EXHIBIT 10.8
APPLIED MICRO CIRCUITS CORPORATION
0000 XXXXXXX XXXXX
XXX XXXXX, XXXXXXXXXX 00000
__________________________
CONVERTIBLE PREFERRED STOCK SERIES 3
PURCHASE AGREEMENT
As of September 16, 1987
__________________________
TABLE OF CONTENTS
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PAGE
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SECTION 1 - Authorization, Purchase and Sale of the Shares.................. 1
1.1 Authorization of the Shares........................................ 1
1.2 Sale and Purchase of the Shares.................................... 1
SECTION 2 - Closing, Payment and Delivery................................... 1
2.1 Closing Date and Place of Closing.................................. 1
2.2 Payment and Delivery............................................... 2
SECTION 3 - Representations and Warranties of the Company................... 2
3.1 Organization and Standing; Certificate and Bylaws.................. 2
3.2 Corporate Power.................................................... 2
3.3 Subsidiaries....................................................... 3
3.4 Capitalization..................................................... 3
3.5 Authorization...................................................... 3
3.6 Financial Information.............................................. 4
3.7 Outstanding Debt................................................... 4
3.8 Absence of Undisclosed Liabilities................................. 4
3.9 Absence of Certain Changes......................................... 4
3.10 Taxes............................................................. 5
3.11 Contracts; Insurance.............................................. 5
3.12 Shareholders, Directors and Officers; Indebtedness................ 7
3.13 Litigation and Bankruptcy Proceedings............................. 7
3.14 Consents.......................................................... 7
3.15 Title to Properties; Liens and Encumbrances....................... 8
3.16 Leases............................................................ 8
3.17 Business of the Company........................................... 8
3.18 Franchises, Licenses, Trademarks, Patents and Other Rights........ 8
3.19 Issuance Taxes.................................................... 8
3.20 Offering.......................................................... 8
3.21 Compliance with Other Instruments................................. 9
3.22 Employees......................................................... 9
3.23 Registration Rights............................................... 9
3.24 Disclosure........................................................ 9
3.25 Invention Assignment and Secrecy Agreements....................... 9
3.26 Distributions or Sale of Assets................................... 9
3.27 Certain Transactions.............................................. 10
3.28 Labor Agreements and Actions...................................... 10
SECTION 4 - Representations and Warranties of Purchasers.................... 10
4.1 Experience......................................................... 10
4.2 Investment......................................................... 10
TABLE OF CONTENTS
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(continued)
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4.3 Rule 144........................................................... 10
4.4 Access to Data..................................................... 11
4.5 Preexisting Relationship; Business Experience...................... 11
4.6 Ability to Bear Risk............................................... 11
4.7 Accredited Investor................................................ 11
SECTION 5 - Conditions to Closing of Purchasers............................. 11
5.1 Representations and Warranties Correct............................. 11
5.2 Performance........................................................ 11
5.3 Opinion of Company's Counsel....................................... 12
5.4 Legal Investment................................................... 12
5.5 Compliance Certificate............................................. 12
5.6 Proceedings and Documents.......................................... 12
5.7 Authorizations..................................................... 12
5.8 Restated Certificate of Incorporation.............................. 12
5.9 Minimum Investment................................................. 12
5.10 Key Man Life Insurance............................................ 12
5.11 Legal Fees........................................................ 12
5.12 Notice of Limited Offering Exemption.............................. 12
5.13 Registration Rights............................................... 13
5.14 Resignation....................................................... 13
SECTION 6 - Conditions to Closing of Company................................ 13
6.1 Representations.................................................... 13
6.2 Legal Investment................................................... 13
6.3 Minimum Investment................................................. 13
SECTION 7 - Covenants of the Company........................................ 13
7.1 Access and Information............................................. 13
7.2 Right of First Refusal............................................. 15
7.3 Prom first Payment of Taxes, etc................................... 16
7.4 Maintenance of Properties and Leases............................... 17
7.5 Insurance.......................................................... 17
7.6 Key Man Life Insurance............................................. 17
7.7 Accounts and Records............................................... 17
7.8 Independent Accountants............................................ 17
7.9 Compliance with Requirements of Governmental Authorities........... 18
7.10 Maintenance of Corporate Existence, etc........................... 18
7.11 Availability of Common Stock for Conversion....................... 18
7.12 Invention Assignment and Secrecy Agreements....................... 18
7.13 Further Stock Issuances........................................... 18
7.14 Use of Proceeds................................................... 18
7.15 Regulation D Filing............................................... 18
7.16 Notice of Record Dates............................................ 18
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TABLE OF CONTENTS
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(continued)
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7.17 Notice of Limited Offering Exemption.............................. 19
7.18 Certain Restrictions.............................................. 19
7.19 Compliance by Subsidiaries........................................ 19
SECTION 8 - Restrictions on Transferability of Securities; Compliance with
Securities Act.............................................................. 19
8.1 Restrictions on Transferability.................................... 19
8.2 Certain Definitions................................................ 19
8.3 Restrictive Legend................................................. 20
8.4 Notice of Proposed Transfers....................................... 21
8.5 Requested Registration............................................. 21
8.6 Company Registration............................................... 24
8.7 Expenses of Registration........................................... 25
8.8 Registration on Form S-2 or Form S-3............................... 25
8.9 Registration Procedures............................................ 26
8.10 Indemnification................................................... 27
8.11 Information by Holder............................................. 28
8.12 Limitations on Registration of Issues of Securities............... 28
8.13 Rule 144 Reporting................................................ 29
8.14 Transfer or Assignment of Registration Rights..................... 29
8.15 "Market Stand-Off" Agreement...................................... 29
SECTION 9 - Miscellaneous................................................... 30
9.1 Governing Law...................................................... 30
9.2 Survival........................................................... 30
9.3 Successors and Assigns............................................. 30
9.4 Entire Agreement; Amendment........................................ 30
9.5 Notices, etc....................................................... 31
9.6 Delays or Omissions................................................ 31
9.7 Rights; Separability............................................... 31
9.8 Agent's Fees....................................................... 31
9.9 Information Confidential........................................... 32
9.10 Expenses.......................................................... 32
9.11 Titles and Subtitles.............................................. 32
9.12 Counterparts...................................................... 32
9.13 Aggregation....................................................... 32
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TABLE OF CONTENTS
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(continued)
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Schedule of Purchasers
Schedule of Exceptions to Representations and Warranties
Exhibit A - Amended and Restated Certificate of Incorporation
Exhibit B - Form of Invention Assignment and Secrecy Agreement and Invention
and Secrecy Agreement
Exhibit C - Rule 501(a) of Regulation D
Exhibit D - Opinion of Xxxx, Forward, Xxxxxxxx & Scripps
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CONVERTIBLE PREFERRED STOCK SERIES 3
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PURCHASE AGREEMENT
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AGREEMENT made as of the 16th day of September 1987, by and among APPLIED
MICRO CIRCUITS CORPORATION (the "Company"), a California corporation having
offices at 0000 Xxxxxxx Xxxxx, Xxx Xxxxx, Xxxxxxxxxx 00000, and each of the
persons severally listed on the Schedule of Purchasers attached hereto (the
"Schedule of Purchasers"). The persons listed on the Schedule of Purchasers are
sometimes hereinafter referred to as the "Purchasers" and individually as a
"Purchaser."
WHEREAS, the Company desires to issue and sell, and the Purchasers desire
to purchase, certain securities of the Company;
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and conditions herein contained, the Company and each Purchaser, severally and
not jointly, hereby agree as follows:
SECTION 1
Authorization, Purchase and Sale of the Shares
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1.1 Authorization of the Shares. The Company has, or before the Closing
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(as hereinafter defined) will have, authorized the sale and issuance of up to
Five hundred ninety-one thousand nine hundred and sixty-four (591,964) shares
(the "Series 3 Shares") of its Preferred Stock, Series 3 ("Series 3 Preferred")
having the respective rights, restrictions, privileges and preferences as set
forth in the Amended and Restated Certificate of Incorporation of the Company
(the "Restated Certificate") attached to this Agreement as Exhibit A. The
Series 3 Shares are sometimes hereinafter referred to as the "Shares," and the
Series 1, Series 2 and Series 3 Preferred Stock of the Company are sometimes
hereinafter collectively referred to as the "Preferred."
1.2 Sale and Purchase of the Shares. At the Closing (as defined in
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Section 2.1 hereof), and subject to the terms and conditions hereof and in
reliance upon the representations, warranties and agreements contained herein,
the Company will issue and sell to the Purchasers listed on the Schedule of
Purchasers and each such Purchaser will purchase from the Company the number of
Series 3 Shares set forth opposite its name in the column entitled "Total
Shares" on the Schedule of Purchasers at the price of $21.00 per share in the
total amount set forth opposite its name in the column labeled "Total
Investment."
SECTION 2
Closing, Payment and Delivery
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2.1 Closing Date and Place of Closing. The closing of the purchase an
---------------------------------
sale of the Shares hereunder (the "Closing") in the amounts and to the persons
specified in the Schedule of
Purchasers shall be held immediately following the execution and delivery of
this Agreement (the "Closing Date"). The place of the Closing (including the
place of delivery to the Purchasers by the Company of the certificates
evidencing all Shares being purchased and the place of payment to the Company by
the Purchasers of the purchase price therefor) shall be at the offices of Xxxx,
Forward, Xxxxxxxx & Scripps, 0000 Xxxxxxxxx Xxxxxx, Xx Xxxxx, Xxxxxxxxxx, or
such other place as a majority in interest of the Purchasers shall designate by
notice to the Company given at least five (5) business days prior to the Closing
Date.
