<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-Q
(Mark one)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTER ENDED MARCH 31, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 0-19856
------------------------------
XIRCOM, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-4221884
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2300 CORPORATE CENTER DRIVE
THOUSAND OAKS, CALIFORNIA 91320
(Address of principal executive offices & zip code)
REGISTRANT'S TELEPHONE NUMBER: (805) 376-9300
---------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
There were 22,774,166 shares of the registrant's $.001 par value Common Stock
outstanding as of May 7, 1997.
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XIRCOM, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Items 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
2
<PAGE> 3
XIRCOM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
March 31, 1997 September 30, 1996
-------------- ------------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 65,537 $ 21,377
Accounts receivable 49,408 25,006
Income tax receivable -- 2,652
Inventories 16,680 13,771
Deferred income taxes 5,409 5,409
Other current assets 2,643 3,330
--------- ---------
Total current assets 139,677 71,545
Equipment and improvements, net 18,030 18,136
Net assets of discontinued operations 15,557 17,151
Other assets 390 369
--------- ---------
Total assets $ 173,654 $ 107,201
========= =========
Current liabilities:
Notes payable to bank $ -- $ 5,100
Accounts payable 14,516 10,260
Accrued liabilities 18,304 18,986
Current portion of long-term obligations 1,769 1,422
Accrued income taxes 2,656 1,066
--------- ---------
Total current liabilities 37,245 36,834
Long-term obligations 1,839 1,860
Deferred income taxes 2,904 2,904
Shareholders' equity:
Common stock 23 20
Paid-in capital 140,483 83,221
Retained earnings (accumulated deficit) (8,840) (17,638)
--------- ---------
Total shareholders' equity 131,666 65,603
--------- ---------
Total liabilities and shareholders' equity $ 173,654 $ 107,201
========= =========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
XIRCOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share information)
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31 March 31
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 57,140 $ 39,978 $ 113,449 $ 73,783
Cost of sales 35,400 26,281 70,893 48,306
--------- --------- --------- ---------
Gross profit 21,740 13,697 42,556 25,477
Operating expenses:
Research and development 2,738 2,424 5,679 4,692
Sales and marketing 10,401 7,635 20,483 15,749
General and administrative 1,660 1,524 3,589 3,212
--------- --------- --------- ---------
Total operating expenses 14,799 11,583 29,751 23,653
--------- --------- --------- ---------
Operating income from continuing
operations 6,941 2,114 12,805 1,824
Other income (expense), net 34 (352) 86 (631)
--------- --------- --------- ---------
Income from continuing operations
before income taxes 6,975 1,762 12,891 1,193
Provision for income taxes 2,092 564 3,867 430
--------- --------- --------- ---------
Income from continuing operations 4,883 1,198 9,024 763
Discontinued operations:
Operating income (loss), net of
related tax effects (542) 175 (226) (150)
--------- --------- --------- ---------
Net income $ 4,341 $ 1,373 $ 8,798 $ 613
========= ========= ========= =========
Weighted average shares outstanding 21,748 19,448 21,201 19,428
Net income (loss) per share:
Continuing operations $ .22 $ .06 $ .42 $ .04
Discontinued operations (.02) .01 (.01) (.01)
--------- --------- --------- ---------
Net income $ .20 $ .07 $ .41 $ .03
========= ========= ========= =========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
XIRCOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Six months ended
March 31
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Income from continuing operations $ 9,024 $ 763
Adjustments to reconcile income from continuing operations
to net cash used in continuing operating activities:
Depreciation and amortization 3,707 3,050
Changes in assets and liabilities:
Accounts receivable (24,402) (8,891)
Income tax receivable 2,652 7,926
Inventories (2,909) (6,693)
Other current assets 739 (193)
Accounts payable and accrued liabilities 3,574 1,750
Income taxes payable 3,603 406
-------- --------
Net cash used in continuing operating activities (4,012) (1,882)
-------- --------
Loss from discontinued operating activities (226) (150)
Depreciation and amortization 1,168 999
Net change in net assets of discontinued operations 927 (2,656)
-------- --------
Net cash provided by (used in) discontinued operating activities 1,869 (1,807)
-------- --------
Net cash used in operating activities (2,143) (3,689)
-------- --------
Investing activities:
Purchases of equipment and improvements (3,627) (5,766)
Other (47) 74
-------- --------
Net cash used in continuing investing activities (3,674) (5,692)
Net cash used in investing activities of discontinued operations (501) (163)
-------- --------
Net cash used in investing activities (4,175) (5,855)
-------- --------
Financing activities:
Net borrowings under line-of-credit agreement (5,100) 8,715
Proceeds from issuance of long-term debt 971 1,800
Long-term debt repayments (645) (493)
Proceeds from issuance of capital stock 55,252 1,739
-------- --------
Net cash provided by financing activities 50,478 11,761
-------- --------
Net increase in cash 44,160 2,217
-------- --------
Cash and cash equivalents at beginning of period 21,377 13,043
-------- --------
Cash and cash equivalents at end of period $ 65,537 $ 15,260
======== ========
Supplemental cash flow disclosures:
Cash paid for interest $ 301 $ 41
Cash paid for income taxes $ 82 $ -
Tax benefit related to employee stock options $ 2,013 $ 581
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
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XIRCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
by the Company without audit (except for the balance sheet information as of
September 30, 1996, which was derived from audited consolidated financial
statements) pursuant to Securities and Exchange Commission regulations. In the
opinion of management, the financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the consolidated financial position at March 31, 1997 and the consolidated
results of operations for the three- and six-month periods ended March 31, 1997
and 1996, and cash flows for the six-month periods ended March 31, 1997 and
1996, in accordance with generally accepted accounting principles. The
accompanying financial statements are condensed and do not include footnotes and
certain financial presentations normally required under generally accepted
accounting principles and, therefore, should be read in conjunction with the
audited financial statements included in the Company's 1996 annual report on
Form 10-K.
The results of operations for the three- and six-month periods ended March 31,
1997 are not necessarily indicative of the results to be expected for the entire
fiscal year.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of shares of
common stock and dilutive common stock equivalents (stock options) outstanding.
Fully diluted amounts for each period do not materially differ from the amounts
presented herein.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
("SFAS 128") was issued in February 1997 and must be adopted by the Company on
December 31, 1997. Early adoption is not permitted, however, all prior year
earnings per share data must be restated upon adoption to conform to the new
standard. SFAS 128 simplifies the calculation of earnings per share data by
replacing primary and fully diluted earnings per share with basic and diluted
earnings per share, respectively. Basic earnings per share excludes dilutive
securities including stock options, and is calculated using the weighted average
common shares outstanding for the period. Diluted earnings per share, which is
generally consistent with the fully diluted calculation under present accounting
rules, reflects the dilution to earnings that would occur if securities, stock
options and other dilutive securities resulted in the issuance of common stock.
The Company anticipates that prior period earnings per share, when restated for
SFAS 128, will remain unchanged or will be slightly higher. If the Company had
been permitted to adopt SFAS 128 in the second quarter of 1997, the Company
would have reported basic earnings from continuing operations per common share
of $0.23. The impact of
6
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XIRCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
Statement 128 on fully diluted earnings per share is not expected to be
material.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31 September 30
1997 1996
---- ----
<S> <C> <C>
Finished goods $ 7,498 $ 5,723
Subassemblies 577 1,348
Work-in-process 2,462 543
Component parts 6,143 6,157
------- -------
$16,680 $13,771
======= =======
</TABLE>
REVENUE RECOGNITION
The Company recognizes revenue from product sales when shipped. The Company
generally provides a lifetime limited warranty against defects in the hardware
component and a two-year limited warranty on the software component of its
network adapters and modem products. In addition, the Company provides telephone
support to purchasers of its products as needed to assist them in installation
or use of the products. The Company makes provisions for these costs in the
period of sale. The Company also has policies and/or contractual agreements
which permit distributors and dealers to return products under certain
circumstances. The Company makes a provision for the estimated amount of product
returns that may occur under these programs and contracts in the period of sale.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less at the
date of purchase are considered to be cash equivalents and are carried at cost
plus accrued interest.
DISCONTINUED OPERATIONS
On April 14, 1997, the Company announced its intention to divest Netaccess, Inc.
("Netaccess"), its remote access subsidiary and, as a result, will now account
for this activity as a discontinued operation. Accordingly, the accompanying
financial statements have been prepared to reflect the historical financial
position and results of operations of Netaccess as discontinued operations.
7
<PAGE> 8
XIRCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
The results of operations of Netaccess, net of related tax effects, have been
reported separately as discontinued operations in the Condensed Consolidated
Statements of Income. Operating income (loss) from discontinued operations is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three months Six months
ended ended
March 31 March 31
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 4,063 $ 5,347 $ 10,065 $ 9,240
Income (loss) before income taxes $ (774) $ 257 $ (323) $ (196)
Income tax provision (benefit) (232) 82 (97) (46)
-------- -------- -------- --------
Net income (loss) $ (542) $ 175 $ (226) $ (150)
======== ======== ======== ========
</TABLE>
The net assets of Netaccess, comprised principally of accounts receivable,
inventory, fixed assets, goodwill and other intangibles, offset by trade
payables and other liabilities, have been classified as Net assets of
discontinued operations in the accompanying Condensed Consolidated Balance Sheet
for all reported periods.
COMMON STOCK
On February 28, 1997 Intel Corporation ("Intel") completed the purchase of a
12.5 percent interest in the Company's common stock (2,516,405 newly issued
shares) and acquired warrants to purchase an additional 7.5 percent of the
Company's common stock (1,509,903 newly issued shares). The value of the initial
Intel equity investment was approximately $52 million. In addition, the Company
and Intel have signed a three-year technology and OEM agreement.
8
<PAGE> 9
XIRCOM, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report contains trend analysis and other forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ materially from those projected in the trend
analysis and other forward-looking statements contained herein, as a result of
the risk factors set forth below and elsewhere in this report.
RESULTS OF OPERATIONS
The following table sets forth the statements of operations as a percentage of
net sales:
<TABLE>
<CAPTION>
Three months Six months
ended ended
March 31 March 31
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 62.0% 65.7% 62.5% 65.5%
----- ----- ----- -----
Gross profit 38.0% 34.3% 37.5% 34.5%
Operating expenses:
Research and development 4.8% 6.1% 5.0% 6.4%
Sales and marketing 18.2% 19.1% 18.0% 21.3%
General and administrative 2.9% 3.8% 3.2% 4.3%
---- ---- ---- ----
25.9% 29.0% 26.2% 32.0%
----- ----- ----- -----
Operating income from continuing
operations 12.1% 5.3% 11.3% 2.5%
Other income (expense), net 0.1% (0.9%) 0.1% (0.9%)
---- ------ ---- ------
Income from continuing operations
before income taxes 12.2% 4.4% 11.4% 1.6%
Provision for income taxes 3.7% 1.4% 3.4% 0.6%
---- ---- ---- ----
Income from continuing operations 8.5% 3.0% 8.0% 1.0%
Discontinued operations:
Operating income (loss), net of
income taxes (0.9%) 0.4% (0.2%) (0.2%)
----- ---- ------ ------
Net income 7.6% 3.4% 7.8% 0.8%
==== ==== ==== ====
</TABLE>
NET SALES
Net sales of LAN adapters, modems and multifunction LAN and modem cards ("Combo
cards") (collectively "client products") for the three- and six-month periods
ended March 31, 1997 increased 43% and 54%, respectively, from the corresponding
prior-year periods primarily due to growth in overall market demand for these
products. The growth in channel sell-through may be indicative of several
factors: an increased growth rate in shipments of portable PCs, which in turn
require network connections; a more competitive pricing strategy adopted by the
Company; continuing increased
9
<PAGE> 10
XIRCOM, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
market acceptance of the Company's Combo cards and Fast Ethernet cards; and
increased sales of the Company's modem-only PC Card products. Unit shipments of
client products for the three- and six-month periods ended March 31, 1997
increased 80% and 94%, respectively, from the corresponding prior year periods
but average selling prices declined due to increased competition in the PC Card
LAN adapter market and to a continuing shift in mix of products from
higher-priced parallel port versions to PC Card versions.
INTERNATIONAL SALES. Total international sales (shipments to customers located
outside the U.S.) were 49% of total net sales for each of the three- and
six-month periods ended March 31, 1997, compared to 45% and 42% from the
comparable prior year periods. PC Card sales in Europe and Asia-Pacific grew at
a faster rate than in the U.S. during the 1997 periods primarily because of
greater market growth in Asia and shorter delays in 1997 as compared to 1996
between initial shipment of new products in the U.S. and the shipment of
internationally approved versions of such products.
GROSS PROFIT
Gross profit margins for the three- and six-month periods ended March 31, 1997
were 38.0% and 37.5%, respectively, compared to 34.3% and 34.5%, respectively,
for the comparable prior-year periods. The increase in gross profit as a
percentage of net sales was primarily attributable to increased shipments and
the resulting decrease in fixed costs as a percentage of total cost of sales, as
well as the favorable impact of cost reduction efforts including the successful
transition of all the Company's PC Card production to its own manufacturing
facility in Penang, Malaysia. A change in the discount structure on products
sold into the distribution channel beginning in the September 1996 quarter, and
an increase in the percentage of revenue derived from higher-margined Fast
Ethernet LAN products also contributed to the increase in gross profit margins.
These positive margin impacts were partially offset by the increased portion of
sales represented by PC Card products which have lower gross profit margins than
the Company's parallel port products, and by selling price reductions on PC Card
products. In addition, start-up expenses related to the Malaysian manufacturing
facility had a negative impact on gross margins in the December 1995 quarter
and, to a lesser extent, in the March 1996 quarter.
10
<PAGE> 11
XIRCOM, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING EXPENSES
Total operating expenses for the three- and six-month periods ended March 31,
1997 increased by 28% and 26%, respectively, compared to the corresponding
prior-year periods primarily due to the continued expansion of product lines and
international operations, and an increase in certain sales and marketing
programs. Total operating expenses decreased as a percentage of sales for both
periods primarily due to increased sales and more focused product development
activities. Total operating expenses are expected to increase for the remainder
of fiscal 1997 but may fluctuate as a percentage of net sales.
Research and development expenses for the three- and six-month periods ended
March 31, 1997 increased by 13% and 21%, respectively, compared to the
corresponding prior-year periods. Increased expenses for both periods are due to
additional staffing to support expanded product lines as well as the
internalization of certain contracted development expenses, offset partially by
reduced expenses of the Netwave product line, which was sold in August 1996.
Research and development expenses decreased as a percentage of sales due to
increased sales and more focused product development efforts. Research and
development expenses are expected to continue to increase due to planned
expenditures on product enhancements and new product introductions.
Sales and marketing expenses for the three- and six-month periods ended March
1997 increased by 36% and 30%, respectively, compared to the corresponding
prior-year periods. The increases are related to additional headcount and
marketing activities to support the increased sales levels and expanding markets
as well as increased distributor related sales and marketing expenses. As
discussed in "Gross profit" above, the Company changed its discount structure on
products sold into the distribution channel beginning in the September 1996
quarter and, as a result, improved its gross profit margins. However, the
additional gross profit dollars were applied to distributor related expenses,
which increased the amount of sales and marketing expenses. Sales and marketing
expenses decreased as a percentage of due to the consolidation of certain sales
operations and reduced overall promotional spending resulting from a more
focused product line. Sales and marketing expenses are expected to increase
through the remainder of fiscal 1997 to support planned new product
introductions. Sales and marketing expenses are expected to increase through the
remainder of fiscal 1997 to support planned new product introductions and
additional geographic expansion.
General and administrative expenses for the three- and six-month periods ended
March 1997 increased by 9% and 12% respectively compared to the corresponding
prior-year periods. This increase was due to the need to support growth in the
overall organization. These expenses decreased as a percentage of sales
primarily due to increased sales. General and administrative expenses are
expected to increase moderately for the remainder of fiscal 1997.
11
<PAGE> 12
XIRCOM, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OTHER INCOME (EXPENSE), NET
Net other income or expense includes interest income from the investment of
available cash, early payment discounts earned by the Company offset by early
payment discounts taken by customers, foreign currency transaction gains and
losses, and interest expense on notes payable and capital leases. Net other
income for the fiscal 1997 periods compared to net other expense for the fiscal
1996 periods is due primarily to lower interest expense and higher interest
income as a result of increased cash balances and reduced borrowings under the
Company's credit facilities.
INCOME TAXES
The Company's effective tax rate for the six months ended March 31, 1997 was
30.0%. The difference between the effective tax rate in the current year and the
35% federal statutory tax rate is due primarily to benefits from the tax holiday
status of the Company's operations in Malaysia. The Company's effective tax rate
for the six months ended March 31, 1996 was 36% as a result of an expected 32%
tax rate for profitable operations in the second quarter of fiscal 1996 and the
25.6% tax benefit related to a pre-tax loss recorded in the first quarter of
fiscal 1996.
DISCONTINUED OPERATIONS
The financial results of Netaccess, Inc., which includes remote access server
products sold to original equipment manufacturers ("OEMs") and through two-tier
distribution channels, have been reported as discontinued operations in the
Condensed Consolidated Statements of Income for all periods. Operating loss from
discontinued operations, net of income tax benefit, was $226,000 for the six
months ended March 31, 1997, compared with $150,000 in the comparable prior year
period. Additional information with respect to discontinued operations is
included in the Notes to Condensed Consolidated Financial Statements.
RISK FACTORS
The market for portable PC LAN adapters has grown rapidly since the Personal
Computer Memory Card International Association (PCMCIA) introduced a standard
form factor for PC Card (originally "PCMCIA") LAN adapters in 1993. Companies
with greater name recognition in the PC, desktop LAN adapter and PC Card modem
industries and with greater financial resources now have a significant presence
in the PC Card adapter market. As a result, the Company's net sales and gross
profit margins have been and could continue to be adversely impacted by several
competitive factors, including increased price competition, new product
introductions by
12
<PAGE> 13
XIRCOM, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
competitors, promotional efforts by competitors, any reduction in the Company's
percentage market share of the PC Card adapter markets, and the levels of
inventories in the Company's distribution channels. Although competition is
expected to remain intense, the Company believes its share of the PC Card LAN
adapter market stabilized in 1996 and the six months of fiscal 1997, primarily
because of a more competitive pricing strategy for PC Card products adopted
during fiscal 1995, the success of its combination Ethernet LAN and Modem PC
Card, and the introduction of several new PC Card products in late 1996,
including the Company's Fast Ethernet PC Card which began shipping in June 1996,
its CardBus Ethernet adapter which began shipping in October 1996, and its
fourth-generation Combo cards which began shipping in September 1996.
