A)
the date of receipt if delivered personally, (B) the date seven (7) days after
posting if transmitted by mail, (C) the date three (3) days after delivery to
the courier if sent by recognized or internationally recognized courier service,
or (D) the date on which written confirmation would be deemed to have been given
as provided above, whether by mail or by courier, as applicable, if transmitted
by telecopier, whichever shall first occur.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer.
Dated: April 28, 1999.
CHAPARRAL NETWORK STORAGE, INC.
By: /s/ Douglas J. Lehrmann
------------------------------
Name: Douglas J. Lehrmann
Title: Vice President Finance
Acknowledged and Agreed:
Sentinel Consulting LLC.
By: /s/ Robert Harvey
-----------------------------
Name: Robert Harvey
Title: Manager
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NEITHER THIS WARRANT NOR THE SERIES A COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND THIS
WARRANT CANNOT BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF THE SERIES A
PREFERRED STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR
TRANSFERRED, UNLESS AND UNTIL THEY ARE SO REGISTERED OR UNLESS SUCH REGISTRATION
IS NOT THEN REQUIRED UNDER THE CIRCUMSTANCES OF SUCH EXERCISE, SALE OR TRANSFER.
CHAPARRAL NETWORK STORAGE, INC.
WARRANT TO PURCHASE COMMON STOCK
OF CHAPARRAL NETWORK STORAGE, INC.
Void after May 27, 2004
This certifies that, subject to the terms and conditions set forth
herein, for value received, Sentinel Consulting LLC., a Delaware corporation,
(the "Holder") or its registered assigns is entitled to purchase from Chaparral
Network Storage, Inc., a Delaware corporation (the "Company") up to one hundred
four thousand two hundred fifty (104,250) fully paid and nonassessable shares of
Common Stock, $0.001 par value, of the Company (as adjusted pursuant to Section
7 hereof, the "Shares") at the purchase price per share specified in Section 2
below.
1. Definitions. As used in this Warrant, the following terms, unless
the context otherwise requires, have the following meanings:
(a) "Common Stock", when used with reference to stock of the
Company, means all shares, now or hereafter authorized, of the class of Common
Stock, $0.001 par value, of the Company currently authorized and shares of any
other class into which those shares may hereafter be changed.
(b) "Company" means Chaparral Network Storage, Inc. a Delaware
corporation and any corporation which shall succeed to or assume the obligations
of the Company under this Warrant.
(c) "1933 Act" means the Securities Act of 1933, as amended.
(d) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(e) "Convertible equity securities" or "equity securities"
shall mean any of the Company's securities.
(f) "Holder" means Sentinel Consulting, LLC, a Delaware
corporation.
(g) The terms "register", "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the
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1933 Act, and the declaration or ordering of the effectiveness of such
registration statement or document by the SEC.
(h) The term "Registrable Securities" means: (i) the Common
Stock or other equity or convertible equity securities of the Company issued or
issuable upon exercise of this Warrant; and (ii) any Common Stock of the Company
issued (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued) by way of a stock split, stock dividend,
recapitalization, merger or other distribution with respect to, or in exchange
for, or in replacement of, such Common Stock.
2. Warrant Price. The purchase price to be paid upon exercise of this
Warrant is U.S. $0.40 per share of Common Stock. Such price shall be subject to
adjustment pursuant to Section 7 hereof (such price, as adjusted from time to
time, is herein referred to as the "Warrant Price").
3. Exercise Period. This Warrant shall be exercisable by the Holder
for a term beginning on May 28. 1999, (the "Commencement Date") and ending on
May 27, 2004, (the "Expiration Date").
4. Method of Exercise.
(a) The Holder may exercise from time to time, in whole or in
part on or before the Expiration Date, the purchase rights evidenced hereby.
Such exercise shall be effected by:
(i) the surrender of the Warrant, together with a duly
executed copy of the form of subscription attached hereto as Appendix I, to the
Secretary of the Company at its principal offices; and
(ii) the payment to the Company, in cash or by check
payable to the order of the Company, of an amount equal to the aggregate
purchase price for the number of Shares designated for purchase in the completed
subscription form.
(b) In lieu of exercising this Warrant pursuant to Section
4(a), the Holder may elect to receive shares equal to the value of this Warrant
(or any portion thereof remaining unexercised) by surrender of this Warrant at
the principal office of the Company together with the Subscription Form, in
which event the Company shall issue to the Holder a number of Shares computed
using the following formula:
X = Y (A-B)
-------
A
Where X= the number of Shares to be issued to the Holder.
Y= the number of Shares purchasable under this Warrant (at the date of such
exercise).
A= the fair market value of one Share (at the date of such exercise).
B= the Warrant Price (as adjusted to the date of such exercise).
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<PAGE> 113
For purposes of this subsection fair market value of one Share shall mean:
(i) The average of the closing bid and asked prices of the Common Stock
quoted in the NASDAQ National Market System or the Over-the-Counter
market or the closing price quoted on any exchange on which the Common
Stock is listed, whichever is applicable, as published in the Western
Edition of The Wall Street Journal for the five (5) trading days prior
to the date of determination of the fair market value; or
(ii) If the Common Stock is not publicly traded, the per share fair
market value of the Common Stock shall be determined in good faith by
the Company's Board of Directors. If the Holder disagrees with the
determination by the Board of Directors of the fair market value of the
Common Stock then such fair market value shall be determined by an
independent appraiser selected jointly by the Company and the Holder.
The cost of such appraisal shall be paid equally by the Company and the
Holder.
(c) Upon the request of the Company, the Holder shall also
deliver to the Company an instrument, in form and substance reasonably
satisfactory to counsel for the Company, executed by the Holder certifying that
the Shares are being acquired for investment purposes only and not with a view
to their resale or distribution.
(c) In the event of a partial exercise of this Warrant, a new
Warrant shall be issued to the Holder representing the balance of the Shares
purchasable under this Warrant, such new Warrant to be issued within ten (10)
days after delivery of the subscription notice.
5. Certificate for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued in the name of the Holder as soon as practicable
following receipt of the completed subscription form and payment for the Shares
being purchased and in any event within ten (10) days thereafter. The Company
shall not be required to issue any fractional shares upon the exercise of the
Holder's purchaser rights under this Warrant. In lieu of any fractional shares,
the Company shall pay cash equal to such fraction multiplied by the per share
market price of the Common Stock as of the date of exercise.
6. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Series A Preferred
Stock and Common Stock, free from all preemptive rights with respect thereto, as
will be sufficient to permit the exercise of this Warrant for the full number of
Shares specified herein and the conversion of the Shares into
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<PAGE> 114
Common Stock. The Company further covenants that such Shares, when issued
pursuant to the exercise of this Warrant, will, upon issuance, be duly and
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges with respect to the issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number of
and kind of securities purchasable upon exercise of this Warrant and the
purchase price therefor shall be subject to adjustment from time to time as
follows:
(a) Stock Splits and Combinations. If the Company shall at any
time subdivide or combine its outstanding shares of the Common Stock, this
Warrant shall, after that subdivision or combination, evidence the right to
purchase the number of shares of Common Stock that would have been issuable as a
result of that change with respect to the shares of the Common Stock which were
purchasable under this Warrant immediately before that subdivision or
combination. If the Company shall at any time subdivide the outstanding shares
of Common Stock, the Warrant Price then in effect immediately before that
subdivision shall be proportionately decreased, and, if the Company shall at any
time combine the outstanding shares of Common Stock, the Warrant Price then in
effect immediately before that combination shall be proportionately increased.
Any adjustment under this Section 7(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(b) Reclassification, Exchange and Substitution. If the Common
Stock issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other series or class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares provided for above), the Holder of this
Warrant shall, on its exercise, be entitled to purchase, in lieu of Common Stock
which the Holder would have become entitled to purchase but for such change, a
number of shares of such other series or class or classes of stock equivalent to
the number of shares of Common Stock that would have been subject to purchase by
the Holder on exercise of this Warrant immediately before that change.
(c) Reorganization, Mergers, Consolidations or Sale of Assets.
If at any time there shall be a capital reorganization of the Company (other
than a combination, reclassification, exchange, or subdivision of shares
provided for elsewhere in this Warrant) or merger or consolidation of the
Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such capital reorganization, merger, consolidation or sale,
lawful provision shall be made so that the Holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified in this Warrant and upon payment of the Warrant Price then in
effect, the number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such merger or
consolidation, to which a holder of the Company's Common Stock deliverable upon
exercise of this Warrant would have been entitled in such capital
reorganization, merger, consolidation or sale if this Warrant had been exercised
immediately before that capital reorganization, merger, consolidation or sale.
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(d) Notice of Adjustments. The Company shall give notice of
each adjustment or readjustment of the number of shares of the Common Stock or
other securities issuable upon exercise of this Warrant and the Warrant Price to
the registered Holder of this Warrant at that Holder's address as shown on the
Company's books within twenty (20) days after the occurrence of the event
resulting in such adjustment.
(e) No Change Necessary. The form of this Warrant need not be
changed because of any adjustment in the number of shares of the Common Stock
purchasable upon its exercise. A Warrant issued after any adjustment upon any
partial exercise or in replacement may continue to express the same number of
shares of Common Stock (appropriately reduced in the case of partial exercise)
as are stated on the face of this Warrant as initially issued, and that number
of shares shall be considered to have been so changed at the close of business
on the date of adjustment.
8. Automatic Termination. In the event of (i) the closing of the
Company's registration statement on a Form S-1 (or any other form equivalent
thereto) pursuant to which any class of the Company's securities is sold to the
public in a public offering registered under the Securities Act of 1933, as
amended; or (ii) the proposed sale of all or substantially all the capital
stock, or substantially all the assets, of the Company in a merger, business
combination, or other form of business transaction with or into a third party in
which the Company's stockholders do not own at least a majority of the
outstanding voting securities of the surviving corporation or business entity
after such transaction (based solely on such Company stockholders' holdings of
the Company prior to the transaction), then the Company shall give the Holder of
this Warrant at least fifteen (15) days written notice of the proposed effective
date and terms of such offering, transaction or agreements, and if the Warrant
has not been exercised at least before the effective date of such offering,
transaction or agreements, then this Warrant and the rights hereunder shall be
automatically terminated.
9. Exercise, Transfer and Exchange Restrictions.
(a) This Warrant, and any rights hereunder, may not be assigned
or transferred, except as provided herein and in accordance with and subject to
the provisions of (i) applicable state securities laws, and (ii) the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder
(such Act and such rules and regulations being hereinafter collectively referred
to as the "Act"). Any purported transfer or assignment made other than in
accordance with this Section 9 shall be null and void and of no force and
effect.
(b) This Warrant, and any rights hereunder, may be transferred
or assigned only with the prior written consent of the Company, which shall be
granted only upon receipt by the Company of an opinion of counsel satisfactory
to the Company that (i) the transferee is a person to whom this Warrant may be
legally transferred without registration under the Act, and (ii) such transfer
will not violate any applicable law or governmental rule or regulation,
including, without limitation, any applicable federal or state securities law.
Prior to the transfer or assignment, the assignor or transferor shall reimburse
the Company for its reasonable
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<PAGE> 116
expenses, including transfer taxes and attorneys' fees, incurred in connection
with the transfer or assignment.
(c) Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Company at its principal office with an
assignment duly executed and funds sufficient to pay any transfer tax. In such
event, the Company shall, without charge, execute and deliver a new Warrant in
the name of the assignee named in such instrument of assignment and this Warrant
shall be promptly canceled.
10. Registration Rights.
(a) Requested Registration.
(i) Request for Registration. In case the Company shall
receive from the Holder a written request that the Company file a registration
statement under the 1933 Act with respect to shares of Registrable Securities
having an expected aggregate offering price of at least One Million Dollars
($1,000,000), the Company will, subject to the limitations of Section 9(a)(ii),
use its best efforts to effect such registration under the 1933 Act (including,
without limitation, appropriate qualification under applicable blue sky or other
state securities laws and appropriate compliance with applicable regulations
issued under the 1933 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; provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 10(a)(i):
(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 1933 Act;
(B) Prior to the six (6) months after the closing
date of the Company's first registered public offering of its stock (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
SEC Rule 145 transaction);
(C) During the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and ending
on the date six (6) months immediately following the closing date of, any
initial registration statement pertaining to securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction); provided, however, that the Company is
acting in good faith and using all reasonable efforts to cause such initial
registration statement to become effective;
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<PAGE> 117
(D) After the Company has effected one (1) such
registration pursuant to a Holder's demand under this Section 10(a)(i), which
registration has been declared effective; or
(E) If the Company shall furnish to 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 and its shareholders for a registration statement to be filed at
such time, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 10(a)(i) shall be deferred for a period not
to exceed one hundred twenty (120) days from the date of receipt of written
request from the Holder; provided, however, that the Company may not make such
certification more than once every twelve (12) months.
(ii) Underwriting. In the event that a registration
pursuant to Section 10(a)(i) is for a registered public offering involving an
underwriting, the Company shall so advise the Holder and the right of the Holder
to registration pursuant to Section 10(a)(i) shall be conditioned upon such
Holder's participation in the underwriting arrangements required by this Section
10(a)(ii), and the inclusion of the Holder's Registrable Securities in the
underwriting to the extent requested shall be limited to the extent provided
herein.
The Company shall, together with the Holder, enter into an underwriting
agreement in customary form with a managing underwriter selected for such
underwriting by the Company. Notwithstanding any other provision of this Section
10(a), if the managing underwriter advises the Holder in writing that market
factors require a limitation of the number of shares to be underwritten, then
the number of shares of Registrable Securities that may be included in the
registration shall be so limited.
(b) Piggy-back Registration Rights.
(i) Piggy-back Registration Rights. If (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holder) any of its securities under the 1933 Act in connection with the public
offering of such securities solely for cash (other than a registration (i) on
Form S-8 or any form which does not include substantially the same information
as would be required to be included in a registration statement covering the
sale of the Registrable Securities, or (ii) with respect to an employee benefit
plan, or (iii) solely in connection with a Rule 145 transaction under the 1933
Act), the Company shall, each such time, promptly give the Holder written notice
of such registration together with a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under applicable state
securities laws. Upon the written request of the Holder given within twenty (20)
business days after delivery of such written notice by the Company, the Company
shall, subject to the provisions of Section 10(b)(ii), use its best efforts to
cause to be registered under the 1933 Act all of the Registrable Securities that
the Holder has requested to be registered. The Company shall be required to
effect not more than three (3) such registrations of Registrable Securities
pursuant to the request of the Holder under this Section 10(b).
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(ii) Underwriting Requirements in Piggy-back
Registration. The right of the Holder to registration pursuant to Section
10(b)(i) shall be conditioned upon the Holder's participation in such
underwriting and the inclusion of the Holder's Registrable Securities in the
underwriting to the extent provided herein. The Holder shall (together with the
Company and any other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected by the Company. Notwithstanding any other
provision of Section 10(b)(i) and this Section 10(b)(ii), if the underwriter
determines that market factors require a limitation of the number of shares to
be underwritten, the underwriter may (subject to the allocation priority set
forth below) exclude some or all Registrable Securities from such registration
and underwriting.
(c) Obligations of the Company. Whenever required under this
Section 9 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holder, keep such registration statement effective for up to one hundred
twenty (120) days.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(iii) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by it.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably appropriate for the distribution of
the securities covered by the registration statement; provided, however, 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 jurisdiction, and further provided that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling shareholders, then such
expenses shall be payable by the Holder, to the extent required by such
jurisdiction if the Holder does elect to withdraw from the registration after
notice of such requirement.
(v) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement with
terms generally satisfactory to the managing
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underwriter of such offering. The Holder shall also enter into and perform its
obligations under such an agreement.
(vi) Notify the Holder, at any time when a prospectus
relating thereto is required to be delivered under the 1933 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 light of the
circumstances then existing. In such instance, Company shall use its best
efforts to cure any such statement or omission so as to render such statement or
omission not misleading.
(d) Furnish Information. In connection with any action pursuant
to this Section 10, the Holder shall furnish to the Company such information
regarding itself, the Registrable Securities held by it, and the intended method
of disposition of such securities as shall be required to effect the
registration of their Registrable Securities. In that connection, the Holder
shall be required to represent to the Company that all such information which is
given is both complete and accurate in all material respects when made.
(e) Definition of Expenses.
(i) "Registration Expenses" shall mean all expenses
incurred by the Company in complying with Section 10 hereof, including, without
limitation, all registration, filing and qualification fees, underwriters'
expense allowances, printing expenses, fees and disbursements of counsel for the
Company, reasonable fees and expenses of one special counsel retained in
connection with each such registration by the Holder, blue sky fees and
disbursements, and the expense of any special audits incident to or required by
any registration pursuant to Section 10(a) (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company).
(ii) "Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale of the Registrable
Securities in the registration, all stock transfer taxes and all fees and
disbursements of any additional special counsel (other than the special counsel
provided for in Section 10(e)(i) above) retained in connection with each such
registration by the Holder.
(f) Expenses of Registration. The Company shall bear all
Registration Expenses incurred in connection with (i) any registration,
qualification or compliance pursuant to Section 10(a), and (ii) no more than
three (3) registrations pursuant to Section 10(b). All Selling Expenses shall be
borne by the Holder.
(g) Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 10:
(i) To the extent permitted by law, the Company will
indemnify and hold harmless the Holder, the officers, directors and partners of
the Holder, any underwriter (as
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defined in the 1933 Act) for the Holder and each person, if any, who controls
the Holder or underwriter within the meaning of the 1933 Act or the 1934 Act,
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the 1933 Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading; or (iii) any
violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the 1933 Act,
the 1934 Act or any state securities law; and the Company will reimburse the
Holder, officer, director or partner, underwriter or controlling person for any
legal or other expenses reasonably incurred by them, as incurred, in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the Company's indemnity contained in this
Section 10(g) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished in writing and expressly stated for use in connection with
such registration by the Holder, or the Holder's officers, directors or
partners, underwriter, or controlling person. The Company shall not be required
to indemnify any person against any liability arising (i) from any untrue or
misleading statement or omission contained in any preliminary prospectus if such
deficiency is corrected in the final prospectus or (ii) out of the failure of
any person to deliver a prospectus as required by the 1993 Act. The indemnity
provided for in this Section 10(g) shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller,
underwriter, participating person or controlling person and shall survive
transfer of such securities by such seller.