2.2 Payment and Delivery. At the Closing, each Purchaser of Series 3
--------------------
Shares will pay for such shares by surrender of the Company's 8 1/2% Promissory
Notes (the "Notes") held by such Purchaser for cancellation of a principal
amount equal to the amount set forth next to such purchaser's name on the
Schedule of Purchasers under the column "Principal Amount of Notes Being
Tendered" and/or by cash or by check, wire transfer, cancellation of other
indebtedness or such other form of payment or combination thereof as shall be
mutually agreed upon by the Company and each respective Purchaser. The Company
will deliver to each Purchaser a certificate or certificates representing the
number of Series 3 Shares purchased as set forth opposite such Purchaser's name
in the column labeled "Total Shares" on the Schedule of Purchasers.
SECTION 3
Representations and Warranties of the Company
---------------------------------------------
The Company hereby represents and warrants to the Purchasers as follows,
except as set forth on the "Schedule of Exceptions" delivered to the Purchasers
prior to the execution hereof and attached hereto.
3.1 Organization and Standing; Certificate and Bylaws. The Company is a
-------------------------------------------------
corporation duly organized and existing under the laws of the State of Delaware
and is in good standing under such laws. The Company has requisite corporate
power to own the properties owned by it and to conduct business as being
conducted by it and as contemplated by the Company's Confidential Private
Placement Memorandum dated June 10, 1987, and the Supplement thereto dated
August 28, 1987, with respect to the sale of the Shares (collectively the
"Memorandum"). The Company is duly qualified to do business as a foreign
corporation in good standing in each jurisdiction in which the character and
location of its properties (owned or leased) or the nature of its business
requires such qualification, except for such jurisdictions where the failure to
so qualify would not materially and adversely affect the business, operations or
financial condition of the Company. The Company has furnished special counsel
to the Purchasers with true, correct and complete copies of its Certificate of
Incorporation, Bylaws and all amendments to each to date. Prior to the Closing,
the Restated Certificate shall have been properly adopted by all necessary
corporate action and the Company shall have properly filed the Restated
Certificate with the Secretary of State of Delaware.
3.2 Corporate Power. The Company has all requisite corporate power to
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enter into this Agreement and will have at the Closing Date all requisite
corporate power to sell the Shares and to carry out and perform its obligations
under the terms of this Agreement.
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3.3 Subsidiaries. The sole subsidiary of the Company is AMCC (Europe)
------------
Ltd. ("Subsidiary"). The Subsidiary is a corporation duly organized and
validly existing under the laws of the United Kingdom and is in good standing
under such laws. All of the shares of capital stock of the Subsidiary have been
duly and validly authorized and issued and, with the exception of one qualifying
share beneficially owned for the benefit of the Company by Xxxx X. Xxxxxxxx,
Vice President, Finance and Administration of the Company, all of such shares of
capital stock are held beneficially and of record by the Company, free and clear
of any liens or encumbrances. The Company has no other subsidiaries and does
not own of record or beneficially any capital stock or equity interest or
investment in any corporation, association or business entity.
3.4 Capitalization. Immediately prior to the Closing, the Company's
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authorized capital stock will consist of (i) Twenty-eight million (28,000,000)
shares of Common Stock (the "Common Stock"), of which 3,475,386 shares are
currently issued and outstanding, and) (b) 1,350,000 shares of Preferred Stock,
including: (i) Four hundred ten thousand (410,000) shares of Preferred Stock,
Series 1 ("Series 1 Preferred"), of which 408,692 shares are currently issued
and outstanding, (ii) Three hundred thousand (300,000) shares of Preferred
Stock, Series 2 ("Series 2 Preferred"), 238,096 shares of which are currently
issued and outstanding, and (iii) Five hundred ninety-one thousand nine hundred
and sixty-four (591,964) shares of Series 3 Preferred, no shares of which will
be issued and outstanding prior to the Closing. All the aforesaid issued and
outstanding shares will have been duly authorized and validly issued, will be
fully paid and nonassessable, and have been offered, issued, sold and delivered
by the Company in compliance with applicable federal and state securities laws.
An aggregate of 19,424,747 shares of Common Stock have been reserved for
issuance upon conversion of the Series 1 Preferred, Series 2 Preferred and
Series 3 Preferred. There are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon the
Company for the purchase or acquisition of any shares of its capital stock,
except with respect to the Series 3 Preferred in accordance with the provisions
of this Agreement and with respect to the Series 1 and Series 2 Preferred as set
forth in the Schedule of Exceptions. To the best of the Company's knowledge and
belief, no shareholder has granted options or other rights to purchase any
securities of the Company from such shareholder other than as set forth in the
Schedule of Exceptions hereto. The Company holds no shares of its capital stock
in its treasury.
3.5 Authorization. All corporate action on the part of the Company, its
-------------
directors and shareholders necessary for the authorization, execution, delivery
and performance by the Company of this Agreement and the consummation of the
transactions contemplated herein, and for the authorization, issuance and
delivery of the Shares and of the Common Stock issuable upon conversion thereof
has been taken or will be taken prior to the Closing. This Agreement is a valid
and binding obligation of the Company, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization and moratorium laws
and other laws of general application affecting enforcement of creditors rights
generally and principles of equity relating to specific enforcement of this
Agreement. The execution, delivery and performance by the Company of this
Agreement and compliance therewith and the issuance and sale of the Shares and
Common Stock issuable upon conversion of the Shares will not result in any
violation of and will not conflict with, or result in a breach of any of the
material terms of, or
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constitute a default under, any provision of state or Federal law to which the
Company is subject, the Company's Certificate of Incorporation, or Bylaws, as
amended, or any mortgage, indenture, agreement, instrument, judgment, decree,
order, rule or regulation or other restriction to which the Company is a party
or by which it is bound, or result in the creation of any mortgage, pledge,
lien, encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such term. No shareholder or other person has any preemptive
rights or rights of first refusal by reason of the issuance of the Shares,
except as set forth in the Schedule of Exceptions and all such rights, if any,
have been complied with or validly waived. The Shares, when issued in compliance
with the provisions of this Agreement, will be validly issued, fully paid and
nonassessable, and will be free of any liens, charges or encumbrances subject to
applicable bankruptcy, insolvency, reorganization and moratorium laws and other
laws of general application affecting enforcement of creditors rights generally.
The shares of Common Stock issuable upon conversion of the Shares have been duly
and validly reserved and are not subject to any preemptive rights or rights of
first refusal not waived or validly complied with and, upon issuance, will be
validly issued, fully paid and nonassessable.
3.6 Financial Information. The audited financial statements of the
---------------------
Company as of March 31, 1987, and the unaudited interim financial statements as
of July 31, 1987 and the respective notes thereto, included in the Memorandum, a
copy of which has been delivered to each Purchaser (collectively, the "Financial
Statements"), including the balance sheet as of July 31, 1987 (the "Balance
Sheet") and a Statement of Income for the four month period ended July 31, 1987
(the "Income Statement"), present fairly the financial position and results of
operations of the Company at the dates and for the periods to which they relate,
have been prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods involved and show all material
liabilities, absolute or contingent, of the Company required to be recorded
thereon in accordance with generally accepted accounting principles as at the
respective dates thereof.
3.7 Outstanding Debt. The Company has no outstanding indebtedness or
----------------
borrowed money except as reflected on the Balance Sheet or as set forth on the
Schedule of Exceptions and is not a guarantor or otherwise contingently liable
for any such indebtedness. There exists no material default under the
provisions of any instrument evidencing such indebtedness or of any agreement
relating thereto.
3.8 Absence of Undisclosed Liabilities. The Company has no material
----------------------------------
liabilities (fixed or contingent, including without limitation any tax
liabilities due or to become due) which are not fully reflected or provided for
on the Balance Sheet, except as listed on the Schedule of Exceptions. The
Company does not know of any material liability of any nature, direct or
indirect, contingent or otherwise, or in any amount not adequately reflected or
reserved against in the Balance Sheet, except as set forth on the Schedule of
Exceptions.
3.9 Absence of Certain Changes. Except to the extent described in the
--------------------------
Schedule of Exceptions, since July 31, 1987 there has not been:
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(a) any material adverse change in the condition, assets, liabilities
or business of the Company from that shown on the Balance Sheet;
(b) any damage, destruction or loss of any of the properties or assets
of the Company (whether or not covered by insurance) materially and adversely
affecting the business or plans of the Company;
(c) any declaration, setting aside or payment or other distribution in
respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of such stock by the Company;
(d) any labor dispute, or to the Company's knowledge or belief, any
event or condition of any character, materially and adversely affecting the
business or plans of the Company;
(e) any material change or amendment to any material contract or
arrangement by which the Company or any of its assets or properties is subject
or is bound; or
(f) any material change in any compensation arrangement or agreement
with any employee.
3.10 Taxes. The Company has filed or will file within the time
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prescribed by law (including extensions of time approved by the appropriate
taxing authority) all tax returns and reports required to be filed with the
United States Internal Revenue Service and with the State of California, and
(except to the extent that the failure to file would not have a material adverse
effect on the condition or operations of the Company) with all other
jurisdictions where such filing is required by law; and the Company has paid, or
made adequate provision in the Balance Sheet for the payment of, all taxes,
interest, penalties, assessments or deficiencies shown to be due or claimed to
be due on or in respect of such tax returns and reports. The Company knows of
(i) no other tax returns or reports which are required to be filed which have
not been so filed and (ii) no unpaid assessment for additional taxes for any
fiscal period or any basis thereof. The Company's federal income tax returns
have not been audited by the Internal Revenue Service.
