-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CTl6rOioZALU0EXFjJmF6L/lvhdHr4pXZO7C1zOM5KjEAttDjQPiIlfFjEA6l8k7 XTw/+sbXSTQg3f/d5tBQ5g== 0001012870-02-002335.txt : 20020516 0001012870-02-002335.hdr.sgml : 20020516 20020515214401 ACCESSION NUMBER: 0001012870-02-002335 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20020516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETFLIX INC CENTRAL INDEX KEY: 0001065280 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-VIDEO TAPE RENTAL [7841] IRS NUMBER: 770467272 STATE OF INCORPORATION: C4 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-83878 FILM NUMBER: 02654176 BUSINESS ADDRESS: STREET 1: 970 UNIVERSITY AVENUE STREET 2: . CITY: LOS GATOS STATE: CA ZIP: 95032 BUSINESS PHONE: 4083993700 MAIL ADDRESS: STREET 1: 970 UNIVERSITY AVENUE CITY: LOS GATOS STATE: CA ZIP: 95032-7606 FORMER COMPANY: FORMER CONFORMED NAME: NETFLIX COM INC DATE OF NAME CHANGE: 20000229 S-1/A 1 ds1a.htm AMENDMENT #4 TO FORM S-1/A Prepared by R.R. Donnelley Financial -- Amendment #4 to Form S-1/A
As filed with the Securities and Exchange Commission on May 16, 2002
Registration No. 333-83878
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
Under
the Securities Act of 1933
 
 
Netflix, Inc.
(Exact name of Registrant as specified in its charter)
 
 
Delaware
  
7841
  
77-0467272
(State or other jurisdiction of incorporation or organization)
  
(Primary Standard Industrial Classification Code Number)
  
(I.R.S. Employer
Identification Number)
 
970 University Avenue
Los Gatos, CA 95032
(408) 399-3700
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
 
 
W. Barry McCarthy, Jr.
Chief Financial Officer
970 University Avenue
Los Gatos, CA 95032
(408) 399-3700
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
 
Copies to:
 
Larry W. Sonsini, Esq.
Peter H. Bergman, Esq.
Jeffrey S. Cannon, Esq.
Kevin K. Rooney, Esq.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
  
Robert Sanchez, Esq.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
7927 Jones Branch Drive
Lancaster Building WestPark,
Suite 400
McLean, Virginia 22102
(703) 734-3100
  
Jonathan A. Schaffzin, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3000
 
Approximate date of commencement of proposed sale to the public:    As soon as practicable after the effective date of this Registration Statement.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    ¨
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨
 
If delivery of the prospectus is expected to be made pursuant to rule 434, please check the following box.    ¨
 
Title of Each Class of
Securities to be Registered
   
Amount to be Registered
     
Proposed Maximum Offering Price
Per Share
     
Proposed Maximum Aggregate Offering Price(1)
     
Amount of Registration Fee(2)
Common Stock, $0.001 par value
   
6,325,000
     
$
15.00
     
$
94,875,000
     
$
8,729
(1)
 
Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
(2)
 
Amount previously paid.
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall hereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 

 
Item 16.    Exhibits and Financial Statement Schedules
 
(a)    Exhibits
 
Exhibit
Number
   
Description
     1.1
   
Form of Purchase Agreement.
     3.1*
   
Amended and Restated Certificate of Incorporation of Registrant, as amended.
     3.2*
   
Proposed Amended and Restated Certificate of Incorporation of Registrant.
     3.3*
   
Amended and Restated Bylaws of Registrant.
     3.4*
   
Proposed Amended and Restated Bylaws of Registrant.
     4.1*
   
Form of Registrant’s Common Stock Certificate.
     5.1*
   
Form of Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
   10.1*
   
Form of Indemnification Agreement between Registrant and each of its directors and officers.
   10.2*
   
2002 Employee Stock Purchase Plan.
   10.3
   
Amended and Restated 1997 Stock Plan.
   10.4*
   
2002 Stock Plan.
   10.5*
   
Amended and Restated Stockholders’ Rights Agreement dated July 10, 2001.
   10.6*
   
Amended and Restated Agreement Concerning the Right to Participate dated June 22, 1999.
   10.7*
   
Office Lease dated October 27, 2000 between Registrant and BR3 Partners.
   10.8*
   
Lease Agreement dated August 11, 1999 between Registrant and Lincoln-Recp Old Oakland Opco, LLC; First Amendment to Lease Agreement dated December 3, 1999; Second Amendment to Lease Agreement dated January 4, 2000; Third Amendment to Lease Agreement dated June 12, 2001 between Registrant and Joseph Sully.
   10.9*
   
Offer letter dated April 19, 1999 with W. Barry McCarthy, Jr., Chief Financial Officer of Registrant.
   10.10*
   
Offer letter dated March 25, 1999 with Tom Dillon, Vice President of Operations of Registrant.
   10.11*
   
Offer letter dated March 13, 2000 with Leslie J. Kilgore, Vice President of Marketing of Registrant.
   10.12*†
   
Letter Agreement dated as of May 1, 2000 between Registrant and Columbia TriStar Home Entertainment, Inc.
   10.13*†
   
Revenue Sharing Output License Terms between Registrant and Warner Home Video.
   23.1*
   
Consent of KPMG LLP.
   23.2*
   
Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (contained in Exhibit 5.1).
   24.1*
   
Power of Attorney.
*
 
Previously filed.
**
 
To be filed by amendment.
†
 
Confidential treatment requested on portions of this exhibit. An unredacted version of this exhibit has been filed separately with the Securities and Exchange Commission.
 
(b)    Financial Statement Schedules
 
Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

II-4

 
SIGNATURES
 
Pursuant to the requirements of the Securities Act, Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Gatos, State of California, on the 15th day of May, 2002.
 
 
NE
TFLIX, INC.
 
 
By
:    /S/    W. BARRY MCCARTHY, JR.
 
                                             
 
W.
 Barry McCarthy, Jr.
 
Chief Financial Officer
 
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated below.
 
Signature
   
Title
  
Date
REED HASTINGS*
Reed Hastings
   
President, Chief Executive Officer and Director (principal executive officer)
  
May 15, 2002
/s/    W. BARRY MCCARTHY, JR.        
W. Barry McCarthy, Jr.
   
Chief Financial Officer (principal financial and accounting officer)
  
May 15, 2002
  TIMOTHY M. HALEY*
Timothy M. Haley
   
Director
  
May 15, 2002
  JAY C. HOAG*
Jay C. Hoag
   
Director
  
May 15, 2002
  A. ROBERT PISANO*
A. Robert Pisano
   
Director
  
May 15, 2002
  MICHAEL N. SCHUH*
Michael N. Schuh
   
Director
  
May 15, 2002
Richard N. Barton
   
Director
    
Michael Ramsay
   
Director
    
*By:    /S/    W. BARRY MCCARTHY, JR.
W. Barry McCarthy, Jr.
Attorney-in-Fact
         

II-6

 
EXHIBIT INDEX
 
Exhibit
Number
   
Description
     1.1
   
Form of Purchase Agreement.
     3.1*
   
Amended and Restated Certificate of Incorporation of Registrant, as amended.
     3.2*
   
Proposed Amended and Restated Certificate of Incorporation of Registrant.
     3.3*
   
Amended and Restated Bylaws of Registrant.
     3.4*
   
Proposed Amended and Restated Bylaws of Registrant.
     4.1*
   
Form of Registrant’s Common Stock Certificate.
     5.1*
   
Form of Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
   10.1*
   
Form of Indemnification Agreement between Registrant and each of its directors and officers.
   10.2*
   
2002 Employee Stock Purchase Plan.
   10.3
   
Amended and Restated 1997 Stock Plan.
   10.4*
   
2002 Stock Plan.
   10.5*
   
Amended and Restated Stockholders’ Rights Agreement dated July 10, 2001.
   10.6*
   
Amended and Restated Agreement Concerning the Right to Participate dated June 22, 1999.
   10.7*
   
Office Lease dated October 27, 2000 between Registrant and BR3 Partners.
   10.8*
   
Lease Agreement dated August 11, 1999 between Registrant and Lincoln-Recp Old Oakland Opco, LLC; First Amendment to Lease Agreement dated December 3, 1999; Second Amendment to Lease Agreement dated January 4, 2000; Third Amendment to Lease Agreement dated June 12, 2001 between Registrant and Joseph Sully.
   10.9*
   
Offer letter dated April 19, 1999 with W. Barry McCarthy, Jr., Chief Financial Officer of Registrant.
   10.10*
   
Offer letter dated March 25, 1999 with Tom Dillon, Vice President of Operations of Registrant.
   10.11*
   
Offer letter dated March 13, 2000 with Leslie J. Kilgore, Vice President of Marketing of Registrant.
   10.12*†
   