The Company believes that the market for PC Card LAN adapters, modems and Combo
cards will continue to be price competitive for the long-term and thus could
continue to result in lower gross profit margins than the Company has earned
from such products in the past. In addition, the Company's manufacturing
facility, which began volume production in early fiscal 1996 and is now
producing all of the Company's PC Card products, is operating at a greater
efficiency level than in the first half of fiscal 1996. While the in-house
manufacturing facility is expected to continue to have a positive impact on cost
reduction efforts, the proportion of revenues derived from the Combo and
modem-only PC Cards, which have lower gross profit margins compared to LAN PC
Cards, have negatively impacted overall gross margins and may continue to offset
improvements from manufacturing and design efficiencies if such revenue mix
changes continue. In addition, there can be no assurances that cost reductions
achieved through increased manufacturing efficiencies will keep pace with
competitors' cost reductions or will be sufficient in the event of anticipated
competitive price reductions to allow price reductions required to maintain or
increase market share without adversely affecting gross profit margins.
The Company generally ships products within one to six weeks after receipt of
orders and therefore its sales backlog is typically minimal. Accordingly, the
Company's expectations of future net sales are based largely on its own estimate
of future demand and not on firm customer orders. If net sales do not meet
expectations, the Company may not be able to reduce expenses commensurately in
the near-term, and profitability would be adversely affected.
The Company's net sales may be affected by its distributors' decisions as to the
quantity of the Company's products to be maintained in their inventories. At
March 1997, the Company believes its distributors had what the Company considers
to be normal levels of inventory overall. However, there can be no assurance
that distributors will not choose to reduce inventory levels nonetheless, which
would adversely affect net sales.
13
<PAGE> 14
XIRCOM, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
There can be no assurances that new products that the Company may introduce will
achieve market acceptance or sell through to end users in sufficient quantities
to make them viable for the long-term. In addition, the Company may have
difficulty in establishing its presence in markets in which it does not have
significant brand recognition.
The Company introduced a line of modem-only PC Card products late in fiscal
1995, utilizing existing technologies from its Combo cards and modem-based
remote access products. While the PC Card modems generally have lower gross
profit margins than PC Card LAN adapters, increased sales volume from modems
would have a positive impact on coverage of fixed manufacturing costs, which in
time could partially offset the generally lower margins on modem products.
Because all PC Card products are being manufactured at the Company's own
facilities, interruptions in supply of products could occur if the Company is
unable to accurately forecast or react to changes in product demand, which in
turn could adversely affect future sales. Interruptions could also occur due to
political or economic changes in Malaysia.
In summary, gross profit margins are impacted by a number of factors, including
the rate of sales growth, competitive pricing pressures, the mix of product
sales, component and manufacturing costs, and shipment of new products, which
often have lower margins until market acceptance and increased volumes permit
component cost reductions and manufacturing efficiencies. Frequent product
transitions also increase the risk of inventory obsolescence and interruptions
of sales.
The Company's corporate headquarters, research and development facilities and
other critical business operations are located near major earthquake faults.
Operating results could be materially adversely affected in the event of a major
earthquake.
A number of additional factors could have an impact on the Company's future
operating results. The industry in which the Company operates is characterized
by rapid technological change and short product life cycles. While the Company
has historically been successful in developing leading technology for its
products, ongoing investment in research and development will be required to
maintain the Company's technological position, and the Company could be required
to increase the rate of such investments depending on competitive factors. Many
of the Company's competitors have greater financial and technical resources than
the Company. It is also possible that networking capability could be included in
the PC itself or in extension modules to PCs, which could cause a reduction in
the demand for add-on networking devices. The Company's results are also
dependent on continued growth in the underlying market for portable networking
products as well as the Company's ability to retain its market share.
The Company is aware that competitors have duplicated certain functionality of
the Company's products. There can be no assurance that the Company's patents,
copyrights, trademarks and other efforts to protect its intellectual property
will prevent
14
<PAGE> 15
XIRCOM, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
duplication of the Company's technology or that they will provide a competitive
advantage. The Company is also aware that there can be no assurance that a
patent issued to the Company would be upheld as valid if litigation over a
patent were initiated. The Company believes that, due to the rapid pace of
technological change in the LAN communications industry, the Company's success
is likely to depend more upon continued innovation, technical expertise,
marketing skills and customer support and service than legal protection of the
Company's proprietary rights.
With the proliferation of new products and rapidly changing technology in the PC
Card market, there is a significant volume of patents or similar intellectual
property rights held by third parties. Given the nature of the Company's
products and development efforts, there are risks that claims associated with
such patents or intellectual property rights could be asserted by third parties.
These risks may include the following: the cost of licensing a given technology
if the Company believes it may be prudent to secure such rights; the claimant
may not offer such a license on terms acceptable to the Company; the cost of
litigation or settlement of such claims could be substantial regardless of the
merits of the allegations; the Company may not prevail in the event of
litigation; if the Company did not prevail in litigation, it could be required
to pay significant damages, and/or to cease sales and production of infringing
products, and only make future sales of a noninfringing design.
The Company currently includes software licensed from third parties in certain
of its Ethernet+Modem, modem-only and Token Ring products, which, in the
aggregate, accounted for 57% of revenues in the second quarter of fiscal 1997.
The Company's operating results could be adversely affected by a number of
factors relating to this third-party software, including failure by a licensor
to promote or support the software, delays in shipment of the Company's products
as a result of delays in the introduction of licensed software or errors in the
licensed software, excess customer support costs or product returns experienced
by the Company due to errors in licensed software, or termination of the
Company's relationship with such licensors.
Because of frequent technology changes and rapid industry growth, the cost and
availability of components used to manufacture the Company's products may
fluctuate. Some components, including custom chipsets, are available from only
one supplier. Any interruptions in these supply sources or limitations on
availability could impact the Company's ability to deliver its products and in
turn adversely affect future earnings.
The Company has announced its intention to divest Netaccess, Inc., its remote
access subsidiary, and is now accounting for this activity as a discontinued
operation. There can be no assurance that a buyer will be found in the near
term, or that proceeds from such a divestiture will exceed the carrying value of
the net assets of the discontinued operation.
The Company is also subject to additional risk factors as identified in its
Annual Report to Shareholders and filing on Form 10-K for the year ended
September 30, 1996.
15
<PAGE> 16
XIRCOM, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997 the Company had $65.5 million in cash and cash equivalents.
The Company's continuing operating activities used cash of approximately $4
million in the six-month period ended March 31, 1997, primarily as a result of
increases in accounts receivable and inventories offset partially by income from
operations, income tax refunds received and an increase in accounts payable.
Accounts receivable increased due to higher quarterly revenue and fewer early
payment discounts offered in the March 1997 quarter compared to the September
1996 quarter. Inventories increased primarily due to an increase in the volume
of PC Card business. The Company had capital expenditures of $3.6 million in the
first six months of fiscal 1997 primarily for manufacturing equipment at its
Malaysian manufacturing facility. The Company has no material fixed commitments
and does not expect an increase in the rate of capital expenditures during the
remainder of fiscal 1997 except that it has signed a letter of intent to
purchase its manufacturing facilities in Penang, Malaysia for approximately $5.6
million. The Company is currently evaluating its options for funding the
purchase price.
The Company has a two-year credit facility with a bank that permits borrowings
up to $25.0 million under base rate advances at the prime rate or under London
Interbank Offered Rate ("LIBOR") advances at the related LIBOR rate plus 1-1/4%.
As of March 31, 1997, there were no borrowings outstanding under this agreement,
which expires in December 1998. The Company also has a credit facility in
Malaysia totaling $10.8 million with interest ranging from a fixed rate of
approximately 7.0% to a variable rate of 1/2% to 1-1/2% over the bank's
reference rate. As of March 31, 1997, there were no demand notes and $3.6
million in term loans outstanding under this facility, which expires in December
1998. At March 31, 1997 the Company had approximately $33.4 million in
borrowings available under its credit facilities.
On March 3, 1997 the Company announced that Intel Corporation ("Intel") had
completed the purchase of a 12.5 percent interest in the Company's common stock
(2,516,405 newly issued shares) and acquired a warrant to purchase an additional
7.5 percent of the Company's common stock (1,509,903 newly issued shares). The
value of the initial Intel equity investment was approximately $52 million. The
Company intends to use the proceeds from the equity investment for working
capital purposes.
The Company believes that cash on hand, borrowings available under its existing
facilities or from other financing sources and cash provided by operations will
be sufficient to support its working capital and capital expenditure
requirements for at least the next twelve months. However, there can be no
assurances that future cash requirements to fund operations will not require the
Company to seek additional capital sooner than the twelve months, or that such
additional capital will be available when required on terms acceptable to the
Company.
16
<PAGE> 17
XIRCOM, INC.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The results of voting at the Annual Meeting of Shareholders of the
Company were reported in the Company's Form 10-Q for the period
ended December 31, 1996.
ITEM 5. OTHER ITEMS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.31 Xircom, Inc. Common Stock and Warrant Purchase
Agreement, of January 13, 1997, between Xircom,
Inc. and Intel Corporation
10.31a Warrant to Purchase Shares of Common Stock of
Xircom, Inc., dated February 28, 1997
10.31b Investor Rights Agreement, dated February 28,
1997, between Xircom, Inc. and Intel Corporation
27 Financial Data Schedule
(b) Reports on Form 8-K
A Report on Form 8-K was filed by the Company on April 3, 1997
pursuant to Item 5 of Form 8-K ("Other Events"). The report
related to a press release concerning finalization of an
investment agreement between the Company and Intel
Corporation. A copy of the press release was filed as an
exhibit to such report.
A Report on Form 8-K was filed by the Company on April 23,
1997 pursuant to Item 5 of Form 8-K ("Other Events"). The
report related to a press release for the Company's second
quarter 1997 earnings. A copy of the press release was filed
as an exhibit to such report.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
XIRCOM, INC.
------------
(Registrant)
Date: May 14, 1997 /s/ Dirk I. Gates
------------- -----------------
Dirk I. Gates
Chairman of the Board, President and
Chief Executive Officer
Date: May 14, 1997 /s/ Steven F. DeGennaro
------------ -----------------------
Steven F. DeGennaro
Vice President, Finance and
Chief Financial Officer
18
<PAGE> 1
EXHIBIT 10.31
XIRCOM, INC.
COMMON STOCK AND WARRANT
PURCHASE AGREEMENT
This Common Stock and Warrant Purchase Agreement (this "Agreement") is made and
entered into as of January 13, 1997, by and between Xircom, Inc., a California
corporation (the "Company"), and Intel Corporation, a Delaware corporation (the
"Investor").
R E C I T A L
WHEREAS, the Company desires to sell to the Investor, and the Investor desires
to purchase from the Company, shares of the Company's Common Stock and a Warrant
to purchase additional shares of the Company's Common Stock on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing recital, the mutual promises
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
1.1 Authorization. As of the Closing (as defined below), the Company's
Board of Directors will have authorized the issuance, pursuant to the terms and
conditions of this Agreement, of up to the number of shares of the Company's
Common Stock equal to twelve and one-half percent (12.5%) of the number of
shares of the Company's Common Stock and other voting securities outstanding on
the day immediately preceding the date of Closing minus 100 shares ("Purchased
Shares") PLUS the number of shares of the Company's Common Stock equal to seven
and one-half percent (7.5%) of the number of shares of the Company's Common
Stock and other voting securities outstanding on the day immediately preceding
the date of Closing ("Warrant Shares") shares of the Company's Common Stock,
$0.001 par value (the "Common Stock").
1.2 Agreement to Purchase and Sell Common Stock. The Company hereby agrees
to sell to the Investor at the Closing, and the Investor agrees to purchase from
the Company at the Closing, the Purchased Shares at a price per share equal to
the Per Share Purchase Price.
1.3 Per Share Purchase Price. The "Per Share Purchase
Price" shall be $20.775.
1.4 Agreement to Purchase and Sell Warrant. The Company hereby agrees to
issue to the Investor at the Closing a Warrant (the "Warrant") to purchase the
Warrant Shares in the form attached hereto as Exhibit A.
1.5 Compliance with HSR Requirements. Promptly after the execution hereof,
the Company and the Investor shall each complete and file their respective
premerger notification
<PAGE> 2
report forms under the HSR Act (as defined in Section 3.6). After the filing
thereof, the Company and the Investor shall use all reasonable efforts to comply
with the HSR Requirements; provided, however, that neither the Company nor the
Investor shall be under any obligation to comply with any request or requirement
imposed by the Federal Trade Commission (the "FTC"), the Department of Justice
(the "DofJ") or any other governmental authority in connection with the
compliance with the HSR Requirements if the Company or the Investor, in the
exercise of such entity's sole discretion, elects not to do so. Without limiting
the generality of the foregoing, neither the Company nor the Investor shall be
obligated to comply with any request by, or any requirement of, the FTC, the
DofJ or any other governmental authority: (i) to disclose information the
Company or the Investor, as the case may be, desires to keep confidential; (ii)
to dispose of any assets or operations; or (iii) to comply with any restriction
on the manner in which they conduct their respective operations.
2. CLOSING
2.1 The Closing. The purchase and sale of the Purchased Shares and the
Warrant will take place at the offices of Gibson, Dunn & Crutcher, 2029 Century
Park East, Los Angeles, California, at 10:00 a.m. California time, within three
(3) business days after the conditions set forth in Articles 5 and 6 have been
satisfied, or at such other time and place as the Company and the Investor
mutually agree upon (which time and place are referred to in this Agreement as
the "Closing"). At the Closing, the Company will deliver to the Investor the
Warrant and a certificate representing the Purchased Shares, all against
delivery to the Company by the Investor of the full purchase price of the
Purchased Shares, paid by wire transfer of funds to the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investor that the statements in this Section 3
are true and correct, except as set forth in the Disclosure Letter from the
Company dated January 13, 1997 (the "Disclosure Letter").
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 California and has all corporate power and authority required to
(a) carry on its business as presently conducted, and (b) enter into this
Agreement, the Investor Rights Agreement (as defined in Section 5.8) and the
Warrant, and to consummate the transactions contemplated hereby and thereby. The
Company is qualified to do business and is in good standing in each jurisdiction
in which the failure to so qualify would have a Material Adverse Effect. As used
in this Agreement, "Material Adverse Effect" means a material adverse effect on,
or a material adverse change in, or a group of such effects on or changes in,
the business, operations, financial condition, results of operations, prospects,
assets or liabilities of the Company.
3.2 Capitalization. As of the date of this Agreement the capitalization of
the Company is as follows:
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<PAGE> 3
(a) Preferred Stock. A total of 2,000,000 authorized shares of
Preferred Stock, $0.01 par value per share (the "Preferred Stock"), none of
which is issued or outstanding.
(b) Common Stock. A total of 50,000,000 authorized shares of Common
Stock, $0.001 par value, of which 20,001,304 shares are issued and outstanding.
All of such outstanding shares are validly issued, fully paid and
non-assessable. No such outstanding shares were issued in violation of any
preemptive right.
(c) Options, Warrants, Reserved Shares. Except for the Xircom Stock
Option Plan, 1992 Directors Stock Option Plan, 1994 Employee Stock Purchase
Plan, and the 1995 Stock Option Plan, each as amended (the "Plans"), 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. Except for any stock repurchase rights of the Company under the Plans, no
shares of the Company's outstanding capital stock, or stock issuable upon
exercise, conversion 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, commitment or other obligation
of the Company.
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 shareholders necessary for the authorization,
execution, delivery of, and the performance of all obligations of the Company
under, this Agreement, the Investor Rights Agreement (as defined below), and the
Warrant, and the authorization, issuance, reservation for issuance and delivery
of all of the Purchased Shares being sold under this Agreement and of the
Warrant Shares has been taken or will be taken prior to the Closing, and this
Agreement constitutes, and the Investor Rights Agreement and the Warrant when
executed, will constitute, valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except as may be limited by (i) applicable bankruptcy, insolvency,
reorganization or others laws of general application relating to or affecting
the enforcement of creditors' rights generally and (ii) 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
Warrant Shares have been duly and validly reserved for issuance and, upon
issuance, sale and delivery in accordance with the terms of
3
<PAGE> 4
the Warrant for the consideration provided for therein, will be duly and validly
issued, fully paid and nonassessable.
(b) Based in part on the representations made by the investors in
Section 4 hereof, the Purchased Shares, the Warrant and (assuming no change in
applicable law and no unlawful distribution of Purchased Shares or the Warrant
by the Investor or other parties) the Warrant Shares will be issued in full
compliance with the registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the "1933 Act"), or in compliance with
applicable exemptions therefrom, and the registration and qualification
requirements of all applicable securities laws of the states of the United
States.
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 compliance with the HSR Requirements (as defined
below) and the filing of such qualifications or filings under the 1933 Act and
the regulations thereunder and all applicable state securities laws as may be
required in connection with the transactions contemplated by this Agreement. All
such qualifications and filings will, in the case of qualifications, be
effective on the Closing and will, in the case of filings, be made within the
time prescribed by law. As used herein, the "HSR Requirements" means compliance
with the filing and other requirements of the Hart-Scott-Rodino Antitrust
Improvements Acts of 1976, as amended (the "HSR Act").
3.7 Non-Contravention. The execution, delivery and performance of this
Agreement, the Investor Rights Agreement and the Warrant by the Company, and the
consummation by the Company of the transactions contemplated hereby and thereby,
do not and will not (i) contravene or conflict with the Articles of
Incorporation or Bylaws of the Company; (ii) constitute a material violation of
any provision of any federal, state, local or foreign law binding upon or
applicable to the Company; or (iii) constitute a default or require any consent
under, give rise to any right of termination, cancellation or acceleration of,
or to a loss of any benefit to which the Company is entitled under, or result in
the creation or imposition of any lien, claim or encumbrance on any assets of
the Company under, any contract to which the Company is a party or any permit,
license or similar right relating to the Company or by which the Company may be
bound or affected in such a manner as would have Material Adverse Effect.
3.8 Litigation. There is no action, suit, proceeding, claim, arbitration
or investigation ("Action") pending: (a) 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, (b) that seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement, the Investor Rights Agreement or the Warrant.
There is no Action pending or, to the best of the Company's knowledge,
threatened, or any basis therefor, relating to the current or prior employment
of any of the Company's current or former 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.
4
<PAGE> 5
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. No Action by the Company is currently pending nor does the
Company intend to initiate any Action which is reasonably likely to have a
Material Adverse Effect.
3.9 Invention Assignment and Confidentiality Agreement. To the best
knowledge of the Company, each employee and consultant or independent contractor
of the Company whose duties include the development of products or Intellectual
Property (as defined below), and each former employee and consultant or
independent contractor whose duties included the development of products or
Intellectual Property, has entered into and executed an invention assignment and
confidentiality agreement in customary form or an employment or consulting
agreement containing substantially similar terms.