3.11 Contracts; Insurance. Except as set forth in the Schedule of
--------------------
Exceptions, the Company has no currently existing contract, obligation or
commitment (written or oral) of any material nature pursuant to which the
Company's obligations exceed $100,000 or which has a term greater than five
years, including without limitation the following:
(a) Employment, bonus or consulting agreements, pension, profit
sharing, deferred compensation, stock bonus, retirement, stock option, stock
purchase, phantom stock or similar plans, including agreements evidencing rights
to purchase securities of the Company and agreements among shareholders and the
Company;
(b) Loan or other agreements, notes, indentures, or instruments
relating to or evidencing indebtedness for borrowed money, or mortgaging,
pledging or granting or creating a lien or security interest or other
encumbrance on any of the Company's property or any
-5-
agreement or instrument evidencing any guaranty by the Company of payment or
performance by any other Person;
(c) Agreements with dealers, sales representatives, brokers or other
distributors, jobbers, advertisers or sales agencies;
(d) Agreements with any labor union or collective bargaining
organization or other labor agreements;
(e) Any contract or series of contracts with the same person for the
furnishing or purchase of machinery, equipment, goods or services, including
without limitation agreements with processors and subcontractors;
(f) Any indenture, agreement or other document (including private
placement brochures) relating to the sale or repurchase of shares;
(g) Any joint venture contract or arrangement or other agreement
involving a sharing of profits or expenses to which the Company is a party;
(h) Agreements limiting the freedom of the Company to compete in any
line of business or in any geographic area or with any person;
(i) Agreements providing for disposition of the business, assets or
shares of the Company, agreements of merger or consolidation to which the
Company is a party or letters of intent with respect to the foregoing;
(j) Agreements involving or letters of intent with respect to the
acquisition of the business, assets or shares of any other business; and
(k) Insurance policies.
(1) Agreements, understandings, contracts or proposed transactions to
which the Company is a party or by which it is bound which may involve the
license of any patent, copyright, trade secret or other proprietary right to or
from the Company.
The Company has complied with all the material provisions of all said
contracts, obligations, and commitments and is not in default of any such
provision thereunder.
The Company maintains insurance which is adequate to protect the Company
against the risks involved in the business conducted by it as is customarily
maintained by well-managed companies engaged in similar activities. The Company
has in full force and effect fire and casualty insurance policies, with extended
coverage, sufficient in amount (subject to reasonable deductibles) to allow it
to replace any of its properties that might be damaged or destroyed.
The Company is not a party to and is not bound by any contract, agreement
or instrument, or subject to any restriction under its Certificate of
Incorporation, which adversely affects its
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business as now conducted or as proposed to be conducted, its properties or its
financial condition.
3.12 Shareholders, Directors and Officers; Indebtedness. Set forth on
--------------------------------------------------
the Schedule of Exceptions is a correct and complete list or description of all
indebtedness of the Company to its officers, directors or shareholders or any of
their respective relatives and of all indebtedness of such persons to the
Company. To the best of the Company's knowledge and belief, none of the
officers, significant employees or consultants of the Company, or their
respective spouses or relatives, owns directly or indirectly, individually or
collectively, a material interest in any entity which is a competitor, customer
or supplier of (or has any existing contractual relationship with) the Company.
3.13 Litigation and Bankruptcy Proceedings.
-------------------------------------
(a) There is neither pending nor, to the Company's knowledge and
belief, threatened any action, suit, proceeding or claim, or any basis therefor
or threat thereof, whether or not purportedly on behalf of the Company, to which
the Company is or may be named as a party or its property is or may be subject
and in which an unfavorable outcome, ruling or finding might have a material
adverse effect on the condition, financial or otherwise, or operations of the
Company; and the Company has no knowledge of any unasserted claim, the assertion
of which is likely and which, if asserted, will seek damages, an injunction or
other legal, equitable, monetary or nonmonetary relief which, if granted, would
have a material adverse effect on the condition, financial or otherwise, or
operations of the Company, nor is the Company aware of any basis for the
foregoing.
(b) The Company has not admitted in writing its inability to pay its
debts generally as they become due, filed or consented to the filing against it
of a petition in bankruptcy or a petition to take advantage of any insolvency
act, made an assignment for the benefit of creditors, consented to the
appointment of a receiver for itself or for the whole or any substantial part of
its property, or had a petition in bankruptcy filed against it, been adjudicated
a bankrupt, or filed a petition or answer seeking reorganization or arrangement
under the Federal bankruptcy laws or any other law or statute of the united
States of America or any other jurisdiction.
3.14 Consents. All consents, approvals, qualifications, orders,
--------
approvals or authorizations of, or filings with, any governmental authority
required in connection with the Company's valid execution, delivery and
performance of this Agreement, and the offer, sale and issuance of the Shares by
the Company, the conversion of the Shares and the consummation of any other
transaction contemplated on the part of the Company hereby, shall have been duly
obtained and shall be effective on and as of the Closing, except the filing
referred to in Section 7.17 hereof, notices of sale required to be filed
pursuant to Regulation D under the Securities Act of 1933, filings required by
the State securities laws of jurisdictions other than California in which the
Purchasers reside and except such filings as have been made prior to the
Closing.
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3.15 Title to Properties; Liens and Encumbrances. The Company does not
-------------------------------------------
have any ownership interest in real property. The Company has a valid and
indefeasible ownership interest in all the property and assets recorded on the
Balance Sheet, free from all pledges, liens, security interests, conditional
sale agreements, encumbrances or charges, except as shown on the Balance Sheet
or listed on the Schedule of Exceptions.
3.16 Leases. The Company's material lease obligations are disclosed in
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the Financial Statements and there has been no material change in such
obligations since July 31, 1987. The Company enjoys peaceful and undisturbed
possession under all its material leases of real or personal property, all such
leases are valid and subsisting and none of them is in default in any material
respect.
3.17 Business of the Company. The Company has no knowledge or belief
-----------------------
that (i) there is pending or threatened any claim or litigation against or
affecting the Company contesting its right to produce, manufacture, sell or use
any product, process, method, substance, part or other material presently
produced, manufactured, sold or used or planned to be produced, manufactured,
sold or used by the Company in connection with the operations of the Company; or
(ii) there exists, or there is pending or planned, any patent, invention,
device, application or principle, or any statute, rule, law, regulation,
standard or code which would materially adversely affect the condition,
financial or otherwise, or the operations of the Company. The Company currently
intends to engage in the business of the same general type as described in the
Memorandum.
3.18 Franchises, Licenses, Trademarks, Patents and Other Rights. The
----------------------------------------------------------
Company has all franchises, permits, certificates, authorizations, licenses and
other similar authority required by law or governmental regulations from all
applicable Federal, state or local authorities and any other regulatory
authorities or necessary for the conduct of its business as now being conducted
by it and as planned to be conducted, the lack of which could materially and
adversely affect the operations or condition, financial or otherwise, of the
Company, and it is not in default in any material respect under any of such
franchises, permits, certificates, authorizations, licenses or other similar
authority. The Company possesses all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights and copyrights necessary to
conduct its business as now being conducted and as planned to be conducted
without conflict with or infringement upon any valid rights of others and the
lack of which could materially and adversely affect the operations or condition,
financial or otherwise, of the Company, and has not received any notice of
infringement upon or conflict with the asserted rights of others.
3.19 Issuance Taxes. All taxes imposed by law in connection with the
--------------
issuance, sale and delivery of the Shares shall have been fully paid, and all
laws imposing such taxes shall have been fully complied with, prior to the
Closing Date.
3.20 Offering. Subject in part to the truth and accuracy of the
--------
Purchasers' representations set forth in this Agreement, the offer, sale and
issuance of the Shares and the Common Stock issuable upon conversion of the
Shares as contemplated by this Agreement are exempt from the registration
requirements of the Securities Act of 1933, as amended (the
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"Securities Act", which term shall include any successor federal statute), and
from the qualification requirements of the California Corporate Securities Law
of 1968, as amended, and neither the Company nor anyone acting on its behalf
will take any action hereafter that would cause the loss of such exemptions.
3.21 Compliance with Other Instruments. The Company is not in violation
---------------------------------
of any term of its Certificate of Incorporation as amended prior to the adoption
of the Restated Certificate, the Restated Certificate or its Bylaws, as amended.
The Company is not in violation of any term of any mortgage, indenture,
contract, agreement, instrument, judgment, decree, order, statute, rule or
regulation to which the Company is subject and a violation of which would have a
material adverse effect on the condition, financial or otherwise, or operations
of the Company.
3.22 Employees. To the best of the Company's knowledge and belief, no
---------
employee of the Company is, or is now expected to be, in violation of any term
of any employment contract, patent disclosure agreement, non-competition
agreement, or any other contract or agreement or any restrictive covenant
relating to the right of any such employee to be employed by the Company because
of the nature of the business conducted or to be conducted by the Company or to
the use of trade secrets or proprietary information of others, and the
employment of the Company's employees does not subject the Company or any
Purchaser to any liability. The Company does not have any collective bargaining
agreement covering any of its employees
3.23 Registration Rights. Except as set forth in the Schedule of
-------------------
Exceptions and as provided for in this Agreement, the Company is not under any
obligation to register (as defined in Section 8.2 below) any of its currently
outstanding securities or any of its securities which may hereafter be issued.