Letter Agreement dated as of May 1, 2000 between Registrant and Columbia TriStar Home Entertainment, Inc.
   10.13*†
   
Revenue Sharing Output License Terms between Registrant and Warner Home Video.
   23.1*
   
Consent of KPMG LLP.
   23.2*
   
Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (contained in Exhibit 5.1).
   24.1*
   
Power of Attorney.
*
 
Previously filed.
**
 
To be filed by amendment.
†
 
Confidential treatment requested on portions of this exhibit. An unredacted version of this exhibit has been filed separately with the Securities and Exchange Commission.
EX-1.1 3 dex11.txt PURCHASE AGREEMENT ================================================================================ NETFLIX, INC. (a Delaware corporation) [5,500,000] Shares of Common Stock PURCHASE AGREEMENT ------------------ Dated: May [ ], 2002 ================================================================================ TABLE OF CONTENTS
Page ---- SECTION 1. Representations and Warranties ................................................. 3 (a) Representations and Warranties by the Company ............................ 3 (i) Compliance with Registration Requirements ...................... 3 (ii) Independent Accountants ........................................ 4 (iii) Financial Statements ........................................... 4 (iv) No Material Adverse Change in Business ......................... 5 (v) Good Standing of the Company ................................... 5 (vi) Subsidiaries ................................................... 5 (vii) Capitalization ................................................. 5 (viii) Authorization of Agreement ..................................... 6 (ix) Authorization and Description of Securities .................... 6 (x) Absence of Defaults and Conflicts .............................. 6 (xi) Absence of Labor Dispute ....................................... 7 (xii) Absence of Proceedings ......................................... 7 (xiii) Accuracy of Exhibits ........................................... 7 (xiv) Possession of Intellectual Property ............................ 8 (xv) Absence of Further Requirements ................................ 8 (xvi) [Compliance of Virtual Roadshows] .............................. 8 (xvii) Possession of Licenses and Permits ............................. 8 (xviii) Title to Property .............................................. 9 (xix) Investment Company Act ......................................... 9 (xx) Environmental Laws ............................................. 9 (xxi) Registration Rights ............................................ 10 (xxii) Statistical and Market-Related Data ............................ 10 (xxiii) Reserved Securities ............................................ 10 (xxiv) Insurance ...................................................... 10 (xxv) No Stabilization or Manipulation ............................... 11 (xxvi) Certain Transactions ........................................... 11 (xxvii) Accounting and Other Controls .................................. 11 (b) Officer's Certificates ................................................... 11 SECTION 2. Sale and Delivery to Underwriters; Closing ..................................... 11 (a) Initial Securities ....................................................... 11 (b) Option Securities ........................................................ 11 (c) Payment .................................................................. 12 (d) Denominations; Registration .............................................. 13
-i-
Page ---- SECTION 3. Covenants of the Company ....................................................... 13 (a) Compliance with Securities Regulations and Commission Requests ........... 13 (b) Filing of Amendments ..................................................... 13 (c) Delivery of Registration Statements ...................................... 14 (d) Delivery of Prospectus ................................................... 14 (e) Continued Compliance with Securities Laws ................................ 14 (f) Blue Sky Qualifications .................................................. 15 (g) Rule 158 ................................................................. 15 (h) Use of Proceeds .......................................................... 15 (i) Listing .................................................................. 15 (j) Restriction on Sale of Securities ........................................ 16 (k) Reporting Requirements ................................................... 16 (l) Compliance with NASD Rules ............................................... 16 (m) Compliance with Rule 463 ................................................. 16 SECTION 4. Payment of Expenses ............................................................ 17 (a) Expenses ................................................................. 17 (b) Termination of Agreement ................................................. 17 SECTION 5. Conditions to Underwriters' Obligations ........................................ 17 (i) Conditions to Purchase of Initial Securities ............................. 17 (a) Effectiveness of Registration Statement ............................. 18 (b) Opinion of Counsel for Company ...................................... 18 (c) Opinion of Counsel for Underwriters ................................. 18 (d) Officers' Certificate ............................................... 19 (e) Accountant's Comfort Letter ......................................... 19 (f) Bring-down Comfort Letter ........................................... 19 (g) Approval of Quotation ............................................... 19 (h) No Objection ........................................................ 19 (i) Lock-up Agreements .................................................. 19 (j) Conversion .......................................................... 20 (ii) Conditions to Purchase of Option Securities .............................. 20 (a) Officers' Certificate ............................................... 20 (b) Opinion of Counsel for Company ...................................... 20 (c) Opinion of Counsel for Underwriters ................................. 20 (d) Bring-down Comfort Letter ........................................... 20 (iii) Additional ............................................................... 20 (iv) Termination of Agreement ................................................. 21 SECTION 6. Indemnification ................................................................ 21 (a) Indemnification of Underwriters .......................................... 21 (b) Indemnification of Company, Directors and Officers ....................... 22
-ii-
Page ---- (c) Actions Against Parties; Notification .................................... 23 (d) Settlement Without Consent if Failure to Reimburse ....................... 24 (e) Indemnification for Reserved Securities .................................. 24 SECTION 7. Contribution ................................................................... 24 SECTION 8. Representations, Warranties and Agreements to Survive Delivery ................. 26 SECTION 9. Termination of Agreement ....................................................... 26 (a) Termination; General ..................................................... 26 (b) Liabilities .............................................................. 26 SECTION 10. Default by One or More of the Underwriters ..................................... 26 SECTION 11. Notices ........................................................................ 27 SECTION 12. Parties ........................................................................ 28 SECTION 13. GOVERNING LAW AND TIME ......................................................... 28 SECTION 14. Effect of Headings ............................................................. 28 SCHEDULES Schedule A - List of Underwriters .................................................. Sch A-1 Schedule B - Pricing Information ................................................... Sch B-1 Schedule C - List of Persons subject to Lock-up .................................... Sch C-1 EXHIBITS Exhibit A - Form of Opinion of Company's Counsel .................................. A-1 Exhibit B - Form of Lock-up Letter ................................................ B-1
-iii- NETFLIX, INC. (a Delaware corporation) [5,500,000] Shares of Common Stock (Par Value $.001 Per Share) PURCHASE AGREEMENT ------------------ May [ ], 2002 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated Thomas Weisel Partners LLC U.S. Bancorp Piper Jaffray Inc. as Representatives of the several Underwriters c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated Four World Financial Center 250 Vesey Street New York, New York 10080 Ladies and Gentlemen: Netflix, Inc., a Delaware corporation (the "Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of the other Underwriters named in Schedule A hereto (collectively, the "Underwriters," which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch, Thomas Weisel Partners LLC and U.S. Bancorp Piper Jaffray Inc. are acting as representatives (in such capacity, the "Representatives"), with respect to the issue and sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of shares of Common Stock, par value $.001 per share, of the Company ("Common Stock") set forth in said Schedule A, and with respect to the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of [ ] additional shares of Common Stock to cover over-allotments, if any. The aforesaid [ ] shares of Common Stock (the "Initial Securities") to be purchased by the Underwriters and all or any part of the [ ] shares of Common Stock subject to the option described in Section 2(b) hereof (the "Option Securities") are hereinafter called, collectively, the "Securities." -2- The Company understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered. The Company and the Underwriters agree that up to 15% of the Initial Securities to be purchased by the Underwriters (the "Reserved Securities") shall be reserved for sale by the Underwriters to certain eligible directors, officers, employees and other persons having relationships with the Company ("Reserved Share Invitees"), as part of the distribution of the Securities by the Underwriters, subject to the terms of this Agreement, the applicable rules, regulations and interpretations of the National Association of Securities Dealers, Inc. (the "NASD") and all other applicable laws, rules and regulations. To the extent that such Reserved Securities are not orally confirmed for purchase by such Reserved Share Invitees by the end of the first business day after the date of this Agreement, such Reserved Securities may be offered to the public as part of the public offering contemplated hereby. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1 (No. 333-83878) covering the registration of the Securities under the Securities Act of 1933, as amended (the "1933 Act"), including the related preliminary prospectus or prospectuses. Promptly after execution and delivery of this Agreement, the Company will either (i) prepare and file a prospectus in accordance with the provisions of Rule 430A ("Rule 430A") of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The information included in any such prospectus that was omitted from such registration statement at the time it became effective but that is deemed to be part of such registration statement at the time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434 Information." Each Prospectus used before such registration statement became effective, and any prospectus that omitted, as applicable, the Rule 430A Information or the Rule 434 Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a "preliminary prospectus." Such registration statement, including the exhibits thereto and schedules thereto, at the time it became effective and including the Rule 430A Information and the Rule 434 Information, as applicable, is herein called the "Registration Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b) Registration Statement," and after such filing the term "Registration Statement" shall include the Rule 462(b) Registration Statement. The final prospectus in the form first furnished to the Underwriters for use in connection with the offering of the Securities is herein called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall refer to the preliminary prospectus dated May 6, 2002 together with the applicable -3- Term Sheet and all references in this Agreement to the date of such Prospectus shall mean the date of the applicable Term Sheet. For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"). SECTION 1. Representations and Warranties. (a) Representations and Warranties by the Company. The Company represents and warrants to each Underwriter as of the date hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in Section 2(b) hereof, and agrees with each Underwriter, as follows: (i) Compliance with Registration Requirements. Each of the Registration Statement and any Rule 462(b) Registration Statement has become effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company, are contemplated by the Commission, and any request on the part of the Commission for additional information has been complied with. At the respective times the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendments thereto became effective and at the Closing Time (and, if any Option Securities are purchased, at the Date of Delivery), the Registration Statement, the Rule 462(b) Registration Statement and any amendments and supplements thereto complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus, any preliminary prospectuses and any supplement thereto or prospectus wrapper prepared in connection therewith, at their respective times of issuance and at the Closing Time, complied and will comply in all material respects with any applicable laws or regulations of such foreign jurisdictions identified on Attachment A hereto in which the Prospectus and such preliminary prospectuses, as amended or supplemented, if applicable, are contemplated to be distributed in connection with the offer and sale of Reserved Securities. None of the Prospectus or any amendments or supplements thereto (including any prospectus wrapper), at the time the Prospectus or any amendments or supplements thereto were issued and at the Closing Time (and, if any Option Securities are purchased, at the Date of Delivery), included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in light of the circumstances -4- under which they were made, not misleading. If Rule 434 is used, the Company will comply with the requirements of Rule 434 and the Prospectus shall not be "materially different," as such term is used in Rule 434, from the prospectuses included in the Registration Statement at the time it became effective. The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement, the Prospectus or any amendments or supplements to the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any Underwriter through the Representatives expressly for use in the Registration Statement or the Prospectus. Each preliminary prospectus printed for distribution to potential investors or filed pursuant to Rule 424 under the 1933 Act complied when so filed in all material respects with the 1933 Act Regulations. Each Prospectus delivered to the Underwriters for distribution to potential investors in connection with this offering was identical in all material respects to the electronically transmitted copy thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (ii) Independent Accountants. The accountants who certified the financial statements and supporting schedules included in the Registration Statement are independent public accountants as required by the 1933 Act and the 1933 Act Regulations. (iii) Financial Statements. The financial statements included in the Registration Statement and the Prospectus, together with the related schedules and notes, present fairly the financial position and stockholders' deficit of the Company at the dates indicated and the statement of operations and cash flows of the Company for the periods specified; said financial statements have been prepared in conformity with United States generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved. The supporting schedules included in the Registration Statement present fairly in accordance with GAAP the information required to be stated therein. The selected financial data and the summary financial information included in the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included in the Registration Statement. The pro forma and pro forma as adjusted financial data included in the Registration Statement and the Prospectus present fairly the information shown therein, have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma information and have been properly compiled on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. No financial statements -5- are required to be included in the Registration Statement that have not been so included (iv) No Material Adverse Change in Business. Since March 31, 2002, except as otherwise stated in the Registration Statement and the Prospectus, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business prospects or assets of the Company, whether or not arising in the ordinary course of business (a "Material Adverse Effect"), (B) there have been no transactions entered into by the Company, other than those in the ordinary course of business, that are material with respect to the Company and (C) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (v) Good Standing of the Company. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not be reasonably likely to result in a Material Adverse Effect. (vi) Subsidiaries. The Company has no subsidiaries. (vii) Capitalization. As of March 31, 2002, the authorized, issued and outstanding capital stock of the Company was as designated "(actual)" as set forth in the Prospectus under the caption "Capitalization" and, after giving effect to the offering (assuming that [5,500,000] shares of Company Common Stock are sold in the offering) and the automatic conversion of all of the shares of the Company's issued and outstanding preferred stock, will be as designated "Pro Forma As Adjusted" under the caption "Capitalization" (except, in each case, for subsequent issuances, if any, pursuant to this Agreement, pursuant to reservations, agreements or employee benefit plans referred to in the Prospectus or pursuant to the exercise of convertible securities or options referred to in the Prospectus). The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable; none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any securityholder of the Company. The shares of issued and outstanding capital stock of the Company have been issued in compliance, in all material respects, with all federal and state securities -6- laws. Except as disclosed in the Prospectus, as of the date of the Prospectus, there are no outstanding options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of the Company's capital stock. The descriptions of the Company's stock option and purchase plans and the options or other rights granted and exercised thereunder set forth in the Prospectus accurately and fairly describe, in all material respects, the information required to be shown with respect to such plans, arrangements, options and rights. (viii) Authorization of Agreement. This Agreement has been duly authorized, executed and delivered by the Company. (ix) Authorization and Description of Securities. The Securities to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement, and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued, fully paid and nonassessable; the Common Stock conforms to all statements relating thereto contained in the Prospectus and such description conforms to the rights set forth in the instruments defining the same; no holder of the Securities will be subject to personal liability for obligations of the Company solely by reason of being such a holder; and the issuance of the Securities is not subject to the preemptive or other similar rights of any securityholder of the Company, other than pursuant to the letter agreement dated June 22, 1999 by and among the Company and certain stockholders of the Company, a copy of which has been provided to the Underwriters, which have not been waived or substantially complied with. (x) Absence of Defaults and Conflicts. The Company is not (A) in violation of its charter or by-laws, (B) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company is a party or by which it may be bound, or to which any of the property or assets of the Company is subject (collectively, "Agreements and Instruments") or (C) in violation of any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any of its assets, properties or operations ("Applicable Laws"), except in the case of clauses (B) or (C) for such defaults that would not be reasonably likely to result in a Material Adverse Effect; and the execution, delivery and performance of this Agreement and the consummation of the transactions described in this Agreement and in the Registration Statement (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities in the manner described in the Prospectus under the caption -7- "Use of Proceeds") and compliance by the Company with its obligations under this Agreement have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) (except for the Company's obligations to repay amounts outstanding under its subordinated promissory notes as disclosed in the Prospectus) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to, the Agreements and Instruments (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not result in a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws of the Company, as such shall be in effect at the applicable time, or any Applicable Laws. As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company. (xi) Absence of Labor Dispute. No labor dispute with the employees of the Company exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers, customers or contractors, which, in either case, would be reasonably likely to result in a Material Adverse Effect. (xii) Absence of Proceedings. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against the Company, that is required to be disclosed in the Registration Statement (other than as disclosed therein), or that would be reasonably likely to result in a Material Adverse Effect, or that would be reasonably likely to materially and adversely affect the consummation of the transactions described in this Agreement or the performance by the Company of its obligations hereunder; the aggregate of all pending legal or governmental proceedings to which the Company is a party or of which any of its properties or assets is the subject that are not described in the Registration Statement, including ordinary routine litigation incidental to the business, would not be reasonably likely to result in a Material Adverse Effect. (xiii) Accuracy of Exhibits. There are no contracts or documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits thereto which have not been so described and filed as required. -8- (xiv) Possession of Intellectual Property. The Company owns or possesses, or can acquire on market terms, adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names, domain names or other intellectual property (collectively, "Intellectual Property") necessary to carry on the business now operated by it, or to be operated by it as described in the Prospectus, and the Company has not received any notice and is not otherwise aware of any infringement by it of the Intellectual Property rights of any third party, which infringement would be reasonably likely to have a Material Adverse Effect, or of any facts or circumstances that would be reasonably likely to render any material Intellectual Property invalid or inadequate to protect the interest of the Company therein, and the Company is not aware of any infringement by any third party of the Company's Intellectual Property rights, which infringement would be reasonably likely to result in a Material Adverse Effect. (xv) Absence of Further Requirements. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Securities under this Agreement or the consummation of the transactions contemplated by this Agreement except (A) such as have been already obtained or as may be required under the 1933 Act or the 1933 Act Regulations, the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the rules and regulations thereunder, and foreign or state securities or blue sky laws and (B) such as have been obtained under the laws and regulations of jurisdictions outside the United States in which the Reserved Securities are offered. (xvi) [Compliance of Virtual Roadshows. The Company has complied with the rules, regulations and interpretations of the Commission relating to the conducting of virtual roadshows, and assuming the compliance of the Company's customers with their respective agreements with the Company, the virtual roadshows involving the Company have been conducted in compliance with such rules, regulations and interpretations. The Company has not received notice from any applicable regulatory authority, including the Commission, regarding non-compliance with such rules, regulations and interpretations in connection with the virtual roadshows involving the Company. To the Company's knowledge, its customers have complied with such agreements and with such rules, regulations and interpretations in connection with the virtual roadshows involving the Company.] (xvii) Possession of Licenses and Permits. The Company possesses such permits, licenses, approvals, consents and other authorizations (collectively, "Governmental -9- Licenses") issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to conduct the business now operated by it; the Company is in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not have a Material Adverse Effect; and the Company has not received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses that, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect. (xviii) Title to Property. The Company does not own any all real property. The Company has good title to all other properties owned by it, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except (A) such as are described in the Prospectus, (B) licenses to Intellectual Property granted in the ordinary course of business or (C) such as do not, singly or in the aggregate, materially affect the value of such property in the aggregate and do not interfere with the use made of such property by the Company; and all of the leases and subleases material to the business of the Company, and under which the Company holds properties described in the Prospectus, are in full force and effect, and the Company does not have any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company under any such leases or subleases. (xix) Investment Company Act. The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Prospectus under the caption "Use of Proceeds" will not be, an "investment company" defined in the Investment Company Act of 1940, as amended (the "1940 Act"). (xx) Environmental Laws. Except as would not, singly or in the aggregate, result in a Material Adverse Effect, (A) the Company is not in violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products (collectively, "Hazardous Materials") or to the manufacture, -10- processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, "Environmental Laws"), (B) the Company has all permits, authorizations and approvals required under any applicable Environmental Laws and is in compliance with their requirements, (C) there are no pending or threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company and (D) there are no events or circumstances that would be reasonably likely to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or governmental body or agency, against or affecting the Company relating to Hazardous Materials or any Environmental Laws. (xxi) Registration Rights. Except as disclosed in the Prospectus, there are no persons with registration rights or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the 1933 Act. (xxii) Statistical and Market-Related Data. The Company has no reason to believe that the statistical and market-related data included in the Prospectus are not based on or derived from reliable sources and are not accurate in all material respects. (xxiii) Reserved Securities. Neither the Company nor any of its affiliates has offered, or caused the Underwriters to offer, any Reserved Securities with the intent to unlawfully influence such purchaser of Reserved Securities. (xxiv) Insurance. The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as the Company believes are prudent and customary in the businesses in which they are engaged; and the Company does not have any reason to believe that any of them will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business except where the failure to renew or maintain such coverage would not reasonably be expected to result in a Material Adverse Effect. The officers and directors of the Company are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as the Company believes are prudent and customary for officers and directors liability insurance of a public company; and the Company has no reason to believe that it will not be able to renew its existing directors and officers liability insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to provide its officers and directors with such liability insurance. -11- (xxv) No Stabilization or Manipulation. Neither the Company nor, to the knowledge of the Company, any of its directors, officers or affiliates has taken nor will take, directly or indirectly, any action designed to, or that might be reasonably expected to, cause or result in stabilization or manipulation of the price of the Securities in violation of Regulation M under the 1934 Act. (xxvi) Certain Transactions. Except as disclosed in the Prospectus, there are no outstanding loans, advances, or guarantees of indebtedness by the Company to or for the benefit of any of the executive officers or directors of the Company or any of the members of the families of any of them, other than those not required to be disclosed in the Prospectus. (xxvii) Accounting and Other Controls. The Company has established a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions were executed in accordance with management's general or specific authorization; (ii) transactions were recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets was permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets was compared with existing assets at reasonable intervals and appropriate action was taken with respect to any differences. (b) Officer's Certificates. Any certificate signed by any officer of the Company delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered thereby. SECTION 2. Sale and Delivery to Underwriters; Closing. (a) Initial Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in Schedule B, the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities that such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof. (b) Option Securities. In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase in the aggregate for all Underwriters, up to an additional 825,000 shares of Common Stock at the price per share set forth in Schedule B, less an amount per share equal to any dividends or distributions -12- declared by the Company and payable on the Initial Securities but not payable on the Option Securities. The option hereby granted will expire 30 days after the date hereof and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments that may be made in connection with the offering and distribution of the Initial Securities upon notice by the Representatives to the Company setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery for the Option Securities (a "Date of Delivery") shall be determined by the Representatives, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time, as hereinafter defined. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities, subject in each case to such adjustments as the Representatives in its discretion shall make to eliminate any sales or purchases of fractional shares. (c) Payment. Payment of the purchase price for, and delivery of certificates for, the Initial Securities shall be made at the offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, or at such other place as shall be agreed upon by Merrill Lynch and the Company, at 9:00 A.M. (Eastern time) on May [ ], 2002 (unless postponed in accordance with the provisions of Section 10), or such other time not later than five business days after such date as shall be agreed upon by the Representatives and the Company (such time and date of payment and delivery being herein called the "Closing Time"). In the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New York, 10005, or at such other place as shall be agreed upon by the Representatives and the Company, on each Date of Delivery, or as soon as reasonably practicable thereafter, as specified in the notice from the Representatives to the Company. Payment shall be made to the Company by wire transfer of immediately available funds to a bank account designated by the Company, against delivery to the Representatives for the respective accounts of the Underwriters of certificates for the Securities to be purchased by them. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, that it has agreed to purchase. Merrill Lynch, individually and not as a Representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose funds have not been received by the -13- Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder. (d) Denominations; Registration. Certificates for the Initial Securities and the Option Securities, if any, shall be in such denominations and registered in such names as the Representatives may request in writing at least one full business day before the Closing Time or the relevant Date of Delivery, as the case may be. The certificates for the Initial Securities and the Option Securities, if any, will be made available for examination and packaging by the Representatives in The City of New York not later than 10:00 A.M. (Eastern time) on the business day prior to the Closing Time or the relevant Date of Delivery, as the case may be. SECTION 3. Covenants of the Company. The Company covenants with each Underwriter as follows: (a) Compliance with Securities Regulations and Commission Requests. The Company, subject to Section 3(b), will comply with the requirements of Rule 430A or Rule 434, as applicable, and will notify Merrill Lynch promptly, (i) when any post-effective amendment to the Registration Statement shall become effective, or any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission regarding the Registration Statement or otherwise regarding the proposed offering of the Securities, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order of the Commission preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes. The Company will promptly effect the filings necessary pursuant to Rule 424(b) and will take such steps as it deems necessary to ascertain whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company will make commercially reasonable efforts to prevent the issuance of any stop order by the Commission with respect to the Registration Statement and, if any stop order is issued, to obtain the lifting thereof at the earliest practicable moment. (b) Filing of Amendments. The Company will give Merrill Lynch notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)), any Term Sheet or any amendment, supplement or revision to either the prospectus included in the Registration Statement at the time it -14- became effective or to the Prospectus, will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Representatives or counsel for the Underwriters shall reasonably object. (c) Delivery of Registration Statements. The Company has furnished or will deliver to the Representatives and counsel for the Underwriters, without charge, signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein) and signed copies of all consents and certificates of experts filed as exhibits thereto, and will also deliver to the Representatives, without charge, a conformed copy of the Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the Representatives. The copies of the Registration Statement and each amendment thereto furnished to the Representatives will be identical in all material respects to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (d) Delivery of Prospectus. The Company has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use by the Underwriters of such copies for purposes permitted by the 1933 Act. The Company will furnish to each Underwriter, without charge, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical in all material respects to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (e) Continued Compliance with Securities Laws. The Company will comply with the 1933 Act and the 1933 Act Regulations so as to permit the completion of the distribution of the Securities as described in this Agreement and in the Prospectus. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to amend the Registration Statement or amend or supplement any Prospectus in order that the Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time, or if it shall be necessary, as mutually determined by the Company and the Representatives, at any such time to amend the Registration Statement or amend or supplement any Prospectus -15- in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be appropriate to correct such statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. (f) Blue Sky Qualifications. The Company will use commercially reasonable efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as Merrill Lynch may designate and to maintain such qualifications in effect for a period of not less than one year from the later of the effective date of the Registration Statement and any Rule 462(b) Registration Statement; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. In each jurisdiction in which the Securities have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for a period of not less than one year from the effective date of the Registration Statement and any Rule 462(b) Registration Statement or such short a time as may be applicable. (g) Rule 158. The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its securityholders as soon as practicable an earning statement for the purposes of, and to provide the benefits to the Company contemplated by, the last paragraph of Section 11(a) of the 1933 Act. (h) Use of Proceeds. The Company will use the net proceeds received by it from the sale of the Securities in a manner not inconsistent with the description in the Prospectus under "Use of Proceeds." (i) Listing. The Company will use commercially reasonable efforts to effect and maintain the quotation of the Securities on the Nasdaq National Market and will file with the Nasdaq National Market all documents and notices required by the Nasdaq National Market of companies that have securities that are traded in the over-the-counter market and quotations for which are reported by the Nasdaq National Market. -16- (j) Restriction on Sale of Securities. During a period of 180 days from the date hereof, the Company will not, without the prior written consent of Merrill Lynch, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any share of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, in each case, except as contemplated by the Prospectus. The foregoing sentence shall not apply to (A) the Securities to be sold hereunder, (B) any shares of Common Stock issued by the Company upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof and referred to in the Prospectus, (C) any shares of Common Stock issued or options to purchase Common Stock granted pursuant to existing employee benefit plans or agreements of the Company referred to in the Prospectus or (D) any securities of the Company issued in connection with an acquisition of another business or technology. (k) Reporting Requirements. The Company, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods and rules and regulations of the Commission thereunder. (l) Compliance with NASD Rules. The Company hereby agrees that it will use all commercially reasonable efforts to ensure that the Reserved Securities held by those persons on Attachment B hereto will be restricted to the extent required by the NASD rules from sale, transfer, assignment, pledge or hypothecation for a period of three months following the date of this Agreement. At the request of the Underwriters, the Company will direct the Company's transfer agent to place a stop transfer restriction upon such securities held by those persons on Attachment B for such three-month period. Should the Company release, or seek to release, from such restrictions any of the Reserved Securities, the Company agrees to reimburse the Underwriters for any reasonable expenses (including, without limitation, legal expenses) they incur in connection with such release. (m) Compliance with Rule 463. The Company will include such information in its periodic reports filed with the Commission as may be required pursuant to Rule 463 of the 1933 Act Regulations. -17- SECTION 4. Payment of Expenses. (a) Expenses. Except as otherwise provided in this Agreement, the Company will pay all expenses incident to the performance of its obligations under this Agreement, including, without limiting the generality of the foregoing, expenses arising from (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters and the transfer of the Securities between the Underwriters, (iii) the fees and disbursements of the Company's counsel, accountants and other advisors, (iv) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the fees and reasonable disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto, (v) the printing and delivery to the Underwriters of copies of each preliminary prospectus, any Term Sheets and of the Prospectus and any amendments or supplements thereto, (vi) the preparation, printing and delivery to the Underwriters of copies of the Blue Sky Survey and any supplement thereto, (vii) the fees and expenses of any transfer agent or registrar for the Securities, (viii) the filing fees incident to, and the fees and reasonable disbursements of counsel to the Underwriters in connection with, the review by the NASD of the terms of the sale of the Securities, (ix) expenses incurred in connection with the inclusion of the Securities in the Nasdaq National Market and (x) all costs and expenses of the Underwriters, including the fees and disbursements of counsel for the Underwriters, in connection with matters related to the Reserved Securities that are designated by the Company for sale to Reserved Share Invitees. (b) Termination of Agreement. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. SECTION 5. Conditions to Underwriters' Obligations. (i) Conditions to Purchase of Initial Securities. The obligations of the several Underwriters to purchase the Initial Securities is conditioned upon the representations and warranties of the Company contained in Section 1 hereof or in certificates of any officer of the Company delivered pursuant to the provisions hereof, being true and correct in all material respects as of the Closing Time, (except in all cases where such representations and warranties are qualified by materiality on the date hereof, in which case such representations and warranties shall be true and correct as qualified) to the performance by the Company in all material -18- respects as of or prior to the Closing Time of its covenants and other obligations hereunder to be performed at or prior to the Closing Time and to the following further conditions: (a) Effectiveness of Registration Statement. The Registration Statement, including any Rule 462(b) Registration Statement, has become effective and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued by the Commission under the 1933 Act or proceedings therefor initiated or, to the Company's knowledge, threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriters. A prospectus containing the Rule 430A Information shall have been filed with the Commission in accordance with Rule 424(b) (or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434, a Term Sheet shall have been filed with the Commission in accordance with Rule 424(b). (b) Opinion of Counsel for Company. At the Closing Time, the Representatives shall have received the opinion, dated as of the Closing Time, of Wilson Sonsini Goodrich & Rosati, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters to the effect set forth on Exhibit A hereto, together with signed or reproduced copies of such letter for each of the other Underwriters. In giving such opinion such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of California, the federal law of the United States and the General Corporation Law of the State of Delaware, upon the opinions of counsel satisfactory to the Representatives. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied to the extent they deem proper, upon certificates of officers of the Company and of the Representatives and certificates of public officials. (c) Opinion of Counsel for Underwriters. At the Closing Time, the Representatives shall have received the opinion, dated as of the Closing Time, of Cahill Gordon & Reindel, counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters in form and substance satisfactory to the Representatives. In giving such opinion such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of New York, the federal law of the United States and the General Corporation Law of the State of Delaware, upon the opinions of counsel satisfactory to the Representatives. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and certificates of public officials. -19- (d) Officers' Certificate. At the Closing Time, there shall not have been, since the date hereof or since March 31, 2002, any Material Adverse Effect, and the Representatives shall have received a certificate of the Chief Executive Officer and the Chief Financial Officer of the Company, dated as of Closing Time, to the effect that (i) there has been no such Material Adverse Effect, (ii) the representations and warranties in Section 1(a) hereof are true and correct with the same force and effect as though expressly made at and as of Closing Time, except as would not have a Material Adverse Effect (except in all cases where such representations and warranties are qualified by materiality on the date hereof, in which case such representations and warranties shall be true and correct as qualified), (iii) the Company has complied in all material respects with all covenants and conditions hereunder to be performed or satisfied by the Company at or prior to the Closing Time and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued by the Commission and no proceedings for that purpose have been instituted by or are pending before or, to the knowledge of the Company, have been threatened by the Commission. (e) Accountant's Comfort Letter. At the time of the execution of this Agreement, the Representatives shall have received from KPMG LLP a letter dated such date, in form and substance reasonably satisfactory to the Representatives, together with signed or reproduced copies of such letter for each of the other Underwriters containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus. (f) Bring-down Comfort Letter. At the Closing Time, the Representatives shall have received from KPMG LLP a letter, dated as of the Closing Time, to the effect that it reaffirms the statements made in the letter furnished pursuant to subsection (e) of this Section, except that the specified date referred to shall be a date not more than three business days prior to the Closing Time. (g) Approval of Quotation. At the Closing Time, the Securities shall have been approved for quotation on The Nasdaq Stock Market's National Market, subject only to official notice of issuance. (h) No Objection. The NASD has confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements. (i) Lock-up Agreements. At the date of this Agreement, the Representatives shall have received an agreement substantially in the form of Exhibit B hereto signed by the persons listed on Schedule D hereto. -20- (j) Conversion. At Closing Time, each share of issued and outstanding Preferred Stock of the Company shall have been converted into shares of Common Stock of the Company in accordance with the Company's Certificate of Incorporation. (ii) Conditions to Purchase of Option Securities. In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company hereunder shall be true and correct except as would not have a Material Adverse Effect (except in all cases where such representations and warranties are qualified by materiality on the date hereof, in which case such representations and warranties shall be true and correct as qualified) as of each Date of Delivery and, at the relevant Date of Delivery, the Representatives shall have received: (a) Officers' Certificate. A certificate, dated such Date of Delivery, of the Chief Executive Officer and the Chief Financial Officer of the Company confirming that the certificate delivered at the Closing Time pursuant to Section 5(i)(d) hereof remains true and correct, as of such Date of Delivery. (b) Opinion of Counsel for Company. The opinion of Wilson Sonsini Goodrich & Rosati, counsel for the Company, in form and substance reasonably satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(i)(b) hereof. (c) Opinion of Counsel for Underwriters. The opinion of Cahill Gordon & Reindel, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(i)(c) hereof. (d) Bring-down Comfort Letter. A letter from KPMG LLP, in form and substance reasonably satisfactory to the Representatives and dated such Date of Delivery, substantially in the same form and substance as the letter furnished to the Representatives pursuant to Section 5(i)(f) hereof, except that the "specified date" in the letter furnished pursuant to this paragraph shall be a date not more than five days prior to such Date of Delivery. (iii) Additional. At Closing Time and at each Date of Delivery, counsel for the Underwriters shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated -21- shall be satisfactory in form and substance to the Representatives and counsel for the Underwriters. (iv) Termination of Agreement. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to the purchase of Option Securities on a Date of Delivery which is after the Closing Time, the obligations of the several Underwriters to purchase the relevant Option Securities, may be terminated by the Representatives by notice to the Company at any time at or prior to Closing Time or such Date of Delivery, as the case may be, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any such termination and remain in full force and effect. SECTION 6. Indemnification. (a) Indemnification of Underwriters. The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of (A) the violation of any applicable laws or regulations of foreign jurisdictions where Reserved Securities have been offered and (B) any untrue statement or alleged untrue statement of a material fact included in the material distributed in foreign jurisdictions in connection with the reservation and sale of the Reserved Securities to Reserved Share Invitees or the omission or alleged omission therefrom of a material fact necessary to make the statements therein, when considered in conjunction with the Prospectus or preliminary prospectuses, not misleading; (iii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, -22- or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission or in the Registration Statement or Prospectus in connection with any violation of the nature referred to in Section 6(a) (ii)(A) hereof; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company; and (iv) against any and all expense whatsoever, as incurred (including the fees and disbursements of one counsel chosen by Merrill Lynch), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission or in connection with any violation of the nature referred to in Section 6(a) (ii)(A) hereof, to the extent that any such expense is not paid under (i), (ii) or (iii) above; provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto); provided further, that this indemnity agreement will not apply to any preliminary prospectus to the extent that any loss, liability, claim, damage or expense resulted from the fact that such Underwriter, in contravention of a requirement of this Agreement or applicable law, sold Securities to a person to whom such Underwriter failed to send or give, at or prior to the Closing Time, a copy of the Final Prospectus, as then amended or supplemented if: (i) the Company has previously furnished copies thereof, in accordance with Section 3(d) of this Agreement within a reasonable period of time prior to the Closing Time, to the Underwriter and the loss, liability, claim, damage or expense of such Underwriter resulted from an untrue statement or omission of a material fact contained in or omitted from the preliminary prospectus which was corrected in the Prospectus as, if applicable, amended or supplemented prior to the Closing Time and such Prospectus was required by law to be delivered at or prior to the written confirmation of sale to such person and (ii) sending or giving such Prospectus by the Closing Time to the party or parties asserting such loss, liability, claim, damage or expense would have cured the defect giving rise to such loss, liability, claim, damage or expense. (b) Indemnification of Company, Directors and Officers. Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained -23- in subsection (a)(1) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) Actions Against Parties; Notification. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 6(a)(1) above, counsel to the indemnified parties shall be selected by Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances; provided that, if indemnity is sought pursuant to Section 6(a)(2), then, in addition to the fees and expenses of such counsel for the indemnified parties, the indemnifying party shall be liable for the reasonable fees and expenses of not more than one counsel (in addition to any local counsel) separate from its own counsel and that of the other indemnified parties for the Independent Underwriter in its capacity as a "qualified independent underwriter" and all persons, if any, who control the Independent Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of 1934 Act in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances if, in the reasonable judgment of the Independent Underwriter, there may exist a conflict of interest between the Independent Underwriter and the other indemnified parties. Any such separate counsel for the Independent Underwriter and such control persons of the Independent Underwriter shall be designated in writing by the Independent Underwriter. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 -24- hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) Settlement Without Consent if Failure to Reimburse. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel pursuant to the terms hereof, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by (1) Section 6(a) (iii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (e) Indemnification for Reserved Securities. In connection with the offer and sale of the Reserved Securities, the Company agrees, promptly upon a request, in writing to indemnify and hold harmless the Underwriters from and against any and all losses, liabilities, claims, damages and expenses incurred by them as a result of the failure of Reserved Share Invitees to pay for and accept delivery of Reserved Securities that, by the end of the first business day following the date of this Agreement, were subject to a properly confirmed agreement to purchase. SECTION 7. Contribution. If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions, or in connection with any violation of the nature referred to in Section 6(a)(1)(ii)(A) hereof, which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds -25- from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the total underwriting discount received by the Underwriters, in each case as set forth on the cover of the Prospectus, or, if Rule 434 is used, the corresponding location on the Term Sheet, bear to the aggregate initial public offering price of the Securities as set forth on such cover. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission or any violation of the nature referred to in Section 6(a)(1)(ii)(A) hereof. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Underwriters' respective obligations to contribute pursuant to this Section 7 are several in proportion to the -26- number of Initial Securities set forth opposite their respective names in Schedule A hereto and not joint. SECTION 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Company, and shall survive delivery of the Securities to the Underwriters until the applicable statute of limitations. SECTION 9. Termination of Agreement. (a) Termination; General. The Representatives may terminate this Agreement, by notice to the Company, at any time at or prior to Closing Time (i) if there has been, since the time of execution of this Agreement or since March 31, 2002, any material adverse change in the condition, financial or otherwise, or in the earnings, business prospects or assets of the Company, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or in the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the reasonable judgment of the Representatives, impracticable or inadvisable to market the Securities or to enforce contracts for the sale of the Securities for the foreseeable future, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the Nasdaq National Market, or if trading generally on the American Stock Exchange or the New York Stock Exchange or in the Nasdaq National Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States or (iv) if a banking moratorium has been declared by either Federal or New York authorities. (b) Liabilities. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7 and 8 shall survive such termination and remain in full force and effect. SECTION 10. Default by One or More of the Underwriters. If one or more of the Underwriters shall fail at the Closing Time or a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the Representatives shall have the right, within 24 hours thereafter, to make arrangements -27- for one or more of the non-defaulting Underwriters, or any other underwriters reasonably acceptable to the Company, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement or, with respect to any Date of Delivery which occurs after the Closing Time, the obligation of the Underwriters to purchase and of the Company to sell the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part of any non-defaulting Underwriter. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default. In the event of any such default that does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the Closing Time, which does not result in a termination of the obligation of the Underwriters to purchase and the Company to sell the relevant Option Securities, as the case may be, either the Representatives or the Company shall have the right to postpone the Closing Time or the relevant Date of Delivery, as the case may be, for a reasonable period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term "Underwriter" includes any person substituted for an Underwriter under this Section 10. SECTION 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication; provided, however, that notification by electronic mail shall not be deemed a standard from of telecommunication for purposes hereof. Notices to the Underwriters shall be directed to the Representatives c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated at Four Financial Center, 250 Vesey Street, New York, New York 10080, attention: Equity Capital Markets; and notices to the Company shall be directed to it at 970 University Avenue, Los Gatos, California 95032, attention: Chief Financial Officer. -28- SECTION 12. Parties. This Agreement shall each inure to the benefit of and be binding upon the Underwriters and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters and the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal Representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters and the Company and their respective successors, and said controlling persons and officers and directors and their heirs and legal Representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME. SECTION 14. Effect of Headings. The Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. -29- If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriters and the Company in accordance with its terms. Very truly yours, NETFLIX, INC. By: ----------------------------------------- Name: Title: -30- CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED THOMAS WEISEL PARTNERS LLC U.S. BANCORP PIPER JAFFRAY INC. By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: ------------------------------------- Authorized Signatory For themselves and as Representatives of the other Underwriters named in Schedule A hereto. SCHEDULE A Number of Initial Name of Underwriter Securities - ------------------- ---------- Merrill Lynch, Pierce, Fenner & Smith ............................ Incorporated Thomas Weisel Partners LLC ....................................... U.S. Bancorp Piper Jaffray Inc. .................................. Total ............................................................ Schedule A-1 SCHEDULE B NETFLIX, INC. [5,500,000] Shares of Common Stock (Par Value $.001 Per Share) 1. The initial public offering price per share for the Securities, determined as provided in said Section 2, shall be $[ ]. 2. The purchase price per share for the Securities to be paid by the several Underwriters shall be $[ ], being an amount equal to the initial public offering price set forth above less $[ ] per share; provided that the purchase price per share for any Option Securities purchased upon the exercise of the over-allotment option described in Section 2(b) shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. Schedule B-1 SCHEDULE C List of persons and entities subject to lock-up Schedule C-1 Exhibit A FORM OF OPINION OF WILSON SONSINI GOODRICH & ROSATI TO BE DELIVERED PURSUANT TO SECTION 5(i)(b) (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. (ii) The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under the Purchase Agreement. (iii) The Company is duly qualified as a foreign corporation to transact business and is in good standing in California, Massachusetts, New York, Georgia, Texas, Michigan, Colorado, Washington and Minnesota. (iv) To our knowledge, the authorized, issued and outstanding capital stock of the Company as of March 31, 2002 was as set forth in the Prospectus under the caption "Capitalization" and, designated "(actual)". The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable; none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any securityholder of the Company set forth in the Company's certificate of incorporation, bylaws or in contracts identified in Attachment A hereto. The shares of issued and outstanding capital stock of the Company have been issued in compliance, in all material respects, with all federal and state securities laws. Except as disclosed in the Prospectus, to our knowledge, as of [ ], 2002, there were no outstanding options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of the Company's capital stock. (v) The Securities to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale to the Underwriters pursuant to the Purchase Agreement, and, when issued and delivered by the Company pursuant to the Purchase Agreement, against payment of the consideration set forth in the Purchase Agreement, will be validly issued and fully paid and nonassessable. (vi) To our knowledge, other than as set forth in the letter agreement dated June 22, 1999, by and among the Company and certain stockholders of the Company, the issuance of the Securities is not subject to the contractual, written preemptive or other similar rights of any securityholder of the Company which have not been waived or satisfied. (vii) The Purchase Agreement has been duly authorized, executed and delivered by the Company. A-1 (viii) The Registration Statement [, including any Rule 462(b) Registration Statement,] has been declared effective under the 1933 Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and, to our knowledge, no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted by or are pending before or threatened by the Commission. (ix) The Registration