3.10 Intellectual Property.
(a) Ownership or Right to Use. The Company has sole title to and owns,
or is licensed or otherwise possesses legally enforceable rights to use, all
patents or patent applications, software, know-how, registered or unregistered
trademarks and service marks and any applications therefor, registered or
unregistered copyrights, trade names, and any applications therefor, trade
secrets or other confidential or proprietary information ("Intellectual
Property") necessary to enable the Company to carry on its business as currently
conducted, except where any deficiency therein would not have a Material Adverse
Effect. The Company represents and warrants that it will, where the Company, in
the exercise of reasonable judgment deems it appropriate, use reasonable
business efforts to seek copyright and patent registration, and other
appropriate intellectual property protection, for Intellectual Property of the
Company.
(b) Licenses; Other Agreements. The Company is not currently subject
to any exclusive licenses (whether such exclusivity is temporary or permanent)
to any material portion of the Intellectual Property of the Company. To the best
of the Company's knowledge, there are not outstanding any licenses or agreements
of any kind relating to any Intellectual Property of the Company, except for
agreements with OEM's and other customers of the Company entered into in the
ordinary course of the Company's business. 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 Intellectual Property,
except as the Company may be so obligated in the ordinary course of its business
or as disclosed in the Company's SEC Documents (as defined below).
(c) No Infringement. 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, any Intellectual Property of any other
person or entity, to the extent that any such violation or infringement, either
individually or together with all other such violations and infringements, would
have a Material Adverse Effect.
(d) Employees and Consultants. To the best of the Company's
knowledge, no employee of or consultant to the Company is in default under any
term of any
5
<PAGE> 6
employment contract, agreement or arrangement relating to Intellectual Property
of the Company or any non-competition arrangement, other contract, or any
restrictive covenant relating to the Intellectual Property of the Company. The
Intellectual Property of the Company (other than any Intellectual Property duly
acquired or licensed from third parties) was developed entirely by the employees
of or consultants to the Company during the time they were employed or retained
by the Company, and to the best knowledge of the Company, at no time during
conception or reduction to practice of such Intellectual Property of the Company
were any such employees or consultants operating under any grant from a
government entity or agency or subject to any employment agreement or invention
assignment or non-disclosure agreement or any other obligation with a third
party that would materially and adversely affect the Company's rights in the
Intellectual Property of the Company. Such Intellectual Property of the Company
does not, to the best knowledge of the Company, include any invention or other
intellectual property of such employees or consultants made prior to the time
such employees or consultants were employed or retained by the Company nor any
intellectual property of any previous employer of such employees or consultants
nor the intellectual property of any other person or entity.
3.11 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 except for any violations that would not, either
individually or in the aggregate, have a Material Adverse Effect. The Company
has complied and is in compliance with all applicable statutes, laws, and
regulations and executive orders of the United States of America and all states,
foreign countries and other governmental bodies and agencies having jurisdiction
over the Company's business or properties.
3.12 Registration Rights. Except as provided in the Investor Rights
Agreement effective upon the Closing, the Company is not currently subject to
any grant or agreement 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 Title to Property and Assets. The properties and assets of the Company
are owned by the Company free and clear of all mortgages, deeds of trust, liens,
charges, encumbrances and security interests except for statutory liens for the
payment of current taxes that are not yet delinquent and liens, encumbrances and
security interests that arise in the ordinary course of business and 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 in
all material respects.
3.14 SEC Documents.
(a) The Company has furnished to the Investor prior to the date hereof
copies of its Annual Report on Form 10-K for the fiscal year ended September 30,
1996 ("Form 10-K"), and all other registration statements, reports and proxy
statements filed by the Company with the Securities and Exchange Commission
("Commission") on or after September 30, 1996 (the Form 10-K and such
registration statements, reports and proxy statements, are collectively referred
to herein as the "SEC Documents"). Each of the SEC Documents, as of the
6
<PAGE> 7
respective date thereof, did not, and each of the registration statements,
reports and proxy statements filed by the Company with the Commission after the
date hereof and prior to the Closing will not, as of the date thereof, contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading, except as may have
been corrected in a subsequent SEC Document. The Company is not a party to any
material contract, agreement or other arrangement which was required to have
been filed as an exhibit to the SEC Documents that is not so filed.
(b) The Company has provided the Investor with its audited financial
statements (the "Audited Financial Statements") for the fiscal year ended
September 30, 1996 (the "Balance Sheet Date"). Since September 30, 1996, the
Company has duly filed with the Commission all registration statements, reports
and proxy statements required to be filed by it under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the 1933 Act. The audited and
unaudited consolidated financial statements of the Company included in the SEC
Documents filed prior to the date hereof fairly present, in conformity with
generally accepted accounting principles ("GAAP") (except as permitted by Form
10-Q) applied on a consistent basis (except as may be indicated in the notes
thereto), the consolidated financial position of the Company and its
consolidated subsidiaries as at the date thereof and the consolidated results of
their operations and cash flows for the periods then ended (subject to normal
year and audit adjustments in the case of unaudited interim financial
statements).
(c) Except as and to the extent reflected or reserved against in the
Company's Audited Financial Statements (including the notes thereto), the
Company has no material liabilities (whether accrued or unaccrued, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined or determinable) other than: (i)
liabilities incurred in the ordinary course of business since the Balance Sheet
Date that are consistent with the Company's past practices, (ii) liabilities
with respect to agreements to which the Investor is a party, and (iii) other
Liabilities that either individually or in the aggregate, would not result in a
Material Adverse Effect.
3.15 Absence of Certain Changes Since Balance Sheet Date. Since the Balance
Sheet Date, the business and operations of the Company have been conducted in
the ordinary course consistent with past practice, and there has not been:
(a) any declaration, setting aside or payment of any dividend or other
distribution of the assets of the Company with respect to any shares of capital
stock of the Company, or any repurchase, redemption or other acquisition by the
Company or any subsidiary of the Company of any outstanding shares of the
Company's capital stock;
(b) any damage, destruction or loss, whether or not covered by
insurance, except for such occurrences that have not resulted, and are not
expected to result, in a Material Adverse Effect;
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<PAGE> 8
(c) any waiver by the Company of a valuable right or of a material
debt owed to it, except for such waivers that have not resulted, and are not
expected to result, in a Material Adverse Effect;
(d) any material change or amendment to, or any waiver of any material
rights under, a material contract or arrangement by which the Company or any of
its assets or properties is bound or subject, except for changes, amendments, or
waivers that are expressly provided for or disclosed in this Agreement or that
have not resulted, and are not expected to result, in a Material Adverse Effect;
(e) any change by the Company in its accounting principles, methods or
practices or in the manner it keeps its accounting books and records, except any
such change required by a change in GAAP; and
(f) any other event or condition of any character, except for such
events and conditions that have not resulted, and are not expected to result, in
a Material Adverse Effect.
3.16 Employee Benefits.
(a) As used in this Section 3.16, the following terms have the
following meanings: (1) "Benefit Arrangement" means any material benefit
arrangement that is not an Employee Benefit Plan, including (i) each material
employment or consulting agreement, (ii) each material arrangement providing for
insurance coverage or workers' compensation benefits, (iii) each material bonus
or deferred bonus arrangement, (iv) each material arrangement providing any
termination allowance, severance or similar benefits, (v) each equity
compensation plan, (vi) each deferred compensation plan and (vii) each material
compensation policy and practice maintained by the Company covering the
employees, former employees, officers, former officers, directors and former
directors of the Company, and the beneficiaries of any of them; (2) "Benefit
Plan" means an Employee Benefit Plan or Benefit Arrangement; (3)"COBRA" means
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, as set
forth in Section 4980B of the Code and Part 6 of Title I of ERISA; (4) "Employee
Benefit Plan" means any employee benefit plan, as defined in Section 3(3) of
ERISA, that is sponsored or contributed to by the Company or any ERISA Affiliate
covering employees or former employees of the Company; (5) "Employee Pension
Benefit Plan" means any employee pension benefit plan, as defined in Section
3(2) of ERISA that is regulated under Title IV of ERISA, other than a
Multiemployer Plan; (6) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended; (7) "ERISA Affiliate" of the Company means any other
person or entity that, together with the Company as of the relevant measuring
date under ERISA, was or is required to be treated as a single employer under
Section 414 of the Code; (8)"Group Health Plan" means any group health plan, as
defined in Section 5000(b)(l) of the Code; (9) "Multiemployer Plan" means a
multiemployer plan, as defined in Section 3(37) and 4001(a)(3) of ERISA; and
(10) "Prohibited Transaction" means a transaction that is prohibited under
Section 4975 of the Code or Section 406 of ERISA and not exempt under Section
4975 of the Code or Section 408 of ERISA, respectively.
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(b) Neither the Company nor any of its ERISA Affiliates sponsors or
has sponsored, maintained, contributed to, or incurred an obligation to
contribute to, any Employee Pension Benefit Plan (whether or not terminated).
Neither the Company nor any of its ERISA Affiliates sponsors or has sponsored,
maintained, contributed to, or incurred an obligation to contribute to, any
Multiemployer Plan (whether or not terminated).
(c) No Employee Benefit Plan has participated in, engaged in or been a
party to any Prohibited Transaction, and neither the Company nor any of its
ERISA Affiliates has had asserted against it any claim for any material tax or
material penalty imposed under ERISA or the Code with respect to any Employee
Benefit Plan nor, to the best of the Company's knowledge, is there a basis for
any such claim. To the best knowledge of the Company, no officer, director or
employee of the Company has committed a material breach of any responsibility or
obligation imposed upon fiduciaries by Title I of ERISA with respect to any
Employee Benefit Plan, with respect to which breach the Company is directly or
indirectly liable.
(d) Other than routine claims for benefits, there is no material claim
pending involving any Benefit Plan by any Person against such plan or the
Company or any ERISA Affiliate, nor, to the best of the Company's knowledge, is
any such material claim threatened. There is no pending, or to the best of the
Company's knowledge, threatened Proceeding involving any Employee Benefit Plan
before the IRS, the United States Department of Labor or any other governmental
authority.
(e) No material violation of any reporting or disclosure requirement
imposed by ERISA or the Code exists with respect to any Employee Benefit Plan.
(f) Each Benefit Plan has been maintained in all material respects, by
its terms and in operation, in accordance with ERISA (if applicable), the Code
and all other applicable federal, state, local and foreign laws. The Company and
its ERISA Affiliates have made full and timely payment of all amounts required
to be (i) contributed under the terms of each Benefit Plan and such laws, or
(ii) required to be paid as expenses under such Benefit Plan. Each Employee
Benefit Plan that is intended to be qualified under Section 401(a) of the Code
either has received a favorable determination letter with respect to such
qualified status from the IRS or has filed a request for such a determination
letter with the IRS within the remedial amendment period such that such
determination of qualified status will apply from and after the effective date
of any such Employee Benefit Plan.
(g) With respect to any Group Health Plans maintained by the Company
or its ERISA Affiliates, whether or not for the benefit of the Company's
employees, the Company and its ERISA Affiliates have complied in all material
respects with the provisions of COBRA.
(h) Except pursuant to the provisions of COBRA, neither the Company
nor any ERISA Affiliate maintains any Employee Benefit Plan that provides
benefits described in Section 3(1) of ERISA for any former employees or
retirees, or the beneficiaries of any of them, of the Company or its ERISA
Affiliates.
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3.17 Tax Matters.
(a) All deficiencies asserted or assessments made as a result of any
examinations by the Internal Revenue Service or any state, local or foreign
taxing authority have been fully paid, or are fully reflected as a liability in
the Audited Financial Statements. The Company has filed on a timely basis all
Tax Returns required to have been filed by it and has paid on a timely basis all
Taxes required to be shown thereon as due. All such Tax Returns are true,
complete and correct in all material respects. The provisions for taxes in the
Audited Financial Statements have been determined in accordance with GAAP. No
liability for Taxes has been incurred by the Company since the Balance Sheet
Date other than in the ordinary course of its business. No director, officer or
employee of the Company having responsibility for Tax matters has reason to
believe that any Taxing authority has valid grounds to claim or assess any
additional Tax with respect to the Company in excess of the amounts shown in the
Audited Financial Statements for the periods covered thereby. As used in this
Agreement, (l) "Taxes" means (x) all federal, state, local and other net income,
gross income, gross receipts, sales use, ad valorem, value added, intangible,
unitary, capital gain, transfer, franchise, profits, license, lease, service,
service use, withholding, backup withholding, payroll, employment, estimated,
excise, severance, stamp, occupation, premium, property, prohibited
transactions, windfall or excess profits, customs, duties or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts with respect thereto, (y)
any liability for payment of amounts described in clause (x) whether as a result
of transferee liability, of being a member of an affiliated, consolidated,
combined or unitary group for any period, or otherwise through operation of law
and (z) any liability for the payment of amounts described in clauses (x) or (y)
as a result of any tax sharing, tax indemnity or tax allocation agreement or any
other express or implied agreement to indemnify any other person for Taxes; and
the term "Tax" means any one of the foregoing Taxes; and (2) "Tax Returns" means
all returns, reports, forms or other information required to be filed with
respect to any Tax.
(b) With respect to all amounts in respect of Taxes imposed upon the
Company, or for which the Company is or could be liable, whether to taxing
authorities (as, for example, under law) or to other persons or entities (as,
for example, under tax allocation agreements), and with respect to all taxable
periods or portions of periods ending on or before the Closing Date, all
applicable Tax laws and agreements have been fully complied with, and all such
amounts required to be paid by the Company to taxing authorities or others have
been paid.
(c) The Company has not received notice that the Internal Revenue
Service or any other taxing authority has asserted against the Company any
deficiency or claim for additional Taxes in connection with any Tax Return, and
no issues have been raised (and are currently pending) by any taxing authority
in connection with any Tax Return. The Company has not received notice that it
is or may be subject to Tax in a jurisdiction in which it has not filed or does
not currently file Tax Returns.
3.18 Labor Agreements and Actions.
(a) No collective bargaining agreement exists that is binding on the
Company, and no petition has been filed or proceedings instituted by an employee
or group of
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employees with any labor relations board seeking recognition of a bargaining
representative. To the best of the Company's knowledge, no organizational effort
is currently being made or threatened by or on behalf of any labor union to
organize any employees of the Company.
(b) There is no labor strike, dispute, slow down or stoppage pending
or threatened against or directly affecting the Company. No grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is pending, and no claims therefor exist. The Company has not received
any notice, and has no knowledge of any threatened labor or civil rights
dispute, controversy or grievance or any other unfair labor practice proceeding
or breach of contact claim or action with respect to claims of, or obligations
to, any employee or group of employees of the Company.
(c) All individuals who are performing or have performed services for
the Company and are or were classified by the Company as "independent
contractors" qualify for such classification under Section 530 of the Revenue
Act of 1978 or Section 1706 of the Tax Reform Act of 1986, as applicable, except
for such instances which would not, in the aggregate, have a Material Adverse
Effect.
3.19 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, 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.
3.20 Full Disclosure. The information contained in this Agreement and the
Disclosure Letter with respect to the business, operations, assets, results of
operations and financial condition of the Company, and the transactions
contemplated by this Agreement, the Investor Rights Agreement and the Warrant,
are true and complete in all material respects and do not omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE INVESTOR. The
Investor hereby represents and warrants to the Company, and agrees that:
4.l Authorization. This Agreement and the Investor Rights Agreement have
been duly authorized by all necessary corporate action on the part of the
Investor. This Agreement and the Investor Rights Agreement constitute the
Investor's valid and legally binding obligations, enforceable in accordance with
their respective 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. The Investor has
full corporate power and authority to enter into this Agreement and the Investor
Rights Agreement
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4.2 Purchase for Own Account. The Purchased Shares and the Warrant are
being acquired for investment for the Investors 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 the Investor has no present intention of
selling, granting any participation in, or otherwise distributing the same. The
Investor also represents that it has not been formed for the specific purpose of
acquiring the Purchased Shares and the Warrant.
4.3 Disclosure of Information. The Investor has received or has had full
access to all the information it considers necessary or appropriate to make an
informed investment decision with respect to the Purchased Shares and the
Warrant to be purchased by the Investor under this Agreement. The Investor
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, the Warrant and the Warrant 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 the investor or to which the Investor had access. The foregoing,
however, does not in any way limit or modify the representations and warranties
made by the Company in Article 3.
4.4 Investment Experience. The Investor understands that the purchase of
the Purchased Shares and the Warrant involves substantial risk. The Investor:
(a) has experience as an investor in securities of companies and acknowledges
that it is able to fend for itself, can bear the economic risk of its investment
in the Purchased Shares and the Warrant and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of this investment in the Purchased Shares and the Warrant 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 the Investor to be aware of the character, business acumen and financial
circumstances of such persons.
4.5 Accredited Investor Status. The Investor is an "accredited investor"
within the meaning of Regulation D promulgated under the 1933 Act.
4.6 Restricted Securities. The Investor understands that the Purchased
Shares and the Warrant to be purchased by the Investor hereunder, and any
Warrant Shares to be purchased by the Investor upon exercise of the Warrant, 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. The Investor is familiar with Rule 144 of the SEC, as
presently in effect, and understands the resale limitations imposed thereby and
by the 1933 Act. The Investor understands that the Company is under no
obligation to register any of the securities sold hereunder except as provided
in the Investor Rights Agreement.
4.7 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Purchased Shares, the Warrant or the
Warrant Shares unless and until:
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(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) the Investor has notified the Company of the proposed disposition
and has furnished the Company with a statement of the circumstances surrounding
the proposed disposition, and the Investor has furnished the Company, at the
expense of the Investor or its 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) of this Section 4.7, no
such registration statement or opinion of counsel will be required for any
transfer of any Purchased Shares, the Warrant, or any Warrant Shares in
compliance with SEC Rule 144, Rule 144A or Rule 145(d), or if such transfer
otherwise is exempt, in the view of the Company's legal counsel, from the
registration requirements of the 1933 Act.
4.8 Legends. Certificates evidencing the Purchased Shares and the Warrant
Shares will bear each of the legends set forth below and the Warrant will bear
the legends set forth in (a) and (c) 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 REASONABLY 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) THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS SPECIFIED IN A CERTAIN INVESTOR RIGHTS AGREEMENT BETWEEN THE
COMPANY AND THE ORIGINAL HOLDER OF SUCH SHARES DATED AS OF JANUARY 13, 1997, A
COPY OF WHICH IS AVAILABLE FOR EXAMINATION AT THE ISSUER'S PRINCIPAL OFFICE.