3.24 Disclosure. The Company has provided each Purchaser with all
----------
information which such Purchaser has requested for deciding whether to purchase
the Series 3 Preferred Stock and all information which the Company believes is
reasonably necessary to enable each Purchaser to make such decision. This
Agreement, the Schedule of Exceptions, the Memorandum and the Financial
Statements delivered to the purchasers do not contain any untrue statement of a
material fact and do not omit to state a material fact necessary in order to
make the statements contained therein or herein not misleading in the light of
the circumstances under which they were made.
3.25 Invention Assignment and Secrecy Agreements. Each person employed
-------------------------------------------
by the Company who has access to proprietary information concerning the Company
has executed and delivered to the Company either an Invention Assignment and
Secrecy Agreement or an Invention and Secrecy Agreement, the forms of which are
annexed hereto as Exhibit B.
3.26 Distributions or Sale of Assets. The Company has not (i) paid or
-------------------------------
declared any dividends or authorized or made any distribution upon or with
respect to any class or series of its capital stock, or (ii) exchanged or
otherwise disposed of any material assets or rights, other than the sale of its
inventory in the ordinary course of business.
-9-
3.27 Certain Transactions. The Company has not engaged in the past
--------------------
three (3) months in any discussion (i) with any representative of any
corporation or corporations regarding the consolidation or merger of the Company
with or into any such corporation or corporations, (ii) with any corporation,
partnership, association or other business entity or any individual regarding
the sale, coveyance or disposition of all or substantially all of the assets of
the Company or a transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Company is disposed of, or
(iii) regarding any other form of acquisition, liquidation, dissolution or
winding up of the Company.
3.28 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
The employment of each officer and, to the best of the Company's knowledge, each
employee of the Company is terminable at the will of the Company.
SECTION 4
Representations and Warranties of Purchasers
--------------------------------------------
Each Purchaser represents and warrants to the Company, severally and not
jointly, and only as to himself or itself, as follows:
4.1 Experience. He or it is experienced in evaluating and investing in
----------
newly organized, high technology companies such as the Company.
4.2 Investment. He or it is acquiring the Shares for Investment for his
----------
or its own account and not with the view to, or for resale in connection with,
any distribution thereof. He or it understands that the Shares and the shares
of Common Stock issuable upon conversion of the Shares have not been registered
under the Securities Act by reason of a specified exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of his or its investment intent as expressed
herein.
4.3 Rule 144. He or it acknowledges that the Shares must be held
--------
indefinitely unless they are subsequently registered under the Act or an
exemption from such registration is available. He or it has been advised or is
aware of the provisions of Rule 144 promulgated under the Securities Act, which
permits limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the
availability of
-10-
certain current public information about the Company, the resale occurring not
less than two years after a party has purchased and paid for the security to be
sold, the sale being through a "broker's transaction" and the number of shares
being sold during any three-month period not exceeding specified limitations.
4.4 Access to Data. He or it has had an opportunity to discuss the
--------------
Company's business, management and financial affairs with its management and has
had the opportunity to examine the Company's facilities.
4.5 Preexisting Relationship; Business Experience. He or it has either
---------------------------------------------
(i) a preexisting personal or business relationship with the Company or any of
its officers, directors or controlling persons of a nature and duration as would
allow him or it to be aware of the character, business acumen, general business
and financial circumstances of the Company or of the person with whom such
relationship exists, or (ii) by reason of his or its business or financial
experience or the business or financial experience of his or its professional
advisor(s) who is (are) unaffiliated with and is (are) not compensated by the
Company or any affiliate or selling agent of the Company, directly or
indirectly, has the capacity to protect his or its interests in connection with
the purchase of the Shares of the Company and Common Stock issuable upon
conversion thereof.
4.6 Ability to Bear Risk. He or it is able to bear the economic risk of
--------------------
his or its investment in the Shares of the Company and the Common Stock issuable
upon conversion thereof.
4.7 Accredited Investor. He or it is an accredited investor as that
-------------------
term is defined in Rule 501(a) of Regulation D under the Securities Act, a copy
of which is attached hereto as Exhibit C.
SECTION 5
Conditions to Closing of Purchasers
-----------------------------------
The obligation of each Purchaser to purchase the Shares to be purchased at
the Closing is subject to the fulfillment to their satisfaction on or prior to
the Closing Date of each of the following conditions:
5.1 Representations and Warranties Correct. The representations an
--------------------------------------
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects when made, and shall be true and correct in all material
respects on the Closing Date with the same force and effect as if they had been
made on and as of the Closing Date.
5.2 Performance. All covenants, agreements and conditions contained in
-----------
this Agreement to be performed or complied with by the Company on or prior to
the Closing Date shall have been performed or complied with in all respects.
-11-
5.3 Opinion of Company's Counsel. Each Purchaser shall have received
----------------------------
from Xxxx, Forward, Xxxxxxxx & Scripps, counsel to the Company, an opinion
addressed to it, dated the Closing Date, and in substantially the form attached
as Exhibit D hereto.
5.4 Legal Investment. At the time of the Closing, the purchase of the
----------------
Shares to be purchased by each Purchaser hereunder shall be legally permitted by
all laws and regulations to which the Purchasers and the Company are subject.
5.5 Compliance Certificate. The Company shall have delivered to each
----------------------
Purchaser a certificate of the President of the Company, dated the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 5.1 and
5.2 of this Agreement.
5.6 Proceedings and Documents. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to each Purchaser and its counsel.
5.7 Authorizations. All authorizations, approvals, notices or permits,
--------------
if any, of any governmental authority or regulatory body that are required in
connection with the lawful issuance and sale of the Shares pursuant to this
Agreement, the conversion of the Shares into Common Stock, the issuance of such
Common Stock upon such conversion and the consummation of all the transactions
contemplated hereby shall have been duly obtained and shall be effective on and
as of the Closing.
5.8 Restated Certificate of Incorporation. The Restated Certificate
-------------------------------------
shall have been approved by all necessary corporate action and filed with tile
Secretary of State of the State of Delaware and shall be in full force and
effect.
5.9 Minimum Investment. At the Closing, the Purchasers shall purchase
------------------
Series 3 Shares for an aggregate purchase price of not less than $10,000,000.
5.10 Key Man Life Insurance. The Company agrees that it will obtain
----------------------
with financially sound and reputable insurers term life insurance on the lives
of such officers and employees of the Company in such amounts as the majority of
the members of the Board of Directors shall determine.
5.11 Legal Fees. Company will pay the legal fees, disbursements and
----------
office charges and expenses of Xxxxxxx, Xxxxxxx & Xxxxxxxx special counsel to
the Purchasers, with respect to this Agreement and the transactions contemplated
hereby.
5.12 Notice of Limited Offering Exemption. The Company shall have
------------------------------------
completed and executed a "Notice of Transaction pursuant to Corp. Code
25102(f)" in form suitable for filing with the Commissioner of Corporations of
the State of California with respect to the Shares and the shares of Common
Stock issuable upon conversion of the Shares.
-12-
5.13 Registration Rights. Registration rights of holders of Series 1
-------------------
Preferred and Series 2 Preferred shall have been modified to provide for rights
identical to those set forth in Section 8 hereof.
5.14 Resignation. One current director of the Company shall have
-----------
submitted his resignation to the Company.
SECTION 6
Conditions to Closing of Company
--------------------------------
The Company's obligation to sell the Shares to be purchased at the Closing
is subject to the fulfillment to its satisfaction on or prior to the Closing
Date of each of the following conditions:
6.1 Representations. The representations made by the Purchasers
---------------
pursuant to Section 4 hereof shall be true and correct when made and shall be
true and correct on the Closing Date.
6.2 Legal Investment. At the time of the Closing, the conditions set
----------------
forth in Sections 5.8, 5.9 and 5.10 shall have occurred and the purchase of the
Shares to be purchased by the Purchasers hereunder shall be legally permitted by
all laws and regulations to which each Purchaser and the Company are subject.
6.3 Minimum Investment. At the Closing, the Purchasers shall purchase
------------------
Series 3 Shares for an aggregate purchase price of not less than $10,000,000.