(ii) To the extent permitted by law, the Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the 1933 Act, any underwriter (within
the meaning of the 1933 Act) for the Company, any person who controls such
underwriter, and any other security holder in such registration statement or any
of its partners, directors or officers or any person who controls such security
holder, against any losses, claims, damages or liabilities (joint or several) to
which any of the foregoing persons may become subject, under the 1933 Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by the Holder expressly stated in a writing for use in connection with
such registration; and the Holder will reimburse any legal or other expenses, as
incurred, where same are reasonably incurred by any person intended to be
indemnified pursuant to this Section 10(g), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity
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agreement contained in this Section 10(g) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, the liability of
each Holder under this Section 10(g) shall be limited to an amount equal to the
public offering price of the shares sold by the Holder.
(iii) Promptly after receipt by an indemnified party under
this Section 10(g) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 10(g), notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party shall have the right to participate in and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
to be paid by the indemnifying party if the indemnified party reasonably
determines that representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 10(g), but the omission so to notify the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 10(g).
(iv) In order to provide for just and equitable
contribution to joint liability under the 1933 Act in any case in which either
(i) any indemnified party makes a claim under this Section 10(g) or any
controlling person of such indemnified party makes such a claim but is
judicially determined (by entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 10(g) provides for indemnification in
such case, or (ii) contribution under the 1933 Act may be required on the part
of any such person seeking indemnity under the terms of this Section 10(g);
then, and in each such case, the Company and such person will contribute to the
aggregate losses, claims, damages, or liabilities to which they may be subject
(after contribution from others) 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. The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
person shall be required to contribute any amount in excess of the public
offering price of all such Registrable Securities sold by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
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misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(h) Investor Rights Agreement. The Holder acknowledges and
agrees that (i) the Company and certain investors have entered into an Investor
Rights Agreement dated November, 1998 (the "Investor Rights Agreement"), (ii)
the Holder may include his securities in a demand registration under the
Investor Rights Agreement only to the extent that the inclusion of his
securities will not reduce the amount of securities to be registered for parties
to the Investor Rights Agreement and (iii) the Holder shall not make a demand
registration which could result in such registration statement being declared
effective prior six months after the effective date of the Company's initial
public offering of securities pursuant to a registration filed under the 1933
Act or within one hundred twenty (120) days of the effective date of any demand
registration pursuant to the Investor Rights Agreement.
(i) Termination of Registration Rights.
(i) The Company shall have no obligations pursuant to
Section 10 with respect to any request or requests made by the Holder after the
date which is five (5) years following the date of the consummation of the first
sale of securities pursuant to a registration statement filed by the Company
under the 1933 Act in connection with the initial firm commitment underwritten
offering of its securities to the general public.
(ii) Notwithstanding any contrary provision of this
Section 10(i), the Company shall not be required to effect any registrations
under the 1933 Act or under any state securities laws on behalf of the Holder
if, in the opinion of counsel to the Company, the offering or transfer by such
Holder in the manner proposed (including, without limitation, the number of
shares proposed to be offered or transferred, the time of sale, and the method
of offering or transfer) is exempt from the registration requirements of the
1933 Act and the securities laws of applicable states and the Company consents
to such transfer, if required.
11. "Market Stand-off" Agreement. The Holder agrees, so long as
the Holder holds at least one percent (1%) of the Company's outstanding voting
equity securities, in connection with the Company's initial underwritten public
offering of the Company's securities that, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Common Stock of the Company (other than those Common
Stock shares included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed one hundred eighty (180) days) from the closing date of such
registration as may be requested by the underwriters; provided, however, that
such covenants shall apply only if (i) all of the officers and directors of the
Company who own stock of the Company and (ii) each shareholder owning more than
two percent (2%) of the Company's shares also agree to such restrictions on any
shares not being registered in such offering. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Registrable Securities of the Holder (and the shares
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of securities of every other person subject to the foregoing restriction) until
the end of such period.
12. Miscellaneous Provisions.
(a) Listing. If any shares of the Common Stock required to be
reserved for issuance upon the exercise of this Warrant require registration
with or approval of any governmental authority under any Federal or state law
(other than the Securities Act, as then in effect, or any similar Federal law
then in effect), or listing on any domestic securities exchange, before such
shares may be issued upon such exercise, the Company shall, at its expense and
as expeditiously as possible, use its best efforts to cause such shares to be
duly registered or approved or listed on the relevant domestic securities
exchange, as the case may be.
(b) Replacement. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, on delivery of any indemnity
agreement or bond reasonably satisfactory in form and amount to the Company or,
in the case of mutilation, on surrender and cancellation of this Warrant, the
Company at its expense will execute and deliver, in lieu of this Warrant a new
Warrant of like tenor.
(c) No Rights as Stockholder. Prior to the exercise of this
Warrant, no Holder of this Warrant, as such, shall be entitled to vote or
receive dividends or be considered a stockholder of the Company for any purpose,
nor shall anything in this Warrant be construed to confer on any Holder of this
Warrant, as such, any rights of a shareholder of the Company or any right to
vote, give or withhold consent to any corporate action, to receive notice of
meetings of stockholders (except as set forth in this Warrant), to receive
dividends or subscription rights or otherwise.
(d) Governing Law. This Warrant shall be governed by and
construed and enforced in accordance with the laws of the State of California
applicable to contracts entered into and wholly to be performed in California by
California residents.
(e) Notices. All notices from the Company to the holder of this
Warrant shall be in writing and shall be (i) personally delivered, (ii)
transmitted by mail, postage prepaid, registered or certified, return receipt
requested, or by air mail in the event of mailing for delivery outside of the
country in which mailed, (iii) transmitted by an overnight courier of recognized
reputation or of recognized international reputation in the event of an
international delivery or (iv) transmitted by telecopier (with confirmation by
air mail or courier), to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in accordance with the provisions of this Section 11(e). Except as otherwise
specified herein, communications shall be deemed to have been duly given on (A)
the date of receipt if delivered personally, (B) the date seven (7) days after
posting if transmitted by mail, (C) the date three (3) days after delivery to
the courier if sent by recognized or internationally recognized courier service,
or (D) the date on which written confirmation would be deemed to
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have been given as provided above, whether by mail or by courier, as applicable,
if transmitted by telecopier, whichever shall first occur.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer.
Dated: May 28, 1999.
CHAPARRAL NETWORK STORAGE, INC.
By: /s/ Douglas J. Lehrmann
------------------------------
Name: Douglas J. Lehrmann
Title: Vice President Finance
Acknowledged and Agreed:
Sentinel Consulting LLC.
By: /s/ Robert Harvey
---------------------
Name: Robert Harvey
Title: Manager
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NEITHER THIS WARRANT NOR THE SERIES A PREFERRED STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND THIS
WARRANT CANNOT BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF THE SERIES A
PREFERRED STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR
TRANSFERRED, UNLESS AND UNTIL THEY ARE SO REGISTERED OR UNLESS SUCH REGISTRATION
IS NOT THEN REQUIRED UNDER THE CIRCUMSTANCES OF SUCH EXERCISE, SALE OR TRANSFER.
CHAPARRAL NETWORK STORAGE, INC.
WARRANT TO PURCHASE COMMON STOCK
OF CHAPARRAL NETWORK STORAGE, INC.
Void after July 6, 2004
This certifies that, subject to the terms and conditions set forth
herein, for value received, Sentinel Consulting LLC., a Delaware corporation,
(the "Holder") or its registered assigns is entitled to purchase from Chaparral
Network Storage, Inc., a Delaware corporation (the "Company") up to one hundred
seventy six thousand three hundred sixty four (176,364) fully paid and
nonassessable shares of Common Stock, $0.001 par value, of the Company (as
adjusted pursuant to Section 7 hereof, the "Shares") at the purchase price per
share specified in Section 2 below.
1. Definitions. As used in this Warrant, the following terms, unless
the context otherwise requires, have the following meanings:
(a) "Common Stock", when used with reference to stock of the
Company, means all shares, now or hereafter authorized, of the class of Common
Stock, $0.001 par value, of the Company currently authorized and shares of any
other class into which those shares may hereafter be changed.
(b) "Company" means Chaparral Network Storage, Inc. a Delaware
corporation and any corporation which shall succeed to or assume the obligations
of the Company under this Warrant.
(c) "1933 Act" means the Securities Act of 1933, as amended.
(d) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(e) "Convertible equity securities" or "equity securities"
shall mean any of the Company's securities.
(f) "Holder" means Sentinel Consulting, LLC, a Delaware
corporation.
(g) The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with
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the 1933 Act, and the declaration or ordering of the effectiveness of such
registration statement or document by the SEC.
(h) The term "Registrable Securities" means: (i) the Common
Stock or other equity or convertible equity securities of the Company issued or
issuable upon exercise of this Warrant; and (ii) any Common Stock of the Company
issued (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued) by way of a stock split, stock dividend,
recapitalization, merger or other distribution with respect to, or in exchange
for, or in replacement of, such Common Stock.
2. Warrant Price. The purchase price to be paid upon exercise of this
Warrant is U.S. $0.44 per share of Common Stock. Such price shall be subject to
adjustment pursuant to Section 7 hereof (such price, as adjusted from time to
time, is herein referred to as the "Warrant Price").
3. Exercise Period. This Warrant shall be exercisable by the Holder for
a term beginning on July 7, 1999, (the "Commencement Date") and ending on July
6, 2004, (the "Expiration Date").
4. Method of Exercise.
(a) The Holder may exercise from time to time, in whole or in
part on or before the Expiration Date, the purchase rights evidenced hereby.
Such exercise shall be effected by:
(i) the surrender of the Warrant, together with a
duly executed copy of the form of subscription attached hereto as Appendix I, to
the Secretary of the Company at its principal offices; and
(ii) the payment to the Company, in cash or by check
payable to the order of the Company, of an amount equal to the aggregate
purchase price for the number of Shares designated for purchase in the completed
subscription form.
(b) In lieu of exercising this Warrant pursuant to Section
4(a), the Holder may elect to receive shares equal to the value of this Warrant
(or any portion thereof remaining unexercised) by surrender of this Warrant at
the principal office of the Company together with the Subscription Form, in
which event the Company shall issue to the Holder a number of Shares computed
using the following formula:
X = Y (A-B)
-------
A
Where X=the number of Shares to be issued to the Holder.
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Y= the number of Shares purchasable under this Warrant (at the date of
such exercise).
A= the fair market value of one Share (at the date of such exercise).
B= the Warrant Price (as adjusted to the date of such exercise).
For purposes of this subsection fair market value of one Share shall mean:
(i) The average of the closing bid and asked prices of the Common Stock
quoted in the NASDAQ National Market System or the Over-the-Counter
market or the closing price quoted on any exchange on which the Common
Stock is listed, whichever is applicable, as published in the Western
Edition of The Wall Street Journal for the five (5) trading days prior
to the date of determination of the fair market value; or
(ii) If the Common Stock is not publicly traded, the per share fair
market value of the Common Stock shall be determined in good faith by
the Company's Board of Directors. If the Holder disagrees with the
determination by the Board of Directors of the fair market value of the
Common Stock then such fair market value shall be determined by an
independent appraiser selected jointly by the Company and the Holder.
The cost of such appraisal shall be paid equally by the Company and the
Holder.
(c) Upon the request of the Company, the Holder shall also
deliver to the Company an instrument, in form and substance reasonably
satisfactory to counsel for the Company, executed by the Holder certifying that
the Shares are being acquired for investment purposes only and not with a view
to their resale or distribution.
(d) In the event of a partial exercise of this Warrant, a new
Warrant shall be issued to the Holder representing the balance of the Shares
purchasable under this Warrant, such new Warrant to be issued within ten (10)
days after delivery of the subscription notice.
5. Certificate for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued in the name of the Holder as soon as practicable
following receipt of the completed subscription form and payment for the Shares
being purchased and in any event within ten (10) days thereafter. The Company
shall not be required to issue any fractional shares upon the exercise of the
Holder's purchaser rights under this Warrant. In lieu of any fractional shares,
the Company shall pay cash equal to such fraction multiplied by the per share
market price of the Common Stock as of the date of exercise.
6. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Series A Preferred
Stock and Common Stock, free from all preemptive rights with respect thereto, as
will be sufficient to permit the exercise of this Warrant for the full number of
Shares specified herein and the conversion of the Shares into
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<PAGE> 128
Common Stock. The Company further covenants that such Shares, when issued
pursuant to the exercise of this Warrant, will, upon issuance, be duly and
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges with respect to the issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number of and
kind of securities purchasable upon exercise of this Warrant and the purchase
price therefor shall be subject to adjustment from time to time as follows:
(a) Stock Splits and Combinations. If the Company shall at any
time subdivide or combine its outstanding shares of the Common Stock, this
Warrant shall, after that subdivision or combination, evidence the right to
purchase the number of shares of Common Stock that would have been issuable as a
result of that change with respect to the shares of the Common Stock which were
purchasable under this Warrant immediately before that subdivision or
combination. If the Company shall at any time subdivide the outstanding shares
of Common Stock, the Warrant Price then in effect immediately before that
subdivision shall be proportionately decreased, and, if the Company shall at any
time combine the outstanding shares of Common Stock, the Warrant Price then in
effect immediately before that combination shall be proportionately increased.
Any adjustment under this Section 7(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(b) Reclassification, Exchange and Substitution. If the Common
Stock issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other series or class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares provided for above), the Holder of this
Warrant shall, on its exercise, be entitled to purchase, in lieu of Common Stock
which the Holder would have become entitled to purchase but for such change, a
number of shares of such other series or class or classes of stock equivalent to
the number of shares of Common Stock that would have been subject to purchase by
the Holder on exercise of this Warrant immediately before that change.
(c) Reorganization, Mergers, Consolidations or Sale of Assets.
If at any time there shall be a capital reorganization of the Company (other
than a combination, reclassification, exchange, or subdivision of shares
provided for elsewhere in this Warrant) or merger or consolidation of the
Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such capital reorganization, merger, consolidation or sale,
lawful provision shall be made so that the Holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified in this Warrant and upon payment of the Warrant Price then in
effect, the number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such merger or
consolidation, to which a holder of the Company's Common Stock deliverable upon
exercise of this Warrant would have been entitled in such capital
reorganization, merger, consolidation or sale if this Warrant had been exercised
immediately before that capital reorganization, merger, consolidation or sale.
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(d) Notice of Adjustments. The Company shall give notice of
each adjustment or readjustment of the number of shares of the Common Stock or
other securities issuable upon exercise of this Warrant and the Warrant Price to
the registered Holder of this Warrant at that Holder's address as shown on the
Company's books within twenty (20) days after the occurrence of the event
resulting in such adjustment.
(e) No Change Necessary. The form of this Warrant need not be
changed because of any adjustment in the number of shares of the Common Stock
purchasable upon its exercise. A Warrant issued after any adjustment upon any
partial exercise or in replacement may continue to express the same number of
shares of Common Stock (appropriately reduced in the case of partial exercise)
as are stated on the face of this Warrant as initially issued, and that number
of shares shall be considered to have been so changed at the close of business
on the date of adjustment.
8. Automatic Termination. In the event of (i) the closing of the
Company's registration statement on a Form S-1 (or any other form equivalent
thereto) pursuant to which any class of the Company's securities is sold to the
public in a public offering registered under the Securities Act of 1933, as
amended; or (ii) the proposed sale of all or substantially all the capital
stock, or substantially all the assets, of the Company in a merger, business
combination, or other form of business transaction with or into a third party in
which the Company's stockholders do not own at least a majority of the
outstanding voting securities of the surviving corporation or business entity
after such transaction (based solely on such Company stockholders' holdings of
the Company prior to the transaction), then the Company shall give the Holder of
this Warrant at least fifteen (15) days written notice of the proposed effective
date and terms of such offering, transaction or agreements, and if the Warrant
has not been exercised at least before the effective date of such offering,
transaction or agreements, then this Warrant and the rights hereunder shall be
automatically terminated.
9. Exercise, Transfer and Exchange Restrictions.
(a) This Warrant, and any rights hereunder, may not be
assigned or transferred, except as provided herein and in accordance with and
subject to the provisions of (i) applicable state securities laws, and (ii) the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (such Act and such rules and regulations being hereinafter
collectively referred to as the "Act"). Any purported transfer or assignment
made other than in accordance with this Section 9 shall be null and void and of
no force and effect.
(b) This Warrant, and any rights hereunder, may be transferred
or assigned only with the prior written consent of the Company, which shall be
granted only upon receipt by the Company of an opinion of counsel satisfactory
to the Company that (i) the transferee is a person to whom this Warrant may be
legally transferred without registration under the Act, and (ii) such transfer
will not violate any applicable law or governmental rule or regulation,
including, without limitation, any applicable federal or state securities law.
Prior to the transfer or assignment, the assignor or transferor shall reimburse
the Company for its reasonable
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expenses, including transfer taxes and attorneys' fees, incurred in connection
with the transfer or assignment.
(c) Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Company at its principal office with an
assignment duly executed and funds sufficient to pay any transfer tax. In such
event, the Company shall, without charge, execute and deliver a new Warrant in
the name of the assignee named in such instrument of assignment and this Warrant
shall be promptly canceled.
10. Registration Rights.
(a) Requested Registration.
(i) Request for Registration. In case the Company
shall receive from the Holder a written request that the Company file a
registration statement under the 1933 Act with respect to shares of Registrable
Securities having an expected aggregate offering price of at least One Million
Dollars ($1,000,000), the Company will, subject to the limitations of Section
9(a)(ii), use its best efforts to effect such registration under the 1933 Act
(including, without limitation, appropriate qualification under applicable blue
sky or other state securities laws and appropriate compliance with applicable
regulations issued under the 1933 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; provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 10(a)(i):
(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 1933 Act;
(B) Prior to the six (6) months after the
closing date of the Company's first registered public offering of its stock
(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 SEC Rule 145 transaction);
(C) During the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and ending
on the date six (6) months immediately following the closing date of, any
initial registration statement pertaining to securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction); provided, however, that the Company is
acting in good faith and using all reasonable efforts to cause such initial
registration statement to become effective;
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(D) After the Company has effected one (1) such
registration pursuant to a Holder's demand under this Section 10(a)(i), which
registration has been declared effective; or
(E) If the Company shall furnish to 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 and its shareholders for a registration statement to be filed at
such time, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 10(a)(i) shall be deferred for a period not
to exceed one hundred twenty (120) days from the date of receipt of written
request from the Holder; provided, however, that the Company may not make such
certification more than once every twelve (12) months.