(c) Any Legends required by any applicable state securities laws.
The Legend set forth in Section 4.8(a) hereof will be removed by the Company
from any certificate evidencing Purchased Shares or the Warrant 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
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<PAGE> 14
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, the Warrant or the Warrant Shares.
5. CONDITIONS TO THE INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of
the Investor under Sections l and 2 of this Agreement are subject to the
fulfillment or waiver, on or before the Closing (defined in Section 2.l), of
each of the following conditions:
5.1 Representations and Warranties True. Each of the representations and
warranties of the Company contained in Section 3 will be true and correct on and
as of the date hereof and on and as of the date of the Closing, except as set
forth in the Disclosure Letter, as amended through the Closing, with the same
effect as though such representations and warranties had been made as of the
Closing.
5.2 Performance. The Company will 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
will have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
5.3 Compliance with HSR Requirements. The HSR Requirements shall have
been complied with.
5.4 Compliance Certificate. The Company will have delivered to the
Investor at the Closing a certificate signed on its behalf by its Chief
Executive Officer or Chief Financial Officer certifying that the conditions
specified in Sections 5.1 and 5.2 hereof have been fulfilled.
5.5 Securities Exemptions. The offer and sale of the Purchased Shares and
the Warrant to the Investor pursuant to this Agreement will be exempt from the
registration requirements of the 1933 Act and the registration and/or
qualification requirements of all 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 will be reasonably satisfactory in form and substance to the
Investor, and the Investor will have received all such counterpart originals and
certified or other copies of such documents as it may reasonably request. Such
documents shall include (but not be limited to) the following:
(a) Certified Charter Documents. A copy of (i) the Articles of
Incorporation certified as of a recent date by the Secretary of State of
California as a complete and correct copy thereof, and (ii) 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) Board Resolutions. A copy, certified by the Secretary of the
Company, of the resolutions of the Board of Directors of the Company providing
for the approval of this Agreement and the Investor Rights Agreement and the
issuance of the Purchased Shares and the Warrant and the other matters
contemplated hereby.
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5.7 Opinion of Company Counsel. The Investor will have received an opinion
on behalf of the Company, dated as of the date of the Closing, from Wilson,
Sonsini, Goodrich & Rosati, in form and substance reasonably satisfactory to the
Investor.
5.8 Warrant and Investor Rights Agreement. The Company will have issued
the Warrant and will have executed and delivered the Investor Rights Agreement
substantially in the form attached to this Agreement as Exhibit B (the "Investor
Rights Agreement").
5.9 No Material Adverse Effect. Between the date hereof and the Closing,
there shall not have occurred any Material Adverse Effect.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
the Company to the Investor under this Agreement are subject to the fulfillment
or waiver on or before the Closing (defined in Section 2.1), of each of the
following conditions:
6.1 Representations and Warranties True. The representations and
warranties of the Investor contained in Section 4 will be true and correct on
and as of the date hereof and on and as of the date of the Closing with the same
effect as though such representations and warranties had been made as of the
Closing.
6.2 Payment of Purchase Price. The Investor will have delivered to the
Company the full purchase price of the Purchased Shares as specified in Section
1.2.
6.3 Compliance with HSR Requirements. The HSR Requirements shall have been
complied with.
6.4 Securities Exemptions. The offer and sale of the Purchased Shares and
the Warrant to the Investor pursuant to this Agreement will be exempt from the
registration requirements of the 1933 Act and the registration and/or
qualification requirements of all applicable state securities laws.
6.5 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto will be reasonably satisfactory in form and substance to the
Company and to the Company's legal counsel, and the Company will have received
all such counterpart originals and certified or other copies of such documents
as it may reasonably request.
6.6 Investor Rights Agreement. The Investor will have executed and
delivered the Investor Rights Agreement.
6.7 Opinion of Investor Counsel. The Company will have received an opinion
on behalf of the Investor, dated as of the date of the Closing, from Gibson,
Dunn & Crutcher, LLP and/or Intel Corporation in house counsel, in form and
substance reasonably satisfactory to the Company.
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7. INDEMNIFICATION.
7.1 Agreement to Indemnify.
(a) Company Indemnity. The Investor, its Affiliates and Associates,
and each officer, director, shareholder, employer, representative and agent of
any of the foregoing (collectively, the "Investor Indemnitees") shall each be
indemnified and held harmless to the extent set forth in this Section 7 by the
Company with respect to any and all Damages (as defined below) incurred by any
Investor Indemnitee as a proximate result of any inaccuracy or misrepresentation
in, or breach of, any representation, warranty, covenant or agreement made by
the Company in this Agreement, the Investor Rights Agreement or the Warrant
(including any Exhibits and Schedules hereto).
(b) Investor Indemnity. The Company, its respective Affiliates and
Associates, and each officer, director, shareholder, employer, representative
and agent of any of the foregoing (collectively, the "Company Indemnitees")
shall each be indemnified and held harmless to the extent set forth in this
Section 7, by the Investor, in respect of any and all Damages incurred by any
Company Indemnitee as a result of any inaccuracy or misrepresentation in, or
breach of, any representation, warranty, covenant or agreement made by the
Investor in this Agreement or the Investor Rights Agreement.
(c) Equitable Relief. Nothing set forth in this Section 7 shall be
deemed to prohibit or limit any Investor Indemnitee's or Company Indemnitee's
right at any time before, on or after the Closing Date, to seek injunctive or
other equitable relief for the failure of any Indemnifying Party to perform or
comply with any covenant or agreement contained herein.
7.2 Survival. All representations and warranties of the Investor and the
Company contained herein or in the Investor Rights Agreement or the Warrant, and
all claims of any Investor Indemnitee or Company Indemnitee in respect of any
inaccuracy or misrepresentation in or breach thereof, shall survive the Closing
until the later of (i) the date of termination of the Right of Participation
under the Investor Rights Agreement, and (ii) the third anniversary of the date
of this Agreement, regardless of whether the applicable statute of limitations,
including extensions thereof, may expire (except to the extent any such covenant
or agreement shall expire by its terms). All covenants and agreements of the
Investor and the Company contained herein or in the Investor Rights Agreement or
the Warrant shall survive the Closing in perpetuity (except to the extent any
such covenant or agreement shall expire by its terms). All claims of any
Investor Indemnitee or Company Indemnitee in respect of any breach of such
covenants or agreements shall survive the Closing until the expiration of two
years following the non-breaching party's obtaining actual knowledge of such
breach.
7.3 Claims for Indemnification. If any Investor Indemnitee or Company
Indemnitee (an "Indemnitee") shall believe that such Indemnitee is entitled to
indemnification pursuant to this Section 7 in respect of any Damages, such
Indemnitee shall give the appropriate Indemnifying Party (which for purposes
hereof, in the case of an Investor Indemnitee, means the Company, and in the
case of a Company Indemnitee, means the Investor) prompt written notice thereof.
Any such notice shall set forth in reasonable detail and to the extent then
known the basis
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for such claim for indemnification. The failure of such Indemnitee to give
notice of any claim for indemnification promptly shall not adversely affect such
Indemnitee's right to indemnity hereunder except to the extent that such failure
adversely affects the right of the Indemnifying Party to assert any reasonable
defense to such claim. Each such claim for indemnity shall expressly state that
the Indemnifying Party shall have only the twenty (20) business day period
referred to in the next sentence to dispute or deny such claim. The Indemnifying
Party shall have twenty (20) business days following its receipt of such notice
either (a) to acquiesce in such claim by giving such Indemnitee written notice
of such acquiescence or (b) to object to the claim by giving such Indemnitee
written notice of the objection. If Indemnifying Party does not object thereto
within such twenty (20) business day period, such Indemnitee shall be entitled
to be indemnified for all Damages reasonably and proximately incurred by such
Indemnitee in respect of such claim. If the Indemnifying Party objects to such
claim in a timely manner, the senior management of the Company and the Investor
shall meet to attempt to resolve such dispute. If the dispute cannot be resolved
by the senior management either party may make a written demand for formal
dispute resolution and specify therein the scope of the dispute. Within thirty
days after such written notification, the parties agree to meet for one day with
an impartial mediator and consider dispute resolution alternatives other than
litigation. If an alternative method of dispute resolution is not agreed upon
within thirty days after the one day mediation, either party may begin
litigation proceedings. Nothing in this section shall be deemed to require
arbitration.
7.4 Defense of Claims. In connection with any claim that may give rise to
indemnity under this Section 7 resulting from or arising out of any claim or
Proceeding against an Indemnitee by a person or entity that is not a party
hereto, the Indemnifying Party may but shall not be obligated to (unless such
Indemnitee elects not to seek indemnity hereunder for such claim), upon written
notice to the relevant Indemnitee, assume the defense of any such claim or
proceeding if the Indemnifying Party with respect to such claim or Proceeding
acknowledges to the Indemnitee the Indemnitee's right to indemnity pursuant
hereto to the extent provided herein (as such claim may have been modified
through written agreement of the parties or arbitration hereunder) and provides
assurances, satisfactory to such Indemnitee, that the Indemnifying Party will be
financially able to satisfy such claim to the extent provided herein if such
claim or Proceeding is decided adversely; provided, however, that nothing set
forth herein shall be deemed to require the Indemnifying Party to waive any
crossclaims or counterclaims the Indemnifying Party may have against the
Indemnified Party for damages. The Indemnified Party shall be entitled to retain
separate counsel, reasonably acceptable to the Indemnifying Party, if the
Indemnified Counsel shall determine, upon the written advice of counsel, that an
actual or potential conflict of interest exists between the Indemnifying Party
and the Indemnified Party in connection with such Proceeding. The Indemnifying
Party shall be obligated to pay the reasonable fees and expenses of such
separate counsel to the extent the Indemnified Party is entitled to
indemnification by the Indemnifying Party with respect to such claim or
Proceeding under this Section 7.4. If the Indemnifying Party assumes the defense
of any such claim or Proceeding, the Indemnifying Party shall select counsel
reasonably acceptable to such Indemnitee to conduct the defense of such claim or
Proceeding, shall take all steps necessary in the defense or settlement thereof
and shall at all times diligently and promptly pursue the resolution thereof. If
the Indemnifying Party shall have assumed the defense of any claim or Proceeding
in accordance with this Section 7.4, the Indemnifying Party shall be authorized
to consent to a settlement of, or
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the entry of any judgment arising from, any such claim or Proceeding, with the
prior written consent of such Indemnitee, not to be unreasonably withheld;
provided, however, that the Indemnifying Party shall pay or cause to be paid all
amounts arising out of such settlement or judgment concurrently with the
effectiveness thereof; provided, further, that the Indemnifying Party shall not
be authorized to encumber any of the assets of any Indemnitee or to agree to any
restriction that would apply to any Indemnitee or to its conduct of business;
and provided, further, that a condition to any such settlement shall be a
complete release of such Indemnitee and its Affiliates, directors, officers,
employees and agents with respect to such claim, including any reasonably
foreseeable collateral consequences thereof. Such Indemnitee shall be entitled
to participate in (but not control) the defense of any such action, with its own
counsel and at its own expense. Each Indemnitee shall, and shall cause each of
its Affiliates, directors, officers, employees and agents to, cooperate fully
with the Indemnifying Party in the defense of any claim or Proceeding being
defended by the Indemnifying Party pursuant to this Section 7.4. If the
Indemnifying Party does not assume the defense of any claim or Proceeding
resulting therefrom in accordance with the terms of this Section 7.4, such
Indemnitee may defend against such claim or Proceeding in such manner as it may
deem appropriate, including settling such claim or proceeding after giving
notice of the same to the Indemnifying Party, on such terms as such Indemnitee
may deem appropriate. If any Indemnifying Party seeks to question the manner in
which such Indemnitee defended such claim or Proceeding or the amount of or
nature of any such settlement, such Indemnifying Party shall have the burden to
prove by a preponderance of the evidence that such Indemnitee did not defend
such claim or Proceeding in a reasonably prudent manner.
7.5 Certain Definitions. As used in this Section 7, (a) "Affiliate" means,
with respect to any person or entity, any person or entity directly or
indirectly controlling, controlled by or under direct or indirect common control
with such other person or entity; (b) "Associate" means, when used to indicate a
relationship with any person or entity, (l) any other person or entity of which
such first person or entity is an officer, director or partner or is, directly
or indirectly, the beneficial owner of ten percent (10%) or more of any class of
equity securities, membership interests or other comparable ownership interests
issued by such other person or entity, (2) any trust or other estate in which
such first person or entity has a ten percent (10%) or more beneficial interest
or as to which such first person or entity serves as trustee or in a similar
fiduciary capacity, and (3) any relative or spouse of such first person or
entity who has the same home as such first person or entity or who is a director
or officer of such first person or entity; (c) "Damages" means all demands,
claims, actions or causes of action, assessments, losses, damages, costs,
expenses, liabilities, judgments, awards, fines, response costs, sanctions,
taxes, penalties, charges and amounts paid in settlement, including (1) interest
on cash disbursements in respect of any of the foregoing at the prime rate of
Bank of America, NT & SA, as in effect from time to time, compounded quarterly,
from the date each such cash disbursement is made until the date the party
incurring such cash disbursement shall have been indemnified in respect thereof,
and (2) reasonable out-of-pocket costs, fees and expenses (including reasonable
costs, fees and expenses of attorneys, accountants and other agents of, or other
parties retained by, such party), and (d) "Proceeding" means any action, suit,
hearing, arbitration, audit, proceeding (public or private) or investigation
that is brought or initiated by or against any federal, state, local or foreign
governmental authority or any other person or entity.
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8.1 Successors and Assigns. The terms and conditions of this Agreement
will inure to the benefit of and be binding upon the respective successors and
assigns of the parties.
8.2 Governing Law. This Agreement will 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.
8.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
8.4 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 will, 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.
8.5 Notices. Any notice required or permitted under this Agreement will be
given in writing, shall be effective when received, and shall in any event be
deemed received and effectively given upon personal delivery to the party to be
notified or three (3) business days after deposit with the United States Post
Office, by registered or certified mail, postage prepaid, or one (1) business
day after deposit with a nationally recognized courier service such as Fedex for
next business day delivery, or one (1) business day after facsimile with copy
delivered by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party on the signature
page hereof or at such other address as the Investor or the Company may
designate by giving at least ten (10) days advance written notice pursuant to
this Section 8.5.
8.6 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 other than the fees of Goldman Sachs & Co. to be paid by the
Company. The Investor will indemnify and hold harmless the Company from any
liability for any commission or compensation in the nature of a finders' or
broker's fee for which the Investor or any of its officers, partners, employees
or consultants, or representatives is responsible. The Company will indemnify
and hold harmless the Investor from any liability for any commission or
compensation in the nature of a finder's or broker's fee for which the Company
or any of its officers, employees or consultants or representatives is
responsible.
8.7 Amendments and Waivers. 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
Warrant Shares representing at least a majority of the total aggregate number of
Purchased Shares and Warrant Shares then outstanding (excluding any of such
shares that have been sold to the public pursuant to SEC Rule 144 or otherwise).
Any
19
<PAGE> 20
amendment or waiver effected in accordance with this Section 8.7 will be binding
upon the Investor, the Company and their respective successors and assigns.
8.8 Severability. If any provision of this Agreement is held to be
unenforceable under applicable law, such provision will be excluded from this
Agreement and the balance of the Agreement will be interpreted as if such
provision were so excluded and will be enforceable in accordance with its terms.
8.9 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.
8.10 Further Assurances. From and after the date of this Agreement upon the
request of the Investor or the Company, the Company and the Investor will
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.
8.11 Meaning of Include and Including. Whenever in this Agreement the word
"include" or "including" is used, it shall be deemed to mean "include, without
limitation" or "including, without limitation," as the case may be, and the
language following "include" or "including" shall not be deemed to set forth an
exhaustive list.
8.12 Fees, Costs and Expenses. All fees, costs and expenses (including
attorneys' fees and expenses) incurred by either party hereto in connection with
the preparation, negotiation and execution of this Agreement, the Investor
Rights Agreement and the Warrant and the consummation of the transactions
contemplated hereby and thereby, shall be the sole and exclusive responsibility
of such party.
[The remainder of this page is intentionally left blank.]
20
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
XIRCOM, INC. INTEL CORPORATION
By: /s/Dirk I. Gates By: /s/Arvind Sodhani
Name: Dirk I. Gates Name: Arvind Sodhani
Title: Chairman, President Title: Vice President and
and Chief Executive Treasurer
Officer
Date Signed: January 13, 1997 Date Signed: January 13, 1997
Address: 2300 Corporate Address: 2200 Mission
Center Drive College Boulevard
Thousand Oaks, Santa Clara,
California 91320 California 95052
Telephone No: (805)376-9300 Telephone No: (408)765-1240
Facsimile No: (805)376-9120 Facsimile No: (408)765-1611
[Signature Page to Common Stock and Warrant Purchase Agreement]
</TABLE>
21
<PAGE> 22
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
LIST OF EXHIBITS
Exhibit A - Form of Warrant
Exhibit B - Form of Investor Rights Agreement
<PAGE> 1
Exhibit 10.31a
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
OF
XIRCOM, INC.
<PAGE> 2
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.
Void after 5:00 p.m.,
Pacific Time
on February 27, 2002
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
XIRCOM, INC.
Initial Number of Shares: 1,509,903 shares
Date of Grant: February 28, 1997
Expiration Date: February 27, 2002
THIS CERTIFIES THAT, for value received pursuant to that certain Common Stock
and Warrant Purchase Agreement dated as of January 13, 1997 (the "Purchase
Agreement), Intel Corporation and any person to whom the interest in this
Warrant is lawfully transferred pursuant to the terms and conditions set forth
herein (the original holder hereof and such transferees are referred to
hereinafter as the "Holder") is entitled to purchase, at any time and from time
to time after the date hereof, up to the above number (as adjusted pursuant to
Section 2 hereof) of fully paid and nonassessable shares of the Common Stock
(the "Shares") of Xircom, Inc., a California corporation (the "Company"), at the
applicable Per Share Exercise Price as set forth in Section 1.1 hereof, subject
to the provisions and upon the terms and conditions set forth herein.
This Warrant is subject to the following terms and conditions:
1. EXERCISE.
1.1 Per Share Purchase Price. The "Per Share Purchase Price" at which this
Warrant may be exercised shall be as set forth in the following table, subject
to adjustment as provided in Section 2 hereof:
<PAGE> 3
<TABLE>
<CAPTION>
Date of Exercise Price
---------------- -----
<S> <C>
From February 28, 1997 through February 27, 1998 $22.8525
From February 28, 1998 through February 27, 1999 $27.0075
From February 28, 1999 through February 27, 2002 $31.1625
</TABLE>
1.2 Expiration. This Warrant shall expire and be canceled in its entirety
on the Expiration Date set forth above and must be exercised, if at all, on or
before the Expiration Date (subject only to the provisions of Section 1.6
below).