SECTION 7
Covenants of the Company
------------------------
The Company hereby covenants and agrees, so long as any Purchaser owns any
Shares or any shares of Common Stock issued upon conversion of the Shares, as
follows:
7.1 Access and Information. Until the earlier to occur of (i) the date
----------------------
on which the Company is subject to the reporting requirements of Section 13(a)
of the Securities Exchange Act of 1934, as amended, or (ii) the date on which
quotations for the Common Stock of the Company are reported by the automated
quotations system operated by the National Association of Securities Dealers,
Inc., or by an equivalent quotations system, the Company will permit any
Purchaser who owns (or has been designated as the representative of holders of)
Series 3 Shares (or shares of Common Stock issued upon conversion thereof) in
the aggregate purchase price of $250,000 or more to visit and inspect any of the
properties of the Company, including its books of account, and to discuss its
affairs, finances and accounts with the Company's officers and its independent
public accountants, all at such reasonable times and as often as any such person
may reasonably request, and the Company will deliver the reports described
below:
-13-
(a) To all Purchasers of the Shares, as soon as practicable after the
end of each fiscal year of the Company, and in any event within ninety (90) days
thereafter, a consolidated balance sheet of the Company and its subsidiaries, if
any, as at the end of such fiscal year, and consolidated statements of income
and sources and applications of funds of the Company and its subsidiaries, if
any, for such year, prepared in accordance with generally accepted accounting
principles consistently applied and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail and
certified by independent public accountants of recognized national standing
selected by the Company;
(b) To each Purchaser who owns (or has been designated as the
representative of holders of) Series 3 Shares (or shares of Common Stock issued
upon conversion thereof) in the aggregate purchase price of $250,000 or more as
soon as practicable after the end of the first, second and third quarterly
accounting periods in each fiscal year of the Company, and in any event within
forty-five (45) days thereafter, a consolidated balance sheet of the Company and
its subsidiaries, if any, as of the end of each such quarterly period, and
consolidated statements of income and sources and applications of funds of the
Company and its subsidiaries for such period and for the current fiscal year to
date, prepared in accordance with generally accepted accounting principles
consistently applied and setting forth in comparative form the figures for the
corresponding periods of the previous fiscal year, subject to changes resulting
from year-end audit adjustments, all in reasonable detail and certified by the
principal financial or accounting officer of the Company;
(c) To each Purchaser described in subparagraph (b) above, as soon as
practicable after the end of each month and in any event within thirty (30) days
thereafter, a consolidated balance sheet of the Company and its subsidiaries, if
any, as of the end of such month, and consolidated statements of income and of
sources and applications of funds of the Company and its subsidiaries, for each
month and for the current fiscal year of the Company to date, prepared in
accordance with generally accepted accounting principles consistently applied,
together with a comparison of such statements to the Company's operating plan
then in effect and approved by its Board of Directors, and certified, subject to
changes resulting from year-end audit adjustments, by the principal financial or
accounting officer of the Company; and
(d) To any Purchaser described in subparagraph (b) above, upon the
written request of any such person, as soon as available (but in any event
within sixty (60) days after the commencement of its fiscal year) a summary of
the financial plan of the Company, as contained in its operating plan approved
by the Company's Board of Directors. Any material changes in such financial
plan shall be furnished as promptly as practicable after such changes have been
approved by the Board of Directors.
In connection with the receipt of information to be provided in accordance
herewith to the Purchasers, the Purchasers agree to use their best efforts to
keep all such information confidential, provided that a Purchaser shall not be
restricted from the use of such information in a manner customary in the conduct
of such Purchaser's business or in the management of its investments. The
Company shall not be obligated to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information
unless the requesting
-14-
Purchaser shall consent to terms and conditions reasonably calculated to
preserve the proprietary or confidential nature of the information.
The foregoing provisions of this Section 7.1 shall not be in limitation of
any rights which a Purchaser may have with respect to the books and records of
the Company and its subsidiaries, or to inspect their properties or discuss
their affairs, finances and accounts, under the laws of the jurisdictions in
which they are incorporated.
7.2 Right of First Refusal. The Company hereby grants to each Purchaser
----------------------
the right of first refusal to purchase, pro rata with the holders of Series 1
and Series 2 Preferred, all (or any part) of New Securities (as defined in this
Section 7.2) which the Company may, from time to time, propose to sell and
issue. For purposes of this Section 7.2, "Purchaser" includes any general
partners and affiliates of a Purchaser. A Purchaser shall be entitled to
allocate the right of first refusal hereby granted it among itself, its partners
and affiliates, as it deems appropriate. A Purchaser's pro rata share, for
purposes of this right of first refusal, is the ratio of the number of shares of
Common Stock which have been issued or are issuable upon conversion of all the
Shares purchased by such Purchaser under this Agreement to the sum of the total
number of shares of Common Stock which have been issued upon conversion and the
total number of shares of Common Stock then issuable upon conversion of all then
outstanding shares of Preferred. Each Purchaser shall have a right of over-
allotment such that if any Purchaser fails to exercise his right hereunder to
purchase his pro rata portion of New Securities, the other Purchasers may
purchase the non-purchasing Purchaser's portion on a pro rata basis (allocated
equitably on the basis of the other Purchasers' relative holdings of shares of
Common Stock issued or issuable upon conversion of the Preferred and indications
of interest on the applicable subscriptions) within ten (10) days from the date
such non-purchasing Purchaser fails to exercise his right hereunder to purchase
his pro rata share of New Securities, provided, that the Company shall provide
prompt notice of such failure to exercise the right of first refusal after which
such ten (10) day period shall begin. This right of first refusal shall be
subject to the following provisions:
(a) "New Securities" shall mean any capital stock (including the
Common Stock or the Preferred) of the Company whether now authorized or not, and
rights, options or warrants to purchase capital stock, and securities of any
type whatsoever that have voting rights or are, or may become, convertible into
capital stock; provided that the term "New Securities" shall not include (i)
securities purchased under this Agreement; (ii) securities offered to the public
pursuant to a registration statement filed pursuant to the Securities Act; (iii)
securities issued pursuant to the acquisition of another corporation by the
Company by merger, purchase of substantially all the assets or other
reorganization whereby the Company owns not less than fifty-one percent (51%) of
the voting power of such corporation; (iv) any borrowings, direct or indirect,
from financial institutions or other persons by the Company, whether or not
presently authorized, including any type of loan or payment evidenced by any
type of debt instrument, provided such borrowings do not have any equity
features, including warrants, options or other rights to purchase capital stock,
and are not convertible into capital stock of the Company; (v) securities
constituting Management Stock (as such term is defined in Section 7.13 hereof);
(vi) securities issued upon voluntary or involuntary conversion of, or in
exchange for,
-15-
outstanding securities of the Company, including, but not limited to, shares of
Common Stock issued upon conversion of the Preferred or (vii) warrants to
purchase an aggregate of 20,534 shares of the Series 3 Preferred to be issued to
holders of the Notes (the "Warrants"); or (viii) the shares of Series 3
Preferred issued upon exercise of the Warrants, including shares of Common Stock
issuable upon conversion thereof.
(b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Purchaser written notice of its intention,
describing the type of New Securities, the price and the general terms upon
which the Company proposes to issue the same. Each Purchaser shall have thirty
(30) days from the date of receipt of any such notice to agree to purchase the
Purchaser's pro rata share of such New Securities for the price and upon the
general terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased.
(c) In the event the Purchasers fail to exercise the right of first
refusal within said thirty (30) day period and after the expiration of the 5-day
period for the exercise of the over-allotment provisions of this Section 7.2,
the Company shall have one hundred twenty (120) days thereafter to sell or enter
into an agreement (pursuant to which the sale of New Securities covered thereby
shall be closed, if at all, within one hundred twenty (120) days from the date
of said agreement), to sell the New Securities respecting which the Purchasers
option was not exercised, at a price and upon general terms no more favorable to
the purchasers thereof than specified in the Company's notice. In the event the
Company has not sold within said 120-day period or entered into an agreement to
sell the New Securities within said 120-day period (or sold and issued New
Securities in accordance with the foregoing within one hundred twenty (120) days
from the date of said agreement), the Company shall not thereafter issue or sell
any New Securities, without first offering such securities to the Purchasers in
the manner provided above.
(d) The right of first refusal granted under this Agreement shall
expire upon the closing of the first sale of Common Stock of the Company to the
public at or above a per share offering price of at least $4.20 which sale is
effected pursuant to a registration statement filed with, and declared effective
by, the Securities and Exchange Commission (the "Commission") under the
Securities Act, with gross proceeds to the Company as seller of not less than
$10,000,000.
(e) The right of first refusal set forth in this Section 7.2 may be
assigned by any Purchaser to a transferee or assignee in a transaction not
involving a public offering; provided that the Company is given written notice
at the time of or within a reasonable time after said transfer, stating the name
and address of said transferee or assignee and identifying the purchaser whose
right is being assigned; and provided further that the transferee or assignee of
such right is not deemed by the Board of Directors of the Company, in its
reasonable judgment, to be a competitor of the Company; and provided further
that the transferee or assignee of such rights assumes the obligations of such
Purchaser under this Section 7.2.
7.3 Prompt Payment of Taxes, etc. The Company will promptly pay and
-----------------------------
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and
-16-
governmental charges or levies imposed upon the income, profits, property or
business of the Company or any subsidiary; provided, however, that any such tax,
assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect thereto
required to be established by generally accepted accounting principles, and
provided, further, that the Company will pay all such taxes, assessments,
charges or levies forthwith upon the commencement of proceedings to foreclose
any lien which may have attached as security therefor. The Company will promptly
pay or cause to be paid when due, or in conformance with customary trade terms,
all other indebtedness incident to operations of the Company, unless such
indebtedness is being contested in good faith, in which case the Company will
establish an appropriate reserve to the extent required by generally accepted
accounting principles.
7.4 Maintenance of Properties and Leases. The Company will keep its
------------------------------------
properties and those of its subsidiaries in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company and its subsidiaries will at all times comply with each
provision of all leases to which any of them is a party or under which any of
them occupies property if the breach of such provision might have a material
adverse effect on the condition, financial or otherwise, or operations of the
Company.
7.5 Insurance. The Company will keep its assets and those of its
---------
subsidiaries which are of an insurable character insured by financially sound
and reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company's line of business, in
amounts sufficient to prevent the Company or any subsidiary from becoming a co-
insurer and not in any event less than 100% of the insurable value of the
property insured; and the Company will maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated.
7.6 Key Man Life Insurance. The Company will cause the term life
----------------------
insurance required by Section 5.10 hereof to be maintained upon the terms and
conditions set forth therein, as determined by a majority of the members of the
Board of Directors.