(ii) Underwriting. In the event that a registration pursuant
to Section 10(a)(i) is for a registered public offering involving an
underwriting, the Company shall so advise the Holder and the right of the Holder
to registration pursuant to Section 10(a)(i) shall be conditioned upon such
Holder's participation in the underwriting arrangements required by this Section
10(a)(ii), and the inclusion of the Holder's Registrable Securities in the
underwriting to the extent requested shall be limited to the extent provided
herein.
The Company shall, together with the Holder, enter into an underwriting
agreement in customary form with a managing underwriter selected for such
underwriting by the Company. Notwithstanding any other provision of this Section
10(a), if the managing underwriter advises the Holder in writing that market
factors require a limitation of the number of shares to be underwritten, then
the number of shares of Registrable Securities that may be included in the
registration shall be so limited.
(b) Piggy-back Registration Rights.
(i) Piggy-back Registration Rights. If (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holder) any of its securities under the 1933 Act in connection with the public
offering of such securities solely for cash (other than a registration (i) on
Form S-8 or any form which does not include substantially the same information
as would be required to be included in a registration statement covering the
sale of the Registrable Securities, or (ii) with respect to an employee benefit
plan, or (iii) solely in connection with a Rule 145 transaction under the 1933
Act), the Company shall, each such time, promptly give the Holder written notice
of such registration together with a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under applicable state
securities laws. Upon the written request of the Holder given within twenty (20)
business days after delivery of such written notice by the Company, the Company
shall, subject to the provisions of Section 10(b)(ii), use its best efforts to
cause to be registered under the 1933 Act all of the Registrable Securities that
the Holder has requested to be registered. The Company shall be required to
effect not more than three (3) such registrations of Registrable Securities
pursuant to the request of the Holder under this Section 10(b).
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<PAGE> 132
(ii) Underwriting Requirements in Piggy-back Registration. The
right of the Holder to registration pursuant to Section 10(b)(i) shall be
conditioned upon the Holder's participation in such underwriting and the
inclusion of the Holder's Registrable Securities in the underwriting to the
extent provided herein. The Holder shall (together with the Company and any
other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
Section 10(b)(i) and this Section 10(b)(ii), if the underwriter determines that
market factors require a limitation of the number of shares to be underwritten,
the underwriter may (subject to the allocation priority set forth below) exclude
some or all Registrable Securities from such registration and underwriting.
(c) Obligations of the Company. Whenever required under this Section 9
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holder, keep such registration statement effective for up to one hundred twenty
(120) days.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(iii) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by it.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably appropriate for the distribution of
the securities covered by the registration statement; provided, however, 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 jurisdiction, and further provided that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling shareholders, then such
expenses shall be payable by the Holder, to the extent required by such
jurisdiction if the Holder does elect to withdraw from the registration after
notice of such requirement.
(v) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing
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<PAGE> 133
underwriter of such offering. The Holder shall also enter into and perform its
obligations under such an agreement.
(vi) Notify the Holder, at any time when a prospectus relating
thereto is required to be delivered under the 1933 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 light of the circumstances then
existing. In such instance, Company shall use its best efforts to cure any such
statement or omission so as to render such statement or omission not misleading.
(d) Furnish Information. In connection with any action pursuant to this
Section 10, the Holder shall furnish to the Company such information regarding
itself, the Registrable Securities held by it, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities. In that connection, the Holder shall be
required to represent to the Company that all such information which is given is
both complete and accurate in all material respects when made.
(e) Definition of Expenses.
(i) "Registration Expenses" shall mean all expenses incurred
by the Company in complying with Section 10 hereof, including, without
limitation, all registration, filing and qualification fees, underwriters'
expense allowances, printing expenses, fees and disbursements of counsel for the
Company, reasonable fees and expenses of one special counsel retained in
connection with each such registration by the Holder, blue sky fees and
disbursements, and the expense of any special audits incident to or required by
any registration pursuant to Section 10(a) (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company).
(ii) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of the Registrable Securities in
the registration, all stock transfer taxes and all fees and disbursements of any
additional special counsel (other than the special counsel provided for in
Section 10(e)(i) above) retained in connection with each such registration by
the Holder.
(f) Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with (i) any registration, qualification or
compliance pursuant to Section 10(a), and (ii) no more than three (3)
registrations pursuant to Section 10(b). All Selling Expenses shall be borne by
the Holder.
(g) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 10:
(i) To the extent permitted by law, the Company will indemnify
and hold harmless the Holder, the officers, directors and partners of the
Holder, any underwriter (as
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<PAGE> 134
defined in the 1933 Act) for the Holder and each person, if any, who controls
the Holder or underwriter within the meaning of the 1933 Act or the 1934 Act,
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the 1933 Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading; or (iii) any
violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the 1933 Act,
the 1934 Act or any state securities law; and the Company will reimburse the
Holder, officer, director or partner, underwriter or controlling person for any
legal or other expenses reasonably incurred by them, as incurred, in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the Company's indemnity contained in this
Section 10(g) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished in writing and expressly stated for use in connection with
such registration by the Holder, or the Holder's officers, directors or
partners, underwriter, or controlling person. The Company shall not be required
to indemnify any person against any liability arising (i) from any untrue or
misleading statement or omission contained in any preliminary prospectus if such
deficiency is corrected in the final prospectus or (ii) out of the failure of
any person to deliver a prospectus as required by the 1993 Act. The indemnity
provided for in this Section 10(g) shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller,
underwriter, participating person or controlling person and shall survive
transfer of such securities by such seller.
(ii) To the extent permitted by law, the Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the registration statement, each person, if any, who controls the
Company within the meaning of the 1933 Act, any underwriter (within the meaning
of the 1933 Act) for the Company, any person who controls such underwriter, and
any other security holder in such registration statement or any of its partners,
directors or officers or any person who controls such security holder, against
any losses, claims, damages or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the 1933 Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by the Holder expressly stated in a writing for use in connection with
such registration; and the Holder will reimburse any legal or other expenses, as
incurred, where same are reasonably incurred by any person intended to be
indemnified pursuant to this Section 10(g), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity
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agreement contained in this Section 10(g) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, the liability of
each Holder under this Section 10(g) shall be limited to an amount equal to the
public offering price of the shares sold by the Holder.
(iii) Promptly after receipt by an indemnified party under
this Section 10(g) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 10(g), notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party shall have the right to participate in and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
to be paid by the indemnifying party if the indemnified party reasonably
determines that representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 10(g), but the omission so to notify the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 10(g).
(iv) In order to provide for just and equitable contribution
to joint liability under the 1933 Act in any case in which either (i) any
indemnified party makes a claim under this Section 10(g) or any controlling
person of such indemnified party makes such a claim but is judicially determined
(by entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 10(g) provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of any such person
seeking indemnity under the terms of this Section 10(g); then, and in each such
case, the Company and such person will contribute to the aggregate losses,
claims, damages, or liabilities to which they may be subject (after contribution
from others) 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. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
person shall be required to contribute any amount in excess of the public
offering price of all such Registrable Securities sold by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
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misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(h) Investor Rights Agreement. The Holder acknowledges and agrees that
(i) the Company and certain investors have entered into an Investor Rights
Agreement dated November, 1998 (the "Investor Rights Agreement"), (ii) the
Holder may include his securities in a demand registration under the Investor
Rights Agreement only to the extent that the inclusion of his securities will
not reduce the amount of securities to be registered for parties to the Investor
Rights Agreement and (iii) the Holder shall not make a demand registration which
could result in such registration statement being declared effective prior six
months after the effective date of the Company's initial public offering of
securities pursuant to a registration filed under the 1933 Act or within one
hundred twenty (120) days of the effective date of any demand registration
pursuant to the Investor Rights Agreement.
(i) Termination of Registration Rights.
(i) The Company shall have no obligations pursuant to Section
10 with respect to any request or requests made by the Holder after the date
which is five (5) years following the date of the consummation of the first sale
of securities pursuant to a registration statement filed by the Company under
the 1933 Act in connection with the initial firm commitment underwritten
offering of its securities to the general public.
(ii) Notwithstanding any contrary provision of this Section
10(i), the Company shall not be required to effect any registrations under the
1933 Act or under any state securities laws on behalf of the Holder if, in the
opinion of counsel to the Company, the offering or transfer by such Holder in
the manner proposed (including, without limitation, the number of shares
proposed to be offered or transferred, the time of sale, and the method of
offering or transfer) is exempt from the registration requirements of the 1933
Act and the securities laws of applicable states and the Company consents to
such transfer, if required.
11. "Market Stand-off" Agreement. The Holder agrees, so long as the
Holder holds at least one percent (1%) of the Company's outstanding voting
equity securities, in connection with the Company's initial underwritten public
offering of the Company's securities that, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Common Stock of the Company (other than those Common
Stock shares included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed one hundred eighty (180) days) from the closing date of such
registration as may be requested by the underwriters; provided, however, that
such covenants shall apply only if (i) all of the officers and directors of the
Company who own stock of the Company and (ii) each shareholder owning more than
two percent (2%) of the Company's shares also agree to such restrictions on any
shares not being registered in such offering. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Registrable Securities of the Holder (and the shares
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of securities of every other person subject to the foregoing restriction) until
the end of such period.
12. Miscellaneous Provisions.
(a) Listing. If any shares of the Common Stock required to be
reserved for issuance upon the exercise of this Warrant require registration
with or approval of any governmental authority under any Federal or state law
(other than the Securities Act, as then in effect, or any similar Federal law
then in effect), or listing on any domestic securities exchange, before such
shares may be issued upon such exercise, the Company shall, at its expense and
as expeditiously as possible, use its best efforts to cause such shares to be
duly registered or approved or listed on the relevant domestic securities
exchange, as the case may be.
(b) Replacement. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of any
indemnity agreement or bond reasonably satisfactory in form and amount to the
Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense will execute and deliver, in lieu of this
Warrant a new Warrant of like tenor.
(c) No Rights as Stockholder. Prior to the exercise of this
Warrant, no Holder of this Warrant, as such, shall be entitled to vote or
receive dividends or be considered a stockholder of the Company for any purpose,
nor shall anything in this Warrant be construed to confer on any Holder of this
Warrant, as such, any rights of a shareholder of the Company or any right to
vote, give or withhold consent to any corporate action, to receive notice of
meetings of stockholders (except as set forth in this Warrant), to receive
dividends or subscription rights or otherwise.
(d) Governing Law. This Warrant shall be governed by and
construed and enforced in accordance with the laws of the State of California
applicable to contracts entered into and wholly to be performed in California by
California residents.
(e) Notices. All notices from the Company to the holder of
this Warrant shall be in writing and shall be (i) personally delivered, (ii)
transmitted by mail, postage prepaid, registered or certified, return receipt
requested, or by air mail in the event of mailing for delivery outside of the
country in which mailed, (iii) transmitted by an overnight courier of recognized
reputation or of recognized international reputation in the event of an
international delivery or (iv) transmitted by telecopier (with confirmation by
air mail or courier), to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in accordance with the provisions of this Section 11(e). Except as otherwise
specified herein, communications shall be deemed to have been duly given on (A)
the date of receipt if delivered personally, (B) the date seven (7) days after
posting if transmitted by mail, (C) the date three (3) days after delivery to
the courier if sent by recognized or internationally recognized courier service,
or (D) the date on which written confirmation would be deemed to
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have been given as provided above, whether by mail or by courier, as applicable,
if transmitted by telecopier, whichever shall first occur.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer.
Dated: July 7, 1999.
CHAPARRAL NETWORK STORAGE, INC.
By: /s/ Douglas J. Lehrmann
--------------------------------
Name: Douglas J. Lehrmann
Title: Vice President Finance
Acknowledged and Agreed:
Sentinel Consulting LLC.
By: /s/ Robert Harvey
------------------------------------
Name: Robert Harvey
Title: Manager
<PAGE> 139
NEITHER THIS WARRANT NOR THE SERIES A PREFERRED STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND THIS
WARRANT CANNOT BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF THE SERIES
A PREFERRED STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR
TRANSFERRED, UNLESS AND UNTIL THEY ARE SO REGISTERED OR UNLESS SUCH
REGISTRATION IS NOT THEN REQUIRED UNDER THE CIRCUMSTANCES OF SUCH EXERCISE,
SALE OR TRANSFER.
CHAPARRAL NETWORK STORAGE, INC.
WARRANT TO PURCHASE COMMON STOCK
OF CHAPARRAL NETWORK STORAGE, INC.
Void after July 19, 2004
This certifies that, subject to the terms and conditions set forth
herein, for value received, Sentinel Consulting LLC., a Delaware corporation,
(the "Holder") or its registered assigns is entitled to purchase from Chaparral
Network Storage, Inc., a Delaware corporation (the "Company") up to one hundred
ninety thousand (190,000) fully paid and nonassessable shares of Common Stock,
$0.001 par value, of the Company (as adjusted pursuant to Section 7 hereof, the
"Shares") at the purchase price per share specified in Section 2 below.
1. Definitions. As used in this Warrant, the following terms, unless
the context otherwise requires, have the following meanings:
(a) "Common Stock", when used with reference to stock of the
Company, means all shares, now or hereafter authorized, of the class of Common
Stock, $0.001 par value, of the Company currently authorized and shares of any
other class into which those shares may hereafter be changed.
(b) "Company" means Chaparral Network Storage, Inc. a Delaware
corporation and any corporation which shall succeed to or assume the
obligations of the Company under this Warrant.
(c) "1933 Act" means the Securities Act of 1933, as amended.
(d) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(e) "Convertible equity securities" or "equity securities" shall
mean any of the Company's securities.
(f) "Holder" means Sentinel Consulting, LLC, a Delaware corporation.
(g) The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement or
similar document in compliance with
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the 1933 Act, and the declaration or ordering of the effectiveness of such
registration statement or document by the SEC.
(h) The term "Registrable Securities" means: (i) the Common Stock or
other equity or convertible equity securities of the Company issued or issuable
upon exercise of this Warrant; and (ii) any Common Stock of the Company issued
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued) by way of a stock split, stock dividend,
recapitalization, merger or other distribution with respect to, or in exchange
for, or in replacement of, such Common Stock.
2. Warrant Price. The purchase price to be paid upon exercise of this
Warrant is U.S. $0.50 per share of Common Stock. Such price shall be subject to
adjustment pursuant to Section 7 hereof (such price, as adjusted from time to
time, is herein referred to as the "Warrant Price").
3. Exercise Period. This Warrant shall be exercisable by the Holder
for a term beginning on July 20, 1999, (the "Commencement Date") and ending on
July 19, 2004, (the "Expiration Date").
4. Method of Exercise.
(a) The Holder may exercise from time to time, in whole or in part
on or before the Expiration Date, the purchase rights evidenced hereby. Such
exercise shall be effected by:
(i) the surrender of the Warrant, together with a duly executed
copy of the form of subscription attached hereto as Appendix I, to the
Secretary of the Company at its principal offices; and
(ii) the payment to the Company, in cash or by check payable to
the order of the Company, of an amount equal to the aggregate purchase price
for the number of Shares designated for purchase in the completed subscription
form.
(b) In lieu of exercising this Warrant pursuant to Section 4(a),
the Holder may elect to receive shares equal to the value of this Warrant (or
any portion thereof remaining unexercised) by surrender of this Warrant at the
principal office of the Company together with the Subscription Form, in which
event the Company shall issue to the Holder a number of Shares computed using
the following formula:
X = Y (A-B)
--------
A
Where X = the number of Shares to be issued to the Holder.
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Y = the number of Shares purchasable under this Warrant (at the date of
such exercise).
A = the fair market value of one Share (at the date of such exercise).
B = the Warrant Price (as adjusted to the date of such exercise).
For purposes of this subsection fair market value of one Share shall mean:
(i) The average of the closing bid and asked prices of the Common
Stock quoted in the NASDAQ National Market System or the
Over-the-Counter market or the closing price quoted on any exchange on
which the Common Stock is listed, whichever is applicable, as
published in the Western Edition of The Wall Street Journal for the
five (5) trading days prior to the date of determination of the fair
market value; or
(ii) If the Common Stock is not publicly traded, the per share fair
market value of the Common Stock shall be determined in good faith by
the Company's Board of Directors. If the Holder disagrees with the
determination by the Board of Directors of the fair market value of
the Common Stock then such fair market value shall be determined by an
independent appraiser selected jointly by the Company and the Holder.
The cost of such appraisal shall be paid equally by the Company and
the Holder.
(c) Upon the request of the Company, the Holder shall also deliver
to the Company an instrument, in form and substance reasonably satisfactory to
counsel for the Company, executed by the Holder certifying that the Shares are
being acquired for investment purposes only and not with a view to their resale
or distribution.
(c) In the event of a partial exercise of this Warrant, a new
Warrant shall be issued to the Holder representing the balance of the Shares
purchasable under this Warrant, such new Warrant to be issued within ten (10)
days after delivery of the subscription notice.
5. Certificate for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued in the name of the Holder as soon as practicable
following receipt of the completed subscription form and payment for the Shares
being purchased and in any event within ten (10) days thereafter. The Company
shall not be required to issue any fractional shares upon the exercise of the
Holder's purchaser rights under this Warrant. In lieu of any fractional shares,
the Company shall pay cash equal to such fraction multiplied by the per share
market price of the Common Stock as of the date of exercise.
6. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Series A Preferred
Stock and Common Stock, free from all preemptive rights with respect thereto,
as will be sufficient to permit the exercise of this Warrant for the full
number of Shares specified herein and the conversion of the Shares into
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Common Stock. The Company further covenants that such Shares, when issued
pursuant to the exercise of this Warrant, will, upon issuance, be duly and
validly issued, fully paid and non-assessable and free from all taxes, liens
and charges with respect to the issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number of and
kind of securities purchasable upon exercise of this Warrant and the purchase
price therefor shall be subject to adjustment from time to time as follows:
(a) Stock Splits and Combinations. If the Company shall at any time
subdivide or combine its outstanding shares of the Common Stock, this Warrant
shall, after that subdivision or combination, evidence the right to purchase
the number of shares of Common Stock that would have been issuable as a result
of that change with respect to the shares of the Common Stock which were
purchasable under this Warrant immediately before that subdivision or
combination. If the Company shall at any time subdivide the outstanding shares
of Common Stock, the Warrant Price then in effect immediately before that
subdivision shall be proportionately decreased, and, if the Company shall at
any time combine the outstanding shares of Common Stock, the Warrant Price then
in effect immediately before that combination shall be proportionately
increased. Any adjustment under this Section 7(a) shall become effective at the
close of business on the date the subdivision or combination becomes effective.