1.3 Exercise.
(a) The purchase right represented by this Warrant may be exercised by
the Holder, in whole or in part, for up to the total number of shares then
exercisable, by the surrender of this Warrant (with the Common Stock Warrant
Notice of Exercise form attached hereto as Annex I duly executed) at the
principal office of the Company and by the payment to the Company in cash (by
wire transfer), in an amount equal to the then applicable Purchase Price Per
Share multiplied by the number of Shares then being purchased.
(b) In lieu of exercising this Warrant by payment of cash, when
permitted by law and applicable regulations, the Holder may pay such exercise
price through a "same day sale" commitment from the Holder and a broker-dealer
that is a member of the National Association of Securities Dealers (an "NASD
Dealer") whereby the Holder irrevocably elects to exercise the Warrant and to
sell a portion of the Shares so purchased to pay for the exercise price and
whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company.
(c) In lieu of exercising this Warrant by payment of cash or by
payment through a same day sale, the Holder may elect to receive, without the
payment by the Holder of any additional consideration, a number of shares
(rounded down to the nearest whole share) equal to the value of this Warrant or
any portion hereof by the surrender of this Warrant or such portion to the
Company (the "Net Exercise"), with the net issue election initialed in the
Common Stock Warrant Notice of Exercise annexed hereto duly executed, at the
office of the Company. Thereupon the Company will issue to the Holder such
number of shares of Common Stock of the Company as is computed using the
following formula.
2
<PAGE> 4
X = Y (A-B)
-------
A
where X = the number of shares of Common Stock to be issued to the Holder
upon the Net Exercise pursuant to this Section 1.3;
Y = the number of Shares exercised under this Warrant for which the net
issue election is made pursuant to this Section 1.3 (upon such Net
Exercise, the number of shares subject to further exercise under this
Warrant shall be reduced by this number);
A = the Market Price (as defined below) of one share of the Company's
Common Stock on the date the net issue election is made pursuant to
this Section 1.3; and
B = the Per Share Purchase Price in effect under this Warrant on the
date the net issue election is made pursuant to this Section 1.3.
For purposes of this Section 1.3, "Market Price" means, as to a share of Common
Stock, the average of the closing prices of sales on all domestic securities
exchanges on which the Common Stock may at the time be listed, or, if there have
been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if on
any day the Common Stock is not so listed, the average of the representative bid
and asked prices quoted in the Nasdaq National Market as of 4:00 P.M., New York
time, on such day, or, if on any day the Common Stock is not quoted in the
Nasdaq National Market, the average of the highest bid and lowest asked prices
on such day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case averaged over a period of thirty (30) Trading Days immediately
preceding the date the net issue election or other exercise is made pursuant to
this Section 1.3; provided, however, that if the Common Stock is listed on any
domestic securities exchange the term "Trading Days" as used in this sentence
means days on which such exchange is open for trading. If at any time the Common
Stock is not listed on any domestic securities exchange or quoted in the Nasdaq
National Market or the domestic over-the counter market, the "Market Price"
shall be the fair value thereof determined jointly by the Company and the
Holder; provided, however, that if such parties are unable to reach agreement
within fifteen (15) business days following written notice from the Holder to
the Company setting forth the Holder's determination of such fair value, such
fair value shall be determined by an appraiser jointly selected by the Company
and the Holder. The determination of such appraiser shall be final and binding
on the Company and the Holder, and the fees and expenses of such appraiser shall
be paid by the Company.
1.4 Limitations on Exercise. The exercise of this Warrant, and the
issuance of the Shares will be subject to and conditioned upon compliance by the
Company and the Holder 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 Company shall, at its sole
cost and expense, use its reasonable best efforts to make all filings, notices
and applications required
3
<PAGE> 5
by the Company (excluding filings, notices and applications required by the
Holder), and take all other actions necessary to permit the exercise of this
Warrant by the Holder and the issuance of the Shares to the Holder, and the
Holder shall cooperate with all reasonable requests of the Company in connection
therewith. This Warrant may not be exercised as to fewer than 50,000 Shares
unless it is exercised as to all Shares as to which the Warrant is then
exercisable.
1.5 Issuance of New Warrant. In the event of any exercise of the purchase
right represented by this Warrant, certificates for the Shares so purchased will
be delivered to the Holder within four (4) business days after receipt of such
payment and, unless this Warrant has been fully exercised or has expired, a new
Warrant representing the portion of the Shares, if any, with respect to which
this Warrant will not then have been exercised will also be issued to the Holder
within a reasonable time.
1.6 Hart Scott-Rodino Compliance.
(a) The Company hereby acknowledges that the exercise of this Warrant
by Holder may subject the Company and/or the Holder to the filing requirements
of the Hart-Scott Rodino Antitrust Improvements Act of 1976 (the "HSR Act") and
that the Holder may be prevented from closing the exercise of this Warrant until
the expiration or early termination of all waiting periods imposed by, and
compliance with all other requirements under, the HSR Act ("HSR Requirements").
If on or before the Expiration Date, the Holder (i) has sent the Common Stock
Warrant Notice of Exercise to the Company, (ii) has irrevocably elected to
exercise this Warrant for the number of Shares specified in such notice subject
only to compliance with the HSR Requirements, and (iii) the Holder has not been
able to complete the exercise of this Warrant prior to the Expiration Date
solely because of the HSR Requirements, then, for so long as the Holder actively
continues in its effort to comply with the HSR Requirements, the Holder shall be
entitled to complete the process of exercising this Warrant for such number of
Shares in accordance with the procedures contained herein notwithstanding the
fact that completion of the exercise of this Warrant would take place after the
Expiration Date. If an exercise by Holder is subject to HSR Requirements, the
amount payable upon such exercise shall be paid to the Company within five (5)
business days of the Holder's receiving written notice the expiration or notice
of early termination of, or compliance with, all HSR Requirements.
(b) The Company and the Holder shall use all reasonable efforts to
comply with the HSR Requirements; provided, however, that neither the Company
nor the Holder shall be under any obligation to comply with any request or
requirement imposed by the Federal Trade Commission (the "FTC"), the Department
of Justice ("DofJ") or any other governmental authority in connection with their
compliance with the HSR Requirements if the Company or the Holder reasonably
determines that such compliance is unduly burdensome. Without limiting the
generality of the foregoing, neither the Company nor the Holder shall be
obligated to comply with any request by, or requirement of, the FTC, the DofJ or
any other governmental authority, that such party determines is unduly
burdensome: (i) to disclose information the Company or the Holder, as the case
may be, desires to keep confidential; (ii) to dispose or any assets or
operations; or (iii) to comply with any restriction on the manner in which they
conduct their respective operations. In the event that the Company shall elect
not to comply with any of the HSR Requirements pursuant to the immediately
preceding sentence, it shall be
4
<PAGE> 6
obligated to pay to the Holder within sixty (60) business days following written
election from the Holder an amount equal to the difference between: (1) the
Market Price as of the date of the Common Stock Warrant Notice of Exercise,
multiplied by the number of Shares to which such notice relates; and (2) the Per
Share Purchase Price, multiplied by the number of such Shares.
2. ADJUSTMENT OF NUMBER OF SHARES AND PER SHARE PURCHASE PRICE. The number of
Shares purchasable upon the exercise of this Warrant, and the Per Share Purchase
Price, will be subject to adjustment from time to time as provided in this
Section 2:
2.1 Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
its outstanding shares of Common Stock into a greater number of shares, the Per
Share Purchase Price in effect immediately prior to such subdivision shall be
proportionately reduced and the number of shares of Common Stock obtainable upon
exercise of this Warrant shall be proportionately increased. If the Company at
any time combines (by reverse stock split or otherwise) its outstanding shares
of Common Stock into a smaller number of shares, the Per Share Purchase Price in
effect immediately prior to such combination shall be proportionately increased
and the number of shares of Common Stock obtainable upon exercise of this
Warrant shall be proportionately decreased.
2.2 Stock Dividends. If the Company at any time while this Warrant remains
outstanding and unexpired pays a dividend, without receipt of consideration
therefor, to the holders of Common Stock payable in shares of Common Stock,
Preferred Stock, other capital stock or other securities convertible into or
exchangeable for Common Stock, Preferred Stock or other capital stock
("Convertible Securities"), or options to purchase Common Stock, Preferred
Stock, other capital stock or Convertible Securities ("Options"), other than any
event for which adjustment is made pursuant to Section 2.1 hereof, the Holder
shall, upon exercise of this Warrant be entitled to receive, in addition to the
number of Shares receivable thereupon, the amount of Common Stock, Preferred
Stock, other capital stock, Convertible Securities or Options that such Holder
would have received had it been Holder of record of such Shares as of the date
on which holders of Common Stock received or became entitled to receive such
additional shares of Common Stock, Preferred Stock, other capital stock,
Convertible Securities or Options. Any adjustment under this Section 2.2 will
become effective on the record date or, if there is no record date, on the date
of issuance.
2.3 Reorganization, Reclassifications, Mergers or Sales. Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Company's assets or other transaction
(including, without limitation, any Corporate Event (as defined in the Investor
Rights Agreement)), in each case that is effected in such a way that the holders
of Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets, or a combination thereof, with respect
to or in exchange for Common Stock is referred to herein as an "Organic Change."
Prior to the consummation of any Organic Change, other than any event for which
adjustment is made pursuant to Section 2.1 or 2.2 hereof, the Company shall,
subject to Section 1.2(c), make appropriate provision (in form and substance
reasonably satisfactory to the Holder) to ensure that the Holder shall
thereafter have the right to acquire and receive, upon exercise of this Warrant
in accordance with its terms and upon payment
5
<PAGE> 7
of the Per Share Exercise Price then in effect, in lieu of each Share of Common
Stock immediately theretofore acquirable and receivable upon the exercise of
this Warrant, such shares of stock, securities or assets as may be issued or
payable with respect to each share of Common Stock immediately theretofore
acquirable and receivable upon exercise of the Warrant had the Warrant been
exercised immediately prior to such Organic Change. The Company shall not effect
any such consolidation, merger or sale, unless prior to the consummation
thereof, the successor entity (if other than the Company) resulting from
consolidation or merger or the entity purchasing such assets assumes by written
instrument, the obligation to deliver to such Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
Holder may be entitled to acquire.
2.4 Certain Events. If (i) any event occurs of a type that would have an
effect on the rights granted under this Warrant similar to the effect of any
event described by the other provisions of this Section 2 and (ii) such event is
not expressly provided for by such other provisions (including, without
limitation, the granting of stock appreciation rights, phantom stock rights or
other rights with equity features), then an appropriate adjustment in the Per
Share Purchase Price and the number of shares of Common Stock obtainable upon
exercise of this Warrant so as to protect the rights of the Holder shall be
made.
2.5 Notices.
(a) Within ten (10) business days of any adjustment of the Per Share
Purchase Price, the Company shall give written notice thereof to the Holder,
setting forth and certifying in reasonable detail the facts causing such
adjustment and the calculation of such adjustment. The Company will give due
consideration to, and consult with counsel regarding, any objection the Holder
may have to the matters described in such notice, and will make any corrections
to such notice deemed necessary to conform with the terms of this Warrant.
(b) The Company shall give written notice to the Holder at least ten
(10) business days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution (cash or
otherwise) upon the Common Stock, (B) with respect to any pro rata subscription
or other offer to holders of Common Stock and (C) for determining rights to vote
with respect to any Organic Change, dissolution or liquidation.
(c) The Company shall also give written notice to the Holder at least
ten (10) business days prior to the date on which any Organic Change,
dissolution or liquidation shall take place, and, for so long as Intel
Corporation or any of its Majority Owned Subsidiaries holds the Warrant or any
portion thereof, at least three (3) business days prior to the date it enters
into an agreement to do any of the foregoing.
3. TRANSFERABILITY OF WARRANT.
3.1 Majority Owned Subsidiary. A "Majority Owned Subsidiary" shall mean a
subsidiary of which Intel Corporation beneficially owns, either directly or
indirectly, at least 50% of the voting securities.
6
<PAGE> 8
3.2 Institutional Investor. An "Institutional Investor" shall mean any
person considered to be an "accredited investor" under Rule 501(a)(1) of
Regulation D promulgated under the Act; provided, however, that "Institutional
Investor" shall not include any person or affiliate of a person that is a
significant competitor of the Company as determined by the Board of Directors of
the Company in its reasonable discretion.
3.3 Transferability. This Warrant may be transferred or assigned in whole
or in part, at any time, and from time to time, to any Majority-Owned
Subsidiary. Subject to the restrictions on transfer set forth in the Investor
Rights Agreement, the Warrant may also be transferred or assigned in whole or in
any part representing not less than 100,000 Shares (subject to appropriate
adjustment for stock splits, stock dividends or other similar events where all
holders of the Company's Common Stock participate on a pro rata basis), at any
time, and from time to time, to any Institutional Investor. The Holder agrees to
provide the Company with five (5) business days prior written notice of any
transfer or assignment of any portion of this Warrant to any person or entity
that is not a Majority Owned Subsidiary and prompt written notice of any
transfer to a Majority Owned Subsidiary.
4. MISCELLANEOUS.
4.1 Legends. Any certificate for Shares issued upon exercise hereof will
be imprinted with a legend in substantially the form set forth in the Common
Stock Warrant Notice of Exercise form attached hereto as Annex I.
4.2 Investor Rights Agreement. This Warrant and the Shares are subject to
the terms and conditions of that certain Investor Rights Agreement between the
Company and Intel Corporation dated as of February 28, 1997 (the "Investor
Rights Agreement").
4.3 Successors and Assigns. The terms and provisions of this Warrant will
inure to the benefit of, and be binding upon, the Company and the Holder and
their respective successors and assigns of the Holder and of the Company.
4.4 Governing Law. This Warrant will be governed by and construed under
the internal laws of the State of California, without reference to principles of
conflict of laws or choice of laws.
4.5 Headings. The headings and captions used in this Warrant are used for
convenience only and are not to be considered in construing or interpreting this
Warrant. All references in this Warrant to sections and annexes will, unless
otherwise provided, refer to sections and hereof and annexes attached hereto,
all of which annexes are incorporated herein by this reference.
4.6 Notices. Unless otherwise provided, any notice required or permitted
under this Warrant shall be given in writing, shall be effective when received,
and shall in any event be deemed received and effectively given upon personal
delivery to the party to be notified or three (3) business days after deposit
with the United States Post Office, by registered or certified mail, postage
prepaid, or one (1) business day after deposit with a nationally recognized
7
<PAGE> 9
courier service such as Fedex, or one (1) business day after facsimile with copy
delivered by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party on the signature
page hereof or at such other address as the Investor or the Company may
designate by giving at least ten (10) days advance written notice pursuant to
this Section 4.6.
Xircom, Inc.
By: /s/Randall H. Holliday
Name: Randall H. Holliday
Title:General Counsel and
Accepted Secretary
Intel Corporation
By: /s/Satish Rishi
Name: Satish Rishi
Title: Assistant Treasurer
8
<PAGE> 10
ANNEX TO
WARRANT
______________, 199___
Xircom, Inc.
2300 Corporate Center Drive
Thousand Oak, California 91320
Attention: Chief Financial Officer
Common Stock Warrant Notice of Exercise
--------------------------------------
Gentlemen:
On this date the undersigned hereby acquires from Xircom, Inc., a
California corporation (the "Company"), an aggregate of ________ shares of the
Company's Common Stock (the "Warrant Shares"), by exercise, for such number of
shares, of that certain Warrant to Purchase Shares of Common Stock (the
"Warrant"), dated as of February 28, 1997 from the Company to the original
holder of the Warrant. However, if this exercise of the Warrant is subject to
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") filing
requirements, this Warrant shall be deemed to have been exercised on the date
immediately following the date of the expiration or early termination of all HSR
Act restrictions.
1. Investment Representations and Warranties. The undersigned
represents and warrants that:
1.1 Purchase for Own Account. The Warrant Shares to be purchased by the
undersigned will be acquired for investment for the undersigned'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 Securities Act of 1933, as
amended (the "1933 Act"), and the undersigned has no present intention of
selling, granting any participation in, or otherwise distributing the same. The
undersigned also represents that it has not been formed for the specific purpose
of acquiring the Warrant Shares.
1.2 Disclosure of Information. The undersigned has received or has had
full access to all the information it considers necessary or appropriate to make
an informed investment decision with respect to the Warrant Shares to be
purchased by the undersigned.
1.3 Investment Experience. The undersigned understands that the purchase
of the Warrant Shares involves substantial risk. The undersigned: (a) has
experience as an investor in securities of companies and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment in the
Warrant Shares and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of this investment
in the Warrant 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
9
<PAGE> 11
officers, directors or controlling persons of a nature and duration that enables
the undersigned to be aware of the character, business acumen and financial
circumstances of such persons.
1.4 Accredited Investor Status. The Investor is an "accredited investor"
within the meaning of Regulation D promulgated under the 1933 Act.
1.5 Restricted Securities. The undersigned understands that the Warrant
Shares to be purchased by the undersigned hereunder, 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.
The undersigned is familiar with Rule 144 of the SEC, as presently in effect,
and understands the resale limitations imposed thereby and by the 1933 Act. The
undersigned understands that the Company is under no obligation to register any
of the securities sold hereunder except as provided in the Investor Rights
Agreement between the Company and Intel Corporation dated as of February 28,
1997 (the "Investor Rights Agreement").
1.6 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, the undersigned further agrees not to make any
disposition of all or any portion of the Warrant 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) the undersigned has notified the Company of the proposed
disposition and has furnished the Company with a statement of the circumstances
surrounding the proposed disposition, and the undersigned has furnished the
Company, at the expense of the undersigned or its 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) of this Section 1.6, no
such registration statement or opinion of counsel will be required for any
transfer of any Warrant Shares in compliance with SEC Rule 144, Rule 144A or
Rule 145(d), or if such transfer otherwise is exempt, in the view of the
Company's legal counsel, from the registration requirements of the 1933 Act.
1.7 Investor Rights Agreement. The undersigned agrees
and acknowledges that the Warrant Shares are subject to the terms
and conditions or the Investor Rights Agreement.
2. Legends. The undersigned understands that certificates evidencing the
Warrant Shares will bear each of the legends set forth below:
2.1 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
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<PAGE> 12
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.