7.7 Accounts and Records. The Company will keep true records and books
--------------------
of account in which full, true and correct entries will be made of all dealings
or transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
7.8 Independent Accountants. The Company will retain independent public
-----------------------
accountants of recognized national standing who shall certify the Company's
financial statements at the end of each fiscal year. In the event the services
of the independent public accountants, so selected, or any firm of independent
public accounts hereafter employed by the Company are terminated, the Company
will promptly thereafter notify the Purchasers and will request the firm of
independent public accountants whose services are terminated to deliver to the
Purchasers a letter of such firm setting forth the reasons for the termination
of their services.
-17-
In the event of such termination, the Company will promptly thereafter engage
another such firm of independent public accountants. In its notice to the
Purchasers, the Company shall state whether the change of accountants was
recommended or approved by the Board of Directors or any committee thereof.
7.9 Compliance with Requirements of Governmental Authorities. The
--------------------------------------------------------
Company shall duly observe and conform to all valid requirements of governmental
authorities relating to the conduct of their businesses or to their properties
or assets.
7.10 Maintenance of Corporate Existence, etc. The Company shall
----------------------------------------
maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use patents, processes, licenses,
trademarks, trade names or copyrights owned or possessed by it or any subsidiary
and deemed by the Company to be necessary to the conduct of their business.
7.11 Availability of Common Stock for Conversion. The Company will,
-------------------------------------------
from time to time, in accordance with the laws of the state of its
incorporation, increase the authorized amount of Common Stock if at any time the
number of shares of Common Stock remaining unissued and available for issuance
shall be insufficient to permit conversion of all the then outstanding shares of
Preferred.
7.12 Invention Assignment and Secrecy Agreements. The Company and each
-------------------------------------------
person hereafter employed by it with access to confidential information will
enter into an Invention and Secrecy Agreement in substantially the form of
Exhibit B hereto.
7.13 Further Stock Issuances. Other than the Series 3 Preferred
-----------------------
contemplated by this Agreement, the Company will not issue any of its capital
stock, or grant an option to purchase any of its capital stock, after July 31,
1987, except that (i) the Company may issue, or grant options to purchase, up to
an aggregate of 4,201,365 shares of Common Stock to employees, officers,
directors, consultants or other persons performing services for the Company or a
subsidiary pursuant to any stock option plan or arrangement approved by the
Board of Directors ("Management Stock"), (ii) securities may be issued upon the
conversion of outstanding convertible securities, (iii) the Company may issue
the Warrants, and (iv) shares of Series 3 Preferred, including shares of Common
Stock issuable upon the conversion thereof, may be issued upon exercise of the
Warrants.
7.14 Use of Proceeds. The Company will use the proceeds from the sale
---------------
of the Shares for general corporate purposes and in accordance with the plans
set forth in the Memorandum.
7.15 Regulation D Filing. The Company will file on a timely basis all
-------------------
notices of sale required to be filed with the Securities and Exchange Commission
pursuant to Regulation D under the Securities Act and simultaneously furnish
copies of each report of sale to special counsel for the Purchasers and each
Purchaser who so requests in writing.
7.16 Notice of Record Dates. In the event of any setting by the Company
----------------------
of a record of the holders of any class of securities (other than the Preferred)
for the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution, the Company
-18-
shall mail to each Purchaser at least twenty (20) days prior to such record
date, specified herein, a notice specifying the date on which any such record is
to be taken for the purpose of such dividend or distribution.
7.17 Notice of Limited Offering Exemption. Promptly after the Closing,
------------------------------------
but in no event later than thirty (30) days after the Closing Date, the Company
shall file the Notice referred to in Section 5.12 hereof with the California
Commissioner of Corporations.
7.18 Certain Restrictions. Without the prior written consent of the
--------------------
holders of at least a majority of the total number of shares of Common Stock
issued or issuable upon conversion of all the Shares, the Series 1 Preferred and
the Series 2 Preferred, taken as a class, the Company (a) will not sell, lease
or otherwise dispose of a material portion of its assets other than in the
ordinary course of business; (b) will not sell or otherwise dispose of any stock
of any subsidiary; and (v) will not permit any subsidiary to become a party to
any merger, consolidation, reorganization, acquisition or commitment to take any
action; provided, that a subsidiary of the Company may be merged into or
consolidated with another subsidiary of the Company.
7.19 Compliance by Subsidiaries. The Company will cause any subsidiary,
--------------------------
whether now in existence or which it may organize or acquire in the future, to
comply fully with the provisions of this Section 7 to the same extent as if such
subsidiary or subsidiaries were the Company.
SECTION 8
Restrictions on Transferability of
----------------------------------
Securities; Compliance with Securities Act
------------------------------------------
8.1 Restrictions on Transferability. The Shares and the Common Stock
-------------------------------
issued upon conversion of the Shares shall not be transferable, except upon the
conditions specified in this Section 8, which conditions are intended to insure
compliance with the provisions of the Securities Act or, in the case of Section
8.14 hereof, to assist in an orderly distribution. Each Purchaser will cause
any proposed transferee of Shares or Common Stock issued on conversion of the
Shares held by that Purchaser to agree to take and hold those securities subject
to the provisions and upon the conditions specified in this Section 8.
8.2 Certain Definitions. As used in this Section 8, the following terms
-------------------
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Restricted Securities" shall mean the securities of the Company
required to bear or bearing the legend set forth in Section 8.3 hereof.
"Registrable Securities" shall mean (i) shares of Common Stock issued
or issuable upon the conversion of Series 1 Preferred, the Series 2 Preferred
and the Series 3 Preferred and
-19-
(ii) any Common Stock issued in respect of securities issued pursuant to the
conversion of the Shares, the Series 1 Preferred or the Series 2 Preferred upon
any stock split, stock dividend, recapitalization or similar event.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the
Company in compliance with Sections 8.5 and 8.6 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, and the
expense of any special audits or accounting services incident to or required by
any such registration (but excluding the compensation of regular employees of
the Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for any Holder.
"Holder" shall mean any holder of the outstanding Shares or
Registrable Securities which have not been sold to the public.
"Initiating Holders" shall mean any Purchasers or their transferees or
assignees under Section 8.14 hereof, any persons listed on the Schedule of
Series 1 Purchasers or Schedule of Series 2 Purchasers attached to the
Convertible Preferred Stock Series 1 and Series 2 Purchase Agreement dated
December 8, 1983 between the Company and the persons listed on such schedules
(the "Series 1 and Series 2 Agreement") or the transferees or assignees of such
persons under Section 8.14 of the Series 1 and Series 2 Agreement.
8.3 Restrictive Legend. Each certificate representing (i) the Shares,
------------------
or (ii) shares of the Company's Common Stock issued upon conversion of
Preferred, or (iii) any other securities issued in respect of Preferred or the
Common Stock issued upon conversion of preferred, upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted or unless the securities evidenced by such
certificate shall have been registered under the Securities Act) be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
THESE SECURITIES AND THE SHARES OF COMMON STOCK OF APPLIED MICRO
CIRCUITS CORPORATION (THE "COMPANY") INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
NOR ANY STATE SECURITIES LAWS. THEY MAY NOT BE PLEDGED, SOLD, OFFERED
FOR SALE, ASSIGNED OR TRANSFERRED IN
-20-
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED. THE COMPANY'S PURCHASE AGREEMENT DATED
AS OF SEPTEMBER 16, 1987 WITH THE PURCHASERS (AS IDENTIFIED THEREIN)
--
CONTAINS ADDITIONAL PROVISIONS PERTAINING TO THE TRANSFER OF, AND
RIGHTS ASSOCIATED WITH, THESE SECURITIES AND SUCH COMMON STOCK. A COPY
OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE COMPANY'S
PRINCIPAL OFFICES.
Upon request of a holder of such a certificate, the Company shall remove
the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if, with such request, the
Company shall have received either the opinion referred to in Section 8.4(i) or
the "no-action" letter referred to in Section 8.4(ii) to the effect that any
transfer by such holder of the securities evidenced by such certificate will not
violate the Securities Act and applicable state securities laws.
8.4 Notice of Proposed Transfers. The holder of each certificate
----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provision of this Section 8.4. Prior to any proposed transfer
of any Restricted Securities (other than under circumstances described in
Sections 8.5 and 8.6), the holder thereof shall give written notice to the
Company of such holder's intention to effect such transfer. Each such notice
shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall be accompanied (except in transactions in
compliance with Rule 144) by either (i) a written opinion of legal counsel
addressed to the Company and reasonably satisfactory in form and substance to
the Company's counsel, to the effect that the proposed transfer of the
Restricted Securities may be effected without registration under the Securities
Act, or (ii) a "no action" letter from the Commission to the effect that the
distribution of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the holder of such Restricted Securities shall be entitled to
transfer such Restricted Securities in accordance with the terms of the notice
delivered by the holder to the Company. Each certificate evidencing the
Restricted Securities transferred as above provided shall bear the appropriate
restrictive legend set forth in Section 8.3 above, except that such certificate
shall not bear such restrictive legend if the opinion of counsel or "no-action"
letter referred to above is to the further effect that such legend is not
required in order to establish compliance with any provisions of the Securities
Act.