(b) Reclassification, Exchange and Substitution. If the Common Stock
issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other series or class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares provided for above), the Holder of this
Warrant shall, on its exercise, be entitled to purchase, in lieu of Common
Stock which the Holder would have become entitled to purchase but for such
change, a number of shares of such other series or class or classes of stock
equivalent to the number of shares of Common Stock that would have been subject
to purchase by the Holder on exercise of this Warrant immediately before that
change.
(c) Reorganization, Mergers, Consolidations or Sale of Assets. If at
any time there shall be a capital reorganization of the Company (other than a
combination, reclassification, exchange, or subdivision of shares provided for
elsewhere in this Warrant) or merger or consolidation of the Company with or
into another corporation, or the sale of the Company's properties and assets
as, or substantially as, an entirety to any other person, then, as a part of
such capital reorganization, merger, consolidation or sale, lawful provision
shall be made so that the Holder of this Warrant shall thereafter be entitled
to receive upon exercise of this Warrant, during the period specified in this
Warrant and upon payment of the Warrant Price then in effect, the number of
shares of stock or other securities or property of the Company, or of the
successor corporation resulting from such merger or consolidation, to which a
holder of the Company's Common Stock deliverable upon exercise of this Warrant
would have been entitled in such capital reorganization, merger, consolidation
or sale if this Warrant had been exercised immediately before that capital
reorganization, merger, consolidation or sale.
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(d) Notice of Adjustments. The Company shall give notice of each
adjustment or readjustment of the number of shares of the Common Stock or other
securities issuable upon exercise of this Warrant and the Warrant Price to the
registered Holder of this Warrant at that Holder's address as shown on the
Company's books within twenty (20) days after the occurrence of the event
resulting in such adjustment.
(e) No Change Necessary. The form of this Warrant need not be
changed because of any adjustment in the number of shares of the Common Stock
purchasable upon its exercise. A Warrant issued after any adjustment upon any
partial exercise or in replacement may continue to express the same number of
shares of Common Stock (appropriately reduced in the case of partial exercise)
as are stated on the face of this Warrant as initially issued, and that number
of shares shall be considered to have been so changed at the close of business
on the date of adjustment.
8. Automatic Termination. In the event of (i) the closing of the
Company's registration statement on a Form S-1 (or any other form equivalent
thereto) pursuant to which any class of the Company's securities is sold to the
public in a public offering registered under the Securities Act of 1933, as
amended; or (ii) the proposed sale of all or substantially all the capital
stock, or substantially all the assets, of the Company in a merger, business
combination, or other form of business transaction with or into a third party
in which the Company's stockholders do not own at least a majority of the
outstanding voting securities of the surviving corporation or business entity
after such transaction (based solely on such Company stockholders' holdings of
the Company prior to the transaction), then the Company shall give the Holder
of this Warrant at least fifteen (15) days written notice of the proposed
effective date and terms of such offering, transaction or agreements, and if
the Warrant has not been exercised at least before the effective date of such
offering, transaction or agreements, then this Warrant and the rights hereunder
shall be automatically terminated.
9. Exercise, Transfer and Exchange Restrictions.
(a) This Warrant, and any rights hereunder, may not be assigned or
transferred, except as provided herein and in accordance with and subject to
the provisions of (i) applicable state securities laws, and (ii) the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder
(such Act and such rules and regulations being hereinafter collectively
referred to as the "Act"). Any purported transfer or assignment made other than
in accordance with this Section 9 shall be null and void and of no force and
effect.
(b) This Warrant, and any rights hereunder, may be transferred or
assigned only with the prior written consent of the Company, which shall be
granted only upon receipt by the Company of an opinion of counsel satisfactory
to the Company that (i) the transferee is a person to whom this Warrant may be
legally transferred without registration under the Act, and (ii) such transfer
will not violate any applicable law or governmental rule or regulation,
including, without limitation, any applicable federal or state securities law.
Prior to the transfer or assignment, the assignor or transferor shall reimburse
the Company for its reasonable
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expenses, including transfer taxes and attorneys' fees, incurred in connection
with the transfer or assignment.
(c) Any assignment permitted hereunder shall be made by surrender of
this Warrant to the Company at its principal office with an assignment duly
executed and funds sufficient to pay any transfer tax. In such event, the
Company shall, without charge, execute and deliver a new Warrant in the name of
the assignee named in such instrument of assignment and this Warrant shall be
promptly canceled.
10. Registration Rights.
(a) Requested Registration.
(i) Request for Registration. In case the Company shall
receive from the Holder a written request that the Company file a registration
statement under the 1933 Act with respect to shares of Registrable Securities
having an expected aggregate offering price of at least One Million Dollars
($1,000,000), the Company will, subject to the limitations of Section 9(a)(ii),
use its best efforts to effect such registration under the 1933 Act (including,
without limitation, appropriate qualification under applicable blue sky or
other state securities laws and appropriate compliance with applicable
regulations issued under the 1933 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; provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 10(a)(i):
(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 1933 Act;
(B) Prior to the six (6) months after the closing
date of the Company's first registered public offering of its stock (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
SEC Rule 145 transaction);
(C) During the period starting with the date sixty
(60) days prior to the Company's estimated date of filing of, and ending on the
date six (6) months immediately following the closing date of, any initial
registration statement pertaining to securities of the Company (other than a
registration statement relating either to the sale of securities to employees
of the Company pursuant to a stock option, stock purchase or similar plan or a
SEC Rule 145 transaction); provided, however, that the Company is acting in
good faith and using all reasonable efforts to cause such initial registration
statement to become effective;
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(D) After the Company has effected one (1) such
registration pursuant to a Holder's demand under this Section 10(a)(i), which
registration has been declared effective; or
(E) If the Company shall furnish to 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 and its shareholders for a registration statement to be filed at
such time, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 10(a)(i) shall be deferred for a period
not to exceed one hundred twenty (120) days from the date of receipt of written
request from the Holder; provided, however, that the Company may not make such
certification more than once every twelve (12) months.
(ii) Underwriting. In the event that a registration pursuant
to Section 10(a)(i) is for a registered public offering involving an
underwriting, the Company shall so advise the Holder and the right of the
Holder to registration pursuant to Section 10(a)(i) shall be conditioned upon
such Holder's participation in the underwriting arrangements required by this
Section 10(a)(ii), and the inclusion of the Holder's Registrable Securities in
the underwriting to the extent requested shall be limited to the extent
provided herein.
The Company shall, together with the Holder, enter into an
underwriting agreement in customary form with a managing underwriter selected
for such underwriting by the Company. Notwithstanding any other provision of
this Section 10(a), if the managing underwriter advises the Holder in writing
that market factors require a limitation of the number of shares to be
underwritten, then the number of shares of Registrable Securities that may be
included in the registration shall be so limited.
(b) Piggy-back Registration Rights.
(i) Piggy-back Registration Rights. If (but without any obligation
to do so) the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Holder)
any of its securities under the 1933 Act in connection with the public offering
of such securities solely for cash (other than a registration (i) on Form S-8
or any form which does not include substantially the same information as would
be required to be included in a registration statement covering the sale of the
Registrable Securities, or (ii) with respect to an employee benefit plan, or
(iii) solely in connection with a Rule 145 transaction under the 1933 Act), the
Company shall, each such time, promptly give the Holder written notice of such
registration together with a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under applicable state securities
laws. Upon the written request of the Holder given within twenty (20) business
days after delivery of such written notice by the Company, the Company shall,
subject to the provisions of Section 10(b)(ii), use its best efforts to cause
to be registered under the 1933 Act all of the Registrable Securities that the
Holder has requested to be registered. The Company shall be required to effect
not more than three (3) such registrations of Registrable Securities pursuant
to the request of the Holder under this Section 10(b).
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(ii) Underwriting Requirements in Piggy-back Registration. The
right of the Holder to registration pursuant to Section 10(b)(i) shall be
conditioned upon the Holder's participation in such underwriting and the
inclusion of the Holder's Registrable Securities in the underwriting to the
extent provided herein. The Holder shall (together with the Company and any
other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
Section 10(b)(i) and this Section 10(b)(ii), if the underwriter determines that
market factors require a limitation of the number of shares to be underwritten,
the underwriter may (subject to the allocation priority set forth below)
exclude some or all Registrable Securities from such registration and
underwriting.
(c) Obligations of the Company. Whenever required under this Section
9 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holder, keep such registration statement effective for up to one hundred twenty
(120) days.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the 1933 Act with respect to the disposition of all
securities covered by such registration statement.
(iii) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by it.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably appropriate for the distribution of
the securities covered by the registration statement; provided, however, 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 jurisdiction, and further provided that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling shareholders, then such
expenses shall be payable by the Holder, to the extent required by such
jurisdiction if the Holder does elect to withdraw from the registration after
notice of such requirement.
(v) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing
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underwriter of such offering. The Holder shall also enter into and perform its
obligations under such an agreement.
(vi) Notify the Holder, at any time when a prospectus
relating thereto is required to be delivered under the 1933 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 light of the
circumstances then existing. In such instance, Company shall use its best
efforts to cure any such statement or omission so as to render such statement
or omission not misleading.
(d) Furnish Information. In connection with any action pursuant to
this Section 10, the Holder shall furnish to the Company such information
regarding itself, the Registrable Securities held by it, and the intended
method of disposition of such securities as shall be required to effect the
registration of their Registrable Securities. In that connection, the Holder
shall be required to represent to the Company that all such information which
is given is both complete and accurate in all material respects when made.
(e) Definition of Expenses.
(i) "Registration Expenses" shall mean all expenses incurred
by the Company in complying with Section 10 hereof, including, without
limitation, all registration, filing and qualification fees, underwriters'
expense allowances, printing expenses, fees and disbursements of counsel for the
Company, reasonable fees and expenses of one special counsel retained in
connection with each such registration by the Holder, blue sky fees and
disbursements, and the expense of any special audits incident to or required by
any registration pursuant to Section 10(a) (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company).
(ii) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of the Registrable Securities in
the registration, all stock transfer taxes and all fees and disbursements of any
additional special counsel (other than the special counsel provided for in
Section 10(e)(i) above) retained in connection with each such registration by
the Holder.
(f) Expenses of Registration. The Company shall bear all
Registration Expenses incurred in connection with (i) any registration,
qualification or compliance pursuant to Section 10(a), and (ii) no more than
three (3) registrations pursuant to Section 10(b). All Selling Expenses shall
be borne by the Holder.
(g) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 10:
(i) To the extent permitted by law, the Company will indemnify
and hold harmless the Holder, the officers, directors and partners of the
Holder, any underwriter (as
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defined in the 1933 Act) for the Holder and each person, if any, who controls
the Holder or underwriter within the meaning of the 1933 Act or the 1934 Act,
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the 1933 Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto; (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading; or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any state securities law or any rule or regulation promulgated under
the 1933 Act, the 1934 Act or any state securities law; and the Company will
reimburse the Holder, officer, director or partner, underwriter or controlling
person for any legal or other expenses reasonably incurred by them, as
incurred, in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the Company's indemnity
contained in this Section 10(g) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case for
any such loss, claim, damage, liability, or action to the extent that it arises
out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished in writing and expressly stated
for use in connection with such registration by the Holder, or the Holder's
officers, directors or partners, underwriter, or controlling person. The
Company shall not be required to indemnify any person against any liability
arising (i) from any untrue or misleading statement or omission contained in
any preliminary prospectus if such deficiency is corrected in the final
prospectus or (ii) out of the failure of any person to deliver a prospectus as
required by the 1993 Act. The indemnity provided for in this Section 10(g)
shall remain in full force and effect regardless of any investigation made by
or on behalf of such seller, underwriter, participating person or controlling
person and shall survive transfer of such securities by such seller.
(ii) To the extent permitted by law, the Holder will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who controls the
Company within the meaning of the 1933 Act, any underwriter (within the meaning
of the 1933 Act) for the Company, any person who controls such underwriter, and
any other security holder in such registration statement or any of its
partners, directors or officers or any person who controls such security
holder, against any losses, claims, damages or liabilities (joint or several)
to which any of the foregoing persons may become subject, under the 1933 Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by the Holder expressly stated in a writing for use in
connection with such registration; and the Holder will reimburse any legal or
other expenses, as incurred, where same are reasonably incurred by any person
intended to be indemnified pursuant to this Section 10(g), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity
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agreement contained in this Section 10(g) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, the liability of
each Holder under this Section 10(g) shall be limited to an amount equal to the
public offering price of the shares sold by the Holder.
(iii) Promptly after receipt by an indemnified party under this
Section 10(g) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 10(g),
notify the indemnifying party in writing of the commencement thereof, and the
indemnifying party shall have the right to participate in and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
to be paid by the indemnifying party if the indemnified party reasonably
determines that representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 10(g), but the omission so to notify the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 10(g).
(iv) In order to provide for just and equitable contribution to joint
liability under the 1933 Act in any case in which either (i) any indemnified
party makes a claim under this Section 10(g) or any controlling person of such
indemnified party makes such a claim but is judicially determined (by entry of
a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 10(g) provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of any such person
seeking indemnity under the terms of this Section 10(g); then, and in each such
case, the Company and such person will contribute to the aggregate losses,
claims, damages, or liabilities to which they may be subject (after
contribution from others) 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. The relative fault of the indemnifying party
and of the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information, and opportunity to correct or prevent
such statement or omission; provided, however, that, in any such case, (A) no
such person shall be required to contribute any amount in excess of the public
offering price of all such Registrable Securities sold by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
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misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
(h) Investor Rights Agreement. The Holder acknowledges and agrees that
(i) the Company and certain investors have entered into an Investor Rights
Agreement dated November, 1998 (the "Investor Rights Agreement"), (ii) the
Holder may include his securities in a demand registration under the Investor
Rights Agreement only to the extent that the inclusion of his securities will
not reduce the amount of securities to be registered for parties to the
Investor Rights Agreement and (iii) the Holder shall not make a demand
registration which could result in such registration statement being declared
effective prior six months after the effective date of the Company's initial
public offering of securities pursuant to a registration filed under the 1933
Act or within one hundred twenty (120) days of the effective date of any demand
registration pursuant to the Investor Rights Agreement.
(i) Termination of Registration Rights.
(i) The Company shall have no obligations pursuant to Section 10
with respect to any request or requests made by the Holder after the date which
is five (5) years following the date of the consummation of the first sale of
securities pursuant to a registration statement filed by the Company under the
1933 Act in connection with the initial firm commitment underwritten offering
of its securities to the general public.
(ii) Notwithstanding any contrary provision of this Section 10(i),
the Company shall not be required to effect any registrations under the 1933
Act or under any state securities laws on behalf of the Holder if, in the
opinion of counsel to the Company, the offering or transfer by such Holder in
the manner proposed (including, without limitation, the number of shares
proposed to be offered or transferred, the time of sale, and the method of
offering or transfer) is exempt from the registration requirements of the 1933
Act and the securities laws of applicable states and the Company consents to
such transfer, if required.
11. "Market Stand-off" Agreement. The Holder agrees, so long as the
Holder holds at least one percent (1%) of the Company's outstanding voting
equity securities, in connection with the Company's initial underwritten public
offering of the Company's securities that, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
not to sell, make any short sale of, loan, grant any option for the purchase
of, or otherwise dispose of any Common Stock of the Company (other than those
Common Stock shares included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, for such
period of time (not to exceed one hundred eighty (180) days) from the closing
date of such registration as may be requested by the underwriters; provided,
however, that such covenants shall apply only if (i) all of the officers and
directors of the Company who own stock of the Company and (ii) each shareholder
owning more than two percent (2%) of the Company's shares also agree to such
restrictions on any shares not being registered in such offering. In order to
enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of the Holder (and the
shares
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of securities of every other person subject to the foregoing restriction) until
the end of such period.
12. Miscellaneous Provisions.
(a) Listing. If any shares of the Common Stock required to be
reserved for issuance upon the exercise of this Warrant require registration
with or approval of any governmental authority under any Federal or state law
(other than the Securities Act, as then in effect, or any similar Federal law
then in effect), or listing on any domestic securities exchange, before such
shares may be issued upon such exercise, the Company shall, at its expense and
as expeditiously as possible, use its best efforts to cause such shares to be
duly registered or approved or listed on the relevant domestic securities
exchange, as the case may be.
(b) Replacement. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of any indemnity
agreement or bond reasonably satisfactory in form and amount to the Company or,
in the case of mutilation, on surrender and cancellation of this Warrant, the
Company at its expense will execute and deliver, in lieu of this Warrant a new
Warrant of like tenor.
(c) No Rights as Stockholder. Prior to the exercise of this
Warrant, no Holder of this Warrant, as such, shall be entitled to vote or
receive dividends or be considered a stockholder of the Company for any
purpose, nor shall anything in this Warrant be construed to confer on any
Holder of this Warrant, as such, any rights of a shareholder of the Company or
any right to vote, give or withhold consent to any corporate action, to receive
notice of meetings of stockholders (except as set forth in this Warrant), to
receive dividends or subscription rights or otherwise.
(d) Governing Law. This Warrant shall be governed by and construed
and enforced in accordance with the laws of the State of California applicable
to contracts entered into and wholly to be performed in California by
California residents.
(e) Notices. All notices from the Company to the holder of this
Warrant shall be in writing and shall be (i) personally delivered, (ii)
transmitted by mail, postage prepaid, registered or certified, return receipt
requested, or by air mail in the event of mailing for delivery outside of the
country in which mailed, (iii) transmitted by an overnight courier of
recognized reputation or of recognized international reputation in the event of
an international delivery or (iv) transmitted by telecopier (with confirmation
by air mail or courier), to the address furnished to the Company in writing by
the last holder of this Warrant who shall have furnished an address to the
Company in accordance with the provisions of this Section 11(e). Except as
otherwise specified herein, communications shall be deemed to have been duly
given on (A) the date of receipt if delivered personally, (B) the date seven
(7) days after posting if transmitted by mail, (C) the date three (3) days
after delivery to the courier if sent by recognized or internationally
recognized courier service, or (D) the date on which written confirmation would
be deemed to
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have been given as provided above, whether by mail or by courier, as
applicable, if transmitted by telecopier, whichever shall first occur.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer.