2.2 THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS SPECIFIED IN A CERTAIN INVESTOR RIGHTS AGREEMENT BETWEEN THE
COMPANY AND INTEL CORPORATION DATED AS OF FEBRUARY 28, 1997, A COPY OF WHICH IS
AVAILABLE FOR EXAMINATION AT THE ISSUER'S PRINCIPAL OFFICE.
2.3 Any legends required by any applicable state securities laws.
The undersigned agrees that, to ensure and enforce compliance with the
restrictions imposed by applicable law and those referred to in the foregoing
legend, or elsewhere herein, the Company may issue appropriate "stop transfer"
instructions to its transfer agent, if any, with respect to any certificate or
other instrument representing Warrant Shares.
3. Net Exercise Election. If applicable, the undersigned elects to purchase
the Warrant Shares by Net Exercise (as defined in the Warrant), by initialing in
the following space (please initial only if Net Exercise chosen): _________
4. Same Day Sale Election. If applicable, the undersigned elects to
purchase the Warrant Shares by "same day sale" pursuant to the provisions of
Section 1.3(b) of the Warrant, by initialing on the following space (please
initial only if Same Day Sale chosen): _________
By: ______________________________
Name: ____________________________
Title: ___________________________
Address: _________________________
_________________________
Date Signed: _____________________
[SIGNATURE PAGE - XIRCOM, INC.
COMMON STOCK WARRANT NOTICE OF EXERCISE]
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Exhibit 10.31b
INVESTOR RIGHTS AGREEMENT
<PAGE> 2
XIRCOM, INC.
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (this "Agreement") is made and entered into
as of February 28, 1997, by and among Xircom, Inc., a California corporation
(the "Company"), and Intel Corporation, a Delaware corporation (the "Investor").
R E C I T A L S
--------------
A. The Investor has agreed to purchase from the Company, and the Company
has agreed to sell to the Investor, shares of the Company's Common Stock (the
"Common Stock") and a Warrant (the "Warrant") on the terms and conditions set
forth in that certain Common Stock and Warrant Purchase Agreement, dated of even
date herewith by and between the Company and the Investor (the "Purchase
Agreement").
B. The Purchase Agreement provides that the Investor shall be granted
certain information rights, registration rights and other rights, all as more
fully set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, 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 the Investor holds
shares of Common Stock issued under this Agreement or the Purchase Agreement or
shares of Common Stock issued or issuable pursuant to exercise of the Warrant,
the Company will:
(a) Annual Reports. Furnish to the Investor promptly following the
filing of such report with the U.S. Securities and Exchange Commission (the
"SEC"), a copy of the Company's Annual Report on Form 10-K for each fiscal year,
which shall include 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,
all prepared in accordance with generally accepted accounting principles and
practices and audited by nationally recognized independent certified public
accountants. In the event the Company shall no longer be required to file Annual
Reports on Form 10-K, the Company shall, within ninety (90) days following the
end of each respective fiscal year, deliver to the Investor a copy of such
Balance Sheet, Statement of Income and Statement of Cash Flows.
(b) Quarterly Reports. Furnish to the Investor promptly following the
filing of such report with the SEC, a copy of each of the Company's Quarterly
Reports on Form 10-Q, which shall include a consolidated Balance Sheet as of the
end of the respective fiscal quarter,
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consolidated Statements of Income and consolidated Statements of Cash Flows of
the Company and its subsidiaries for the respective fiscal quarter and for the
year-to-date, setting forth in each case in comparative form the figures from
the comparable periods in the Company's immediately preceding fiscal year, all
prepared in accordance with generally accepted accounting principles and
practices, but all of which may be unaudited. In the event the Company shall no
longer be required to file Quarterly Reports on Form 10-Q, the Company shall,
within forty-five (45) days following the end of each of the first three (3)
fiscal quarters of each fiscal year, deliver to the Investor a copy of such
Balance Sheet, Statements of Income and Statements of Cash Flows.
(c) SEC Filings. The Company shall deliver to the Investor copies of
each other document filed with the SEC (as defined herein) promptly following
the filing of such document with the SEC.
1.2 Board Observer. So long as the Investor, together with its Majority
Owned Subsidiaries (as defined in Section 6.1(c)), holds at least the number of
shares of the Company's Common Stock equal to twelve and one-half percent
(12.5%) of the number of shares of the Company's Common Stock and other voting
securities outstanding on the day immediately preceding the date of closing of
the Purchase Agreement minus 100 shares (such number to be proportionately
adjusted for stock splits, stock dividends, and similar events), the Company
will permit a representative of the Investor, reasonably acceptable to the
Company (the "Observer") to attend all meetings of the Company's Board of
Directors (the "Board") (whether in person, telephonic or other) in a
non-voting, observer capacity and shall provide to the Investor, concurrently
with the members of the Board, notice of such meeting and a copy of all
materials provided to such members. For so long as the Investor shall be
entitled to appoint an Observer pursuant to this section, the Investor shall, by
written election delivered to the Company, be entitled to designate a
representative for appointment or election to the Board (the "Representative"),
in lieu of the observer contemplated above. Upon written request of the
Investor, the Company shall use its reasonable best efforts to cause the
representative designated by the Investor to be elected to the Board, including
recommending to the stockholders of the Company that they vote for the election
to the Board of the individual designated by the Investor. The Company shall be
entitled to recuse the Representative or Observer, as the case may be, from
portions of any Board meeting and to redact portions of Board of Directors
materials delivered to the Representative or Observer where and to the extent
that the Board (without the Representative or Observer present) determines a
conflict of interest is present.
2. REGISTRATION RIGHTS.
2.1 Definitions. For purposes of this Section 2:
(a) Registration. The terms "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act of 1933, as
amended, (the "Securities Act"), and the declaration or ordering of
effectiveness of such registration statement
(b) Registrable Securities. The term "Registrable Securities" means:
(l) all the shares of Common Stock of the Company issued or issuable (A) under
the Purchase Agreement,
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(B) pursuant to an exercise of the Warrant (shares issued or issuable upon
exercise of the Warrant are referred to herein as the "Warrant Shares"), and (C)
pursuant to the Right of Participation (defined in Section 3 hereof) or the
Right of Maintenance (defined in Section 4 hereof), and (2) 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, any such
shares of Common Stock described in clause (1) of this subsection (b).
Notwithstanding the foregoing, "Registrable Securities" shall exclude 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 in a public offering, whether sold pursuant to Rule
144 promulgated under the Securities Act, or in a registered offering, or
otherwise.
(c) Registrable Securities Then Outstanding. The number of shares of
"Registrable Securities then outstanding" shall mean the number of shares of
Common Stock that are Registrable Securities and (l) are then issued and
outstanding or (2) are then issuable pursuant to an exercise of the Warrant.
(d) Holder. For purposes of this Section 2, 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
permitted assignee of record of such Registrable Securities to whom rights under
this Section 2 have been duly assigned in accordance with this Agreement.
(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 at any time after the
first anniversary of the Closing, as defined in the Purchase Agreement, receive
a written request from the Holders of at least twenty-five percent (25%) 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 ten (10)
business days of the receipt of such written request, give written notice of
such request ("Request Notice") to all Holders, and use its best efforts to
effect, as soon as practicable, the registration under the Securities Act of all
Registrable Securities that Holders request to be registered and included in
such registration by written notice given such Holders to the Company within
twenty (20) days after receipt of the Request Notice, subject only to the
limitations of this Section 2.2; provided that the Registrable Securities
requested by all Holders to be registered pursuant to such request must be at
least fifteen percent (15%) of all Registrable Securities then outstanding; and
provided further that the Company shall not be obligated to effect any such
registration if the
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Company has, within the six (6) month period preceding the date of such request,
already effected a registration under the Securities Act pursuant to this
Section 2.2 or Section 2.4, or in which the Holders had an opportunity to
participate pursuant to the provisions of Section 2.3, other than a registration
from which the Registrable Securities of Holders have been excluded (with
respect to all or any portion of the Registrable Securities the Holders
requested be included in such registration) pursuant to the provisions of
Section 2.3(a).
(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 Holders of a majority of the
Registrable Securities being registered and reasonably acceptable to the Company
(including a market standoff agreement of up to 180 days if required by such
underwriters). 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 which 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 shall be
obligated to effect only three (3) 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, it
would be materially detrimental to the Company and its stockholders for such
registration statement to be filed, then the Company shall have the right to
defer such filing for a period of not more than ninety (90) days after receipt
of the request of the initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve (12) month period.
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<PAGE> 6
(e) Expenses. All expenses incurred in connection with any
registration pursuant to this Section 2.2, including without limitation all
federal and "blue sky" registration, filing and qualification fees, printer's
and accounting fees, and fees and disbursements of counsel for the Company (but
excluding underwriters' discounts and commissions relating to shares sold by the
Holders and legal fees of counsel for the Holders), 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,
and the Holders' legal fees, in connection with such offering by the Holders.
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 that such
registration constitutes the use by the Holders of one (1) demand registration
pursuant to this Section 2.2 (in which case such registration shall also
constitute the use by all Holders of Registrable Securities of one (l) such
demand registration); 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
such registration shall not constitute the use of a demand registration 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, to any employee benefit plan
or to any merger or other 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
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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 underwriters selected for such underwriting (including a market
stand-off agreement of up to 180 days if required by such underwriters).
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 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 the Company, and second, to each of
the Holders and other holders of registration rights on a parity with 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 and other securities entitled to registration then held
by each such Holder or other 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 aggregate number of Registrable
Securities for which inclusion has been requested; and (ii) all shares that are
not Registrable Securities and are held by any other person, including, without
limitation, any person who is an employee, officer or director 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
(other than to the extent that such persons are non-employee directors or other
non-employees of the Company who hold registration rights on a parity with the
Holders, such non-employee directors and other non-employees being entitled to
participate with the participating Holders on the basis described under "second"
above). If any Holder disapproves of the terms of any such underwriting, such
Holder may elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least ten (10) business days prior to the effective
date of the registration statement. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration. For any Holder that is a partnership, the Holder and the partners
and retired partners 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, and for any Holder that is a corporation, the Holder and all
corporations that are affiliates of such Holder, 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 relating to shares sold by the Holders and legal fees of counsel for
the Holders), including, without limitation all federal and "blue sky"
registration, filing and qualification fees, printers' and accounting fees, and
fees and disbursements of counsel for the Company, shall be borne by the
Company.
(c) Not Demand Registration. Registration pursuant to this Section 2.3
shall not be deemed to be a demand registration as described in Section 2.2
above. Except as otherwise provided herein, there shall be no limit on the
number of times the Holders may request registration of Registrable Securities
under this Section 2.3.
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2.4 Form S-3 Registration. In case the Company shall at any time after the
first anniversary of the Closing, as defined in the Purchase Agreement, receive
from any Holder or Holders of a majority 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
Holders 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 the Company provides the notice contemplated
by Section 2.4(a); provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance pursuant to this
Section 2.4:
(1) if Form S-3 is not available for such offering by the
Holders:
(2) 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 $5,000,000;
(3) 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
materially detrimental to the Company and its shareholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement no more
than once during any twelve month period for a period of not more than ninety
(90) days after receipt of the request of the Holder or Holders under this
Section 2.4;
(4) if the Company has, within the six (6) month period
preceding the date of such request, already effected a registration under the
Securities Act other than a registration from which the Registrable Securities
of Holders have been excluded (with respect to all or any portion of the
Registrable Securities the Holders requested be included in such registration)
pursuant to the provisions of Section 2.3(a); or
(5) 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. The Company shall pay all expenses incurred in
connection with each registration requested pursuant to this Section 2.4,
(excluding underwriters' or brokers'
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discounts and commissions relating to shares sold by the Holders and legal fees
of counsel for the Holders), including without limitation federal and "blue sky"
registration, filing and qualification fees, printers' and accounting fees, and
fees and disbursements of counsel.
(d) Deferral. Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting the filing of a registration statement pursuant to
this Section 2.4, a certificate signed by the President or Chief Executive
Officer of the Company stating that in the good faith judgment of the Board, it
would be materially detrimental to the Company and its stockholders for such
registration statement to be filed, then the Company shall have the right to
defer such filing for a period of not more than ninety (90) days after receipt
of the request of the initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve (12) month period.
(e) Not Demand Registration. Form S-3 registrations shall not be
deemed to be demand registrations as described in Section 2.2 above. Except as
otherwise provided herein, Holders may request up to 3 separate registrations of
Registrable Securities under this Section 2.4.
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) Registration Statement. 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, provided,
however, that the Company shall not be required to keep any such registration
statement effective for more than ninety (90) days.
(b) Amendments and Supplements. 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) Prospectuses. 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) Blue Sky. Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) Underwriting. In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement in usual
and customary form, with
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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) Notification. 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) Opinion and Comfort Letter. 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 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 determined 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 a "Violation"):
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(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 2.7(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 2.7(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
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payable in indemnity by a Holder under this Section 2.7(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 2.7 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 2.7, 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, to the extent that 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 shall relieve such indemnifying party of
liability to the indemnified party under this Section 2.7 to the extent the
indemnifying party is prejudiced as a result thereof, but the omission so to
deliver written notice to the indemnified party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 2.7.
(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 timely 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 2.7 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 2.7 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
2.7; 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
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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 2.7 shall survive until the fifth anniversary of the completion of any
offering of Registrable Securities in a registration statement, regardless of
the expiration of any statutes of limitation or extensions of such statutes.
2.8 Termination of the Company's Obligations. The Company shall have no
obligations pursuant to this Section 2 with respect to any Registrable
Securities proposed to be sold by a Holder in a registration pursuant to Section
2.2, 2.3 or 2.4 more than seven (7) years after the date of this Agreement, or,
if, in the opinion of counsel to the Company, all such Registrable Securities
proposed to be sold by a Holder may then be sold under Rule 144 in one
transaction without exceeding the volume limitations thereunder.
2.9 No Registration Rights to Third Parties. Without the prior written
consent of the Holders of a majority in interest of the Registrable Securities
then outstanding, the Company covenants and agrees that it shall not grant, or
cause or permit to be created, for the benefit of any person or entity any
registration rights of any kind (whether similar to the demand, "piggyback" or
Form S-3 registration rights described in this Article 2, or otherwise) relating
to shares of the Company's Common Stock or any other voting securities of the
Company, other than rights that are on a parity with or subordinate in right to
the Holders.
3. RIGHT OF PARTICIPATION.
3.1 General. The Investor and any Majority Owned Subsidiary of the
Investor to which rights under this Section 3 have been duly assigned in
accordance with Section 6 (the Investor and each such assignee being hereinafter
referred to as a "Participation Rights Holder") shall have the right of first
refusal to purchase such Participation Rights Holder's Pro Rata Share (as
defined below), of all (or any part) of any New Securities (as defined in
Section 3.3) that the Company may from time to time issue after the date of this
Agreement (the "Right of Participation"); provided, however, that no
Participation Rights Holder shall have the Right of Participation with respect
to any issuance of New Securities that would result in less than a ten percent
(10%) reduction in such Participation Rights Holder's Pro Rata Share.
3.2 Pro Rata Share. A Participation Rights Holder's "Pro Rata Share" for
purposes of the Right of Participation is the ratio of (a) the number of
Registrable Securities held by such Participation Rights Holder, to (b) the
difference between (i) the total number of shares of Common Stock of the Company
(and other voting securities of the Company, if any) then outstanding
(immediately prior to the issuance of New Securities giving rise to the Right of
Participation), where for such purposes all Warrant Shares held by the Investor
and its Majority
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Owned Subsidiaries are deemed outstanding, and (ii) the number of Dilutive
Securities (defined below) issued since the last Notice Date (defined below)
excluding any Maintenance Securities (defined below) issued pursuant to the last
Maintenance Notice.
3.3 New Securities. "New Securities" shall mean any Common Stock, Preferred
Stock or other voting capital 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, Preferred Stock or other
capital stock, provided, however, that the term "New Securities" shall not
include:
(a) any 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
incentive plans approved by the Board;
(b) any shares of Common Stock issued under the Purchase Agreement,
as such agreement may be amended;
(c) the Warrant or any shares of Common Stock issued upon any
exercise thereof;
(d) any securities issued in connection with any stock split stock,
dividend or other similar event in which all Participation Rights Holders are
entitled to participate on a pro rata basis;
(e) any securities issued upon the exercise, conversion or exchange
of any outstanding security if such outstanding security constituted a New
Security; or
(f) any securities issued pursuant to the acquisition of another
corporation or entity by the Company by consolidation, merger, purchase of
assets, or other reorganization in which the Company acquires, in a single
transaction or series of related transactions, 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.
3.4 Procedures. In the event that the Company proposes to undertake an
issuance of New Securities (in a single transaction or a series of related
transactions) that would result in a ten percent (10%) or greater reduction in
the Pro Rata Share of each Participation Rights Holder, it shall give to each
Participation Rights Holder written notice of its intention to issue New
Securities (the "Participation Notice"), describing the amount and the type of
New Securities and the price and the general terms upon which the Company
proposes to issue such New Securities. Each Participation Rights Holder shall
have ten (10) business days from the date of receipt of any such Participation
Notice to agree in writing to purchase such Participation Rights Holder's Pro
Rata Share of such New Securities for the price and upon the terms and
conditions specified in the Participation Notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased (not
to exceed such Participation Rights Holder's Pro Rata
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Share). If any Participation Rights Holder fails to so agree in writing within
such ten (10) business day period to purchase such Participation Rights Holder's
full Pro Rata Share of an offering of New Securities, then such Participation
Rights Holder shall forfeit the right hereunder to purchase that part of its Pro
Rata Share of such New Securities that it did not so agree to purchase. Such
Participation Rights Holder shall purchase the portion elected by such
Participation Rights Holder concurrently with the closing of the transaction
triggering the Right of Participation.
3.5 Failure to Exercise. Upon the expiration of such ten (10) day period,
the Company shall have 120 days thereafter to sell the New Securities described
in the Participation Notice (with respect to which the Participation Rights
Holders' rights of first refusal hereunder were not exercised), or enter into an
agreement to do so, within sixty (60) days thereafter, at no less than
ninety-five percent (95%) of the price and upon non-price terms not materially
more favorable to the purchasers thereof than specified in the Participation
Notice. In the event that the Company has not issued and sold such New
Securities within such 120 day period, or entered into an agreement to do so
within sixty (60) days thereafter, then the Company shall not thereafter issue
or sell any New Securities without again first offering such New Securities to
the Participation Rights Holders pursuant to this Section 3.