Statement [, including any Rule 462(b) Registration Statement], the Rule 430A Information, the Prospectus and each amendment or supplement to the Registration Statement and the Prospectus as of their respective effective or issue dates (other than the financial statements and supporting schedules included therein or omitted therefrom, as to which we express no opinion) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. (x) The form of certificate used to evidence the Common Stock complies in all material respects with all applicable statutory requirements, with any applicable requirements of the charter and by-laws of the Company. (xi) To our knowledge, there is not pending or threatened any action, suit, proceeding, inquiry or investigation, to which the Company is a party, or to which the property of the Company is subject, before or brought by any court or governmental agency or body, domestic or foreign, which is required to be described in the Prospectus that is not fairly described, in all material respects, therein as required under the 1933 Act and 1933 Act Regulations. (xii) The information in the Prospectus under "Description of Capital Stock" and "Certain Relationships and Related Transactions" and in the Registration Statement under Item 14, to the extent that it constitutes matters of law, is accurate in all material respects and to the extent that it constitutes summaries of legal matters, the Company's certificate of incorporation and bylaws, legal proceedings, or legal conclusions, has been reviewed by us and fairly summarizes such in all material respects. (xiii) To our knowledge, there are no statutes or regulations that are required to be described in the Prospectus that are not described as required in all material respects. (xiv) All descriptions in the Prospectus of contracts and other documents to which the Company is a party are accurate in all material respects; to our knowledge, there are no franchises, contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed as exhibits thereto, and the descriptions thereof or references thereto are correct in all material respects. A-2 (xv) To our knowledge, the Company is not in violation of its charter or by-laws and no default by the Company exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument that is described in the Registration Statement or the Prospectus or filed as an exhibit to the Registration Statement. (xvi) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any domestic court or governmental authority or agency, (other than under the 1933 Act and the 1933 Act Regulations, which have been obtained, or as may be required under the securities or blue sky laws of the various states, as to which we need express no opinion) is necessary or required in connection with the due authorization, execution and delivery of the Purchase Agreement or for the offering, issuance, sale or delivery of the Securities. (xvii) The execution, delivery and performance of the Purchase Agreement and the consummation of the transactions described in the Purchase Agreement and in the Registration Statement (including the issuance and sale of the Securities) and compliance by the Company with its obligations under the Purchase Agreement do not and will not, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined in Section 1(a)(xi) of the Purchase Agreement) under or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other agreement or instrument, identified on Attachment A hereto, nor does such action result in any violation of the provisions of the charter or by-laws of the Company, or any applicable law, statute, rule, regulation, judgment, order, writ or decree, known to us, of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any of their respective properties, assets or operations. (xviii) The Company is not an "investment company" as defined in the 1940 Act. Nothing has come to our attention that would lead us to believe that the Registration Statement or any amendment thereto, including the Rule 430A Information, (except for financial statements and schedules and other financial data included therein or omitted therefrom, as to which we make no statement), at the time such Registration Statement or any such amendment became effective or at the date hereof, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto (except for financial statements and schedules and other financial data included therein or omitted therefrom, as to which we need make no statement), at the date of the Prospectus, at the time any such amended or supplemented prospectus was issued or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. A-3 In rendering such opinion, such counsel may rely, as to matters of fact (but not as to legal conclusions), to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991). A-4 Exhibit B LOCK-UP AGREEMENT [ ], 2002 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated Thomas Weisel Partners LLC U.S. Bancorp Piper Jaffray Inc. as Representatives of the several Underwriters to be named in the within-mentioned Purchase Agreement c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated Four World Financial Center 250 Vesey Street New York, New York 10080 Re: Proposed Public Offering by Netflix, Inc. Dear Sirs: The undersigned understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Thomas Weisel & Partners and U.S. Bancorp Piper Jaffray propose to enter into a Purchase Agreement (the "Purchase Agreement") with Netflix.com, Inc., a Delaware corporation (the "Company") providing for the public offering of shares (the "Securities") of the Company's common stock (the "Common Stock"). In recognition of the benefit that such an offering will confer upon the undersigned and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees with each underwriter to be named in the Purchase Agreement that, during a period commencing from the date of the execution of this Lock-Up Agreement and ending 180 days after the date of the final prospectus relating to the offering of the Common Stock, the undersigned will not, without the prior written consent of Merrill Lynch, directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of the Common Stock or any securities convertible into, exchangeable or exercisable for Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, or file any registration statement under the Securities Act of B-1 1933, as amended, with respect to any of the foregoing or (ii) enter into any swap or other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise, in each case, except as expressly contemplated by the Prospectus (as defined in the Purchase Agreement); provided however, that nothing herein shall prohibit the undersigned from (a) acquiring any security convertible into, exchangeable or exercisable for Common Stock directly from the Company (e.g. stock option, warrant, convertible debt instrument or the like) or exercising any such derivative security; provided however, that Common Stock received upon the exercise of such derivative security shall be subject to the restrictions set forth herein, (b) surrendering such Common Stock or securities convertible into, exchangeable or exercisable for Common Stock pursuant to a merger or consolidation approved by the board of directors of the Company, or (c) tendering such Common Stock or securities convertible into, exchangeable or exercisable for Common Stock pursuant to a tender offer made in compliance with Sections 13 and 14 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. Notwithstanding anything contained herein to the contrary, the undersigned is expressly permitted to transfer any or all of the Common Stock (1) as a bona fide gift or gifts, (2) on death by will or intestacy, (3) to the undersigned's immediate family or to a trust, partnership or other entity, the beneficiaries, partners or equity holders of which are exclusively the undersigned and/or a member or members of the undersigned's immediate family, or (4) pursuant to a court order or settlement agreement approved by a court of competent jurisdiction; provided however, that in any such case, it shall be a condition to the transfer that the transferee execute an agreement stating that the transferee is receiving and holding the Securities transferred subject to the provisions of this Lock-Up Agreement, and there shall be no further transfer of such Securities except in accordance with this Lock-Up Agreement, and provided further that any such transfer shall not involve a disposition for value. The term "immediate family" as used herein shall mean the lineal descendant, spouse, adopted child, father, mother, grandfather, grandmother, brother or sister of the undersigned and the spouses, adopted children and lineal descendants of any of the foregoing. This Lock-Up Agreement shall terminate and be of no further force or effect if at any time after the date hereof, Merrill Lynch shall indicate to the Company that it no longer wishes to proceed with the public offering of the Securities or if the Company informs Merrill Lynch in writing of its intention not to proceed with the public offering of the Securities with Merrill Lynch serving as a representative of the several underwriters. B-2 The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Lock-Up Agreement. All authority herein conferred or agreed to be conferred and any obligations of the undersigned shall be binding upon the successors, assigns, heirs or personal representatives of the undersigned. Very truly yours, ---------------------------------- Signature: ---------------------------------- Print Name: B-3 EX-10.3 4 dex103.txt AMENDED AND RESTATED 1997 STOCK PLAN EXHIBIT 10.3 NETFLIX.COM, INC. 1997 STOCK PLAN Adopted December 17, 1997 Amended and Restated Effective as of October 17, 2001 1. Purposes of the Plan. The purposes of this Stock Plan are to attract -------------------- and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Administrator" means the Board or any of its Committees as shall ------------- be administering the Plan in accordance with Section 4 hereof. (b) "Applicable Laws" means the requirements relating to the --------------- administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any other country or jurisdiction where Options or Stock Purchase Rights are granted under the Plan. (c) "Board" means the Board of Directors of the Company. ----- (d) "Code" means the Internal Revenue Code of 1986, as amended. ---- (e) "Committee" means a committee of Directors appointed by the Board --------- in accordance with Section 4 hereof. (f) "Common Stock" means the Common Stock of the Company. ------------ (g) "Company" means NetFlix, Inc., a Delaware corporation. ------- (h) "Consultant" means any person who is engaged by the Company or ---------- any Parent or Subsidiary to render consulting or advisory services to such entity. (i) "Director" means a member of the Board of Directors of the -------- Company. (j) "Disability" means total and permanent disability as defined in ---------- Section 22(e)(3) of the Code. (k) "Employee" means any person, including Officers and Directors, -------- employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (m) "Fair Market Value" means, as of any date, the value of Common ----------------- Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (n) "Incentive Stock Option" means an Option intended to qualify as ---------------------- an incentive stock option within the meaning of Section 422 of the Code. (o) "Nonstatutory Stock Option" means an Option not intended to ------------------------- qualify as an Incentive Stock Option. (p) "Officer" means a person who is an officer of the Company within ------- the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (q) "Option" means a stock option granted pursuant to the Plan. ------ (r) "Option Agreement" means a written or electronic agreement ---------------- between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. -2- (s) "Option Exchange Program" means a program whereby outstanding ----------------------- Options are exchanged for Options with a lower exercise price. (t) "Optioned Stock" means the Common Stock subject to an Option or a -------------- Stock Purchase Right. (u) "Optionee" means the holder of an outstanding Option or Stock -------- Purchase Right granted under the Plan. (v) "Parent" means a "parent corporation," whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. (w) "Plan" means this 1997 Stock Plan. ---- (x) "Restricted Stock" means shares of Common Stock acquired pursuant ---------------- to a grant of a Stock Purchase Right under Section 11 below. (y) "Section 16(b) " means Section 16(b) of the Securities Exchange ------------- Act of 1934, as amended. (z) "Service Provider" means an Employee, Director or Consultant. ---------------- (aa) "Share" means a share of the Common Stock, as adjusted in ----- accordance with Section 12 below. (bb) "Stock Purchase Right" means a right to purchase Common Stock -------------------- pursuant to Section 11 below. (cc) "Subsidiary" means a "subsidiary corporation," whether now or ---------- hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 12 of ------------------------- the Plan, the maximum aggregate number of Shares which may be subject to option and sold under the Plan is 14,639,935 Shares. The Shares may be authorized but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of either an Option or Stock Purchase Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. -------------------------- -3- (a) Administrator. The Plan shall be administered by the Board or a ------------- Committee appointed by the Board, which Committee shall be constituted to comply with Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the --------------------------- Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority in its discretion: (i) to determine the Fair Market Value; (ii) to select the Service Providers to whom Options and Stock Purchase Rights may from time to time be granted hereunder; (iii) to determine the number of Shares to be covered by each such award granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(e) instead of Common Stock; (vii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; (viii) to initiate an Option Exchange Program; (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (x) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and -4- (xi) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (c) Effect of Administrator's Decision. All decisions, determinations ---------------------------------- and interpretations of the Administrator shall be final and binding on all Optionees. 