Dated: July 20, 1999.
CHAPARRAL NETWORK STORAGE, INC.
By: /s/ Douglas J. Lehrmann
-----------------------------------
Name: Douglas J. Lehrmann
Title: Vice President Finance
Acknowledged and Agreed:
Sentinel Consulting LLC.
By: /s/ Robert Harvey
-------------------------------
Name: Robert Harvey
Title: Manager
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NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND THIS WARRANT CANNOT
BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF THE COMMON STOCK ISSUABLE
UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR TRANSFERRED, UNLESS AND UNTIL
THEY ARE SO REGISTERED OR UNLESS SUCH REGISTRATION IS NOT THEN REQUIRED UNDER
THE CIRCUMSTANCES OF SUCH EXERCISE, SALE OR TRANSFER.
CHAPARRAL NETWORK STORAGE, INC.
WARRANT TO PURCHASE COMMON STOCK
OF CHAPARRAL NETWORK STORAGE, INC.
Void after August 8, 2004
This certifies that, subject to the terms and conditions set forth
herein, for value received, Sentinel Consulting LLC., a Delaware corporation,
(the "Holder") or its registered assigns is entitled to purchase from Chaparral
Network Storage, Inc., a Delaware corporation (the "Company") up to sixty
thousand (60,000) fully paid and nonassessable shares of Common Stock, $0.001
par value, of the Company (as adjusted pursuant to Section 7 hereof, the
"Shares") at the purchase price per share specified in Section 2 below.
1. Definitions. As used in this Warrant, the following terms, unless
the context otherwise requires, have the following meanings:
(a) "Common Stock", when used with reference to stock of the
Company, means all shares, now or hereafter authorized, of the class of Common
Stock, $0.001 par value, of the Company currently authorized and shares of any
other class into which those shares may hereafter be changed.
(b) "Company" means Chaparral Network Storage, Inc. a Delaware
corporation and any corporation which shall succeed to or assume the obligations
of the Company under this Warrant.
(c) "1933 Act" means the Securities Act of 1933, as amended.
(d) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(e) "Convertible equity securities" or "equity securities"
shall mean any of the Company's securities.
(f) "Holder" means Sentinel Consulting, LLC, a Delaware
corporation.
(g) The terms "register", "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the 1933 Act, and the declaration or
ordering of the effectiveness of such registration statement or document by the
SEC.
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(h) The term "Registrable Securities" means: (i) the Common
Stock or other equity or convertible equity securities of the Company issued or
issuable upon exercise of this Warrant; and (ii) any Common Stock of the Company
issued (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued) by way of a stock split, stock dividend,
recapitalization, merger or other distribution with respect to, or in exchange
for, or in replacement of, such Common Stock.
2. Warrant Price. The purchase price to be paid upon exercise of this
Warrant is U.S. $0.50 per share of Common Stock. Such price shall be subject to
adjustment pursuant to Section 7 hereof (such price, as adjusted from time to
time, is herein referred to as the "Warrant Price").
3. Exercise Period. This Warrant shall be exercisable by the Holder
for a term beginning on August 9, 1999, (the "Commencement Date") and ending on
August 8, 2004, (the "Expiration Date").
4. Method of Exercise.
(a) The Holder may exercise from time to time, in whole or in
part on or before the Expiration Date, the purchase rights evidenced hereby.
Such exercise shall be effected by:
(i) the surrender of the Warrant, together with a duly
executed copy of the form of subscription attached hereto as Appendix I, to the
Secretary of the Company at its principal offices; and
(ii) the payment to the Company, in cash or by check
payable to the order of the Company, of an amount equal to the aggregate
purchase price for the number of Shares designated for purchase in the completed
subscription form.
(b) In lieu of exercising this Warrant pursuant to Section
4(a), the Holder may elect to receive shares equal to the value of this Warrant
(or any portion thereof remaining unexercised) by surrender of this Warrant at
the principal office of the Company together with the Subscription Form, in
which event the Company shall issue to the Holder a number of Shares computed
using the following formula:
X = Y (A-B)
-------
A
Where X = the number of Shares to be issued to the Holder.
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Y = the number of Shares purchasable under this Warrant (at the date of
such exercise).
A = the fair market value of one Share (at the date of such exercise).
B = the Warrant Price (as adjusted to the date of such exercise).
For purposes of this subsection fair market value of one Share shall mean:
(i) The average of the closing bid and asked prices of the Common
Stock quoted in the NASDAQ National Market System or the
Over-the-Counter market or the closing price quoted on any exchange on
which the Common Stock is listed, whichever is applicable, as published
in the Western Edition of The Wall Street Journal for the five (5)
trading days prior to the date of determination of the fair market
value; or
(ii) If the Common Stock is not publicly traded, the per share fair
market value of the Common Stock shall be determined in good faith by
the Company's Board of Directors. If the Holder disagrees with the
determination by the Board of Directors of the fair market value of the
Common Stock then such fair market value shall be determined by an
independent appraiser selected jointly by the Company and the Holder.
The cost of such appraisal shall be paid equally by the Company and the
Holder.
(c) Upon the request of the Company, the Holder shall also
deliver to the Company an instrument, in form and substance reasonably
satisfactory to counsel for the Company, executed by the Holder certifying that
the Shares are being acquired for investment purposes only and not with a view
to their resale or distribution.
(c) In the event of a partial exercise of this Warrant, a new
Warrant shall be issued to the Holder representing the balance of the Shares
purchasable under this Warrant, such new Warrant to be issued within ten (10)
days after delivery of the subscription notice.
5. Certificate for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued in the name of the Holder as soon as practicable
following receipt of the completed subscription form and payment for the Shares
being purchased and in any event within ten (10) days thereafter. The Company
shall not be required to issue any fractional shares upon the exercise of the
Holder's purchaser rights under this Warrant. In lieu of any fractional shares,
the Company shall pay cash equal to such fraction multiplied by the per share
market price of the Common Stock as of the date of exercise.
6. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Series A Preferred
Stock and Common Stock, free from all preemptive rights with respect thereto, as
will be sufficient to permit the exercise of this Warrant for the full number of
Shares specified herein and the conversion of the Shares into
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Common Stock. The Company further covenants that such Shares, when issued
pursuant to the exercise of this Warrant, will, upon issuance, be duly and
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges with respect to the issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number of
and kind of securities purchasable upon exercise of this Warrant and the
purchase price therefor shall be subject to adjustment from time to time as
follows:
(a) Stock Splits and Combinations. If the Company shall at any
time subdivide or combine its outstanding shares of the Common Stock, this
Warrant shall, after that subdivision or combination, evidence the right to
purchase the number of shares of Common Stock that would have been issuable as a
result of that change with respect to the shares of the Common Stock which were
purchasable under this Warrant immediately before that subdivision or
combination. If the Company shall at any time subdivide the outstanding shares
of Common Stock, the Warrant Price then in effect immediately before that
subdivision shall be proportionately decreased, and, if the Company shall at any
time combine the outstanding shares of Common Stock, the Warrant Price then in
effect immediately before that combination shall be proportionately increased.
Any adjustment under this Section 7(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(b) Reclassification, Exchange and Substitution. If the Common
Stock issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other series or class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares provided for above), the Holder of this
Warrant shall, on its exercise, be entitled to purchase, in lieu of Common Stock
which the Holder would have become entitled to purchase but for such change, a
number of shares of such other series or class or classes of stock equivalent to
the number of shares of Common Stock that would have been subject to purchase by
the Holder on exercise of this Warrant immediately before that change.
(c) Reorganization, Mergers, Consolidations or Sale of Assets.
If at any time there shall be a capital reorganization of the Company (other
than a combination, reclassification, exchange, or subdivision of shares
provided for elsewhere in this Warrant) or merger or consolidation of the
Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such capital reorganization, merger, consolidation or sale,
lawful provision shall be made so that the Holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified in this Warrant and upon payment of the Warrant Price then in
effect, the number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such merger or
consolidation, to which a holder of the Company's Common Stock deliverable upon
exercise of this Warrant would have been entitled in such capital
reorganization, merger, consolidation or sale if this Warrant had been exercised
immediately before that capital reorganization, merger, consolidation or sale.
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(d) Notice of Adjustments. The Company shall give notice of
each adjustment or readjustment of the number of shares of the Common Stock or
other securities issuable upon exercise of this Warrant and the Warrant Price to
the registered Holder of this Warrant at that Holder's address as shown on the
Company's books within twenty (20) days after the occurrence of the event
resulting in such adjustment.
(e) No Change Necessary. The form of this Warrant need not be
changed because of any adjustment in the number of shares of the Common Stock
purchasable upon its exercise. A Warrant issued after any adjustment upon any
partial exercise or in replacement may continue to express the same number of
shares of Common Stock (appropriately reduced in the case of partial exercise)
as are stated on the face of this Warrant as initially issued, and that number
of shares shall be considered to have been so changed at the close of business
on the date of adjustment.
8. Automatic Termination. In the event of (i) the closing of the
Company's registration statement on a Form S-1 (or any other form equivalent
thereto) pursuant to which any class of the Company's securities is sold to the
public in a public offering registered under the Securities Act of 1933, as
amended; or (ii) the proposed sale of all or substantially all the capital
stock, or substantially all the assets, of the Company in a merger, business
combination, or other form of business transaction with or into a third party in
which the Company's stockholders do not own at least a majority of the
outstanding voting securities of the surviving corporation or business entity
after such transaction (based solely on such Company stockholders' holdings of
the Company prior to the transaction), then the Company shall give the Holder of
this Warrant at least fifteen (15) days written notice of the proposed effective
date and terms of such offering, transaction or agreements, and if the Warrant
has not been exercised at least before the effective date of such offering,
transaction or agreements, then this Warrant and the rights hereunder shall be
automatically terminated.
9. Exercise, Transfer and Exchange Restrictions.
(a) This Warrant, and any rights hereunder, may not be assigned
or transferred, except as provided herein and in accordance with and subject to
the provisions of (i) applicable state securities laws, and (ii) the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder
(such Act and such rules and regulations being hereinafter collectively referred
to as the "Act"). Any purported transfer or assignment made other than in
accordance with this Section 9 shall be null and void and of no force and
effect.
(b) This Warrant, and any rights hereunder, may be transferred
or assigned only with the prior written consent of the Company, which shall be
granted only upon receipt by the Company of an opinion of counsel satisfactory
to the Company that (i) the transferee is a person to whom this Warrant may be
legally transferred without registration under the Act, and (ii) such transfer
will not violate any applicable law or governmental rule or regulation,
including, without limitation, any applicable federal or state securities law.
Prior to the transfer or assignment, the assignor or transferor shall reimburse
the Company for its reasonable
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<PAGE> 158
expenses, including transfer taxes and attorneys' fees, incurred in connection
with the transfer or assignment.
(c) Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Company at its principal office with an
assignment duly executed and funds sufficient to pay any transfer tax. In such
event, the Company shall, without charge, execute and deliver a new Warrant in
the name of the assignee named in such instrument of assignment and this Warrant
shall be promptly canceled.
10. Registration Rights.
(a) Requested Registration.
(i) Request for Registration. In case the Company shall
receive from the Holder a written request that the Company file a registration
statement under the 1933 Act with respect to shares of Registrable Securities
having an expected aggregate offering price of at least One Million Dollars
($1,000,000), the Company will, subject to the limitations of Section 9(a)(ii),
use its best efforts to effect such registration under the 1933 Act (including,
without limitation, appropriate qualification under applicable blue sky or other
state securities laws and appropriate compliance with applicable regulations
issued under the 1933 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; provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 10(a)(i):
(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 1933 Act;
(B) Prior to the six (6) months after the closing
date of the Company's first registered public offering of its stock (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
SEC Rule 145 transaction);
(C) During the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and ending
on the date six (6) months immediately following the closing date of, any
initial registration statement pertaining to securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction); provided, however, that the Company is
acting in good faith and using all reasonable efforts to cause such initial
registration statement to become effective;
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<PAGE> 159
(D) After the Company has effected one (1) such
registration pursuant to a Holder's demand under this Section 10(a)(i), which
registration has been declared effective; or
(E) If the Company shall furnish to 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 and its shareholders for a registration statement to be filed at
such time, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 10(a)(i) shall be deferred for a period not
to exceed one hundred twenty (120) days from the date of receipt of written
request from the Holder; provided, however, that the Company may not make such
certification more than once every twelve (12) months.
(ii) Underwriting. In the event that a registration
pursuant to Section 10(a)(i) is for a registered public offering involving an
underwriting, the Company shall so advise the Holder and the right of the Holder
to registration pursuant to Section 10(a)(i) shall be conditioned upon such
Holder's participation in the underwriting arrangements required by this Section
10(a)(ii), and the inclusion of the Holder's Registrable Securities in the
underwriting to the extent requested shall be limited to the extent provided
herein.
The Company shall, together with the Holder, enter into an underwriting
agreement in customary form with a managing underwriter selected for such
underwriting by the Company. Notwithstanding any other provision of this Section
10(a), if the managing underwriter advises the Holder in writing that market
factors require a limitation of the number of shares to be underwritten, then
the number of shares of Registrable Securities that may be included in the
registration shall be so limited.
(b) Piggy-back Registration Rights.
(i) Piggy-back Registration Rights. If (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holder) any of its securities under the 1933 Act in connection with the public
offering of such securities solely for cash (other than a registration (i) on
Form S-8 or any form which does not include substantially the same information
as would be required to be included in a registration statement covering the
sale of the Registrable Securities, or (ii) with respect to an employee benefit
plan, or (iii) solely in connection with a Rule 145 transaction under the 1933
Act), the Company shall, each such time, promptly give the Holder written notice
of such registration together with a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under applicable state
securities laws. Upon the written request of the Holder given within twenty (20)
business days after delivery of such written notice by the Company, the Company
shall, subject to the provisions of Section 10(b)(ii), use its best efforts to
cause to be registered under the 1933 Act all of the Registrable Securities that
the Holder has requested to be registered. The Company shall be required to
effect not more than three (3) such registrations of Registrable Securities
pursuant to the request of the Holder under this Section 10(b).
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(ii) Underwriting Requirements in Piggy-back
Registration. The right of the Holder to registration pursuant to Section
10(b)(i) shall be conditioned upon the Holder's participation in such
underwriting and the inclusion of the Holder's Registrable Securities in the
underwriting to the extent provided herein. The Holder shall (together with the
Company and any other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected by the Company. Notwithstanding any other
provision of Section 10(b)(i) and this Section 10(b)(ii), if the underwriter
determines that market factors require a limitation of the number of shares to
be underwritten, the underwriter may (subject to the allocation priority set
forth below) exclude some or all Registrable Securities from such registration
and underwriting.
(c) Obligations of the Company. Whenever required under this
Section 9 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holder, keep such registration statement effective for up to one hundred
twenty (120) days.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(iii) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by it.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably appropriate for the distribution of
the securities covered by the registration statement; provided, however, 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 jurisdiction, and further provided that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling shareholders, then such
expenses shall be payable by the Holder, to the extent required by such
jurisdiction if the Holder does elect to withdraw from the registration after
notice of such requirement.
(v) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement with
terms generally satisfactory to the managing
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underwriter of such offering. The Holder shall also enter into and perform its
obligations under such an agreement.
(vi) Notify the Holder, at any time when a prospectus
relating thereto is required to be delivered under the 1933 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 light of the
circumstances then existing. In such instance, Company shall use its best
efforts to cure any such statement or omission so as to render such statement or
omission not misleading.
(d) Furnish Information. In connection with any action pursuant
to this Section 10, the Holder shall furnish to the Company such information
regarding itself, the Registrable Securities held by it, and the intended method
of disposition of such securities as shall be required to effect the
registration of their Registrable Securities. In that connection, the Holder
shall be required to represent to the Company that all such information which is
given is both complete and accurate in all material respects when made.
(e) Definition of Expenses.
(i) "Registration Expenses" shall mean all expenses
incurred by the Company in complying with Section 10 hereof, including, without
limitation, all registration, filing and qualification fees, underwriters'
expense allowances, printing expenses, fees and disbursements of counsel for the
Company, reasonable fees and expenses of one special counsel retained in
connection with each such registration by the Holder, blue sky fees and
disbursements, and the expense of any special audits incident to or required by
any registration pursuant to Section 10(a) (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company).
(ii) "Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale of the Registrable
Securities in the registration, all stock transfer taxes and all fees and
disbursements of any additional special counsel (other than the special counsel
provided for in Section 10(e)(i) above) retained in connection with each such
registration by the Holder.
(f) Expenses of Registration. The Company shall bear all
Registration Expenses incurred in connection with (i) any registration,
qualification or compliance pursuant to Section 10(a), and (ii) no more than
three (3) registrations pursuant to Section 10(b). All Selling Expenses shall be
borne by the Holder.
(g) Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 10:
(i) To the extent permitted by law, the Company will
indemnify and hold harmless the Holder, the officers, directors and partners of
the Holder, any underwriter (as
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defined in the 1933 Act) for the Holder and each person, if any, who controls
the Holder or underwriter within the meaning of the 1933 Act or the 1934 Act,
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the 1933 Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading; or (iii) any
violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the 1933 Act,
the 1934 Act or any state securities law; and the Company will reimburse the
Holder, officer, director or partner, underwriter or controlling person for any
legal or other expenses reasonably incurred by them, as incurred, in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the Company's indemnity contained in this
Section 10(g) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished in writing and expressly stated for use in connection with
such registration by the Holder, or the Holder's officers, directors or
partners, underwriter, or controlling person. The Company shall not be required
to indemnify any person against any liability arising (i) from any untrue or
misleading statement or omission contained in any preliminary prospectus if such
deficiency is corrected in the final prospectus or (ii) out of the failure of
any person to deliver a prospectus as required by the 1993 Act. The indemnity
provided for in this Section 10(g) shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller,
underwriter, participating person or controlling person and shall survive
transfer of such securities by such seller.
(ii) To the extent permitted by law, the Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the 1933 Act, any underwriter (within
the meaning of the 1933 Act) for the Company, any person who controls such
underwriter, and any other security holder in such registration statement or any
of its partners, directors or officers or any person who controls such security
holder, against any losses, claims, damages or liabilities (joint or several) to
which any of the foregoing persons may become subject, under the 1933 Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by the Holder expressly stated in a writing for use in connection with
such registration; and the Holder will reimburse any legal or other expenses, as
incurred, where same are reasonably incurred by any person intended to be
indemnified pursuant to this Section 10(g), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity
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agreement contained in this Section 10(g) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, the liability of
each Holder under this Section 10(g) shall be limited to an amount equal to the
public offering price of the shares sold by the Holder.