3.6 Termination. The Right of Participation for the Investor and each
other Participation Rights Holder shall terminate upon the first date that the
Investor and its Affiliates (as defined in Rule 144 under the Securities Act)
collectively hold less than the number of shares of the Company's Common Stock
equal to twelve and one-half percent (12.5%) of the number of shares of the
Company's Common Stock and other voting securities outstanding on the day
immediately preceding the date of closing of the Purchase Agreement minus 100
shares (such number to be proportionately adjusted for stock splits, stock
dividends and similar events).
4. RIGHT OF MAINTENANCE.
4.1 General. Each Participation Rights Holder will, pursuant to the terms
and conditions of this Section 4, have the right to purchase shares of Common
Stock, voting Preferred Stock or other voting capital stock ("Maintenance
Securities") from the Company at the Purchase Price (as defined in Section 4.3)
following the issuance by the Company of Dilutive Securities (as defined in
Section 4.2) that the Company may from time to time issue after the date of this
Agreement, solely in order to maintain such Participation Rights Holder's Prior
Percentage Interest (as defined in Section 4.4) in the Company (the "Right of
Maintenance"). Each right to purchase Maintenance Securities pursuant to this
Section 4 shall be on the same terms (other than price to the extent provided in
Section 4.3 below) as the issuance of the Dilutive Securities that gave rise to
the right to purchase such Maintenance Securities
4.2 Dilutive Securities. "Dilutive Securities" means any Common Stock,
voting Preferred Stock or other voting capital stock of the Company, whether now
authorized or not; provided, however, that the term "Dilutive Securities" does
not include:
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(a) any securities other than Common Stock, voting Preferred Stock or
other voting capital stock (e.g., warrants or options to purchase Common Stock,
Preferred Stock or other capital stock);
(b) any shares of Common Stock issued under the Purchase Agreement,
as such agreement may be amended;
(c) the Warrant or any shares of Common Stock issuable upon any
exercise thereof;
(d) any securities issued in connection with any stock split, stock
dividend or similar event in which all Participation Rights Holders are entitled
to participate on a pro rata basis;
(e) any securities for which the issuance gave rise to the Right of
Participation (regardless of whether any such right was exercised); or
(f) any securities issuable upon the exercise, conversion or
exchange of any securities described in (d) or (e)
above.
4.3 Purchase Price.
(a) Employee Stock. To the extent that the right to purchase
Maintenance Securities arises out of the issuance of Dilutive Securities to
employees, officers, directors, contractors, advisors or consultants of the
Company pursuant to incentive agreements or incentive plans approved by the
Board ("Employee Stock"), the per share "Purchase Price" of the Maintenance
Securities shall equal the average Market Price (as defined below) of such
Maintenance Securities over the thirty (30) trading days immediately preceding
the date on which the Participation Rights Holder elects to purchase such
Maintenance Securities.
(b) Other Dilutive Securities. To the extent that the right to
purchase Maintenance Securities arises out of any issuance of Dilutive
Securities other than Employee Stock, the per share "Purchase Price" of the
Maintenance Securities shall equal the higher of (i) the weighted average of the
per share prices at which such Dilutive Securities were issued, and (ii)
seventy-five percent (75%) of the average Market Price (as defined below) of
such Maintenance Securities over the thirty (30) trading days immediately
preceding the date on which the Participation Rights Holder elects to purchase
such Maintenance Securities. For purposes hereof, in the event that the issuance
of any Dilutive Securities occurs upon the exercise, conversion or exchange of
other securities ("Exchangeable Securities"), then the per share price at which
such Dilutive Securities shall be deemed to have been issued shall be the sum of
(A) the per share amount paid upon such exercise, conversion or exchange, plus
(B) the per share amount previously paid for the Exchangeable Securities
(adjusted for any stock splits, stock dividends or other similar events).
(c) Market Price. For purposes of this Section 4.3, "Market Price"
means, as to any Maintenance Securities on a given day, the average of the
closing prices of such security's sales on all domestic securities exchanges on
which such security may at the time be listed, or, if
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there have been no sales on any such exchange on such day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day such security is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ National Market as of
4:00 P.M., New York time, on such day, or, if on any day such security is not
quoted in the NASDAQ National Market, the average of the highest bid and lowest
asked prices on such day in the domestic over-the-counter market as reported by
the National Quotation Bureau, Incorporated, or any similar successor
organization. If at any time the Maintenance Securities are not listed on any
domestic securities exchange or quoted in the NASDAQ National Market or the
domestic over-the-counter market ("Unlisted Securities"), the "Market Price"
shall be the fair value thereof determined jointly by the Company and the
Holder.
(d) Consideration Other than Cash. In the event that Dilutive
Securities or Exchangeable Securities were issued for consideration other than
cash, the per share amounts paid for such Dilutive Securities or Exchangeable
Securities shall be determined jointly by the Company and the Participation
Rights Holder.
(e) Appraiser. If the Company and the Participation Rights Holder are
unable to reach agreement within a reasonable period of time with respect to (i)
the Market Price of Unlisted Securities, or (ii) the per share amounts paid for
Dilutive Securities or Exchangeable Securities issued for consideration other
than cash, such Market Price or per share amounts paid, as the case may be,
shall be determined by an appraiser jointly selected by the Company and the
Participation Rights Holder. The determination of such appraiser shall be final
and binding on the Company and the Participation Rights Holder. The fees and
expenses of such appraiser shall be paid for by the Company.
4.4 Prior Percentage Interest. A Participation Rights Holder's "Prior
Percentage Interest" for purposes of the Right of Maintenance is the ratio of
(a) the number of Registrable Securities held by such Participation Rights
Holder as of the date of such Maintenance Notice (as defined in Section 4.6)
(the "Notice Date"), to (b) the difference between (i) the total number of
shares of Common Stock of the Company (and other voting securities of the
Company, if any) outstanding on the Notice Date, where for such purposes all
Warrant Shares held by the Investor and its Majority Owned Subsidiaries are
deemed outstanding, and (ii) the total number of Dilutive Securities issued
since the later of the date of this Agreement or the last Notice Date excluding
any Maintenance Securities (defined below) issued pursuant to the last
Maintenance Notice.
4.5 Maintenance Amount. A Participation Rights Holder's "Maintenance
Amount" with respect to any Maintenance Notice shall equal such number of
Maintenance Securities as shall (upon purchase thereof in full by the
Participation Rights Holder) enable such Participation Rights Holder to maintain
its Prior Percentage Interest on a fully-diluted basis. As an example, assume
that the Company had 10,000 shares outstanding, and the Participation Rights
Holder holds 20% of such shares (or 2,000 shares). The Company first issues 400
shares to a third party ("Issuance 1"), an amount insufficient to trigger a
Notice of Issuance pursuant to Section 4.6. The Company then issues 4,600 shares
to a third party ("Issuance 2"), an amount sufficient to trigger a Notice of
Issuance. The Participation Rights Holder will have the right to maintain its
20% interest after considering Issuances 1 and 2 and the new shares issued to
the Participation
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Rights Holder. In this example, the Participation Rights Holder will have the
right to purchase an additional 1,250 shares, thereby resulting in the
Participation Rights Holder holding 20% of the securities outstanding (3,250
shares out of 16,250 shares).
4.6 Notice of Issuance. Within fifteen (15) business days of each
anniversary of this Agreement, and within fifteen (15) business days of each
issuance of Dilutive Securities which when cumulated with all prior issuances of
Dilutive Securities since the later of (i) the date of this Agreement, or (ii)
the date of the last Notice Date (subsequent to which the Participation Rights
Holder has had an opportunity to purchase Maintenance Securities), results in a
five percent (5%) reduction in a Participation Rights Holders' Prior Percentage
Interest, the Company shall give to each Participation Rights Holder written
notice (the "Maintenance Notice") describing the number of Dilutive Securities
issued since such prior Notice Date and the non-price terms upon which the
Company issued such Dilutive Securities, and the Maintenance Amount of
Maintenance Securities that such Participation Rights Holder is entitled to
purchase as a result of such issuances.
4.7 Purchase of Maintenance Securities. Each Participation Rights Holder
shall have sixty (60) days from the receipt of a Maintenance Notice to elect to
purchase up to such Participation Rights Holder's Maintenance Amount of such
Maintenance Securities at the Purchase Price as defined in Section 4.3 and upon
the terms and conditions specified in the Maintenance Notice. The closing of
such purchase shall occur within ten (10) days after such election to purchase.
If any Participation Rights Holder fails to elect to purchase such Participation
Rights Holder's full Maintenance Amount of Maintenance Securities within such
sixty (60) day period, then such Participation Rights Holder shall forfeit the
right hereunder to purchase that part of its Maintenance Amount that it did not
so elect to purchase.
4.8 Termination. The provisions of Sections 4.1 through 4.7 shall
terminate with respect to the issuance of any Dilutive Securities by the Company
after the Right of Participation terminates.
5. RIGHTS IN CORPORATE EVENTS.
5.l Corporate Event.
(a) A "Corporate Event" shall mean any of the following, whether
accomplished through one or a series of related transactions (a) the acquisition
of all or substantially all the assets of the Company, (b) an acquisition of the
Company by consolidation, merger, share purchase or exchange, or other
reorganization or transaction in which the holders of the Company's outstanding
voting stock immediately prior to such transaction own, immediately after such
transaction, securities representing less than fifty percent (50%) of the voting
power of the corporation or other entity surviving such transaction, and (c) any
other transaction or series of related transactions (excluding any exercise or
exercises of the Warrant) that would result in a greater than twenty-five
percent (25%) change in the total outstanding number of shares of Voting Stock
(as defined below) of the Company (other than any such change solely as a result
of a stock split, stock dividend or other recapitalization affecting holders of
Common Stock and other classes of voting securities of the Company on a pro rata
basis).
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(b) The Company agrees that it will provide the Investor with
detailed written notice of any offer from a third party for a proposed Corporate
Event within two (2) business days of the date the Company first becomes aware
of such offer or proposed Corporate Event. In addition, the Company agrees that
it will provide the Investor, within two (2) business days of the Company's
becoming aware thereof, with detailed written notice of any offer from a third
party to acquire ten percent (10%) or more of the Company's outstanding voting
securities.
5.2 Right of First Refusal The Company agrees that prior to entering into
any agreement for what would be considered a Corporate Event, the Company will
present to the Investor in writing the final terms and conditions of the
proposed Corporate Event, including without limitation the name of the other
party or parties to the Corporate Event and a copy of the definitive agreements
that the Company is prepared to enter into (the "Corporate Event Agreement").
The Investor shall have ten (10) calendar days from the date of receipt of the
Corporate Event Agreement to deliver written notice to the Company agreeing in
writing to enter into an agreement with the Company on substantially the same
terms and conditions specified in the Corporate Event Agreement, which agreement
shall call for completion within one hundred twenty (120) days from the date of
delivery of the Corporate Event Agreement (such 120-day period subject to
extensions for regulatory compliance). If the Investor fails to so agree in
writing within such ten (10) business day period, for a period of one hundred
twenty (120) days thereafter, the Company shall have the right to enter into the
Corporate Event Agreement with the party specified in such agreement.
5.3 Termination of Rights. The rights of the Investor under Section 5.23
shall terminate after July 13, 2000; provided, however, that the Investor's
rights under such sections of this Section 5 shall remain in full force and
effect with respect to any Corporate Event for which the Investor has received,
or been entitled to receive, notice from the Company prior to July 13, 2000.
5.4 Right of First Negotiation. After July 13, 2000 and through July 13,
2004 (before July 13, 2000, the provisions of Section 5.2 shall govern), prior
to entering into a definitive agreement with respect to a Corporate Event, the
Company shall first attempt to negotiate in good faith with the Investor for a
period of not less than twenty (20) calendar days for the Investor to acquire
the Company or enter into another Corporate Event with the Company. During such
20-calendar day period, the Investor shall be entitled to conduct due diligence
with the reasonable cooperation of the Company. To the extent that the Company
and the Investor do not enter into an agreement with respect to such an
acquisition or other Corporate Event with the Investor during such 20-calendar
day period, the Company shall be free to enter into a definitive agreement with
respect to a Corporate Event with a third party and subsequently consummate such
Corporate Event, provided that such definitive agreement is entered into within
ninety (90) days following termination of such 20-calendar day period, and,
provided further, that if during such 20-calendar day period, the Investor shall
have made a written offer for the acquisition of the Company, the Corporate
Event with such a third party shall be for at least ninety-five percent (95%) of
the price offered by the Investor and on other terms no less favorable to
shareholders of the Company than the terms of the offer proposed by the Investor
with respect to shareholders other than the Investor. The Investor shall
reasonably cooperate with the Company and other
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persons to effect such Corporate Event with such third party and, if the
Investor votes in favor of such Corporate Event, shall comply with applicable
pooling-of-interests restrictions.
6. ASSIGNMENT AND AMENDMENT.
6.1 Assignment. Notwithstanding anything herein to the contrary:
(a) Information Rights. The rights of the Investor under Section 1.1
are transferable to any Holder who acquires and holds at least 250,000
Registrable Securities (subject to appropriate adjustment for all stock splits,
dividends, combinations, recapitalizations and the like where all holders of the
Company's Common Stock participate on a pro rata basis); 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 6. The rights of the Investor under Section 1.2 may not be
assigned.
(b) Registration Rights. The registration rights of the Investor
under Section 2 hereof may be assigned to any Holder; 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 6.
(c) Rights of Participation and Maintenance. The rights of the
Investor under Sections 3 and Section 4 hereof may be assigned only to a
subsidiary of which the Investor beneficially owns, either directly or
indirectly, at least 50% of the voting securities (a "Majority Owned
Subsidiary"); provided, however that no party may be assigned any of the
foregoing rights unless the Company is given written notice by the Investor 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.
(d) Rights On Corporate Events. The rights of the Investor under
Section 5 hereof may be assigned only in whole, and not in part, and only to a
Majority Owned Subsidiary; provided, however that no party may be assigned any
of the foregoing rights unless the Company is given written notice by the
Investor at the time of such assignment stating the name and address of the
assignee; and provided further that any such assignee shall receive such
assigned rights subject to all the terms and conditions of this Agreement.
6.2 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 Investor (or, in the case of an amendment or waiver
of any provision of Section 2 hereof, only with the written
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consent of the Company and the Holders of a majority of the Registrable
Securities then outstanding and entitled to the registration rights set forth in
Section 2 hereof). Any amendment or waiver effected in accordance with this
Section 6.2 shall be binding upon the Investor, each Holder, each permitted
successor or assignee of such Investor or Holder and the Company.
7. CONFIDENTIALITY.
7.1 (a) Except to the extent required by law or judicial order or except
as provided herein, each party to this Agreement will hold any of the other's
Confidential Information (as defined in the next paragraph) in confidence and
will: (i) use the same degree of care to prevent unauthorized disclosure or use
of the Confidential Information that the receiving party uses with its own
information of like nature (but in no event less than reasonable care), (ii)
limit disclosure of the Confidential Information, including any materials
regarding the Confidential Information that the receiving party has generated,
to such of its employees and contractors as have a need to know the Confidential
Information to accomplish the purposes of this Agreement, and (iii) advise its
employees, agents and contractors of the confidential nature of the Confidential
Information and of the receiving party's obligations under this Agreement.
(b) For purposes of this Agreement, the term "Confidential
Information" refers to the following items relating to the confidential and
proprietary information, including trade secrets, of the disclosing party: (i)
all written materials provided by the disclosing party that are clearly marked
as confidential, (ii) any tangible materials provided by the disclosing party
that are clearly marked as confidential, and (iii) all information that is
orally or visually disclosed by the disclosing party if it is identified as
confidential at the time of disclosure and is reduced to a summary written
disclosure delivered to the receiving party within thirty (30) days after the
original disclosure. "Confidential Information" will not include, even if marked
as confidential, materials or information which: (i) is rightfully known without
obligations of confidentiality by the receiving party, (ii) is or becomes public
knowledge through no wrongful act of the receiving party, its agent, employees
or affiliates, (iii) is rightfully received by the receiving party from another
party authorized by the disclosing party to disseminate such materials or
information, (iv) is independently developed by the receiving party without
breach of this Agreement, or (v) is approved in writing for release by the
disclosing party. Any employee or contractor of the receiving party having
access to the Confidential Information will be required to sign a non-disclosure
agreement protecting the Confidential Information if not already bound by such a
non-disclosure agreement.
7.2 Except to the extent required by law or judicial order or except as
provided herein, neither party shall disclose this Agreement or any of its terms
without the other's prior written approval, which approval will not be delayed
or unreasonably withheld. Either party may disclose this Agreement to the extent
required by law or judicial order, provided that if such disclosure is pursuant
to judicial order or proceedings, the disclosing party will notify the other
party promptly before such disclosure and will cooperate with the other party to
seek confidential treatment with respect to the disclosure if requested by the
other party and provided further that if such disclosure is required pursuant to
the rules and regulations of any federal, state or local organization, the
parties will cooperate to seek confidential treatment of this Agreement to the
maximum extent possible under law.
21
<PAGE> 22
7.3 Prior to the execution of this Agreement, the parties will agree on
the content of a joint press release announcing the existence of this Agreement,
which press release will be issued as mutually agreed by the parties.
7.4 Neither party will be required to disclose to the other any
confidential information of any third party without having first obtained such
third party's prior written consent.
7.5 The provisions of this Section 7 shall survive for a period of five
(5) years from the date which the Investor ceases to have any rights under
Sections 1, 3, 4 and 5 of this Agreement.