8.5 Requested Registration.
----------------------
(a) Request for Registration. If the Company shall receive from
------------------------
Initiating Holders a written request that the Company effect any registration
with respect to all or a part of
-21-
the Registrable Securities and (i) if such request is made before the Company
has had its initial underwritten public offering, provided such request is made
by the holders of not less than 67% of the total number of shares of Common
Stock issued or issuable upon conversion of the Shares, the Series 1 Preferred
and the Series 2 Preferred, or (ii) if such request is made after the Company
has already had an initial underwritten public offering, provided such request
is made by the holders of not less than 40% of the total number of shares of
Common Stock issued or issuable upon conversion of the Shares, the Series 1
Preferred and the Series 2 Preferred, the Company will:
(i) promptly give written notice of the proposed registration to
all other Holders; and
(ii) as soon as practicable, use its diligent best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, effecting appropriate
qualification or registration under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request given within thirty (30) days after
receipt of such written notice from the Company; provided, that the Company
shall not be obligated to effect, or to take any action to effect, any such
registration pursuant to this Section 8.5:
(A) In any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in effecting such
registration, qualification or compliance, unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act or applicable rules or regulations thereunder; or
(B) After the Company has effected two such registrations
pursuant to this Section 8.5(a) and such registrations have been declared or
ordered effective and the sales of the Registrable Securities registered
thereunder shall have closed.
(C) If the written demand results in the Company's initial
underwritten public offering, at least $10,000,000 in Common Stock must be sold
by the Initiating Holders. If the written request does not result in the
Company's initial underwritten public offering, a minimum of $5,000,000 in
Common Stock must be sold by the Initiating Holders.
Subject to the foregoing clauses (A), (B) and (C) the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, after receipt of the request or requests of
the Initiating Holders.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 8.5(b) below, include other
securities of the Company which
-22-
are held by officers or directors of the Company or which are held by persons
who, by virtue of agreements with the Company, are entitled to include their
securities in any such registration.
(b) Underwriting. If the Initiating Holders intend to distribute
------------
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 8.5 and the Company shall include such information in the written notice
referred to in Section 8.5(a)(i) above. The right of any Holder to registration
pursuant to Section 8.5 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 with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in such
underwriting all or a part the Registrable Securities he holds.
If officers or directors of the Company holding other securities of the
Company shall request inclusion in any registration pursuant to Section 8.5, or
if holders of securities of the Company who are entitled, by contract with the
Company, to have securities included in such a registration (the "Other
Shareholders") request such inclusion, the Initiating Holders shall, on
behalf of all Holders, offer to include the securities of such officers,
directors and Other Shareholders in the underwriting and may condition such
offer on their acceptance of the further applicable provisions of this Section
8. The Company shall (together with all Holders, officers, directors and Other
Shareholders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected for such underwriting by a majority
in interest of the Initiating Holders and reasonably acceptable to the Company.
Notwithstanding any other provision of this Section 8.5, if the representative
advises the Initiating Holders in writing that marketing factors require a
limitation on the number of shares to be underwritten, the securities of the
Company held by officers or directors (other than Registrable Securities) of the
Company shall be excluded from such registration to the extent so required by
such limitation and if a limitation of the number of shares is still required,
the Initiating Holders shall so advise all Holders of Registrable Securities and
Other Shareholders whose securities would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities and other securities
that may be included in the registration and underwriting shall be allocated
among all such Holders and Other Shareholders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities and other
securities which they had requested to be included in such registration at the
time of filing the registration statement. No Registrable Securities or any
other securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. If any Holder of
Registrable Securities, officer, director or Other Shareholder who has requested
inclusion in such registration as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders. The securities so
withdrawn shall also be withdrawn from registration. If the underwriter has not
limited the number of Registrable Securities or other securities to be
underwritten, the Company may include its securities for its own account in such
registration if the underwriter so agrees and if
-23-
the number of Registrable Securities and other securities which would otherwise
have been included in such registration and underwriting will not thereby be
limited.
8.6 Company Registration.
--------------------
(a) If the Company shall determine to register any of its securities
either for its own account or the account of a security holder or holders
exercising their respective demand registration rights, other than a
registration relating solely to employee benefit plans, or a registration
relating solely to a Commission Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) promptly give to each Holder written notice thereof (which
shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance) and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made by any Holder within thirty (30) days after receipt of the
written notice from the Company described in clause (i) above, except as set
forth in Section 8.6(b) below. Such written request may specify all or a part of
a Holder's Registrable Securities.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for registered public offering involving an underwriting, the Company
shall so advise the Holders as a part of the written notice given pursuant to
Section 8.6(a)(i). In such event the right of any Holder to registration
pursuant to Section 8.6 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the Other Shareholders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 8.6, if the underwriter
determines that marketing factors require a limitation on the number of shares
to be underwritten, and (a) if such registration is the first registered
offering of the Company's securities to the public, the underwriter may (subject
to the allocation priority set forth below) exclude from such registration and
underwriting some or all of the Registrable Securities which would otherwise be
underwritten pursuant hereto, and (b) if such registration is other than the
first registered offering of the sale of the Company's securities to the public,
the underwriter may (subject to the allocation priority set forth below) limit
the number of Registrable Securities to be included in the registration and
underwriting to not less than fifty percent (50%) of the securities included
therein (based on aggregate market values). The Company shall so advise all
holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and underwriting
shall be allocated in the following manner. The
-24-
securities of the Company held by officers and directors of the Company (other
than Registrable Securities) shall be excluded from such registration and
underwriting to the extent required by such limitation, and, if a limitation on
the number of shares is still required, the number of shares that may be
included in the registration and underwriting shall be allocated among all such
Holders and Other Shareholders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities and other securities which they had
requested to be included in such registration at the time of filing the
registration statement. If any Holder of Registrable Securities or any officer,
director or Other Shareholder disapproves of the terms of any such underwriting,
he may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
8.7 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Section 8 shall be borne by the Company, and all Selling Expenses shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of their shares so registered; provided, however, that the Company shall
not be required to pay any Registration Expenses if, as a result of the
withdrawal of a request for registration by Initiating Holders, the registration
statement does not become effective, in which case the Holders and Other
Shareholders requesting registration shall bear such Registration Expenses pro
rata on the basis of the number of their shares so included in the registration
request, unless such withdrawal results from a material and adverse change in
the business or financial condition of the Company, in which case the Initiating
Holders and Other Shareholders requesting registration may elect to either (i)
bear such Registration Expenses pro rata or (ii) have such registration counted
as a registration pursuant to Section 8.5(a)(ii)(B); and provided, further, that
if a sale is not concluded once a request for registration is made, such
registration shall be counted as a registration pursuant to Section
8.5(a)(ii)(B).
8.8 Registration on Form S-2 or Form S-3. The Company shall use its
------------------------------------
best efforts to qualify for registration on Form S-2 and Form S-3 or any
comparable or successor form or forms; and to that end the Company shall
register (whether or not required by law to do so) the Common Stock under the
Exchange Act in accordance with the provisions of that Act following the
effective date of the first registration of any securities of the Company on
Form S-1 or Form S-18 or any comparable or successor form or forms. After the
Company has qualified for the use of either Form S-2 or Form S-3 or both, in
addition to the rights contained in the foregoing provisions of this Section 8,
the Holders of Registrable Securities shall have the right to request
registrations on Form S-2 or Form S-3 (such requests shall be in writing and
shall state the number of shares of Registrable Securities to be disposed of and
the intended methods of disposition of such shares by such Holder or Holders),
and the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are
-25-
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 30 days after receipt of such
written notice from the Company; provided, however, that the Company shall not
be obligated to effect any such registration, qualification or compliance,
pursuant to this Section 8.8: (1) if Form S-2 or Form S-3 is not available for
such offering by the Holders; or (2) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities so requested to be registered as
soon as practicable after receipt of the request or requests of the Holders.
Registrations effected pursuant to this Section 8.8 shall not be counted as
demands for registration or registrations effected pursuant to Section 8.5.
8.9 Registration Procedures. In the case of each registration effected
-----------------------
by the Company pursuant to Section 8, the Company will keep each Holder advised
in writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will:
(a) Keep such registration effective for a period of one hundred
twenty (120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (i) such 120-day periods shall be extended for a
period of time equal to the period the Holder refrains from selling any
securities included in such registration in accordance with provisions in
paragraph 8.15 hereof; and (ii) in the case of any registration of Registrable
Securities on Form S-3 which are intended to be offered on a continuous or
delayed basis, such 120-day period shall be extended, if necessary, to keep the
registration statement effective until all such Registrable Securities are sold,
provided that Rule 415, or any successor rule under the Securities Act permits
an offering on a continuous or delayed basis, and provided further that
applicable rules under the Securities Act governing the obligation to file a
post-effective amendment, permit, in lieu of filing a post effective amendment
which (y) includes any prospectus required by Section 10(a)(3) of the Securities
Act or (z) reflects facts or events representing a material or fundamental
change in the information set forth in the registration statement, the
incorporation by reference of information required to be included in (y) and (z)
above to be contained in periodic reports filed pursuant to Section 13 or 15(d)
of the Exchange Act in the registration statement;
(b) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request; and
(c) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 8.5 hereof, the Company will
enter into any underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further that if the underwriter
so requests the underwriting agreement will contain customary contribution
provisions.
-26-
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such securities or blue sky laws of
such jurisdictions as shall reasonably be requested by the Holders, provided,
that the Company shall not be obligated to effect any such registration or
qualification in any jurisdiction in which it would be required to qualify to do
business or to execute a general consent to service of process.
8.10 Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder, with respect to
which registration, qualification or compliance has been effected pursuant to
this Section 8, and each underwriter, if any, and each person who controls any
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the Securities Act,
the Securities Exchange Act of 1934 or applicable state securities laws or any
rule or regulation thereunder applicable to the Company and relating to action
or inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of its
officers, directors and partners, and each person controlling such Holder, each
such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to the
Company by such Holder or underwriter and stated to be specifically for use
therein.