(iii) Promptly after receipt by an indemnified party under
this Section 10(g) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 10(g), notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party shall have the right to participate in and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
to be paid by the indemnifying party if the indemnified party reasonably
determines that representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 10(g), but the omission so to notify the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 10(g).
(iv) In order to provide for just and equitable
contribution to joint liability under the 1933 Act in any case in which either
(i) any indemnified party makes a claim under this Section 10(g) or any
controlling person of such indemnified party makes such a claim but is
judicially determined (by entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 10(g) provides for indemnification in
such case, or (ii) contribution under the 1933 Act may be required on the part
of any such person seeking indemnity under the terms of this Section 10(g);
then, and in each such case, the Company and such person will contribute to the
aggregate losses, claims, damages, or liabilities to which they may be subject
(after contribution from others) 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. The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
person shall be required to contribute any amount in excess of the public
offering price of all such Registrable Securities sold by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
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misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(h) Investor Rights Agreement. The Holder acknowledges and
agrees that (i) the Company and certain investors have entered into an Investor
Rights Agreement dated November, 1998 (the "Investor Rights Agreement"), (ii)
the Holder may include his securities in a demand registration under the
Investor Rights Agreement only to the extent that the inclusion of his
securities will not reduce the amount of securities to be registered for parties
to the Investor Rights Agreement and (iii) the Holder shall not make a demand
registration which could result in such registration statement being declared
effective prior six months after the effective date of the Company's initial
public offering of securities pursuant to a registration filed under the 1933
Act or within one hundred twenty (120) days of the effective date of any demand
registration pursuant to the Investor Rights Agreement.
(i) Termination of Registration Rights.
(i) The Company shall have no obligations pursuant to
Section 10 with respect to any request or requests made by the Holder after the
date which is five (5) years following the date of the consummation of the first
sale of securities pursuant to a registration statement filed by the Company
under the 1933 Act in connection with the initial firm commitment underwritten
offering of its securities to the general public.
(ii) Notwithstanding any contrary provision of this
Section 10(i), the Company shall not be required to effect any registrations
under the 1933 Act or under any state securities laws on behalf of the Holder
if, in the opinion of counsel to the Company, the offering or transfer by such
Holder in the manner proposed (including, without limitation, the number of
shares proposed to be offered or transferred, the time of sale, and the method
of offering or transfer) is exempt from the registration requirements of the
1933 Act and the securities laws of applicable states and the Company consents
to such transfer, if required.
11. "Market Stand-off" Agreement. The Holder agrees, so long as the
Holder holds at least one percent (1%) of the Company's outstanding voting
equity securities, in connection with the Company's initial underwritten public
offering of the Company's securities that, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Common Stock of the Company (other than those Common
Stock shares included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed one hundred eighty (180) days) from the closing date of such
registration as may be requested by the underwriters; provided, however, that
such covenants shall apply only if (i) all of the officers and directors of the
Company who own stock of the Company and (ii) each shareholder owning more than
two percent (2%) of the Company's shares also agree to such restrictions on any
shares not being registered in such offering. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Registrable Securities of the Holder (and the shares
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of securities of every other person subject to the foregoing restriction) until
the end of such period.
12. Miscellaneous Provisions.
(a) Listing. If any shares of the Common Stock required to be
reserved for issuance upon the exercise of this Warrant require registration
with or approval of any governmental authority under any Federal or state law
(other than the Securities Act, as then in effect, or any similar Federal law
then in effect), or listing on any domestic securities exchange, before such
shares may be issued upon such exercise, the Company shall, at its expense and
as expeditiously as possible, use its best efforts to cause such shares to be
duly registered or approved or listed on the relevant domestic securities
exchange, as the case may be.
(b) Replacement. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, on delivery of any indemnity
agreement or bond reasonably satisfactory in form and amount to the Company or,
in the case of mutilation, on surrender and cancellation of this Warrant, the
Company at its expense will execute and deliver, in lieu of this Warrant a new
Warrant of like tenor.
(c) No Rights as Stockholder. Prior to the exercise of this
Warrant, no Holder of this Warrant, as such, shall be entitled to vote or
receive dividends or be considered a stockholder of the Company for any purpose,
nor shall anything in this Warrant be construed to confer on any Holder of this
Warrant, as such, any rights of a shareholder of the Company or any right to
vote, give or withhold consent to any corporate action, to receive notice of
meetings of stockholders (except as set forth in this Warrant), to receive
dividends or subscription rights or otherwise.
(d) Governing Law. This Warrant shall be governed by and
construed and enforced in accordance with the laws of the State of California
applicable to contracts entered into and wholly to be performed in California by
California residents.
(e) Notices. All notices from the Company to the holder of this
Warrant shall be in writing and shall be (i) personally delivered, (ii)
transmitted by mail, postage prepaid, registered or certified, return receipt
requested, or by air mail in the event of mailing for delivery outside of the
country in which mailed, (iii) transmitted by an overnight courier of recognized
reputation or of recognized international reputation in the event of an
international delivery or (iv) transmitted by telecopier (with confirmation by
air mail or courier), to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in accordance with the provisions of this Section 11(e). Except as otherwise
specified herein, communications shall be deemed to have been duly given on (A)
the date of receipt if delivered personally, (B) the date seven (7) days after
posting if transmitted by mail, (C) the date three (3) days after delivery to
the courier if sent by recognized or internationally recognized courier service,
or (D) the date on which written confirmation would be deemed to
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have been given as provided above, whether by mail or by courier, as applicable,
if transmitted by telecopier, whichever shall first occur.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer.
Dated: August 9, 1999.
CHAPARRAL NETWORK STORAGE, INC.
By: /s/ Douglas J. Lehrmann
---------------------------
Name: Douglas J. Lehrmann
Title: Vice President Finance
Acknowledged and Agreed:
Sentinel Consulting LLC.
By: /s/ Robert Harvey
-------------------------
Name: Robert Harvey
Title: Manager
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NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND THIS WARRANT CANNOT
BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF THE COMMON STOCK ISSUABLE
UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR TRANSFERRED, UNLESS AND UNTIL
THEY ARE SO REGISTERED OR UNLESS SUCH REGISTRATION IS NOT THEN REQUIRED UNDER
THE CIRCUMSTANCES OF SUCH EXERCISE, SALE OR TRANSFER.
CHAPARRAL NETWORK STORAGE, INC.
WARRANT TO PURCHASE COMMON STOCK
OF CHAPARRAL NETWORK STORAGE, INC.
Void after August 11, 2004
This certifies that, subject to the terms and conditions set forth
herein, for value received, Sentinel Consulting LLC., a Delaware corporation,
(the "Holder") or its registered assigns is entitled to purchase from Chaparral
Network Storage, Inc., a Delaware corporation (the "Company") up to thirty
thousand seven hundred sixty nine (30,769) fully paid and nonassessable shares
of Common Stock, $0.001 par value, of the Company (as adjusted pursuant to
Section 7 hereof, the "Shares") at the purchase price per share specified in
Section 2 below.
1. Definitions. As used in this Warrant, the following terms, unless
the context otherwise requires, have the following meanings:
(a) "Common Stock", when used with reference to stock of the
Company, means all shares, now or hereafter authorized, of the class of Common
Stock, $0.001 par value, of the Company currently authorized and shares of any
other class into which those shares may hereafter be changed.
(b) "Company" means Chaparral Network Storage, Inc. a Delaware
corporation and any corporation which shall succeed to or assume the obligations
of the Company under this Warrant.
(c) "1933 Act" means the Securities Act of 1933, as amended.
(d) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(e) "Convertible equity securities" or "equity securities"
shall mean any of the Company's securities.
(f) "Holder" means Sentinel Consulting, LLC, a Delaware
corporation.
(g) The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the 1933 Act, and the
declaration or ordering of the effectiveness of such registration statement or
document by the SEC.
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(h) The term "Registrable Securities" means: (i) the Common
Stock or other equity or convertible equity securities of the Company issued or
issuable upon exercise of this Warrant; and (ii) any Common Stock of the Company
issued (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued) by way of a stock split, stock dividend,
recapitalization, merger or other distribution with respect to, or in exchange
for, or in replacement of, such Common Stock.
2. Warrant Price. The purchase price to be paid upon exercise of this
Warrant is U.S. $0.65 per share of Common Stock. Such price shall be subject to
adjustment pursuant to Section 7 hereof (such price, as adjusted from time to
time, is herein referred to as the "Warrant Price").
3. Exercise Period. This Warrant shall be exercisable by the Holder for
a term beginning on August 12, 1999, (the "Commencement Date") and ending on
August 11, 2004, (the "Expiration Date").
4. Method of Exercise.
(a) The Holder may exercise from time to time, in whole or in
part on or before the Expiration Date, the purchase rights evidenced hereby.
Such exercise shall be effected by:
(i) the surrender of the Warrant, together with a
duly executed copy of the form of subscription attached hereto as Appendix I, to
the Secretary of the Company at its principal offices; and
(ii) the payment to the Company, in cash or by check
payable to the order of the Company, of an amount equal to the aggregate
purchase price for the number of Shares designated for purchase in the completed
subscription form.
(b) In lieu of exercising this Warrant pursuant to Section
4(a), the Holder may elect to receive shares equal to the value of this Warrant
(or any portion thereof remaining unexercised) by surrender of this Warrant at
the principal office of the Company together with the Subscription Form, in
which event the Company shall issue to the Holder a number of Shares computed
using the following formula:
X = Y (A-B)
-------
A
Where X = the number of Shares to be issued to the Holder.
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Y = the number of Shares purchasable under this Warrant (at the date of
such exercise).
A = the fair market value of one Share (at the date of such exercise).
B = the Warrant Price (as adjusted to the date of such exercise).
For purposes of this subsection fair market value of one Share shall mean:
(i) The average of the closing bid and asked prices of the Common Stock
quoted in the NASDAQ National Market System or the Over-the-Counter
market or the closing price quoted on any exchange on which the Common
Stock is listed, whichever is applicable, as published in the Western
Edition of The Wall Street Journal for the five (5) trading days prior
to the date of determination of the fair market value; or
(ii) If the Common Stock is not publicly traded, the per share fair
market value of the Common Stock shall be determined in good faith by
the Company's Board of Directors. If the Holder disagrees with the
determination by the Board of Directors of the fair market value of the
Common Stock then such fair market value shall be determined by an
independent appraiser selected jointly by the Company and the Holder.
The cost of such appraisal shall be paid equally by the Company and the
Holder.
(c) Upon the request of the Company, the Holder shall also
deliver to the Company an instrument, in form and substance reasonably
satisfactory to counsel for the Company, executed by the Holder certifying that
the Shares are being acquired for investment purposes only and not with a view
to their resale or distribution.
(d) In the event of a partial exercise of this Warrant, a new
Warrant shall be issued to the Holder representing the balance of the Shares
purchasable under this Warrant, such new Warrant to be issued within ten (10)
days after delivery of the subscription notice.
5. Certificate for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued in the name of the Holder as soon as practicable
following receipt of the completed subscription form and payment for the Shares
being purchased and in any event within ten (10) days thereafter. The Company
shall not be required to issue any fractional shares upon the exercise of the
Holder's purchaser rights under this Warrant. In lieu of any fractional shares,
the Company shall pay cash equal to such fraction multiplied by the per share
market price of the Common Stock as of the date of exercise.
6. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Series A Preferred
Stock and Common Stock, free from all preemptive rights with respect thereto, as
will be sufficient to permit the exercise of this Warrant for the full number of
Shares specified herein and the conversion of the Shares into
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<PAGE> 170
Common Stock. The Company further covenants that such Shares, when issued
pursuant to the exercise of this Warrant, will, upon issuance, be duly and
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges with respect to the issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number of and
kind of securities purchasable upon exercise of this Warrant and the purchase
price therefor shall be subject to adjustment from time to time as follows:
(a) Stock Splits and Combinations. If the Company shall at any
time subdivide or combine its outstanding shares of the Common Stock, this
Warrant shall, after that subdivision or combination, evidence the right to
purchase the number of shares of Common Stock that would have been issuable as a
result of that change with respect to the shares of the Common Stock which were
purchasable under this Warrant immediately before that subdivision or
combination. If the Company shall at any time subdivide the outstanding shares
of Common Stock, the Warrant Price then in effect immediately before that
subdivision shall be proportionately decreased, and, if the Company shall at any
time combine the outstanding shares of Common Stock, the Warrant Price then in
effect immediately before that combination shall be proportionately increased.
Any adjustment under this Section 7(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(b) Reclassification, Exchange and Substitution. If the Common
Stock issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other series or class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares provided for above), the Holder of this
Warrant shall, on its exercise, be entitled to purchase, in lieu of Common Stock
which the Holder would have become entitled to purchase but for such change, a
number of shares of such other series or class or classes of stock equivalent to
the number of shares of Common Stock that would have been subject to purchase by
the Holder on exercise of this Warrant immediately before that change.
(c) Reorganization, Mergers, Consolidations or Sale of Assets.
If at any time there shall be a capital reorganization of the Company (other
than a combination, reclassification, exchange, or subdivision of shares
provided for elsewhere in this Warrant) or merger or consolidation of the
Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such capital reorganization, merger, consolidation or sale,
lawful provision shall be made so that the Holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified in this Warrant and upon payment of the Warrant Price then in
effect, the number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such merger or
consolidation, to which a holder of the Company's Common Stock deliverable upon
exercise of this Warrant would have been entitled in such capital
reorganization, merger, consolidation or sale if this Warrant had been exercised
immediately before that capital reorganization, merger, consolidation or sale.
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(d) Notice of Adjustments. The Company shall give notice of
each adjustment or readjustment of the number of shares of the Common Stock or
other securities issuable upon exercise of this Warrant and the Warrant Price to
the registered Holder of this Warrant at that Holder's address as shown on the
Company's books within twenty (20) days after the occurrence of the event
resulting in such adjustment.
(e) No Change Necessary. The form of this Warrant need not be
changed because of any adjustment in the number of shares of the Common Stock
purchasable upon its exercise. A Warrant issued after any adjustment upon any
partial exercise or in replacement may continue to express the same number of
shares of Common Stock (appropriately reduced in the case of partial exercise)
as are stated on the face of this Warrant as initially issued, and that number
of shares shall be considered to have been so changed at the close of business
on the date of adjustment.
8. Automatic Termination. In the event of (i) the closing of the
Company's registration statement on a Form S-1 (or any other form equivalent
thereto) pursuant to which any class of the Company's securities is sold to the
public in a public offering registered under the Securities Act of 1933, as
amended; or (ii) the proposed sale of all or substantially all the capital
stock, or substantially all the assets, of the Company in a merger, business
combination, or other form of business transaction with or into a third party in
which the Company's stockholders do not own at least a majority of the
outstanding voting securities of the surviving corporation or business entity
after such transaction (based solely on such Company stockholders' holdings of
the Company prior to the transaction), then the Company shall give the Holder of
this Warrant at least fifteen (15) days written notice of the proposed effective
date and terms of such offering, transaction or agreements, and if the Warrant
has not been exercised at least before the effective date of such offering,
transaction or agreements, then this Warrant and the rights hereunder shall be
automatically terminated.
9. Exercise, Transfer and Exchange Restrictions.
(a) This Warrant, and any rights hereunder, may not be
assigned or transferred, except as provided herein and in accordance with and
subject to the provisions of (i) applicable state securities laws, and (ii) the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (such Act and such rules and regulations being hereinafter
collectively referred to as the "Act"). Any purported transfer or assignment
made other than in accordance with this Section 9 shall be null and void and of
no force and effect.
(b) This Warrant, and any rights hereunder, may be transferred
or assigned only with the prior written consent of the Company, which shall be
granted only upon receipt by the Company of an opinion of counsel satisfactory
to the Company that (i) the transferee is a person to whom this Warrant may be
legally transferred without registration under the Act, and (ii) such transfer
will not violate any applicable law or governmental rule or regulation,
including, without limitation, any applicable federal or state securities law.
Prior to the transfer or assignment, the assignor or transferor shall reimburse
the Company for its reasonable
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<PAGE> 172
expenses, including transfer taxes and attorneys' fees, incurred in connection
with the transfer or assignment.
(c) Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Company at its principal office with an
assignment duly executed and funds sufficient to pay any transfer tax. In such
event, the Company shall, without charge, execute and deliver a new Warrant in
the name of the assignee named in such instrument of assignment and this Warrant
shall be promptly canceled.
10. Registration Rights.
(a) Requested Registration.
(i) Request for Registration. In case the Company
shall receive from the Holder a written request that the Company file a
registration statement under the 1933 Act with respect to shares of Registrable
Securities having an expected aggregate offering price of at least One Million
Dollars ($1,000,000), the Company will, subject to the limitations of Section
9(a)(ii), use its best efforts to effect such registration under the 1933 Act
(including, without limitation, appropriate qualification under applicable blue
sky or other state securities laws and appropriate compliance with applicable
regulations issued under the 1933 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; provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 10(a)(i):
(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 1933 Act;
(B) Prior to the six (6) months after the
closing date of the Company's first registered public offering of its stock
(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 SEC Rule 145 transaction);
(C) During the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and ending
on the date six (6) months immediately following the closing date of, any
initial registration statement pertaining to securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction); provided, however, that the Company is
acting in good faith and using all reasonable efforts to cause such initial
registration statement to become effective;
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<PAGE> 173
(D) After the Company has effected one (1)
such registration pursuant to a Holder's demand under this Section 10(a)(i),
which registration has been declared effective; or
(E) If the Company shall furnish to 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 and its shareholders for a registration statement to be filed at
such time, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 10(a)(i) shall be deferred for a period not
to exceed one hundred twenty (120) days from the date of receipt of written
request from the Holder; provided, however, that the Company may not make such
certification more than once every twelve (12) months.
(ii) Underwriting. In the event that a registration pursuant
to Section 10(a)(i) is for a registered public offering involving an
underwriting, the Company shall so advise the Holder and the right of the Holder
to registration pursuant to Section 10(a)(i) shall be conditioned upon such
Holder's participation in the underwriting arrangements required by this Section
10(a)(ii), and the inclusion of the Holder's Registrable Securities in the
underwriting to the extent requested shall be limited to the extent provided
herein.