8. STANDSTILL AGREEMENT.
8.1 Standstill. The Investor hereby agrees that the Investor (together
with all Majority Owned Subsidiaries) shall neither acquire, nor enter into
discussions, negotiations, arrangements or understandings with any third party
to acquire, beneficial ownership (as defined in Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended) of any Voting Stock (as defined
below), any securities convertible into or exchangeable for Voting Stock, or any
other right to acquire Voting Stock (except, in any case, by way of stock
dividends or other distributions or offerings made available to holders of any
Voting Stock generally) without the written consent of the Company, if the
effect of such acquisition would be to increase the Voting Power (as defined
below) of all Voting Stock then beneficially owned (as defined above) by the
Investor or which it has a right to acquire (together with all Majority Owned
Subsidiaries) to a percentage greater than twenty-two and one-half percent
(22.5%) (the "Standstill Percentage") of the Total Voting Power (as defined
below) of the Company at the time in effect; provided that nothing in this
Section 8 shall affect the Investors rights under Section 3 and Section 4, and
provided further that:
(a) The Investor may acquire Voting Stock without regard to the
foregoing limitation, and such limitation shall be suspended, but not
terminated, if and for as long as (i) a tender or exchange offer is made and is
not withdrawn or terminated by another person or group to purchase or exchange
for cash or other consideration any Voting Stock that, if accepted or if
otherwise successful, would result in such person or group beneficially owning
or having the right to acquire shares of Voting Stock with aggregate Voting
Power of more than twenty-five percent (25%) of the Total Voting Power of the
Company then in effect (not counting for these purposes any shares of Voting
Stock of the Company originally acquired ( where such Shares or shares exchanged
with the Company in respect thereof, are still held) by such person or group
from the Investor or any Majority Owned Subsidiary), and such offer is not
withdrawn or terminated prior to the Investor making an offer to acquire Voting
Stock or acquiring Voting Stock; provided, however, that the foregoing
standstill limitation will be reinstated once any such tender or exchange offer
is withdrawn or terminated, (ii) another person or group hereafter acquires
Voting Stock with aggregate Voting Power of more than ten percent (10%) of the
Total Voting Power of the Company then in effect (not counting for these
purposes any shares of Voting Stock of the Company originally acquired (where
such Shares or shares exchanged with the Company in respect thereof, are still
held) by such person or group from the Investor or any Majority Owned
Subsidiary), where such person or group files a Schedule 13D (under the rules
promulgated under Section 13(d) under the Securities and Exchange Act of 1934,
as such rules and section are in
22
<PAGE> 23
effect on the date hereof), or other similar or successor schedule or form,
indicating that such person's or group's holdings exceed ten percent (10%);
provided, however, that the foregoing standstill limitation will be reinstated
once the percentage of Total Voting Power beneficially owned by such other
person or group falls below ten percent (10%); (iii) another person or group
hereafter acquires Voting Stock that results in such person or group being
required to file a Schedule 13G, or other similar or successor schedule or form,
indicating that such other person or group beneficially owns or has the right to
acquire Voting Stock with aggregate Voting Power of more than twenty percent
(20%) of the Total Voting Power of the Company (not counting for these purposes
any shares of Voting Stock of the Company originally acquired (where such Shares
or shares exchanged with the Company in respect thereof, are still held) by such
person or group from the Investor or any Majority Owned Subsidiary); provided,
however, that the foregoing standstill limitation will be reinstated once the
percentage of Total Voting Power beneficially owned by such other person or
group falls below ten percent (10%); or (iv) another person or group orally or
in writing contacts the Company and advises the Company of such person's or
group's intention to commence a tender or exchange offer that, if so commenced,
would result in a suspension pursuant to clause (i) above (e.g., a "bear hug"
offer); provided, however, that the foregoing standstill limitation will be
reinstated if such intention is withdrawn in writing or other reasonable
evidence of such withdrawal is provided to the Investor. The Company shall
notify the Investor in writing of the occurrence of any event described in
clauses (i) through (iv) of the immediately preceding sentence as soon as
practicable following the Company's becoming aware of any such event, and in any
case, shall provide the Investor written notice of any such event within two (2)
business days of the Company's being aware of the occurrence of any such event.
(b) The Investor will not be obliged to dispose of any Voting Stock to
the extent that the aggregate percentage of the Total Voting Power of the
Company represented by Voting Stock beneficially owned by the Investor or which
the Investor has a right to acquire is increased beyond the Standstill
Percentage (i) as a result of a recapitalization of the Company or a repurchase
or exchange of securities by the Company or any other action taken by the
Company or its affiliates; (ii) as the result of acquisitions of Voting Stock
made during the period when the Investor's "standstill" obligations are
suspended pursuant to Section 8.1(a); (iii) as a result of an equity index
transaction, provided that Investor shall not vote such shares; (iv) by way of
stock dividends or other distributions or rights or offerings made available to
holders of shares of Voting Stock generally; (v) with the consent of a simple
majority of the independent authorized members of the Company's Board of
Directors; or (vi) as part of a transaction on behalf of Investor's Defined
Benefit Pension Plan, Profit Sharing Retirement Plan, 401(k) Savings Plan,
Sheltered Employee Retirement Plan and Sheltered Employee Retirement Plan Plus,
or any successor or additional retirement plans thereto (collectively, the
"Retirement Plans") where the Company's shares in such Retirement Plans are
voted by a trustee for the benefit of Investor employees or, for those
Retirement Plans where Investor controls voting, where Investor agrees not to
vote any shares of such Retirement Plan Voting Stock that would cause Investor
to exceed the Standstill Percentage.
(c) As used in this Section 8, (i) the term "Voting Stock" means the
Common Stock and any other securities issued by the Company having the ordinary
power to vote in the
23
<PAGE> 24
election of directors of the Company (other than securities having such power
only upon the happening of a contingency that has not occurred), (ii) the term
"Voting Power" of any Voting Stock means the number of votes such Voting Stock
is entitled to cast for directors of the Company at any meeting of shareholders
of the Company, and (iii) the term "Total Voting Power" means the total number
of votes which may be cast in the election of directors of the Company at any
meeting of shareholders of the Company if all Voting Stock was represented and
voted to the fullest extent possible at such meeting, other than votes that may
be cast only upon the happening of a contingency that has not occurred. For
purposes of this Section 8, the Investor shall not be deemed to have beneficial
ownership of any Voting Stock held by a pension plan or other employee benefit
program of the Investor if the Investor does not have the power to control the
investment decisions of such plan or program.
8.2 Right of First Refusal upon Section 8.1(a) Event. If the Investor or
any Majority Owned Subsidiary elects to participate and tender or exchange any
of the Shares, the Warrant and/or the Warrant Shares pursuant to any event
described in clause (i) of the first sentence of Section 8.1(a), the Investor
shall provide written notice of such intention to the Company. The Company shall
have five (5) business days from delivery of such notice to elect to purchase
all, but not less than all, of such Shares from the Investor or Majority Owned
Subsidiary for cash, at the Offer Price (as defined below) per share offered by
the person or group in the event described in clause (i), by delivering an
irrevocable written election by the Company to purchase such Shares at such
price. In the event the Company delivers such written election, the Company
shall be obligated to purchase, and the Investor or Majority Owned Subsidiary
shall be obligated to sell, such Shares within ten (10) business days of
delivery of the Company's written election to the Investor. If the Company fails
to deliver such written election within the five (5) business day period
described above or fails to purchase such Shares within the ten (10) business
day period described above, it shall forfeit its rights under this Section 8.2
with respect to such tender or exchange, regardless whether the terms and
conditions of such tender or exchange may subsequently be modified. As used
herein, "Offer Price" means (a) in the case of a cash offer, the amount of cash
per share to be paid; (b) in the case of a share offer where the shares offered
are listed on an exchange or quoted on the Nasdaq National Market, an amount
equal to the average of the closing prices of such security's sales on all
domestic securities exchanges on which said security may at the time be listed,
or, if there have been no sales on any such exchange on such day, the average of
the highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day such security is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ National Market as of
4:00 p.m., New York time, or, if on any day such security is not quoted in the
NASDAQ National Market, the average of the highest bid and lowest asked prices
on such day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, all
determined as of the date written notice is delivered to the Company by the
Investor pursuant to the first sentence of this Section 8.2; or (c) in the event
of any other tender or exchange offer, the value of the securities and/or other
property as set forth in the offer by the person or group making such offer.
8.3 Right of First Refusal upon Transfer of Five Percent Stake. In
circumstances other than those described in Section 8.2, if the Investor intends
to sell Voting Stock (including the Voting Stock underlying any portion of the
Warrants proposed to be sold) with Voting Power
24
<PAGE> 25
constituting more than five percent or more of the Total Voting Power (or
intends to sell Voting Stock (including the Voting Stock underlying any such
portion of the Warrant) with Voting Power constituting less than five percent
(5%) of the Total Voting Power to any person which beneficially owns five
percent (5%) or more of the Total Voting Power as indicated on a Schedule 13D or
13G filed with the SEC), the Investor shall provide written notice thereof to
the Company (the "Investor Notice"). The Investor Notice shall specify the
number of Shares involved, the name and address of the proposed purchaser, and
the proposed price per Share. For a period of five (5) business days after
delivery of the Investor Notice, the Company shall be entitled to elect to
purchase all, but not less than all, of the Shares described in the Investor
Notice, at the price per share described in such notice, by delivery of a
written notice (a "Company Purchase Election") to the Investor irrevocably
electing to purchase such Shares and shall have thirty (30) business days to
consummate said purchase from the Investor. In the event that the Company has
not delivered a Company Purchase Election prior to the expiration of such five
(5) business-day period or has failed to purchase such Shares within said thirty
(30)-business day period, the Company's right to purchase such Shares shall
expire, and the Investor or Majority Owned Subsidiary shall be entitled to sell
the Shares described in the Investor Notice for a period of ninety (90) days
following the expiration of such 90- day period, but only to the proposed
purchaser set forth in the Investor Notice (or any Majority Owned Subsidiary
thereof) and only for a purchase price equal to at least ninety-five (95%) of
the purchase price set forth in the Investor Notice. In the event the Investor
or Majority Owned Subsidiary has not sold such Shares by the end of such 90-day
period, the rights of the Company set forth above in this Section 8.3 shall
apply to any subsequent sales by the Investor or Majority Owned Subsidiary.
Notwithstanding the foregoing, the provisions of this Section 8.3 shall not
apply to any sales or other transfers by the Investor to any Majority Owned
Subsidiary.
8.4 Termination of Standstill. The provisions of Section 8.1 shall
terminate on the second anniversary of the date of this Agreement. The
provisions of Sections 8.2 and 8.3 shall terminate when the Investor (together
with all Majority Owned Subsidiaries) shall cease to beneficially own at least
five percent (5%) of the Total Voting Power of the Company; provided, however,
that for purposes of determining beneficial ownership, the number of Warrant
Shares underlying the unexercised portion of the Warrant shall be included.
9. VOTING AGREEMENT.
9.1 Proportional Voting. Whenever the Investor directly or indirectly owns
(of record or beneficially) Voting Stock which constitutes five percent (5%) or
more of the Total Voting Power of the Company, the Investor agrees to vote all
Registrable Securities of the Company then owned directly or indirectly by the
Investor, that consist of Voting Stock, in the same proportion as the votes cast
by all other holders of the Company's Voting Stock, except on matters that the
Investor, in its reasonable discretion, deems could potentially be materially
adverse to the Investor's interests.
9.2 No Dissent. The Investor hereby agrees that it will not exercise
dissenter's or appraisal rights or otherwise dissent or seek appraisal rights
with respect to any Corporate Event or any other merger or acquisition involving
the Company (e.g. an acquisition by the Company of a third party), provided
that, in the event that the provisions of Section 5 hereof have not been
25
<PAGE> 26
terminated, the provisions of this Section 9.2 shall only apply with respect to
such a Corporate Event if the Company has complied with the applicable
provisions of Section 5 with respect to such Corporate Event.
9.3 Survival. The provisions of Section 9 shall terminate on the fifth
anniversary of the Closing (as defined in the Purchase Agreement).
10. GENERAL PROVISIONS.
10.1 Notices. Any notice required or permitted under this Agreement will
be given in writing, shall be effective when received, and shall in any event be
deemed received and effectively given upon personal delivery to the party to be
notified or three (3) business days after deposit with the United States Post
Office, by registered or certified mail, postage prepaid, or one (1) business
day after deposit with a nationally recognized courier service such as Fedex for
next business day delivery, or one (1) business day after facsimile with copy
delivered by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party on the signature
page hereof or at such other address as the Investor or the Company may
designate by giving at least ten (10) days advance written notice pursuant to
this Section 10.1.
(a) if to the Investor, at: Intel Corporation
2200 Mission College
Boulevard
Santa Clara, California
95052
Attention: Treasurer
Telephone No.: (408) 765-1240
Facsimile No.: (408) 765-1611
and
Attention: General
Counsel
Telephone No.: (408) 765-1125
Facsimile No.: (408) 765-1859
with a copy to: Gibson, Dunn & Crutcher
LLP
One Montgomery Street
Telesis Tower
San Francisco, California
94104-4505
Attention: Kenneth R.
Lamb
Telephone No.: (415) 393-8382
Facsimile No.: (415) 986-5309
(b) if to the Company, at: Xircom, Inc.
2300 Corporate Center
Drive
Thousand Oak, California
91230
Attention: General
Counsel
Telephone No.: (805) 376-9300
Facsimile No.: (805) 376-9120
26
<PAGE> 27
with a copy to: Wilson Sonsini Goodrich &
Rosati
650 Page Mill Road
Palo Alto, California
94304-1050
Attention: Larry Sonsini
and Howard Zeprun
Telephone No.: (415) 493-9300
Facsimile No.: (415) 493-6811
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. Any notice provided to the Investor in
accordance with this Section 10.1 shall be deemed to have also been given to any
Majority Owned Subsidiary, and any notice provided by the Investor to the
Company shall also be deemed notice by its Majority Owned Subsidiaries, and they
shall be bound thereby.
10.2 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.
10.3 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.
10.4 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.
10.5 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any person, other than the parties hereto and their
permitted successors and assigns, any rights or remedies under or by reason of
this Agreement.
10.6 Successors And Assigns. Subject to the provisions of Section 6.1, 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.
10.7 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.
10.8 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.
27
<PAGE> 28
10.9 Adjustments for Stock Splits, Etc. Wherever in this Agreement there
is a reference to a specific number of shares of Common Stock of the Company,
then, upon the occurrence of any subdivision, combination or stock dividend of
Common 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.
[The remainder of this page is intentionally left blank.]
28
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
Xircom, Inc. Intel Corporation
By: /s/Randall H. Holliday By: /s/Satish Rishi
Name: Randall H. Holliday Name: Satish Rishi
Title: Secretary and General Title: Assistant Treasurer
Counsel
[Signature Page to Investor Rights Agreement]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM XIRCOM,
INC.'S FORM 10-Q FOR THE FISCAL YEAR ENDED MARCH 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 65,537
<SECURITIES> 0
<RECEIVABLES> 52,278
<ALLOWANCES> 2,870
<INVENTORY> 16,680
<CURRENT-ASSETS> 139,677
<PP&E> 34,918
<DEPRECIATION> 16,888
<TOTAL-ASSETS> 173,654
<CURRENT-LIABILITIES> 37,245
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 131,643
<TOTAL-LIABILITY-AND-EQUITY> 173,654
<SALES> 113,449
<TOTAL-REVENUES> 113,449
<CGS> 70,893
<TOTAL-COSTS> 70,893
<OTHER-EXPENSES> 29,751
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,891
<INCOME-TAX> 3,867
<INCOME-CONTINUING> 9,024
<DISCONTINUED> (226)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,798
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM XIRCOM,
INC.'S FORMS 10-Q FOR THE QUARTERLY PERIODS ENDED DECEMBER 31, 1996, JUNE 30,
1996, AND MARCH 31, 1996, AND THE FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER
30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
THE INTERIM STATEMENTS FOR THE QUARTERLY PERIODS ENDED DECEMBER 31, 1996, JUNE
30, 1996, AND MARCH 31, 1996, AND THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 1996 HAVE BEEN RESTATED TO REFLECT THE HISTORICAL FINANCIAL
POSITION AND RESULTS OF OPERATIONS AS ADJUSTED FOR THE RECLASSIFICATION OF
NETACCESS, INC. AS DISCONTINUED OPERATIONS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS 9-MOS 6-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1996 SEP-30-1996 SEP-30-1996
<PERIOD-START> OCT-1-1996 OCT-01-1995 OCT-01-1995 OCT-1-1995
<PERIOD-END> DEC-31-1996 SEP-30-1996 JUN-30-1996 MAR-31-1996
<CASH> 24,035 21,377 16,313 15,260
<SECURITIES> 0 0 0 0
<RECEIVABLES> 41,763 28,440 23,092 27,045
<ALLOWANCES> 3,324 3,434 4,518 7,068
<INVENTORY> 17,317 13,771 21,395 22,390
<CURRENT-ASSETS> 90,764 71,545 67,069 67,934
<PP&E> 36,844 34,467 35,942 34,684
<DEPRECIATION> 17,959 16,331 17,148 15,481
<TOTAL-ASSETS> 128,834 107,201 101,131 100,179
<CURRENT-LIABILITIES> 50,106 36,834 38,129 42,776
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 20 20 19 19
<OTHER-SE> 73,629 65,583 60,766 56,009
<TOTAL-LIABILITY-AND-EQUITY> 128,834 107,201 101,131 100,179
<SALES> 56,309 166,757 117,702 73,783
<TOTAL-REVENUES> 56,309 166,757 117,702 73,783
<CGS> 35,493 107,437 76,921 48,306
<TOTAL-COSTS> 35,493 107,437 76,921 48,306
<OTHER-EXPENSES> 14,952 50,308 35,683 23,653
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 0 0 0
<INCOME-PRETAX> 5,916 7,674 4,012 1,193
<INCOME-TAX> 1,775 2,506 1,333 430
<INCOME-CONTINUING> 4,141 5,168 2,679 763
<DISCONTINUED> 316 784 469 (150)
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 4,457 5,952 3,148 613
<EPS-PRIMARY> .22 .30 .16 .03
<EPS-DILUTED> .22 .30 .16 .03
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM XIRCOM,
INC.'S FORMS 10-Q FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995, AND THE
FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
THE INTERIM STATEMENTS FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995, AND THE
FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995 HAVE BEEN
RESTATED TO REFLECT THE HISTORICAL FINANCIAL POSITION AND RESULTS OF OPERATIONS
AS ADJUSTED FOR THE RECLASSIFICATION OF NETACCESS, INC. AS DISCONTINUED
OPERATIONS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1995
<PERIOD-START> OCT-1-1995 OCT-1-1994
<PERIOD-END> DEC-31-1995 SEP-30-1995
<CASH> 8,296 13,043
<SECURITIES> 0 0
<RECEIVABLES> 24,017 16,618
<ALLOWANCES> 6,009 5,532
<INVENTORY> 17,773 15,697
<CURRENT-ASSETS> 61,445 57,866
<PP&E> 30,623 29,135
<DEPRECIATION> 14,112 12,619
<TOTAL-ASSETS> 89,649 85,649
<CURRENT-LIABILITIES> 35,056 31,957
<BONDS> 0 0
0 0
0 0
<COMMON> 19 19
<OTHER-SE> 52,956 53,076
<TOTAL-LIABILITY-AND-EQUITY> 89,649 85,649
<SALES> 33,805 119,528
<TOTAL-REVENUES> 33,805 119,528
<CGS> 22,025 79,048
<TOTAL-COSTS> 22,025 79,048
<OTHER-EXPENSES> 12,070 62,947
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (569) (22,032)
<INCOME-TAX> (134) (7,000)
<INCOME-CONTINUING> (435) (15,032)
<DISCONTINUED> (325) (43,772)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (760) (58,804)
<EPS-PRIMARY> (.04) (3.44)
<EPS-DILUTED> (.04) (3.44)
</TABLE>