5. Eligibility. ----------- (a) Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. (b) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (c) Neither the Plan nor any Option or Stock Purchase Right shall confer upon any Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate such relationship at any time, with or without cause. 6. Term of Plan. The Plan shall become effective upon its adoption by the ------------ Board. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. 7. Term of Option. The term of each Option shall be stated in the Option -------------- Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 8. Option Exercise Price and Consideration. --------------------------------------- (a) The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option (1) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of -5- stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (2) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option (1) granted to a Service Provider who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (2) granted to any other Service Provider, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). Such consideration may consist of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Shareholder. Any Option ----------------------------------------------- granted hereunder shall be exercisable according to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Except in the case of Options granted to Officers, Directors and Consultants, Options shall become exercisable at a rate of no less than 20% per year over five (5) years from the date the Options are granted. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall -6- be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Relationship as a Service Provider. If an Optionee ------------------------------------------------- ceases to be a Service Provider, such Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement (of at least thirty (30) days) to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) Disability of Optionee. If an Optionee ceases to be a Service ---------------------- Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement (of at least six (6) months) to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. If an Optionee dies while a Service Provider, ----------------- the Option may be exercised within such period of time as is specified in the Option Agreement (of at least six (6) months) to the extent that the Option is vested on the date of death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to the entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. -7- (e) Buyout Provisions. The Administrator may at any time offer to buy ----------------- out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 10. Limited Transferability of Options and Stock Purchase Rights. Unless ------------------------------------------------------------ determined otherwise by the Administrator, an Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. Notwithstanding the foregoing, the Optionee may, subject to such terms and conditions as the Administrator deems advisable, assign or transfer all or part of a vested Nonstatutory Stock Option, during an Optionee's lifetime to an Optionee's spouse, former spouse or dependent pursuant to a court-approved domestic relations order which relates to the provision of child support, alimony payments or marital property rights. In such case, the transferee shall receive and hold the Option subject to the provisions of this Section 10, and there shall be no further assignation or transfer of the Option. The terms of Options granted hereunder shall be binding upon the transferees, purchasers, executors, administrators, heirs, successors and assigns of the Optionee. 11. Stock Purchase Rights. --------------------- (a) Rights to Purchase. Stock Purchase Rights may be issued either ------------------ alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer. The terms of the offer shall comply in all respects with Section 260.140.42 of Title 10 of the California Code of Regulations. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator. (b) Repurchase Option. Unless the Administrator determines otherwise, ----------------- the Restricted Stock purchase agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine. Except with respect to Shares purchased by Officers, Directors and Consultants, the repurchase option shall in no case lapse at a rate of less than 20% per year over five (5) years from the date of purchase. (c) Other Provisions. The Restricted Stock purchase agreement shall ---------------- contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. (d) Rights as a Shareholder. Once the Stock Purchase Right is ----------------------- exercised, the purchaser shall have rights equivalent to those of a shareholder and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 12 of the Plan. 12. Adjustments Upon Changes in Capitalization, Merger or Asset Sale. ---------------------------------------------------------------- -8- (a) Changes in Capitalization. Subject to any required action by the ------------------------- shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option or Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company. The conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option or Stock Purchase Right until fifteen (15) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option or Stock Purchase Right would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company -------------------- with or into another corporation, or the sale of substantially all of the assets of the Company (a "Merger"), each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation (the "Successor Corporation"). Following such assumption or substitution in connection with a Merger, if the Optionee's status as an Employee or employee of the Successor Corporation, as applicable, is terminated by the Successor Corporation as a result of an Involuntary Termination (as defined below) other than for Cause (as defined below) within twelve months following a Merger, the Optionee shall vest in and have the right to exercise that portion of Optionee's Option or Stock Purchase Right, if any, that would have vested within one year after the date of Optionee's termination. Thereafter, the Option or Stock Purchase Right shall remain exercisable in accordance with Sections 10(b) through (d) above. -9- For purposes of this section, any of the following events shall constitute an "Involuntary Termination": (i) a significant reduction of the Employee's duties, authority or responsibilities, relative to the Employee's duties, authority or responsibilities as in effect immediately prior to the Merger, or the assignment to Employee of such reduced duties, authority or responsibilities; (ii) a substantial reduction of the facilities and perquisites (including office space and location) available to the Employee immediately prior to the Merger; (iii) a reduction in the base salary of the Employee as in effect immediately prior to the Merger; (iv) a material reduction in the kind or level of employee benefits, including bonuses, to which the Employee was entitled immediately prior to the Merger with the result that the Employee's overall benefits package is significantly reduced; (v) the relocation of the Employee to a facility or a location more than fifty (50) miles from the Employee's then present location, without the Employee's express written consent; (vi) any purported termination of the Employee by the Successor Corporation which is not effected for Disability or for Cause, or any purported termination for which the grounds relied upon are not valid; (vii) or any act or set of facts or circumstances which would, under California case law or statute constitute a constructive termination of the Employee. For purposes of this section, "Cause" shall mean (i) any act of personal dishonesty taken by the Employee in connection with his responsibilities as an employee and intended to result in substantial personal enrichment of the Employee, (ii) the conviction of a felony, (iii) a willful act by the Employee which constitutes gross misconduct and which is injurious to the Successor Corporation, and (iv) following delivery to the Employee of a written demand for performance from the Successor Corporation which describes the basis for the Successor Corporation's belief that the Employee has not substantially performed his duties, continued violations by the Employee of the Employee's obligations to the Successor which are demonstrably willful and deliberate on the Employee's part. In the event that the Successor Corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which Optionee would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in connection with a Merger, the Administrator shall notify the Optionee in writing that the Option or Stock Purchase Right shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the Merger, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the Merger, the consideration (whether stock, cash, or other securities or property) received in the Merger by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Merger is not solely common stock of the Successor Corporation or its Parent, the Administrator may, with the consent of the Successor Corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase -10- Right, to be solely common stock of the Successor Corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the Merger. 13. Time of Granting Options and Stock Purchase Rights. The date -------------------------------------------------- of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Service Provider to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant. 14. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. The Board may at any time ------------------------- amend, alter, suspend or terminate the Plan. (b) Shareholder Approval. The Board shall obtain -------------------- shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) Effect of Amendment or Termination. No amendment, --------------------------------- alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 15. Conditions Upon Issuance of Shares. ----------------------------------- (a) Legal Compliance. Shares shall not be issued pursuant ---------------- to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the -------------------------- exercise of an Option, the Administrator may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 16. Inability to Obtain Authority. The inability of the Company to ----------------------------- obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. Reservation of Shares. The Company, during the term of this --------------------- Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. -11- 18. Shareholder Approval. The Plan shall be subject to approval -------------------- by the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under Applicable Laws. 19. Information to Optionees and Purchasers. The Company shall --------------------------------------- provide to each Optionee and to each individual who acquires Shares pursuant to the Plan, not less frequently than annually during the period such Optionee or purchaser has one or more Options or Stock Purchase Rights outstanding, and, in the case of an individual who acquires Shares pursuant to the Plan, during the period such individual owns such Shares, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. -12- -13 -----END PRIVACY-ENHANCED MESSAGE-----