The Company shall, together with the Holder, enter into an underwriting
agreement in customary form with a managing underwriter selected for such
underwriting by the Company. Notwithstanding any other provision of this Section
10(a), if the managing underwriter advises the Holder in writing that market
factors require a limitation of the number of shares to be underwritten, then
the number of shares of Registrable Securities that may be included in the
registration shall be so limited.
(b) Piggy-back Registration Rights.
(i) Piggy-back Registration Rights. If (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holder) any of its securities under the 1933 Act in connection with the public
offering of such securities solely for cash (other than a registration (i) on
Form S-8 or any form which does not include substantially the same information
as would be required to be included in a registration statement covering the
sale of the Registrable Securities, or (ii) with respect to an employee benefit
plan, or (iii) solely in connection with a Rule 145 transaction under the 1933
Act), the Company shall, each such time, promptly give the Holder written notice
of such registration together with a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under applicable state
securities laws. Upon the written request of the Holder given within twenty (20)
business days after delivery of such written notice by the Company, the Company
shall, subject to the provisions of Section 10(b)(ii), use its best efforts to
cause to be registered under the 1933 Act all of the Registrable Securities that
the Holder has requested to be registered. The Company shall be required to
effect not more than three (3) such registrations of Registrable Securities
pursuant to the request of the Holder under this Section 10(b).
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(ii) Underwriting Requirements in Piggy-back Registration. The
right of the Holder to registration pursuant to Section 10(b)(i) shall be
conditioned upon the Holder's participation in such underwriting and the
inclusion of the Holder's Registrable Securities in the underwriting to the
extent provided herein. The Holder shall (together with the Company and any
other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of
Section 10(b)(i) and this Section 10(b)(ii), if the underwriter determines that
market factors require a limitation of the number of shares to be underwritten,
the underwriter may (subject to the allocation priority set forth below) exclude
some or all Registrable Securities from such registration and underwriting.
(c) Obligations of the Company. Whenever required under this Section 9
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holder, keep such registration statement effective for up to one hundred twenty
(120) days.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(iii) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by it.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably appropriate for the distribution of
the securities covered by the registration statement; provided, however, 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 jurisdiction, and further provided that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling shareholders, then such
expenses shall be payable by the Holder, to the extent required by such
jurisdiction if the Holder does elect to withdraw from the registration after
notice of such requirement.
(v) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing
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<PAGE> 175
underwriter of such offering. The Holder shall also enter into and perform its
obligations under such an agreement.
(vi) Notify the Holder, at any time when a prospectus relating
thereto is required to be delivered under the 1933 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 light of the circumstances then
existing. In such instance, Company shall use its best efforts to cure any such
statement or omission so as to render such statement or omission not misleading.
(d) Furnish Information. In connection with any action pursuant to this
Section 10, the Holder shall furnish to the Company such information regarding
itself, the Registrable Securities held by it, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities. In that connection, the Holder shall be
required to represent to the Company that all such information which is given is
both complete and accurate in all material respects when made.
(e) Definition of Expenses.
(i) "Registration Expenses" shall mean all expenses incurred
by the Company in complying with Section 10 hereof, including, without
limitation, all registration, filing and qualification fees, underwriters'
expense allowances, printing expenses, fees and disbursements of counsel for the
Company, reasonable fees and expenses of one special counsel retained in
connection with each such registration by the Holder, blue sky fees and
disbursements, and the expense of any special audits incident to or required by
any registration pursuant to Section 10(a) (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company).
(ii) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of the Registrable Securities in
the registration, all stock transfer taxes and all fees and disbursements of any
additional special counsel (other than the special counsel provided for in
Section 10(e)(i) above) retained in connection with each such registration by
the Holder.
(f) Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with (i) any registration, qualification or
compliance pursuant to Section 10(a), and (ii) no more than three (3)
registrations pursuant to Section 10(b). All Selling Expenses shall be borne by
the Holder.
(g) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 10:
(i) To the extent permitted by law, the Company will indemnify
and hold harmless the Holder, the officers, directors and partners of the
Holder, any underwriter (as
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defined in the 1933 Act) for the Holder and each person, if any, who controls
the Holder or underwriter within the meaning of the 1933 Act or the 1934 Act,
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the 1933 Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading; or (iii) any
violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the 1933 Act,
the 1934 Act or any state securities law; and the Company will reimburse the
Holder, officer, director or partner, underwriter or controlling person for any
legal or other expenses reasonably incurred by them, as incurred, in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the Company's indemnity contained in this
Section 10(g) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished in writing and expressly stated for use in connection with
such registration by the Holder, or the Holder's officers, directors or
partners, underwriter, or controlling person. The Company shall not be required
to indemnify any person against any liability arising (i) from any untrue or
misleading statement or omission contained in any preliminary prospectus if such
deficiency is corrected in the final prospectus or (ii) out of the failure of
any person to deliver a prospectus as required by the 1993 Act. The indemnity
provided for in this Section 10(g) shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller,
underwriter, participating person or controlling person and shall survive
transfer of such securities by such seller.
(ii) To the extent permitted by law, the Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the registration statement, each person, if any, who controls the
Company within the meaning of the 1933 Act, any underwriter (within the meaning
of the 1933 Act) for the Company, any person who controls such underwriter, and
any other security holder in such registration statement or any of its partners,
directors or officers or any person who controls such security holder, against
any losses, claims, damages or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the 1933 Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by the Holder expressly stated in a writing for use in connection with
such registration; and the Holder will reimburse any legal or other expenses, as
incurred, where same are reasonably incurred by any person intended to be
indemnified pursuant to this Section 10(g), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity
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agreement contained in this Section 10(g) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, the liability of
each Holder under this Section 10(g) shall be limited to an amount equal to the
public offering price of the shares sold by the Holder.
(iii) Promptly after receipt by an indemnified party under
this Section 10(g) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 10(g), notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party shall have the right to participate in and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
to be paid by the indemnifying party if the indemnified party reasonably
determines that representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 10(g), but the omission so to notify the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 10(g).
(iv) In order to provide for just and equitable contribution
to joint liability under the 1933 Act in any case in which either (i) any
indemnified party makes a claim under this Section 10(g) or any controlling
person of such indemnified party makes such a claim but is judicially determined
(by entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 10(g) provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of any such person
seeking indemnity under the terms of this Section 10(g); then, and in each such
case, the Company and such person will contribute to the aggregate losses,
claims, damages, or liabilities to which they may be subject (after contribution
from others) 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. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
person shall be required to contribute any amount in excess of the public
offering price of all such Registrable Securities sold by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
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misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(h) Investor Rights Agreement. The Holder acknowledges and agrees that
(i) the Company and certain investors have entered into an Investor Rights
Agreement dated November, 1998 (the "Investor Rights Agreement"), (ii) the
Holder may include his securities in a demand registration under the Investor
Rights Agreement only to the extent that the inclusion of his securities will
not reduce the amount of securities to be registered for parties to the Investor
Rights Agreement and (iii) the Holder shall not make a demand registration which
could result in such registration statement being declared effective prior six
months after the effective date of the Company's initial public offering of
securities pursuant to a registration filed under the 1933 Act or within one
hundred twenty (120) days of the effective date of any demand registration
pursuant to the Investor Rights Agreement.
(i) Termination of Registration Rights.
(i) The Company shall have no obligations pursuant to Section
10 with respect to any request or requests made by the Holder after the date
which is five (5) years following the date of the consummation of the first sale
of securities pursuant to a registration statement filed by the Company under
the 1933 Act in connection with the initial firm commitment underwritten
offering of its securities to the general public.
(ii) Notwithstanding any contrary provision of this Section
10(i), the Company shall not be required to effect any registrations under the
1933 Act or under any state securities laws on behalf of the Holder if, in the
opinion of counsel to the Company, the offering or transfer by such Holder in
the manner proposed (including, without limitation, the number of shares
proposed to be offered or transferred, the time of sale, and the method of
offering or transfer) is exempt from the registration requirements of the 1933
Act and the securities laws of applicable states and the Company consents to
such transfer, if required.
11. "Market Stand-off" Agreement. The Holder agrees, so long as the
Holder holds at least one percent (1%) of the Company's outstanding voting
equity securities, in connection with the Company's initial underwritten public
offering of the Company's securities that, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Common Stock of the Company (other than those Common
Stock shares included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed one hundred eighty (180) days) from the closing date of such
registration as may be requested by the underwriters; provided, however, that
such covenants shall apply only if (i) all of the officers and directors of the
Company who own stock of the Company and (ii) each shareholder owning more than
two percent (2%) of the Company's shares also agree to such restrictions on any
shares not being registered in such offering. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Registrable Securities of the Holder (and the shares
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of securities of every other person subject to the foregoing restriction) until
the end of such period.
12. Miscellaneous Provisions.
(a) Listing. If any shares of the Common Stock required to be
reserved for issuance upon the exercise of this Warrant require registration
with or approval of any governmental authority under any Federal or state law
(other than the Securities Act, as then in effect, or any similar Federal law
then in effect), or listing on any domestic securities exchange, before such
shares may be issued upon such exercise, the Company shall, at its expense and
as expeditiously as possible, use its best efforts to cause such shares to be
duly registered or approved or listed on the relevant domestic securities
exchange, as the case may be.
(b) Replacement. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of any
indemnity agreement or bond reasonably satisfactory in form and amount to the
Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense will execute and deliver, in lieu of this
Warrant a new Warrant of like tenor.
(c) No Rights as Stockholder. Prior to the exercise of this
Warrant, no Holder of this Warrant, as such, shall be entitled to vote or
receive dividends or be considered a stockholder of the Company for any purpose,
nor shall anything in this Warrant be construed to confer on any Holder of this
Warrant, as such, any rights of a shareholder of the Company or any right to
vote, give or withhold consent to any corporate action, to receive notice of
meetings of stockholders (except as set forth in this Warrant), to receive
dividends or subscription rights or otherwise.
(d) Governing Law. This Warrant shall be governed by and
construed and enforced in accordance with the laws of the State of California
applicable to contracts entered into and wholly to be performed in California by
California residents.
(e) Notices. All notices from the Company to the holder of
this Warrant shall be in writing and shall be (i) personally delivered, (ii)
transmitted by mail, postage prepaid, registered or certified, return receipt
requested, or by air mail in the event of mailing for delivery outside of the
country in which mailed, (iii) transmitted by an overnight courier of recognized
reputation or of recognized international reputation in the event of an
international delivery or (iv) transmitted by telecopier (with confirmation by
air mail or courier), to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in accordance with the provisions of this Section 11(e). Except as otherwise
specified herein, communications shall be deemed to have been duly given on (A)
the date of receipt if delivered personally, (B) the date seven (7) days after
posting if transmitted by mail, (C) the date three (3) days after delivery to
the courier if sent by recognized or internationally recognized courier service,
or (D) the date on which written confirmation would be deemed to
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have been given as provided above, whether by mail or by courier, as applicable,
if transmitted by telecopier, whichever shall first occur.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer.
Dated: August 12, 1999.
CHAPARRAL NETWORK STORAGE, INC.
By: /s/ Douglas J. Lehrmann
----------------------------
Name: Douglas J. Lehrmann
Title: Vice President Finance
Acknowledged and Agreed:
Sentinel Consulting LLC.
By: /s/ Robert Harvey
---------------------
Name: Robert Harvey
Title: Manager
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NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND THIS WARRANT CANNOT
BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF THE COMMON STOCK ISSUABLE
UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR TRANSFERRED, UNLESS AND UNTIL
THEY ARE SO REGISTERED OR UNLESS SUCH REGISTRATION IS NOT THEN REQUIRED UNDER
THE CIRCUMSTANCES OF SUCH EXERCISE, SALE OR TRANSFER.
CHAPARRAL NETWORK STORAGE, INC.
WARRANT TO PURCHASE COMMON STOCK
OF CHAPARRAL NETWORK STORAGE, INC.
Void after November 4, 2004
This certifies that, subject to the terms and conditions set forth
herein, for value received, Sentinel Consulting LLC., a Delaware corporation,
(the "Holder") or its registered assigns is entitled to purchase from Chaparral
Network Storage, Inc., a Delaware corporation (the "Company") up to twenty six
thousand six hundred sixty seven (26,667) fully paid and nonassessable shares of
Common Stock, $0.001 par value, of the Company (as adjusted pursuant to Section
7 hereof, the "Shares") at the purchase price per share specified in Section 2
below.
1. Definitions. As used in this Warrant, the following terms, unless
the context otherwise requires, have the following meanings:
(a) "Common Stock", when used with reference to stock of the
Company, means all shares, now or hereafter authorized, of the class of Common
Stock, $0.001 par value, of the Company currently authorized and shares of any
other class into which those shares may hereafter be changed.
(b) "Company" means Chaparral Network Storage, Inc. a Delaware
corporation and any corporation which shall succeed to or assume the obligations
of the Company under this Warrant.
(c) "1933 Act" means the Securities Act of 1933, as amended.
(d) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(e) "Convertible equity securities" or "equity securities"
shall mean any of the Company's securities.
(f) "Holder" means Sentinel Consulting, LLC, a Delaware
corporation.
(g) The terms "register", "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the 1933 Act, and the declaration or
ordering of the effectiveness of such registration statement or document by the
SEC.
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(h) The term "Registrable Securities" means: (i) the Common
Stock or other equity or convertible equity securities of the Company issued or
issuable upon exercise of this Warrant; and (ii) any Common Stock of the Company
issued (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued) by way of a stock split, stock dividend,
recapitalization, merger or other distribution with respect to, or in exchange
for, or in replacement of, such Common Stock.
2. Warrant Price. The purchase price to be paid upon exercise of this
Warrant is U.S. $3.00 per share of Common Stock. Such price shall be subject to
adjustment pursuant to Section 7 hereof (such price, as adjusted from time to
time, is herein referred to as the "Warrant Price").
3. Exercise Period. This Warrant shall be exercisable by the Holder
for a term beginning on November 4, 1999, (the "Commencement Date") and ending
on November 4, 2004, (the "Expiration Date").
4. Method of Exercise.
(a) The Holder may exercise from time to time, in whole or in
part on or before the Expiration Date, the purchase rights evidenced hereby.
Such exercise shall be effected by:
(i) the surrender of the Warrant, together with a duly
executed copy of the form of subscription attached hereto as Appendix I, to the
Secretary of the Company at its principal offices; and
(ii) the payment to the Company, in cash or by check
payable to the order of the Company, of an amount equal to the aggregate
purchase price for the number of Shares designated for purchase in the completed
subscription form.
(b) In lieu of exercising this Warrant pursuant to Section
4(a), the Holder may elect to receive shares equal to the value of this Warrant
(or any portion thereof remaining unexercised) by surrender of this Warrant at
the principal office of the Company together with the Subscription Form, in
which event the Company shall issue to the Holder a number of Shares computed
using the following formula:
X = Y (A-B)
-------
A
Where X = the number of Shares to be issued to the Holder.
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Y = the number of Shares purchasable under this Warrant (at the date of
such exercise).
A = the fair market value of one Share (at the date of such exercise).
B = the Warrant Price (as adjusted to the date of such exercise).
For purposes of this subsection fair market value of one Share shall mean:
(i) The average of the closing bid and asked prices of the Common
Stock quoted in the NASDAQ National Market System or the
Over-the-Counter market or the closing price quoted on any exchange on
which the Common Stock is listed, whichever is applicable, as published
in the Western Edition of The Wall Street Journal for the five (5)
trading days prior to the date of determination of the fair market
value; or
(ii) If the Common Stock is not publicly traded, the per share fair
market value of the Common Stock shall be determined in good faith by
the Company's Board of Directors. If the Holder disagrees with the
determination by the Board of Directors of the fair market value of the
Common Stock then such fair market value shall be determined by an
independent appraiser selected jointly by the Company and the Holder.
The cost of such appraisal shall be paid equally by the Company and the
Holder.
(c) Upon the request of the Company, the Holder shall also
deliver to the Company an instrument, in form and substance reasonably
satisfactory to counsel for the Company, executed by the Holder certifying that
the Shares are being acquired for investment purposes only and not with a view
to their resale or distribution.
(c) In the event of a partial exercise of this Warrant, a new
Warrant shall be issued to the Holder representing the balance of the Shares
purchasable under this Warrant, such new Warrant to be issued within ten (10)
days after delivery of the subscription notice.
5. Certificate for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued in the name of the Holder as soon as practicable
following receipt of the completed subscription form and payment for the Shares
being purchased and in any event within ten (10) days thereafter. The Company
shall not be required to issue any fractional shares upon the exercise of the
Holder's purchaser rights under this Warrant. In lieu of any fractional shares,
the Company shall pay cash equal to such fraction multiplied by the per share
market price of the Common Stock as of the date of exercise.
6. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Series A Preferred
Stock and Common Stock, free from all preemptive rights with respect thereto, as
will be sufficient to permit the exercise of this Warrant for the full number of
Shares specified herein and the conversion of the Shares into
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Common Stock. The Company further covenants that such Shares, when issued
pursuant to the exercise of this Warrant, will, upon issuance, be duly and
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges with respect to the issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number of
and kind of securities purchasable upon exercise of this Warrant and the
purchase price therefor shall be subject to adjustment from time to time as
follows:
(a) Stock Splits and Combinations. If the Company shall at any
time subdivide or combine its outstanding shares of the Common Stock, this
Warrant shall, after that subdivision or combination, evidence the right to
purchase the number of shares of Common Stock that would have been issuable as a
result of that change with respect to the shares of the Common Stock which were
purchasable under this Warrant immediately before that subdivision or
combination. If the Company shall at any time subdivide the outstanding shares
of Common Stock, the Warrant Price then in effect immediately before that
subdivision shall be proportionately decreased, and, if the Company shall at any
time combine the outstanding shares of Common Stock, the Warrant Price then in
effect immediately before that combination shall be proportionately increased.
Any adjustment under this Section 7(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(b) Reclassification, Exchange and Substitution. If the Common
Stock issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other series or class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares provided for above), the Holder of this
Warrant shall, on its exercise, be entitled to purchase, in lieu of Common Stock
which the Holder would have become entitled to purchase but for such change, a
number of shares of such other series or class or classes of stock equivalent to
the number of shares of Common Stock that would have been subject to purchase by
the Holder on exercise of this Warrant immediately before that change.