(b) Each Holder and Other Shareholder will, if Registrable Securities
held by him are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers and each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of the Securities Act and the
rules and regulations thereunder, each other such Holder and Other Shareholder
and each of their officers, directors and partners, and each person controlling
such Holder or Other Shareholder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and such Holders, Other Shareholders,
directors, officers, partners, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is
-27-
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by such Holder or Other Shareholder and stated to be specifically
for use therein; provided, however, that the obligations of such Holders and
Other Shareholders hereunder shall be limited to an amount equal to the proceeds
to each such Holder or Other Shareholder of securities sold as contemplated
herein.
(c) Each party entitled to indemnification under this Section 8.10
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 8. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
(d) The obligations of the Company and the Holders under this Section
8.10 shall survive the completion of any offering of Registrable Securities in a
registration under this Section 8.
8.11 Information by Holder. Each Holder of Registrable Securities, and
---------------------
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such information regarding such Holder or Other
Shareholder and the distribution proposed by such Holder or Other Shareholder as
the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 8.
8.12 Limitations on Registration of Issues of Securities. From and
---------------------------------------------------
after the date of this Agreement, the Company shall not enter into any agreement
with any holder or prospective holder of any securities of the Company giving
such holder or prospective holder the right to require the Company to initiate
any registration of any securities of the Company, provided that this Section
8.12 shall not limit the right of the Company to enter any agreements with any
holder or prospective holder of any securities of the Company giving such holder
or prospective holder the right to require the Company, upon any registration of
any of its securities, to include, among the securities which the Company is
then registering, securities owned by such holder; and provided further that a
majority of the representatives of the Purchasers on the Board of
-28-
Directors may waive the requirement that the Company not enter into any
agreement giving a holder of any securities of the Company the right to require
the Company to initiate registration of any securities of the Company. Any right
given by the Company to any holder or prospective holder of the Company's
securities in connection with the registration of securities shall be
conditioned such that it shall be consistent with the provisions of this Section
8 and with the rights of the Holders provided in this Agreement.
8.13 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may permit the sale of
the Restricted Securities to the public without registration, the Company agrees
to:
(a) Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements;
(c) So long as a Purchaser owns any Restricted Securities, furnish to
the Purchaser forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed as a Purchaser may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Purchaser to sell any such securities
without registration.
8.14 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the Company to register securities granted to Holder by the Company under
Sections 8.5, 8.6 and 8.8 may be transferred or assigned by any Holder to a
transferee or assignee, provided that the Company is given written notice at the
time of or within a reasonable time after said transfer or assignment, stating
the name and address of said transferee or assignee and identifying the
securities with respect to which such registration rights are being transferred
or assigned, and provided further that the transferee or assignee of such rights
is not deemed by the Board of Directors of the Company in its reasonable
judgment, to be a competitor of the Company; and provided further that the
transferee or assignee of such rights assumes the obligations of a Purchaser
under this Section 8.
8.15 "Market Stand-Off" Agreement. Each Purchaser agrees, if requested
---------------------------
by the Company and an underwriter of Common Stock (or other securities) of the
Company, not to sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by it during the period specified by the
Company and the underwriters following the effective date of a registration
statement of the Company filed under the Securities Act, provided that:
-29-
(a) such agreement only applies to the first such registration
statement of the Company including securities to be sold on its behalf to the
public in an underwritten offering; and
(b) all Holders, Other Shareholders and officers and directors of the
Company enter into or are contractually obligated to enter into similar
agreements.
Such agreement shall be in writing in a form satisfactory to the Company
and such underwriter, provided, that the terms of this Section 8.15 shall be
enforceable notwithstanding the absence of a written agreement. The Company may
impose stop-transfer instructions with respect to the shares (or securities)
subject to the foregoing restriction until the end of said ninety (90) day
period.
SECTION 9
Miscellaneous
-------------
9.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
9.2 Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive (i) any investigation made by or on behalf of any
Purchaser and (ii) the Closing.
9.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, however, the Company may not assign its rights
hereunder.
9.4 Entire Agreement; Amendment. This Agreement (including the
---------------------------
Schedules and Exhibits hereto) and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof. Neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated, except by a
written instrument signed by the Company and the purchasers; provided, however,
that the holders of sixty percent (60%) or more of the Shares sold under this
Agreement and the shares of Series 1 and Series 2 Preferred sold under the
Preferred Stock, Series 1 and Series 2, Purchase Agreement dated December 8,
1983, acting together as a class, such number of shares of Common Stock issued
upon conversion of those sixty percent (60%) of the Preferred, or any
combination thereof, may by written instrument waive or modify any term or
condition set forth in Section 7 hereof which operates for the benefit of the
Purchasers; and provided further, that the terms and conditions of Section 8
hereof which operate for the benefit of the Purchasers may, by written
instrument, be waived or modified by the holders of sixty percent (60%) or more
of the Registrable Securities, as defined therein. Any other term or condition
hereof which operates for the benefit of the Purchasers may, by written
instrument, be modified by the holder of sixty percent (60%) or more of the
Shares purchased under this Agreement, but in no event shall the
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obligation of any Purchaser hereunder to purchase Shares be increased, except
upon the written consent of such Purchaser.
9.5 Notices, etc. All notices and other communications required or
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permitted hereunder shall be in writing and shall be mailed by first-class mail,
postage prepaid, or delivered either by hand or by messenger, addressed (a) if
to a Purchaser, as indicated on the Schedule of Purchasers attached hereto, or
at such other address as such Purchaser shall have furnished to the Company in
writing, or (b) if to any other holder of any Shares or any Common Stock issued
upon conversion of Shares, at such address as such holder shall have furnished
the Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder thereof who has so
furnished an address to the Company, or (c) if to the Company, at its address
set forth at the beginning of this Agreement, or at such other address as the
Company shall have furnished to you and each such other holder in writing.
9.6 Delays or Omissions. No delay or omission to exercise any right,
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power or remedy accruing to any holder of any Shares, upon any breach or default
of the Company under this Agreement, shall impair any such right, power or
remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement must be made in writing and shall be effective only
to the extent specifically set forth in such writing. All remedies, either
under this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
9.7 Rights; Separability. Unless otherwise expressly provided herein,
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each Purchaser's rights hereunder are several rights, not rights jointly held
with any of the other Purchasers. In case any provision of the Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
9.8 Agent's Fees.
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(a) The Company hereby agrees to indemnify and to hold each Purchaser
harmless of and from any liability for any commission or compensation in the
nature of an agent's fee to any broker or other person or firm (and the costs
and expenses of defending against such liability or asserted liability) arising
from any act by the Company or any of its employees or representatives.
(b) Each Purchaser (i) represents and warrants that it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement and (ii) hereby agrees to indemnify and to hold the Company and the
other Purchasers harmless from any liability for any commission or compensation
in the nature of an agent's fee to any broker or other person or firm (and the
costs and expenses of defending against such liability or asserted liability)
for which it, or any of its employees or representatives, are responsible.
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9.9 Information Confidential. Each Purchaser acknowledges that the
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information received by it pursuant hereto may be confidential and for its use
only, and it will not use such confidential information in violation of the
Exchange Act or reproduce, disclose, disseminate or make any use of such
information to any other person (other than your employees or agents having a
need to know the contents of such information, and your attorneys), except in
connection with the exercise of rights under this Agreement, unless the Company
has made such information available to the public generally or the Purchaser is
required to disclose such information by a governmental body.
9.10 Expenses. The Company shall bear its own expenses and legal fees
--------
incurred on its behalf with respect to this Agreement and the transactions
contemplated hereby, and the Company will pay the legal fees, disbursements and
office expenses and charges, of special counsel to the Purchasers with respect
to this Agreement and the transactions contemplated hereby to the extent
provided in Section 5.13 hereof.
9.11 Titles and Subtitles. The titles of the paragraphs and
--------------------
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
9.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
9.13 Aggregation. All shares of Preferred Stock held or acquired by
-----------
affiliated entities or persons may be aggregated for the purpose of determining
the availability of rights under this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first written above.
APPLIED MICRO CIRCUITS CORPORATION
By:
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Xxxxxx X. Xxxxxxxx, President
PURCHASERS
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Modification of Section 7.2
Effective 12/13/90 the preferred shareholders waived their rights of first
refusal pursuant to this Section 7.2 of the Preferred Stock Purchase Agreement
with respect to an additional 1,100,000 shares of common stock issuable pursuant
to the grant of options to employees, officers and persons performing services
for the Company. This is in addition to the waiver with respect to 750,000
shares effective 10/19/89.
See Stockholder meeting of 12/13/90.
Modification of Section 7.2
Effective 10/19/89 the preferred shareholders waived their rights of first
refusal pursuant to this Section 7.2 of the Preferred Stock Purchase Agreement
with respect to up to 750,000 shares of common stock, issuable pursuant to the
grant of warrants, options, or other stock acquisition rights subsequent to
10/19/89.
See preferred shareholder consent letter of September 29, 1989, effective as of
October 19, 1989.
Modification of Section 7.13
Effective 12/13/90 the preferred shareholders waived their rights to limit the
issuance of additional equity, with respect to 1,100,000 shares of common stock.
This is in addition to the waiver with respect to 750,000 shares effective
10/19/89.
See Stockholder meeting of 12/13/90.
Modification of Section 7.13
Effective 10/19/89 the preferred shareholders waived their rights to limit the
issuance of additional equity, with respect to 750,000 shares of common stock.
See preferred shareholder consent letter dated September 29, 1989 and effective
as of October 19, 1989.