(c) Reorganization, Mergers, Consolidations or Sale of Assets.
If at any time there shall be a capital reorganization of the Company (other
than a combination, reclassification, exchange, or subdivision of shares
provided for elsewhere in this Warrant) or merger or consolidation of the
Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such capital reorganization, merger, consolidation or sale,
lawful provision shall be made so that the Holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified in this Warrant and upon payment of the Warrant Price then in
effect, the number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such merger or
consolidation, to which a holder of the Company's Common Stock deliverable upon
exercise of this Warrant would have been entitled in such capital
reorganization, merger, consolidation or sale if this Warrant had been exercised
immediately before that capital reorganization, merger, consolidation or sale.
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(d) Notice of Adjustments. The Company shall give notice of
each adjustment or readjustment of the number of shares of the Common Stock or
other securities issuable upon exercise of this Warrant and the Warrant Price to
the registered Holder of this Warrant at that Holder's address as shown on the
Company's books within twenty (20) days after the occurrence of the event
resulting in such adjustment.
(e) No Change Necessary. The form of this Warrant need not be
changed because of any adjustment in the number of shares of the Common Stock
purchasable upon its exercise. A Warrant issued after any adjustment upon any
partial exercise or in replacement may continue to express the same number of
shares of Common Stock (appropriately reduced in the case of partial exercise)
as are stated on the face of this Warrant as initially issued, and that number
of shares shall be considered to have been so changed at the close of business
on the date of adjustment.
8. Automatic Termination. In the event of (i) the closing of the
Company's registration statement on a Form S-1 (or any other form equivalent
thereto) pursuant to which any class of the Company's securities is sold to the
public in a public offering registered under the Securities Act of 1933, as
amended; or (ii) the proposed sale of all or substantially all the capital
stock, or substantially all the assets, of the Company in a merger, business
combination, or other form of business transaction with or into a third party in
which the Company's stockholders do not own at least a majority of the
outstanding voting securities of the surviving corporation or business entity
after such transaction (based solely on such Company stockholders' holdings of
the Company prior to the transaction), then the Company shall give the Holder of
this Warrant at least fifteen (15) days written notice of the proposed effective
date and terms of such offering, transaction or agreements, and if the Warrant
has not been exercised at least before the effective date of such offering,
transaction or agreements, then this Warrant and the rights hereunder shall be
automatically terminated.
9. Exercise, Transfer and Exchange Restrictions.
(a) This Warrant, and any rights hereunder, may not be assigned
or transferred, except as provided herein and in accordance with and subject to
the provisions of (i) applicable state securities laws, and (ii) the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder
(such Act and such rules and regulations being hereinafter collectively referred
to as the "Act"). Any purported transfer or assignment made other than in
accordance with this Section 9 shall be null and void and of no force and
effect.
(b) This Warrant, and any rights hereunder, may be transferred
or assigned only with the prior written consent of the Company, which shall be
granted only upon receipt by the Company of an opinion of counsel satisfactory
to the Company that (i) the transferee is a person to whom this Warrant may be
legally transferred without registration under the Act, and (ii) such transfer
will not violate any applicable law or governmental rule or regulation,
including, without limitation, any applicable federal or state securities law.
Prior to the transfer or assignment, the assignor or transferor shall reimburse
the Company for its reasonable
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expenses, including transfer taxes and attorneys' fees, incurred in connection
with the transfer or assignment.
(c) Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Company at its principal office with an
assignment duly executed and funds sufficient to pay any transfer tax. In such
event, the Company shall, without charge, execute and deliver a new Warrant in
the name of the assignee named in such instrument of assignment and this Warrant
shall be promptly canceled.
10. Registration Rights.
(a) Requested Registration.
(i) Request for Registration. In case the Company shall
receive from the Holder a written request that the Company file a registration
statement under the 1933 Act with respect to shares of Registrable Securities
having an expected aggregate offering price of at least One Million Dollars
($1,000,000), the Company will, subject to the limitations of Section 9(a)(ii),
use its best efforts to effect such registration under the 1933 Act (including,
without limitation, appropriate qualification under applicable blue sky or other
state securities laws and appropriate compliance with applicable regulations
issued under the 1933 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; provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 10(a)(i):
(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 1933 Act;
(B) Prior to the six (6) months after the closing
date of the Company's first registered public offering of its stock (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
SEC Rule 145 transaction);
(C) During the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and ending
on the date six (6) months immediately following the closing date of, any
initial registration statement pertaining to securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction); provided, however, that the Company is
acting in good faith and using all reasonable efforts to cause such initial
registration statement to become effective;
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(D) After the Company has effected one (1) such
registration pursuant to a Holder's demand under this Section 10(a)(i), which
registration has been declared effective; or
(E) If the Company shall furnish to 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 and its shareholders for a registration statement to be filed at
such time, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 10(a)(i) shall be deferred for a period not
to exceed one hundred twenty (120) days from the date of receipt of written
request from the Holder; provided, however, that the Company may not make such
certification more than once every twelve (12) months.
(ii) Underwriting. In the event that a registration
pursuant to Section 10(a)(i) is for a registered public offering involving an
underwriting, the Company shall so advise the Holder and the right of the Holder
to registration pursuant to Section 10(a)(i) shall be conditioned upon such
Holder's participation in the underwriting arrangements required by this Section
10(a)(ii), and the inclusion of the Holder's Registrable Securities in the
underwriting to the extent requested shall be limited to the extent provided
herein.
The Company shall, together with the Holder, enter into an underwriting
agreement in customary form with a managing underwriter selected for such
underwriting by the Company. Notwithstanding any other provision of this Section
10(a), if the managing underwriter advises the Holder in writing that market
factors require a limitation of the number of shares to be underwritten, then
the number of shares of Registrable Securities that may be included in the
registration shall be so limited.
(b) Piggy-back Registration Rights.
(i) Piggy-back Registration Rights. If (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holder) any of its securities under the 1933 Act in connection with the public
offering of such securities solely for cash (other than a registration (i) on
Form S-8 or any form which does not include substantially the same information
as would be required to be included in a registration statement covering the
sale of the Registrable Securities, or (ii) with respect to an employee benefit
plan, or (iii) solely in connection with a Rule 145 transaction under the 1933
Act), the Company shall, each such time, promptly give the Holder written notice
of such registration together with a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under applicable state
securities laws. Upon the written request of the Holder given within twenty (20)
business days after delivery of such written notice by the Company, the Company
shall, subject to the provisions of Section 10(b)(ii), use its best efforts to
cause to be registered under the 1933 Act all of the Registrable Securities that
the Holder has requested to be registered. The Company shall be required to
effect not more than three (3) such registrations of Registrable Securities
pursuant to the request of the Holder under this Section 10(b).
7
<PAGE> 188
(ii) Underwriting Requirements in Piggy-back
Registration. The right of the Holder to registration pursuant to Section
10(b)(i) shall be conditioned upon the Holder's participation in such
underwriting and the inclusion of the Holder's Registrable Securities in the
underwriting to the extent provided herein. The Holder shall (together with the
Company and any other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected by the Company. Notwithstanding any other
provision of Section 10(b)(i) and this Section 10(b)(ii), if the underwriter
determines that market factors require a limitation of the number of shares to
be underwritten, the underwriter may (subject to the allocation priority set
forth below) exclude some or all Registrable Securities from such registration
and underwriting.
(c) Obligations of the Company. Whenever required under this
Section 9 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holder, keep such registration statement effective for up to one hundred
twenty (120) days.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(iii) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by it.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably appropriate for the distribution of
the securities covered by the registration statement; provided, however, 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 jurisdiction, and further provided that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling shareholders, then such
expenses shall be payable by the Holder, to the extent required by such
jurisdiction if the Holder does elect to withdraw from the registration after
notice of such requirement.
(v) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement with
terms generally satisfactory to the managing
8
<PAGE> 189
underwriter of such offering. The Holder shall also enter into and perform its
obligations under such an agreement.
(vi) Notify the Holder, at any time when a prospectus
relating thereto is required to be delivered under the 1933 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 light of the
circumstances then existing. In such instance, Company shall use its best
efforts to cure any such statement or omission so as to render such statement or
omission not misleading.
(d) Furnish Information. In connection with any action pursuant
to this Section 10, the Holder shall furnish to the Company such information
regarding itself, the Registrable Securities held by it, and the intended method
of disposition of such securities as shall be required to effect the
registration of their Registrable Securities. In that connection, the Holder
shall be required to represent to the Company that all such information which is
given is both complete and accurate in all material respects when made.
(e) Definition of Expenses.
(i) "Registration Expenses" shall mean all expenses
incurred by the Company in complying with Section 10 hereof, including, without
limitation, all registration, filing and qualification fees, underwriters'
expense allowances, printing expenses, fees and disbursements of counsel for the
Company, reasonable fees and expenses of one special counsel retained in
connection with each such registration by the Holder, blue sky fees and
disbursements, and the expense of any special audits incident to or required by
any registration pursuant to Section 10(a) (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company).
(ii) "Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale of the Registrable
Securities in the registration, all stock transfer taxes and all fees and
disbursements of any additional special counsel (other than the special counsel
provided for in Section 10(e)(i) above) retained in connection with each such
registration by the Holder.
(f) Expenses of Registration. The Company shall bear all
Registration Expenses incurred in connection with (i) any registration,
qualification or compliance pursuant to Section 10(a), and (ii) no more than
three (3) registrations pursuant to Section 10(b). All Selling Expenses shall be
borne by the Holder.
(g) Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 10:
(i) To the extent permitted by law, the Company will
indemnify and hold harmless the Holder, the officers, directors and partners of
the Holder, any underwriter (as
9
<PAGE> 190
defined in the 1933 Act) for the Holder and each person, if any, who controls
the Holder or underwriter within the meaning of the 1933 Act or the 1934 Act,
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the 1933 Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading; or (iii) any
violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the 1933 Act,
the 1934 Act or any state securities law; and the Company will reimburse the
Holder, officer, director or partner, underwriter or controlling person for any
legal or other expenses reasonably incurred by them, as incurred, in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the Company's indemnity contained in this
Section 10(g) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished in writing and expressly stated for use in connection with
such registration by the Holder, or the Holder's officers, directors or
partners, underwriter, or controlling person. The Company shall not be required
to indemnify any person against any liability arising (i) from any untrue or
misleading statement or omission contained in any preliminary prospectus if such
deficiency is corrected in the final prospectus or (ii) out of the failure of
any person to deliver a prospectus as required by the 1993 Act. The indemnity
provided for in this Section 10(g) shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller,
underwriter, participating person or controlling person and shall survive
transfer of such securities by such seller.
(ii) To the extent permitted by law, the Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the 1933 Act, any underwriter (within
the meaning of the 1933 Act) for the Company, any person who controls such
underwriter, and any other security holder in such registration statement or any
of its partners, directors or officers or any person who controls such security
holder, against any losses, claims, damages or liabilities (joint or several) to
which any of the foregoing persons may become subject, under the 1933 Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by the Holder expressly stated in a writing for use in connection with
such registration; and the Holder will reimburse any legal or other expenses, as
incurred, where same are reasonably incurred by any person intended to be
indemnified pursuant to this Section 10(g), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity
10
<PAGE> 191
agreement contained in this Section 10(g) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, the liability of
each Holder under this Section 10(g) shall be limited to an amount equal to the
public offering price of the shares sold by the Holder.
(iii) Promptly after receipt by an indemnified party under
this Section 10(g) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 10(g), notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party shall have the right to participate in and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
to be paid by the indemnifying party if the indemnified party reasonably
determines that representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 10(g), but the omission so to notify the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 10(g).
(iv) In order to provide for just and equitable
contribution to joint liability under the 1933 Act in any case in which either
(i) any indemnified party makes a claim under this Section 10(g) or any
controlling person of such indemnified party makes such a claim but is
judicially determined (by entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 10(g) provides for indemnification in
such case, or (ii) contribution under the 1933 Act may be required on the part
of any such person seeking indemnity under the terms of this Section 10(g);
then, and in each such case, the Company and such person will contribute to the
aggregate losses, claims, damages, or liabilities to which they may be subject
(after contribution from others) 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. The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
person shall be required to contribute any amount in excess of the public
offering price of all such Registrable Securities sold by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
11
<PAGE> 192
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(h) Investor Rights Agreement. The Holder acknowledges and
agrees that (i) the Company and certain investors have entered into an Investor
Rights Agreement dated November, 1998 (the "Investor Rights Agreement"), (ii)
the Holder may include his securities in a demand registration under the
Investor Rights Agreement only to the extent that the inclusion of his
securities will not reduce the amount of securities to be registered for parties
to the Investor Rights Agreement and (iii) the Holder shall not make a demand
registration which could result in such registration statement being declared
effective prior six months after the effective date of the Company's initial
public offering of securities pursuant to a registration filed under the 1933
Act or within one hundred twenty (120) days of the effective date of any demand
registration pursuant to the Investor Rights Agreement.
(i) Termination of Registration Rights.
(i) The Company shall have no obligations pursuant to
Section 10 with respect to any request or requests made by the Holder after the
date which is five (5) years following the date of the consummation of the first
sale of securities pursuant to a registration statement filed by the Company
under the 1933 Act in connection with the initial firm commitment underwritten
offering of its securities to the general public.
(ii) Notwithstanding any contrary provision of this
Section 10(i), the Company shall not be required to effect any registrations
under the 1933 Act or under any state securities laws on behalf of the Holder
if, in the opinion of counsel to the Company, the offering or transfer by such
Holder in the manner proposed (including, without limitation, the number of
shares proposed to be offered or transferred, the time of sale, and the method
of offering or transfer) is exempt from the registration requirements of the
1933 Act and the securities laws of applicable states and the Company consents
to such transfer, if required.
11. "Market Stand-off" Agreement. The Holder agrees, so long as the
Holder holds at least one percent (1%) of the Company's outstanding voting
equity securities, in connection with the Company's initial underwritten public
offering of the Company's securities that, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Common Stock of the Company (other than those Common
Stock shares included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed one hundred eighty (180) days) from the closing date of such
registration as may be requested by the underwriters; provided, however, that
such covenants shall apply only if (i) all of the officers and directors of the
Company who own stock of the Company and (ii) each shareholder owning more than
two percent (2%) of the Company's shares also agree to such restrictions on any
shares not being registered in such offering. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Registrable Securities of the Holder (and the shares
12
<PAGE> 193
of securities of every other person subject to the foregoing restriction) until
the end of such period.
12. Miscellaneous Provisions.
(a) Listing. If any shares of the Common Stock required to be
reserved for issuance upon the exercise of this Warrant require registration
with or approval of any governmental authority under any Federal or state law
(other than the Securities Act, as then in effect, or any similar Federal law
then in effect), or listing on any domestic securities exchange, before such
shares may be issued upon such exercise, the Company shall, at its expense and
as expeditiously as possible, use its best efforts to cause such shares to be
duly registered or approved or listed on the relevant domestic securities
exchange, as the case may be.
(b) Replacement. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, on delivery of any indemnity
agreement or bond reasonably satisfactory in form and amount to the Company or,
in the case of mutilation, on surrender and cancellation of this Warrant, the
Company at its expense will execute and deliver, in lieu of this Warrant a new
Warrant of like tenor.
(c) No Rights as Stockholder. Prior to the exercise of this
Warrant, no Holder of this Warrant, as such, shall be entitled to vote or
receive dividends or be considered a stockholder of the Company for any purpose,
nor shall anything in this Warrant be construed to confer on any Holder of this
Warrant, as such, any rights of a shareholder of the Company or any right to
vote, give or withhold consent to any corporate action, to receive notice of
meetings of stockholders (except as set forth in this Warrant), to receive
dividends or subscription rights or otherwise.
(d) Governing Law. This Warrant shall be governed by and
construed and enforced in accordance with the laws of the State of California
applicable to contracts entered into and wholly to be performed in California by
California residents.
(e) Notices. All notices from the Company to the holder of this
Warrant shall be in writing and shall be (i) personally delivered, (ii)
transmitted by mail, postage prepaid, registered or certified, return receipt
requested, or by air mail in the event of mailing for delivery outside of the
country in which mailed, (iii) transmitted by an overnight courier of recognized
reputation or of recognized international reputation in the event of an
international delivery or (iv) transmitted by telecopier (with confirmation by
air mail or courier), to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in accordance with the provisions of this Section 11(e). Except as otherwise
specified herein, communications shall be deemed to have been duly given on (A)
the date of receipt if delivered personally, (B) the date seven (7) days after
posting if transmitted by mail, (C) the date three (3) days after delivery to
the courier if sent by recognized or internationally recognized courier service,
or (D) the date on which written confirmation would be deemed to
13
<PAGE> 194
have been given as provided above, whether by mail or by courier, as applicable,
if transmitted by telecopier, whichever shall first occur.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer.
Dated: November 4, 1999.
CHAPARRAL NETWORK STORAGE, INC.
By: /s/ Douglas J. Lehrmann
------------------------------
Name: Douglas J. Lehrmann
Title: Vice President Finance
Acknowledged and Agreed:
Sentinel Consulting LLC.
By: /s/ Robert Harvey
--------------------------
Name: Robert Harvey
Title: Manager
14
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
Chaparral Network Storage, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG LLP
Boulder, Colorado
March 6, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-2000
<PERIOD-START> APR-01-1998 APR-01-1999
<PERIOD-END> MAR-31-1999 DEC-31-1999
<CASH> 224 19,679
<SECURITIES> 0 0
<RECEIVABLES> 104 2,082
<ALLOWANCES> 0 75
<INVENTORY> 183 2,507
<CURRENT-ASSETS> 556 24,339
<PP&E> 447 783
<DEPRECIATION> 70 222
<TOTAL-ASSETS> 933 24,900
<CURRENT-LIABILITIES> 1,827 2,650
<BONDS> 0 0
0 0
3,086 6,269
<COMMON> 8 18
<OTHER-SE> (3,988) 15,962
<TOTAL-LIABILITY-AND-EQUITY> 933 24,900
<SALES> 237 6,296
<TOTAL-REVENUES> 237 6,296
<CGS> 107 2,927
<TOTAL-COSTS> 107 2,927
<OTHER-EXPENSES> 1,802 4,841
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 72 390
<INCOME-PRETAX> (3,695) (4,710)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,695) (4,710)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,695) (4,710)
<EPS-BASIC> (1.40) (0.50)
<EPS-DILUTED> (1.40) (0.50)
</TABLE>
